The Board of Directors unanimously recommends a vote FOR the resolution to approve, on a non-binding, advisory basis, the compensation paid to the Company’s Named Executive Officers.PROPOSAL 4AMENDMENT OF CHARTER TO INCREASE AUTHORIZED SHARES OF COMMON STOCK
On March 13, 2013, our Board adopted, subject
Proposal 4: Amendment of the Charter to stockholderEliminate the Supermajority Voting Requirements for Future Charter Amendments and Other Extraordinary Actions
Maryland Law. Under Maryland law, a Maryland corporation such as AvalonBay generally cannot (i) amend its charter, or (ii) merge, consolidate, convert, sell all or substantially all of its assets, engage in a statutory share exchange or dissolve (an “Extraordinary Transaction”), unless the charter amendment or Extraordinary Transaction is advised by the board of directors and approved by the affirmative vote of stockholders entitled to cast at least two-thirds of the votes entitled to be cast on the matter. However, a Maryland corporation may provide in its charter for approval an amendmentof these actions by less than two-thirds, but not less than a majority, of all of the votes entitled to be cast on the matter.
AvalonBay Charter. AvalonBay’s Articles of Amendment and Restatement, as amended and supplemented (the “Charter”), provides that certain amendments to the Charter to increaserequire the total numberaffirmative vote of sharesa majority of Common Stock authorizedthe votes entitled to be issued from 140 million shares to 280 million shares. More specifically, it is proposed thatArticle I, Section 1.3 and Article VII, Section 7.1 ofcast on the Charter be amended to read as follows (additions shown asunderlined and deletions shown asstruck through):“1.3 The total number of shares of Stock which the Corporation has authority to issue istwo hundred ten million (210,000,000)three hundred fifty million (350,000,000) shares, consisting of (i) fifty million (50,000,000) shares of Preferred Stock; (ii)one hundred forty million (140,000,000)two hundred eighty million (280,000,000) shares of Common Stock; and (iii) twenty million (20,000,000) shares of excess stock, par value $.01 per share (“Excess Stock”). The aggregate par value of all the shares of all classes of Stock is$2,100,000$3,500,000.”
“7.1 Authorized Stock. The total number of shares of Stock which the Corporation has authority to issue istwo hundred ten million (210,000,000)three hundred fifty million (350,000,000) shares, consisting of (i) fifty million (50,000,000) shares of Preferred Stock, par value $.01 per share; (ii)one hundred forty million (140,000,000)two hundred eighty million (280,000,000) shares of Common Stock, par value $.01 per share; and (iii) twenty million (20,000,000) shares of Excess Stock, par value $.01 per share. The aggregate par value of all the shares of all classes of Stock is$2,100,000$3,500,000.”
Purpose of the Amendment and Factors to Consider
The proposed amendmentmatter while other amendments to the Charter will giverequire the Company the flexibility it requiresto issue sharesaffirmative vote of Common Stock to meet future long term corporate needs. At the present time the Company has 140 million shares of Common Stock authorized for issuance. As of March 8, 2013, 129.3 millionshares of Common Stock have been issued and are outstanding. Additionally, the Company has reserved 4.5 millionshares for possible future issuance in respectat least two-thirds of the exercisevotes entitled to be cast on the matter. In addition, with respect to Extraordinary Transactions, the Charter does not provide that a lower percentage than two-thirds of outstanding employee stock options or conversionthe votes entitled to be cast on the matter may approve any Extraordinary Transaction, and therefore the required vote is at least two-thirds of outstanding deferred stock units, conversion of outstanding DownREIT units, and the remaining capacity under the Company’s 2009 Stock Incentive Plan. After giving effectvotes entitled to these reserves, the Company has 6.2 millionshares of Common Stock that remain authorized and available for issuance.
be cast.
Proposed Amendment. The Board believes that this number of shares is insufficient to meethas considered the long term needs of the Company for Common Stock equity capitalmatter and future equity compensation programs. Therefore, the Board has determined that it is advisable and in the best interests of the Company to amend the Charter to increaseprovide that the authorized numberrequired vote for approval of sharesall future amendments to the Charter and all Extraordinary Transactions will be a majority of Common Stock by an additional 140 million shares in orderthe votes entitled to “reload”be cast on the Company’s authorized Common Stockmatter. In reaching this conclusion, the Board considered the advantages and disadvantages of the proposed amendment. Many investors and corporate governance advocates believe that supermajority vote requirements impede stockholder action on items such as mergers and business combinations that are critical to stockholder interests. In addition, the Board considered that the ability of the Company approachesto obtain the limitaffirmative vote of its current Common Stock share authorization. If approved, this will be the first increase in the authorized shares of Common Stock since 1998.Although there are no present agreements, plans, arrangements, commitments or understandings with respectsufficient stockholders to the issuance of additional shares of Common Stock, the newly authorized shares of Common Stock could be issued at such timesapprove future Charter amendments and for such corporate purposes as our Board may deem advisable without further action by our stockholders, except asExtraordinary Transactions that may be beneficial to stockholders' long-term interests would be improved by adoption of a majority vote standard for these activities.
Description of Proposed Amendment. The proposed amendment would change the following provisions of the Charter: | | | 1. | Delete the third paragraph of Section 10.2 of Article X of the Charter, which, in summary, provides that certain provisions of the Charter may be amended by the vote of a majority of the votes entitled to be cast on the matter while the amendment of other provisions of the Charter requires the vote of at least two-thirds of the votes entitled to be cast on the matter. By deleting Section 10.2, the required stockholder vote to approve all amendments to the Charter will be a majority of the votes entitled to be cast on the matter. The third paragraph of Section 10.2, which will be deleted if this proposal is approved, reads in its entirety as follows: |
Whenever any vote of the holders of voting stock is required to amend or repeal any provision of these Articles, then in addition to any other vote of the holders of voting stock that is required by applicable law or bythese Articles, the rulesaffirmative vote of the NYSE or any other stock exchange or national securities association trading system on which our Common Stock may be listed or traded. In this regard, stockholder approvalholders of equity compensation plans would be required for new equity compensation plans or to increase the number of shares of Common Stock available under existing equity compensation plans, and various rulesa majority of the SEC and the Internal Revenue Service would make stockholder approval of such arrangements very desirable in many cases. Subject to such stockholder approvals, the Board could authorize the issuance of these shares of Common Stock for any corporate purpose that the Board deems advisable, which may include capital raising transactions of equity or convertible debt securities, stock splits, stock dividends, issuance under current or future equity compensation and incentive plans, employee stock plans and savings plans, and acquisitions of individual properties or portfolios of multiple properties.The additional authorized shares of Common Stock, if and when issued, would be part of the existing class of Common Stock and would have the same rights and privileges as the shares of Common stock currently outstanding. The Company’s stockholders do not have preemptive rights with respect to Common Stock issuances. Accordingly, any issuance of additional shares of Common Stock will reduce the current stockholders’ percentage ownership interest in the total outstanding shares of our Common Stock. The authorizationStock of the Corporation entitled to vote on such amendment or repeal, voting together as a single
class, and subsequent issuancethe affirmative vote of additionalthe holders of a majority of the outstanding shares of Common stock may, among other things, haveeach class entitled to vote thereon as a dilutive effect on earnings per share and onclass, shall be required to amend or repeal any provision of these Articles; provided, however, that the equity and voting poweraffirmative vote of existingthe holders of our Common Stock.Release No. 34-15230not less than two -thirds of the staffoutstanding shares entitled to vote on such amendment or repeal, voting together as a single class, and the affirmative vote of the SEC requires disclosure and discussionholders of not less than two-thirds of the effects of any proposal that may be used as an anti-takeover device. Future issuances of Common Stock or securities convertible into Common Stock could have a dilutive effect on the earnings per share, book value per share, voting power and percentage interest of holdings of current stockholders. In addition, the availability and/or issuance of additionaloutstanding shares of Common Stock could, under certain circumstances, discourageeach class entitled to vote thereon as a class, shall be required to amend or make more difficult effortsrepeal any of the provisions of Sections 6.4, 6.5 or 6.6 of Article VI, Article X or Article XII of these Articles.
| | | 2. | Add a new Section 10.3 of Article X of the Charter that will have the effect of requiring only the affirmative vote of stockholders entitled to cast a majority of all the votes entitled to be cast on the matter for the approval of all amendments to the Charter and all Extraordinary Transactions It should be noted that Section 6.4 of Article VI of the Charter sets forth a requirement that removal for cause (as defined in that Section) of a director requires the affirmative vote of at least 75% of the shares entitled to vote on the matter; while the amendments to the Charter being proposed will not modify that requirement, the amendments will reduce, to a majority of the outstanding shares entitled to be voted on the matter, the required vote to approve an amendment to Section 6.4. |
The full text of our Charter is available with our filings with the Securities and Exchange Commission and was most recently presented as Exhibits 3(i).1, 3(i).2, and 3(i).3 of our Report on Form 10-K for the year ended December 31, 2019, which can be found at the following links to obtain controlthe SEC website: Articles of Amendment and Restatement of Articles of Incorporation of the Company, and thereby protectdated as of June 4, 1998; Articles of Amendment, dated as of October 2, 1998; Articles of Amendment, dated as of May 22, 2013. Stockholder Vote. Therefore, the continuity of then-present managementBoard is asking you to vote as follows:
To approve the following amendment to the Company’s Charter: FIRST: The charter of the Company.Corporation (the “Charter”) is hereby amended by deleting the third paragraph of Section 10.2 of Article X in its entirety.
SECOND: The Charter is hereby further amended by adding a new Section 10.3 of Article X to read as follows: 10.3 Extraordinary Actions. Except as specifically provided in Section 6.4 of Article VI (relating to removal of Directors), notwithstanding any provision of law requiring any action to be taken or approved by the affirmative vote of stockholders entitled to cast a greater number of votes, any such action shall be effective and valid if declared advisable by the Board has no intentionof Directors and taken or planapproved by the affirmative vote of stockholders entitled to employcast a majority of all the increasevotes entitled to be cast on the matter.
If Proposal 4 is approved, then promptly following the Meeting, we will file with the State Department of our authorized Common Stock to prevent or discourage any acquisition attempt at this time.Assessments and Taxation of Maryland the applicable Articles of Amendment of the Charter.
Required Vote and Recommendation | | | Required Vote and Recommendation |
Only holders of record of Common Stock as of the close of business on the Record Date are entitled to vote on this proposal. Proxies will be voted “FOR” the approvalfor amendment of the Charter amendmentto reduce the stockholder vote required for future charter amendments and Extraordinary Transactions to a majority of the votes entitled to be cast unless contrary instructions are set forth on the enclosed proxy card. The affirmative vote of the holders of a majoritytwo-thirds of all outstanding shares of Common Stock is required to approve the proposal. Under Maryland law, abstentions and broker non-votes are not treated as votes cast. Accordingly, anAn abstention or broker non-votenon‑vote will have the effect of a vote cast against the proposal. For the reasons stated above, the Board unanimously recommends a vote FOR the proposal to amend the Charter to increase the number of authorized shares of Common Stock.
OTHER MATTERS
| | | The Board of Directors unanimously recommends a vote FOR the resolution to amend the Charter to reduce the stockholder vote required for future Charter amendments and certain other extraordinary actions to a majority of shares outstanding. |
Other Matters The Board of Directors does not know of any matters other than those described in this Proxy Statement whichproxy statement that will be presented for action at the Annual Meeting. If other matters are presented, proxies will be voted in the discretion of the proxy holders. Regardless of the number of shares you own, your vote is very important to the Company. Please complete, sign, date and promptly return the enclosed proxy card or authorize a proxy by telephone or over the Internet to vote your shares by following the instructions on your proxy card.
| | | Regardless of the number of shares you own, your vote is very important to the Company. Please authorize a proxy by telephone or over the Internet to vote your shares by following the instructions on your proxy card or complete, sign, date and promptly return the enclosed proxy card. |
| | | III. Corporate Governance And Related Matters |
III. CORPORATE GOVERNANCE AND RELATED MATTERS
Code of Ethics and Corporate Governance Guidelines
The Company has adopted a Code of Business Conduct and Ethics (the “Code”), which. The Code constitutes a “code of ethics”ethics,” as defined by the SEC, that applies to the Company’s Board of Directors as well as its Chief Executive Officer, Chief Financial Officer, principal accounting officer, controller, and other employees of the Company. In addition, the Company has adopted Corporate Governance Guidelines. Copies of the Code and the Corporate Governance Guidelines are available on the “Investors”Investor Relations section of the Company’s website (www.avalonbay.com) under “Corporate Overview – Corporate Governance Documents.” To the extent required by the rules of the SEC and the NYSE, we will disclose amendments and waivers relating to these documents in the same place on our website. Additional information on corporate governance policies is included in “Compensation Policies”“Compensation Policies” on page 26,pages 42-43, including information on the following Company policies: Executive Stock Ownership Guidelines, Prohibition Against Borrowing against Company Stock,Guidelines; Anti-Hedging, Anti-Speculation and No Pledging Policies; Severance Policy,Policy; and Policy on Recoupment of Incentive Compensation (Clawback Policy).
Board of Directors and its Committees Board of Directors.
The Board of Directors currently consists of nineten directors. Each of the current directors eight of whom are candidatesis a candidate for election. The Board of Directors met ninefive times during 2012.2019. The Board of Directors generally schedules regular executive sessions at each of its meetings induring which the Company’s independent directors meet without management participation. During 20122019, each of the directors attended at least 75% of the total number of meetings of the Board of Directors and meetings of the committees of the Board of Directors of which he or she was a member. The Board expectsBoard’s policy is that each director to attend the Company’s annual meetings of stockholders at which he or she is a nominee, and all directors who were nominees were in attendance at the 20122019 Annual Meeting of Stockholders. As discussed below under Nominating and Corporate Governance Committee, the Board considers a variety of factors when choosing candidates for Board appointment or nomination. While the Board values long‑tenured directors who know the Company and management well, the Board also believes that it is important to assure that from time to time vacancies occur on the Board that create opportunities for new directors who may bring different or more recent experiences or expertise to the Board. Consistent with this philosophy, five new directors have joined the AvalonBay Board at or subsequent to the 2014 Annual Meeting of Stockholders: Ron Havner (2014), Terry Brown (2015), Richard Lieb (2016), Susan Swanezy (2016), and Stephen Hills (2017). The Company’s Corporate Governance Guidelines incorporate term expectations that reflect the Board’s view of the importance of board succession planning. Specifically, the Corporate Governance Guidelines (i) express an expectation that an independent director will not be re‑nominated after the completion of 12 full years of service or within the several years that follow; (ii) express an expectation that the Lead Independent Director will serve in that role for approximately three to five years; and (iii) express an expectation that Committee chairs will serve for three to five years. In each case, the guideline is flexible and the exact timing for any transition will depend on the needs of the Board at the time and the timing of identification and nomination of a successor. Audit Committee.
The Board of Directors has established an Audit Committee. The current members of this committee are Messrs. SarlesHavner (Chair), Buckelew, HealyHills and Walter.Lieb. The Board of Directors has determined that Mr. Sarleseach of Messrs. Havner, Buckelew and Lieb is an “audit committee financial expert” as defined by the SEC. In the case of Mr. Sarles’Havner, this determination was based on his past experience as a Certified Public Accountant and Chief Financial Officer and Chief Executive Officer of a public company. In the case of Mr. Buckelew, this determination was based on his experience as Chief Financial Officer at Princess Cruises, and the fact that the Internal Audit Function of Carnival Cruises had reported to him.
For Mr. Lieb, the determination was based on his past experience as Chief Financial Officer of Greenhill & Co. and his experience with Goldman Sachs. The designation of each of Messrs. Havner, Buckelew and Lieb by the Board as an “audit committee financial expert” is not intended to be a representation that he is an expertthey are experts for any purpose as a result of suchthis designation, nor is it intended to impose on himthem any duties, obligations or liabilityliabilities that are greater than the duties, obligations or liabilityliabilities imposed on himthem as a membermembers of the Audit Committee and the Board in the absence of suchthis designation. The Board of Directors has determined that the members of the Audit Committee, including the audit committee financial expert,experts, are “independent” under the rules of the NYSE.NYSE and financially literate. The Audit Committee, among other functions, has the sole authority to appoint and replace the independent auditors, is responsible for the compensation and oversight of the work of the independent auditors, reviews the results of the audit engagement with the independent auditors, and reviews and discusses with management and the independent auditors the Company's quarterly and annual financial statements and major changes in accounting and auditing principles. The Audit Committee met fiveseven times during 2012.2019. The Board of Directors has adopted a written charter for the Audit Committee. A copy of the Audit Committee charter is available on the “Investors”“Investor Relations” section of the Company’s website (www.avalonbay.com) under “Corporate Overview – Corporate Governance Documents.”Compensation Committee.
The Board of Directors has established a Compensation Committee. The current members of this committee are Messrs. Rummell (Chair)Walter (Current Chair), PrimisBuckelew, Lieb and Sarles. Following the Annual Meeting, the Board expects that Mr. Lieb will be appointed as Chair of the Compensation Committee. The Board of Directors has determined that the members of the Compensation Committee are “independent” under the rules of the NYSE. The Compensation Committee, among other functions, reviews, designs and determines management compensation structures, programs and amounts, establishes corporate and management performance goals and objectives, and reviews and makes recommendations to the Board of Directors regarding the Company’s incentive compensation plans, including the Company’s 1994 StockSecond Amended and Restated 2009 Equity Incentive Plan, and the Company’s 2009 Stock Option and Incentive Plan (collectively, the “Stockas amended (the “Equity Incentive Plan”). The Compensation Committee also reviews employment agreements and arrangements with officers. The Compensation Committee may establish and delegate authority to one or more subcommittees consisting of one or more of its members as the Committee deems appropriate in order to carry out its responsibilities.senior officers (there are no employment agreements with executives at present). In addition, our Stock Equity �� Incentive Plan provides that the Compensation Committee, in its discretion, may delegate to the Chief Executive Officer of the Company all or part of the Committee’s authority and duties under the Plan with respect to stock and option awards, including the granting ofgrant awards to individuals who are not subject to the reporting and other provisions of Section 16 of the Securities Exchange Act of 1934, as amended.amended (the "Exchange Act"), subject to limitations and guidelines set by the Committee from time to time. The Compensation Committee has engaged Steven Hall & Partners, an executive compensation consulting firm, to provide it with independent advice and counsel on executive and board compensation, as well as competitive pay practices. Steven Hall & Partners diddoes not provide any services directly to the Company or its management. The Compensation Committee met four times during 2012.2019. The Board of Directors has adopted a written charter for the Compensation Committee. A copy of the Compensation Committee charter is available on the “Investors”“Investor Relations” section of the Company’s website (www.avalonbay.com) under “Corporate Overview – Corporate Governance Documents.”
| | | Nominating and Corporate Governance Committee |
Composition, Independence and Corporate Governance Committee.Function: The Board of Directors has established a Nominating and Corporate Governance Committee (the “Nominating Committee”).Committee. The current members of this committee are Messrs. PrimisMr. Sarles (Chair), ChoateMs. Aeppel, Ms. Swanezy, and Healy.Messrs. Brown and Walter. The Board of Directors has determined that the members of the Nominating and Corporate Governance Committee are “independent” under the rules of the NYSE. The Nominating Committee was formed to, among otherand Corporate Governance Committee’s functions identifyinclude: identifying individuals qualified to become Board members, considermembers; recommending to the full Board each year a slate for nomination for election to the Board; considering policies relating to Board and committee meetings, recommendmeetings; reviewing and recommending changes to director compensation; recommending the establishment or dissolution of Board committees, reviewcommittees; reviewing and considerconsidering succession plans with respect to the positions of Chairman of the Board and Chief Executive Officer (including through periodic evaluation and discussion with the Board of internal candidates for such succession),; reviewing policies and addressactivities in the areas of political contributions, charitable giving and corporate responsibility; and addressing other issues regarding corporate governance. The Nominating and
Corporate Governance Committee met fivefour times during 2012.2019. The Board of Directors has adopted a written charter for the Nominating and Corporate Governance Committee. A copy of the Nominating and Corporate Governance Committee charter is available on the “Investors”“Investor Relations” section of the Company’s website (www.avalonbay.com) under “Corporate Overview –Governance Documents.” Evaluation and Nomination of Director Candidates: One of the Nominating and Corporate Governance Documents.”Committee's key functions is identifying and nominating candidates for service on the Board. In evaluating and determining whether to recommend a person as a candidate for election as a director,this regard, the Nominating and Corporate Governance Committee considers the qualifications set forth in the Company’s corporate governance guidelines, which include the nominee’s business and professional background; history of leadership or contributions to other organizations; functional skill set and expertise; general understanding of marketing, finance, accounting and other elements relevant to the success of a publicly-tradedpublicly ‑traded company in today’s business environment; and service on other boards of directors. Given the current business, opportunities and challenges of the Company, among the key attributes the Nominating and Corporate Governance Committee looks for in director candidates are the following: Accounting/Financial Literacy Public Company CEO Experience C-Level Management Experience Other Public Board Experience Financial/Capital Markets Experience Marketing/Brand Management/Consumer Focus Real Estate Industry Experience REIT Structure Experience Real Estate Development Experience Technology and Innovation Experience In addition, the Board may consider diversity of background, experience and thought in evaluating and recommending candidates for election. The Board believes that diversity is important because a variety of points of view can contribute to a more effective decision-makingdecision‑making process. In recommending a slate of nominees for director and in identifying new candidates for service, the Nominating and Corporate Governance Committee considers whether there is and will be an adequate distribution and representation of relevant skills and experiences across the Board as a whole. The Nominating and Corporate Governance Committee may employ a variety of methods for identifying and evaluating nominees for director. In considering whether to recommend re-nomination of a current director for another term, the Nominating and Corporate Governance Committee considers whether the skills, commitment and performance as a director of the individual are such that the individual's continued service on the Board is desirable. The Nominating and Corporate Governance Committee may also assess the size of the Board, the need for particular expertise on the Board, the upcoming election cycle of the Board and whether any vacancies are expected, due to retirement or otherwise. In the event that vacancies are anticipated or otherwise arise, the Nominating and Corporate Governance Committee will consider various potential candidates for director whichwho may come to the Nominating and Corporate Governance Committee’s attention through current Board members, professional search firms, stockholders or other persons. Where the Board engages a professional search firm to help identify candidates, the search firm is instructed to include demographically diverse candidates in its search. These candidates are evaluated at regular or special meetings of the Nominating and Corporate Governance Committee, and they may be considered at any time during the year. Nominees Recommended by Stockholders: In exercising its function of recommending individuals for nomination by the Board for election as directors, the Nominating and Corporate Governance Committee considerswill consider nominees recommended by stockholders. The procedure by which stockholders may submit such recommendations is set forth in the Company’s Bylaws. See “Other Matters—Matters - Stockholder Nominations for Directors and Proposals for Annual Meetings” for a summary of these requirements. When nominations are properly submitted, the Nominating and Corporate Governance Committee will consider candidates recommended by stockholders under the criteria summarized above. Following verification of the stockholder status of persons proposing candidates, the Nominating and Corporate Governance Committee makes an initial analysis of the qualifications of any candidate recommended by stockholders or others pursuant to the criteria summarized above to determine whether the candidate is qualified for service on the Board of Directors before deciding to undertake a complete evaluation of the candidate. If any materials are provided by a stockholder or professional search firm in connection with the nomination of a director candidate, such materials are forwarded to the Nominating and Corporate Governance Committee as part of its review. The same identifying and evaluating procedures apply to all candidates for director nomination, including candidates submitted by stockholders. In the case of stockholder nominations, the Board may also consider the specific information required to be provided by the nominating stockholder pursuant to the requirements
of the Company’s Bylaws. Stockholders may also nominate directors in accordance with the proxy access provisions of the Company’s Bylaws, as described in “Other Matters - Stockholder Nominations for Directors and Proposals for the Annual Meeting.”
If you would like the Nominating and Corporate Governance Committee to consider a prospective candidate, please submit the candidate’s name and qualifications and other information in accordance with the requirements for director nominations by stockholders in the Company’s Bylaws to: AvalonBay Communities, Inc., Ballston Tower, 671 N. Glebe Road,4040 Wilson Boulevard, Suite 800,1000, Arlington, VA 22203, Attention: Corporate Secretary. Investment See also the discussion of Stockholder Engagement and Finance Committee.Responsiveness included in this proxy statement.
| | | Investment and Finance Committee |
The Board of Directors has established an Investment and Finance Committee. The current members of this committee are Messrs. WalterMr. Brown (Chair), Blair (who has chosen to complete his retirement at the Annual Meeting and is not a candidate for election as a director), Buckelew, Choate,Messrs. Havner, Hills, and Naughton, and Rummell.Ms. Swanezy. The Investment and Finance Committee was formed, to, among other things,reasons, to review and monitor the acquisition, disposition, development and redevelopment of the Company’s communities, and to review and monitor the financial structure, capital sourcing strategy and financial plans and projections of the Company. The Investment and Finance Committee has authority, subject to certain limits and guidelines set by the Board of Directors and Maryland law, to approve investment and financing activity. The Investment and Finance Committee met sixthree times during 2012.Leadership Structure and Lead Independent Director.Our current Chairman of the Board, Bryce Blair, has decided to complete his retirement at the Annual Meeting and is not a candidate for election as a director. After considering Mr. Naughton’s experience and role with the Company and his years of effective service as a director, and in light of the well-defined and well-established role of our Lead Independent Director (as described in the next paragraph), our Board has appointed Mr.2019.
| | | Leadership Structure and Lead Independent Director |
Timothy J. Naughton, our current Chief Executive Officer and President, toalso serves as the additional position ofCompany’s Chairman of the Board, effective upon his election as a director at the Annual Meeting.Board. The Board believes that the Company will beis best served by having Mr. Naughton serve as Chairman of the Board in addition to Chief Executive Officer and President, as opposed to appointing one of the other current directors or a future director to serve as Chairman of the Board. Among other benefits, Mr. Naughton’s role as Chief Executive Officer and President enables him, working with the Lead Independent Director, to act as a bridge between management and the Board, helping management and the Board to act with a common purpose. Mr. Naughton’s combined roles as Chief Executive Officer, President and Chairman of the board willBoard promote unified leadership and direction for the Company. To help assure sound corporate governance practices, the Board of Directors established the position of Lead Independent Director in 2003 and2003. Mr. Primis currently serves in that role. Mr. Primis’Walter has served as the Lead Independent Director since May 2019. The role asof Lead Independent Director includes presiding at all meetings of the Board of Directors at which the Chairman of the Board is not present, serving as a liaison between the Chairman of the Board and the independent directors, establishing and approving meeting agendas for the Board, having the authority to call meetings of the independent directors, conferring with both the Chairman of the Board and the Chief Executive Officer regularly, and acting as a contact person for thosestockholders and others who wish to communicate with the independent directors. Board of Directors Risk Oversight.
| | | Board of Directors Risk Oversight |
The Company and the Board have a number of practices with regard to Board oversight of risk management matters. The charter of each of the Company’s Board committees provides that each committee shall, from time to time to the extent that committee deems appropriate, review risk and compliance matters relevant to that committee and report the results of such review to the full Board. As required by NYSE rules, the charter of the Audit Committee states that the Audit Committee will assist with Board oversight of risk and compliance matters, and in any event will review the perceived major financial risk exposures of the Company and the steps management has taken to monitor and control such exposures. At most regularly scheduled Board meetings, the Board reviews key matters relating to the Company’s finances, liquidity, operations and investment activity. On an annual basis, the Board and/or the Audit Committee of the Board engages in a broader discussion about company-widecompany‑wide risk management. Although it is not the primary reason for the selection of the current leadership structure by the Board, the Company and the Board believe that the current
leadership structure of the Board, including both a Chairman of the Board and a separate Lead Independent Director, helps facilitate these risk oversight functions by providing multiple channels for risk relatedrisk-related concerns and comments. The Company’s operations involve various risks that could have adverse consequences, including those described in the Company’s Annual Report on Form 10-K10‑K and other filings with the SEC. The Board recognizes that it is neither possible nor prudent to eliminate all risk. Despite the risk oversight activities described above, there can be no assurance that the Company’s current practices have identified every potential material risk, are sufficient to address these risks, or that any risks will not result in a material adverse effect on the Company’s business or operations.
11 | | | Independence of the Board |
Independence of the Board.
The NYSE has adopted independence standards for companies listed on the NYSE, which apply to the Company. These standards require a majority of the Board of Directors to be independent and every member of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee to be independent. NYSE standards provide that a director is considered independent only if the Board of Directors “affirmatively determines that the director has no material relationship with the listed company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the company).” In addition, NYSE rules currentlyand related NYSE commentary generally provide that: | · | A director who is an employee, or whose immediate family member is an executive officer, of the Company is not independent until three years after the end of such employment relationship; |
| · | A director who receives, or whose immediate family member receives, more than $120,000 per year in direct compensation from the Company, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service), is not independent until three years after he or she ceases to receive more than $120,000 per year in such compensation; |
| · | A director is not independent if (A) the director is a current partner or employee of a firm that is the Company’s internal or external auditor; (B) the director has an immediate family member who is a current partner of such a firm; (C) the director has an immediate family member who is a current employee of such a firm and personally works on the Company’s audit; or (D) the director or an immediate family member was within the last three years (but is no longer) a partner or employee of such a firm and personally worked on the Company’s audit within that time; |
| · | A director who is employed, or whose immediate family member is employed, as an executive officer of another company where any of the Company’s present executives serve on that company’s compensation committee is not independent until three years after the end of such service or the employment relationship; and |
| · | A director who is an executive officer or an employee, or whose immediate family member is an executive officer, of a company that makes payments to, or receives payments from, the Company for property or services in an amount which, in a single fiscal year, exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues, is not independent until three years after falling below such threshold. |
A director who is an employee, or whose immediate family member is an executive officer, of the Company is not independent until three years after the end of such employment relationship; A director who receives, or whose immediate family member receives, more than $120,000 per year in direct compensation from the Company, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service), is not independent until three years after he or she ceases to receive more than $120,000 per year in such compensation; compensation received by an immediate family member for service as an employee of the Company (other than an executive officer) need not be considered in determining independence under this test; A director is not independent if (A) the director is a current partner or employee of a firm that is the Company’s internal or external auditor; (B) the director has an immediate family member who is a current partner of such a firm; (C) the director has an immediate family member who is a current employee of such a firm and personally works on the Company’s audit; or (D) the director or an immediate family member was within the last three years (but is no longer) a partner or employee of such a firm and personally worked on the Company’s audit within that time; A director who is employed, or whose immediate family member is employed, as an executive officer of another company where any of the Company’s present executives serve on that company’s compensation committee is not independent until three years after the end of such service or the employment relationship; and A director who is an executive officer or an employee, or whose immediate family member is an executive officer, of a company that makes payments to, or receives payments from, the Company for property or services in an amount which, in a single fiscal year, exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues, is not independent until three years after falling below such threshold. To determine which of its members is independent, the Board of Directors used the above standards and also considered whether a director had any other past or present relationships with the Company which created conflicts or the appearance of conflicts. Other than Based on consideration of the employment relationship described below, no such transactions, relationships or arrangements were reported to the Board for consideration.Based onforegoing and the absence of any other such transactions, relationships or arrangements found as a result of this review, the Board determined that all nominees for directorsdirector are independent, because none of them has any past or present material relationship with the Company that creates a conflict or the appearance of a conflict, except for Mr. Naughton, who currently serves as the Company’sChairman of the Board and the Company's Chief Executive Officer.
Officer and President. NYSE rules provide for additional independence standards that apply to members of the Audit Committee and the Compensation Committee. The Board has determined that each current and proposed member of these committees satisfies these additional standards.
Stockholder Engagement and Responsiveness
We consider our relationship with our stockholders to be an important part of the Company’s success and we value the outlook and opinions of our investors. During 2019 and early 2020 our management reached out to stockholders who collectively held a majority of the Company’s outstanding stock to discuss the Company’s practices and policies with respect to environmental, social and governance matters (“ESG”), and other matters. Management spoke with stockholders who responded to that outreach regarding such issues, in addition to speaking with the stockholder advisory firms Institutional Shareholder Services ("ISS") and Glass Lewis. These discussions addressed governance matters including Board composition and refreshment, stockholder rights, executive compensation and sustainability efforts. The feedback from stockholders was conveyed to and discussed with the Nominating and Corporate Governance Committee and the full Board. The goal of these conversations was to ensure that management and the Board understood and considered the ESG issues that are most important to our stockholders and to enable the Company to address them effectively. In addition to conversations with our stockholders, the Company from time to time receives correspondence from stockholders and stockholder advocacy groups and responds and/or shares this correspondence with the Nominating and Corporate Governance Committee and the full Board where requested or otherwise appropriate. The Board of Directors also considers the votes of stockholders at the Company's Annual Meeting and discusses potential issues raised through that forum.
Any stockholder or other interested party may contact any of our directors, including the Lead Independent Director or our independent directors as a group, by writing to them c/o AvalonBay Communities, Inc., Ballston Tower, 671 N. Glebe Road, Suite 800, Arlington, VA 22203, Attention: Corporate Secretary. Yourat the following address. The envelope in which you send your letter should clearly specify the name of the individual director or group of directors to whom your letter is addressed. Any communications received in this manner will be forwarded as addressed. 12 | | | | | | | | [Name of Director or Group of Directors] | | | c/o AvalonBay Communities, Inc.
4040 Wilson Boulevard, Suite 1000 Arlington, VA 22203 | | | Attention: Corporate Secretary | |
Report of the Audit Committee
The Audit Committee of the Board of Directors of AvalonBay Communities, Inc., a Maryland corporation (the “Company”), reviews the financial reporting process of the Company on behalf of the Board of Directors. Management has primary responsibility for this process, including the Company’s system of internal controls, and forwhich includes the preparation of the Company’s consolidated financial statements in accordance with generally accepted accounting principles.principles and the design, implementation and evaluation of the Company’s internal controls over financial reporting. The Company’s independent auditors, and not the Audit Committee, are responsible for auditing and expressing an opinion on the conformity of the Company’s audited financial statements to generally accepted accounting principles.principles and evaluating the effectiveness of the Company’s internal controls over financial reporting. In this context, during 2012,2019 and 2020, the Audit Committee reviewed and discussed the audited financial statements and Ernst & Young’s evaluation of the Company’s internal control over financial reporting with management and the independent auditors. The Audit Committee alsohas discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, as amended (AICPA Professional Standards Vol. 1 AU section 380) (Communication with Audit Committees), as adopted bythe applicable standards of the Public Company Accounting Oversight Board in Rule 3200T.(“PCAOB”). In addition, the Audit Committee received from the independent auditors the written disclosures required by the Public Company Accounting Oversight BoardPCAOB regarding the independent auditor’s communications withindependence, and the Audit Committee regarding independence and discussed with the independent auditors their independence from the Company and its management. Relying on the reviews, disclosures and discussions referred to above, the Audit Committee recommended to the Board of Directors and the Board of Directors has approved, that the audited financial statements be included in the Company’s Annual
Report on Securities and Exchange Commission (the “SEC”) Form 10-K10‑K for the year ended December 31, 2012,2019, for filing with the SEC.SEC, and the Board of Directors has approved this recommendation. The Audit Committee and the Board have also recommended, subject to stockholder ratification, the selection of Ernst & Young as the Company's independent registered public accounting firm for the year ending December 31, 2020.
Submitted by the Audit Committee H. Jay Sarles
Ronald L. Havner, Jr. (Chair) Stephen P. Hills Richard J. Healy, Jr.W. Edward Walter
Lieb
Fiscal 20112018 and 20122019 Audit Fee Summary
During fiscal years 20112018 and 2012,2019, the Company retained its principal independent auditors, Ernst & Young, to provide services in the following categories and for the approximate amounts:| | | 2011 | | | 2012 | | | Audit fees | | $ | 1,030,175 | | | $ | 1,174,205 | | | Audit related fees(1) | | $ | 416,205 | | | $ | 584,670 | | | Tax fees(2) | | $ | 407,625 | | | $ | 416,025 | | | All other fees | | $ | 0 | | | $ | 0 | |
| | | | | | | 2018 | | 2019 | | Audit fees | $1,935,660 | | $2,163,075 | Audit related fees(1) | $568,846 | | $611,628 | Tax fees(2) | $782,181 | | $873,719 | | All other fees | $0 | | $0 |
| | | (1) | Audit related fees include fees for services traditionally performed by the auditor such as subsidiary audits, employee benefit audits, and accounting consultation. |
| | | (2) | Tax fees include preparation and review of subsidiary tax returns and taxation advice. |
Audit Committee Pre-ApprovalPre‑Approval of Audit and Permissible Non-AuditNon‑Audit Services of Independent Auditors
The Audit Committee pre-approvespre‑approves all audit and permissible non-auditnon‑audit services provided by the independent auditors. These services may include audit services, audit-relatedaudit‑related services, tax services and other services. Pre-approvalPre‑approval is provided for up to one year, and any pre-approvalpre‑approval is detailed as to the particular service or category of services and is subject to a specific budget.
The independent auditors and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent auditors in accordance with this pre-approval,pre‑approval, and the fees for the services performed to date. The Audit Committee may also pre-approvepre‑approve particular services on a case-by-casecase‑by‑case basis.
Transactions with Related Persons, Promoters and Certain Control Persons
The Company’s Code of Business Conduct and Ethics, (the “Code”), adopted by the Company’s Board of Directors and evidenced in writing, provides that no employee of the Company, including an executive officer or director, may engage in activities that create a conflict of interest with the Company unless all relevant details have been disclosed and an appropriate waiver permitting the conduct has been received. An activity constitutes a conflict of interest under the Code if (i) the activity could adversely affect or compete with the Company, (ii) any interest, connection or benefit to the employee or director from the activity could reasonably be expected to cause such employee or director to consider anything other than the best interest of the Company when deliberating and voting on Company matters or (iii) any interest, connection or benefit to the employee or director from the activity could give such employee or director or a member of his or her family an improper benefit that he or she obtains on account of his or her position within the Company. An executive officer or member of the Board of Directors may only receive a waiver from the Board or any designated committee of the Board, and any waiver granted to an executive officer or director will be disclosed to the Company’s stockholders to the extent required by law or NYSE rules. The Nominating and Corporate Governance Committee of the Board (or any other committee that is designated) is responsible for administering the Code for executive officers and directors.
Shareholders AgreementAs previously disclosed
Compensation Discussion and Analysis
This Compensation Discussion and Analysis (“CD&A”) provides a description of (i) how the Board of Directors and the Company think about compensation for the Company’s executive officers, and (ii) what decisions were made in setting 2019 compensation, including the establishment of goals and aligning of compensation with performance and stockholder interests.
Specifically, the CD&A contains the following sections:
INTRODUCTION AND EXECUTIVE SUMMARY Summary of 2019 Achievements Summary of our Form 8-K Report filed on March 5, 2013, as amended on March 7, 2013,Executive Compensation Program Our Executive Compensation Philosophy Our Named Executive Officers in connection with the closing2019 Compensation Overview Chairman and CEO 2019 Compensation At‑a‑Glance Chairman and CEO 2019 Target Opportunity Mix Impact of the Company’s acquisition of approximately 40%Performance on our Named Executive Officer Compensation Realized Pay for 2019 Performance Best Practices Incorporated into our Compensation Programs ADDITIONAL DISCUSSION Consideration of the assets of Archstone Communities (the “Archstone Acquisition”), we entered into a shareholders agreement (the “Shareholders Agreement”) pursuant to which Lehman Brothers Holdings, Inc. (“Lehman”) agreed that it will, for one year starting from the dateResults of the closing of the Archstone Acquisition, vote all of its shares of our common stock in accordance with the recommendation of our Board of Directors on any matter other than an extraordinary transaction. After the first year, and for so long as Lehman holds more than 5% of our common stock, Lehman has agreed to vote all of its shares of our common stock (i) in accordance with the recommendations of our Board of Directors with respect to any election of directors, compensation and equity plan matters, and any amendment to our charter to increase our authorized capital stock; (ii) on all matters proposed by other stockholders, either proportionately in accordance with the votes of the other stockholders or, at its election, in accordance with the recommendation of our Board of Directors; and (iii) on all other matters, in Lehman’s sole and absolute discretion.The foregoing summary of the voting provisions contained in the Shareholders Agreement does not purport to be a complete summary of the relevant terms of the Shareholders Agreement and is subject to, and qualified in its entirety by reference to, the full text of the Shareholders Agreement, a copy of which was filed as Exhibit 10.2 to our Current Report on Form 8-K filed on March 5, 2013.
IV. EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Executive Summary
20122019 Stockholder Advisory Vote on Executive Compensation
Our Decision Making Process Who is Involved in Compensation Decisions How We Review Market Compensation How We Select and Use Peer Groups Who Are our Compensation Consultants What We Pay and Why: Elements of Compensation How We Establish Goals and Determine Achievement for Incentive Compensation Review of 2019 Performance and Pay Annual Cash and Stock Incentive Program Long‑Term Incentive Program 2019 Compensation Determinations
INTRODUCTION AND EXECUTIVE SUMMARY: | | | Summary of 2019 Achievements |
Summary: 2019 Core FFO of $9.34 per share was $0.04 per share above the midpoint of our initial outlook provided in January 2019. This outperformance was primarily driven by accretive acquisition activity and favorable capital market conditions. Over the course of 2019, we (i) started approximately $850 million of new development and completed approximately $665 million of new development, (ii) raised approximately $1.3 billion of new capital, (iii) continued to grow our presence in our expansion markets, (iv) made important strides within the area of corporate responsibility, and (v) advanced various corporate initiatives. Operating Activity: Rental revenue for Established Communities increased 2.9% in 2019. Established Communities operating expenses increased 2.8% in 2019, which was 20 basis points below our initial outlook. During 2019 we also incorporated several new technologies and processes into our operating platform that we believe will enable us to better serve our customers’ needs, contain operating expense growth, and improve net operating income margins in the future.
Development Activity: We completed seven new development communities containing over 2,000 apartment homes for approximately $665 million in total capital cost in 2019. During the year, we also started eight new development communities that are expected to contain nearly 2,400 apartment homes for a total capital cost of approximately $850 million. Dividend Growth: In January 2020, we announced a dividend increase of 4.6%, to a quarterly rate of $1.59 per share. Since the first quarter of 2011, we have increased the quarterly dividend 78%. Portfolio Management: During 2019, we continued to grow our presence in our expansion markets by acquiring two operating communities and securing a development right in Southeast Florida, and, in the Denver area, acquiring one operating community, commencing construction on one development community, and securing a development right. Earnings and Core FFO Growth: 2019 earnings per share-diluted was $5.63. Core FFO per share increased by 3.8% over the prior year to $9.34. For the three-year period ended December 31, 2019 (the period measured for this metric in our maturing performance awards), our Core FFO grew at an annualized rate of 4.5%. Other Achievements: We continued our ESG (Environmental, Social and Governance) leadership in the multifamily sector in 2019 by establishing approved science-based emissions reduction targets. We ranked #1 in our sector both regionally and globally in the Global Real Estate Sustainability Benchmark (GRESB). In addition, a number of ESG ratings agencies which evaluate our ESG performance for investors continue to rank us as one of the most advanced U.S. companies on a variety of ESG metrics, including the Carbon Disclosure Project, which rated us A-. We were included in Corporate Responsibility Magazine’s 100 Best Corporate Citizens list and we again were included in the FTSE4Good Index Series. We remain in the 90th percentile in associate engagement, as measured by a third-party service provider which surveys leading companies on workforce engagement. In 2019, we were recognized by Glassdoor employee choice ratings as one of the Top 100 companies to work for in the U.S. Both Indeed, another online recruiting website, and The Washington Post named the Company as a Top Place to Work in the DC Metro Area. Definitions and Reconciliations: For definitions and reconciliations of FFO, Core FFO, Established Communities, and NOI, see pages 31-33, 18, and 37, respectively, of the Company’s Annual Report on Form 10‑K for the year ended December 31, 2019 (the “Form 10-K”), as filed with the SEC.
| | | Summary of our Executive Compensation Program |
Our Executive Compensation Philosophy
AvalonBay’s Total Compensation Program is designed to: Attract, retain, and motivate talent within the Company, Align the interests of management with the interests of stockholders, Direct performance with clearly defined goals and measures of achievement, and Assure that compensation is aligned with performance
Our Named Executive Officers in 2019
This CD&A describes the compensation of the following Named Executive Officers: | | | | Name | Title | | | | Timothy Naughton | Chairman, Chief Executive Officer and President | | Kevin O’Shea | Chief Financial Officer | | Sean Breslin | Chief Operating Officer | | Matthew Birenbaum | Chief Investment Officer | | Leo Horey* | Former Chief Administrative Officer |
* Retired as of January 1, 2020
Compensation Overview
Consistent with our total compensation philosophy, a substantial majority of the target pay of our Named Executive Officers is variable and contingent on performance.
Chairman and Chief Executive Officer 2019 Compensation At‑A‑Glance Base Salary. Mr. Naughton’s base salary has been maintained at $1,000,000 since 2018. Cash Bonus. Mr. Naughton’s target cash bonus was 200% of base salary in 2019. Seventy-five percent of the target cash bonus is based on corporate performance factors and 25% is based on individual performance. The achievement levels for the corporate performance and individual factors for 2019 were determined to be 103.0% and 125%, respectively, resulting in a final cash bonus for 2019 of $2,170,000. Stock Bonus. Mr. Naughton’s target stock bonus for 2019 was $1,800,000. The performance measures used in calculating the stock bonus reflect different elements of the Company’s performance and are not duplicative of the performance measures used to evaluate corporate performance under the annual cash bonus program. The achievement level for these stock bonus performance measures for 2019 was 107.7%, which resulted in a payout of $1,938,600. The payout is delivered in the form of restricted stock that vests ratably over three years from the date of grant. Please note that under applicable SEC rules this award will be disclosed in the 2021 proxy statement Summary Compensation Table as the actual grant of stock based on 2019 achievement occurred in 2020. Performance Awards. Mr. Naughton’s target performance award for the 2019 - 2021 performance period was $5,600,000. Sixty percent of the target award was tied to three-year total shareholder return (“TSR”) metrics, including absolute and relative comparisons, and 40% of the target award was tied to three-year relative financial operating metrics as described in more detail below. With respect to the three-year performance cycle concluding in 2019, Mr. Naughton's award was settled in 31,288 shares of restricted stock valued at $7,058,260 based on the closing stock price of the Company’s Common Stock on the NYSE on February 13, 2020 of $225.59. The 2017 - 2019 performance award was awarded in February 2017 and the performance cycle ended in December 2019, with the Board of Directors certifying the actual achievement in February 2020. Consistent with the other performance awards granted by the Company, 60% of the target award was tied to three-year TSR metrics, including absolute and relative comparisons, and 40% of the target award was tied to three-year relative financial operating metrics. The Company achieved 123.2% of target payout for the 2017 - 2019 performance awards.
Chairman and CEO 2019 Target Opportunity Mix
* includes annual restricted stock bonus Impact of Company’s Performance on Named Executive Officer Compensation A substantial portion of our Named Executive Officers’ compensation is linked to performance, both short‑term and long‑term. Annual Cash Bonus: Core FFO per Share: Core FFO per share is a key measure of the Company’s performance and it (or a similar measure) is commonly used in the REIT industry, and accordingly it was given a 50% weighting in determining achievement of the corporate component of the 2019 annual bonus goals. The following table shows that the Company increased its target goal for Core FFO per share in each of the past four years, from $8.23 per share in 2016 to $9.30 in 2019. The target goal represents a compounded annual growth rate of 4.16% for the past three years. For 2019, actual Core FFO per share was $9.34, which was higher than the target goal of $9.30, resulting in achievement at 111.4% of target performance.
Development and Redevelopment NOI: At the beginning of the year, budgeted NOI is established for each development and redevelopment community based on construction progress and expected deliveries and occupancies. At year end, actual NOI for each community is compared to budgeted NOI. Variances to budgeted NOI may be attributed to schedule accelerations or delays, faster or slower absorption of delivered units, or expense savings or overruns, among other factors. The target goal is to achieve budgeted NOI. Significant variances from budget, both positive and negative, are capped at threshold and maximum levels. For 2019, the actual variance for development NOI fell below threshold level, resulting in achievement at 0% of target. The actual variance for redevelopment NOI was slightly above threshold level, resulting in achievement at 65.5% of target. | | | | | | | | | Performance Measure | Weight | Threshold | Target | Max | Actual % | % of Target | | 2019 Development Lease-Up NOI of $24M vs. Budget of $27M | 10% | -10.0% | 0.0% | 10.0% | -10.2% | 0.0% | | 2019 Redevelopment NOI of $83M vs. Budget of $85M | 5% | -3.0% | 0.0% | 3.0% | -2.1% | 65.5% |
Development Yield: The development yield (i.e., projected NOI divided by total capital cost) performance for communities completed during the year is compared to our original underwritten yield for such developments. The target goal is to meet our pre-established underwritten yield for each development community. Performance is determined based on the weighted average of the stabilized development yields compared to the weighted average of the original underwritten yields for the basket of annual completions. The yields are weighted based on total capital cost of the community. The original underwritten development yield is established at construction start for each property based on the property's projected NOI divided by total capital cost. The actual variance in projected yield for communities completed in 2019 compared to original underwritten yield was approximately 0.02%, resulting in slightly above target performance. | | | | | | | | | Performance Measure | Weight | Threshold | Target | Max | Actual | % of Target | | 2019 Development Yields (Yield of 6.51% vs. Projected Yield of 6.49%) | 10% | -0.75% | 0.0% | 0.75% | 0.02% | 102.5% |
Corporate Objectives: Progress on strategic and corporate initiatives is a qualitative judgment of the Company's achievement on multi-year corporate investments and projects. | | | | | | | | Performance Measure | Weight | Threshold | Target | Max | % of Target | | Progress on Strategic and Corporate Initiatives | 10% | 50% | 100% | 200% | 135% | | Effectiveness of Management | 15% | 50% | 100% | 200% | 135% |
Our 2019 strategic initiatives included continuing our expansion into the Denver and Southeast Florida markets, pursuing mixed use development through partnerships with shopping mall owners and retailers, implementing value added product features and services, such as furnished housing, package lockers, etc., reimagining our operating model through the implementation of artificial intelligence, automation and centralization to improve customer experience and enhance NOI, implementing quality assurance improvements, and developing talent. Our 2019 corporate initiatives focused on technology platforms. The Compensation Committee determined that the achievement on strategic corporate initiatives in 2019 was 135% of target based on significant progress on each of the initiatives. Effectiveness of management includes capital allocation, portfolio management, management of liquidity through match funding and controlling land inventory, balance sheet management, and associate engagement. For 2019, the Compensation Committee determined that achievement on this category was 135% of target.
Annual Stock Bonus: Mr. Naughton's 2019 annual stock bonus component consisted of the following performance measures: | | | | | | | | | Performance Measure | Weight | Threshold | Target | Max | Actual | % of Target | | Same Store Controllable NOI vs. Budget | 20% | -2% | 0% | 2% | 0.14% | 106.8% | | Customer Service - Mid-Lease Net Promoter Score ("NPS") | 20% | 30 | 33 | 36 | 31 | 66.7% | | Construction Performance, Including Budget, Quality, Schedule and Safety | 20% | Qualitative Assessment | | 115.0% | | Development Starts and Completions vs. Plan | 20% | Qualitative Assessment | | 100.0% | | Talent Development and Succession Planning | 20% | Qualitative Assessment | | 150.0% | | Total | 100% | | | | | 107.7% |
The above performance measures represent different aspects of the Company’s business and are not duplicative of the measures under the corporate annual cash bonus program. Same Store Controllable NOI measures our stabilized community performance. NPS is a measure of customer loyalty and satisfaction, which allows the Company to assess the value of our services to our customers. Construction and Development metrics reflect key financial business drivers of the Company’s success and the CEO’s commitment to safety. Talent Development and Succession Planning ensures that future leaders of the Company are thoroughly trained and developed. The annual stock bonus for the Named Executive Officers other than the CEO was based on their respective business unit performance. Once the final achievement for the annual stock bonus is determined, the number of shares of restricted stock is calculated and awarded to each Named Executive Officer. The restricted stock will vest ratably over three years after the date of grant, subject to the Named Executive Officer's continued employment through each such vesting date, but subject to earlier acceleration of vesting in the event of a termination due to death, disability, retirement, or termination by the Company without cause. The annual stock bonus performance period was calendar year 2019, however the actual issuance of the time-based restricted stock occurred in February 2020.
Performance Awards: Our performance awards with performance periods ending in 2019 consisted of the following measures:
| | | | | | | | | | TSR Performance Measures | Weight | Threshold | Target | Max | Actual | % of Target | Achievement | | Absolute 3-yr TSR | 33.4% | 4.0% | 8.0% | 12.0% | 10.5% | 163.4% | Above Target | | AVB 3-yr TSR vs. NAREIT Equity REIT Index | 33.3% | -4.0% | 0.0% | 4.0% | 2.2% | 154.0% | Above Target | | AVB 3-yr TSR vs. NAREIT Apt Index | 33.3% | -3.0% | 0.0% | 3.0% | -1.6% | 72.7% | Above Threshold | | TSR Metric % | 100.0% | | | | | 130.0% | | | | | | | | | | | | Operating Performance Measures | Weight | Threshold | Target | Max | Actual | % of Target | Achievement | | 3-yr Core FFO per share growth vs. Peers | 66.7% | -3.0% | 0.0% | 3.0% | 0.2% | 105.7% | Above Target | | 3-yr Net Debt-to-Core EBITDA vs. Peers | 33.3% | 1.5x | 0.0x | -1.5x | -0.4x | 126.6% | Above Target | | Operating Metric % | 100.0% | | | | | 112.7% | | | | | | | | | | | | Final Achievement % | 100.0% | | | | | 123.2% | |
Sixty percent of each officer's total performance award target value was tied to the TSR metrics identified above and 40% of the total performance award target value was tied to the operating metrics identified above. Because the Monte Carlo value of a unit was used to calculate the number of target performance units tied to TSR metrics and the actual stock price was used to calculate the number of target performance units tied to operating metrics, the actual total number of units awarded reflected 60.5% based on the TSR metrics and 39.5% based on the operating metrics.
Realized Pay for 2019 Performance
The following table shows one way in which our Compensation Committee looked at the compensation paid and awarded to each of the Named Executive Officers for service and performance with respect to 2019. This table differs from the Summary Compensation Table provided on page 46, which includes several items that are driven by accounting and reporting requirements that are not necessarily reflective of the compensation actually realized by the executive with respect to a particular year. The primary difference between this supplemental table and the Summary Compensation Table is the timing and method used to value multi‑year performance award units and stock awards. SEC rules require that the grant date fair value of all performance award units and stock awards be reported in the Summary Compensation Table in the row for the year in which they were granted, regardless of which year the awards were made with respect to or (in the case of performance awards) which year the awards pay out in the form of restricted shares. As a result, a significant portion of the total compensation for 2019 reported in the Summary Compensation Table relates to restricted stock awards granted in early 2019 for performance in 2018 or, in the case of performance awards, awards for the 2019 - 2021 performance cycle for which performance has not yet been determined and for which the value is uncertain (and which may end up having no realized value at all). In contrast, the table immediately below is provided to illustrate the actual cash and value of restricted shares received by each Named Executive Officer for service and performance in 2019 and the value of restricted shares realized for performance awards maturing on December 31, 2019. Note that the amounts reported below differ substantially from the amounts determined under SEC rules and reported in the Summary Compensation Table. This table is not a substitute for the Summary Compensation Table.
| | | | | | | | Name and Principal Position | Year | Salary ($) | Annual Bonus and Earned Performance Awards | All Other Compensation ($)(3) | Total ($) | | | | | Cash (1) | Restricted Stock (2) | | | Timothy Naughton Chief Executive Officer | 2019 | 1,000,000 | 2,170,000 | 8,996,755 | 23,382 | 12,190,137 | Kevin O’Shea Chief Financial Officer | 2019 | 600,000 | 798,000 | 2,467,503 | 25,237 | 3,890,740 | Sean Breslin Chief Operating Officer | 2019 | 600,000 | 823,500 | 2,627,221 | 24,456 | 4,075,177 | Matthew Birenbaum Chief Investment Officer | 2019 | 600,000 | 844,800 | 2,666,699 | 24,711 | 4,136,210 | Leo Horey (4) Former Chief Administrative Officer | 2019 | 525,000 | 1,003,410 | 940,936 | 18,208 | 2,487,554 |
| | | (1) | Amounts in this column reflect the cash awards made in February 2020 with respect to performance under the annual bonus program in 2019. For Mr. Horey, the amount includes the achieved stock bonus paid in cash, consistent with his retirement. |
| | | (2) | Amounts in this column reflect the value of shares of restricted stock awarded in February 2020 (i) with respect to performance under the Annual Bonus program in 2019, and (ii) for achievement under the long‑term incentive performance awards maturing on December 31, 2019, all with a value per share of $225.59, the closing price of the Company’s Common Stock on the NYSE on February 13, 2020. |
| | | (3) | Amounts in this column include the same components described in the “All Other Compensation” column of the Summary Compensation Table. |
| | | (4) | Mr. Horey retired effective January 1, 2020. |
Best Practices Incorporated into our Compensation Programs The Company implements and maintains leading practices in its executive compensation programs. These practices include the following: Pay for performance Review of competitive market information when considering executive pay Caps on annual and long‑term incentives Limited perquisites No employment agreements with officers Policy on recoupment of incentive compensation (clawback policy) Double-trigger equity compensation vesting in the event of a change in control Director and executive officer stock ownership guidelines Separate board and management compensation consultants Prohibition against hedging, pledging or borrowing against Company stock by directors and officers
ADDITIONAL DISCUSSION | | | Consideration of the Results of the 2019 Stockholder Advisory Vote on Executive Compensation |
As previously announced at the 20122019 Annual Meeting of Stockholders, the Company’s executive officer compensation for 20112019 was approved by 97.21%over 94% of the votes cast on the matter. The Compensation Committee and the Company considered these results to be an endorsement by stockholders of the Company’s compensation structure, target level and actual executive compensation. 2012 Achievements and Compensation.During 2012, the Company achieved strong growth in Operating Funds from Operations and a high level of three-year Total Shareholder Return (“TSR”):
| · | The Company achieved Operating Funds from Operations (“Operating FFO”)1for 2012 of $5.50 against a target of $5.40 and a maximum performance metric of $5.65. Contributing to this strong level of Operating FFOwas FFO growth of 16.4% and same store NOI2growth of 7.6%. |
| · | TSR over three years (annualized on a compounded basis) was 21.9%, which achieved maximum performance for the absolute TSR goal. |
Value creation activity during 2012 included the following:
| · | Development Activity:We started 12 new communities (3,290 apartment homes) for an expected aggregate total capital cost of approximately $891 million. We completed and delivered eight new communities (1,934 apartment homes) homes at a total capital cost of approximately $513 million. At year-end 2012, we had (i) approximately $1.8 billion of new development underway across our six major markets and (ii) a pipeline of development rights that, if fully developed, would add 9,602 apartments in 34 communities at a total projected capital cost of approximately $2.8 billion. |
| · | Redevelopment Activity:We commenced the redevelopment of four communities (1,347 apartment homes) for an incremental estimated capital cost of approximately $50.7 million. We completed 11 redevelopments (2,903 apartment homes) for a total incremental capital cost of approximately $106 million. |
| · | Portfolio Management:We sold four communities and a land parcel for an aggregate price of $280.6 million and acquired four communities, including the acquisition of our partner’s interest in a joint venture, at a aggregate price of $156.4 million. |
| · | Investment Management Funds:We sold six assets from our first investment management fund. The Company’s share of the gain in accordance with GAAP was approximately $8 million. |
| · | Portfolio Acquisition:On November 26, 2012, we entered into agreements with Equity Residential Trust, Lehman Brother Holdings, Inc. and Archstone Enterprise LP. Upon the closing of these agreements on February 27, 2013we acquired 40% of the assets of Archstone.To prepare for this acquisition of approximately $6.8 billion of assets, in December 2012 we issued 16,675,000 shares of common stock for net proceeds, after transaction costs, of approximately $2.1 billion. The Archstone acquisition closed during the first quarter of 2013, and the award of bonuses in respect of 2012 was not directly tied to our efforts or achievement with regard to the Archstone Acquisition. |
After reviewing the Company’s performance in 2012 against the corporate goals established at the beginning of 2012, our Board determined that the Company achieved, for the corporate component of the annual cash bonus, 129% of target (as compared to 131%, 126% and 82% in 2011, 2010 and 2009, respectively), and, for the corporate component of the long term equity bonus, 111% of target (as compared to 107%, 94% and 70% in 2011, 2010, and 2009, respectively).
| 1 | Operating FFO is defined as FFO excluding gains or losses on the sale of real estate not subject to depreciation (generally land) as well as certain other non-routine or non-recurring items. We define FFO as net income or loss computed in accordance with GAAP, adjusted for (i) gains or losses on sales of previously depreciated operating communities; (ii) extraordinary gains or losses (as defined by GAAP); (iii) cumulative effect of change in accounting principle; (iv) impairment write-downs of depreciable real estate assets; (v) write-downs of investments in affiliates due to a decrease in the value of depreciable real estate assets held by those affiliates; (vi) depreciation of real estate assets; and (vii) adjustments for unconsolidated partnerships and joint ventures. |
| 2 | NOI is defined as total revenue less direct propertyoperating expenses. |
15Our Decision Making Process |
The average individual performance of our 2012 named executive officers (which contributed to their 2012 cash bonus) was judged to be 111% as compared to 115%, 112% and 114%
Who is Involved in 2011, 2010, and 2009, respectively. For one of our named executive officers, Mr. McLaughlin, business unit performance contributed to his cash bonus and long term equity award, and his business unit was judged to have achieved 144% of target in 2012 as compared to 145%, 128% and 64% in 2011, 2010, and 2009, respectively. Individual and business unit goals and achievements are discussed more fully below.Revised Bonus Program beginning in 2013.During 2012, the Board’s Compensation Committee reviewed our incentive compensation framework. Following this review, the Board revised our incentive compensation framework in order to increase the transparency of the program to officers and investors and to more closely align our long term equity awards with long term stock performance. As revised, there will be two bonus programs each year, an annual bonus and a multiyear long term incentive performance award program:
Decisions | · | Our annual bonus program will emphasize short term goals and will be paid with a cash bonus and (for certain officers whose business unit performance is measured for bonus compensation purposes) an award of restricted stock that vests over three years. The achievement of corporate, individual and, where appropriate, business unit goals will determine the level of achievement for the annual bonus program. |
| · | | Independent Board Members | Our multiyear long term incentive performance award program will have as its sole performance metric TSR measured over a three-year performance period on an absolute basisIndependent Compensation Committee | Review and on a relative basis againstapprove the FTSE NAREIT Equity IndexCompany’s business plan Review and the FTSE NAREIT Apartment Index. A performance award will be granted each year with a target number of restricted stock units that may be reduced or increased at the end of the performance period depending on TSR performance over the three-year period. Using forward-looking three-year performance awards will help assure thatratify the compensation of ourthe Chief Executive Officer and the other executive officers is tiedas approved and recommended by the Compensation Committee | Reviews and recommends to long term shareholder return. An officer must be employed with the Company at the endindependent members of the Board the setting of performance periodgoals for corporate bonus programs after the full Board reviews and approves the business plan Approves and recommends to receive a payout under the performance awardindependent members of the Board for such period.ratification the target and actual total compensation of the CEO and executive officers |
Officers will have the right to elect, prior to the end of a performance period, that employee stock options (valued at the Black-Scholes value of an option at the end of the performance period) be awarded in lieu of 25% of the value of the restricted shares that would otherwise be awarded in respect of that year’s performance. Restricted stock and options awarded at the end of the performance period will be subject to vesting over three years.
After discussing the framework and bonus determinations for 2012, our Compensation Discussion and Analysis describes this new program in detail, including transitional performance awards made to the named executive officers at the beginning of 2013.
Full Discussion – Review of 2012 Compensation
Consideration of the Results of the 2012 Stockholder Advisory Vote on Executive Compensation
As previously announced at the 2012 Annual Meeting of Stockholders, the Company’s executive officer compensation for 2011 was approved by 97.21% of the votes cast on the matter. The Compensation Committee and the Company considered these results to be an endorsement by stockholders of the Company’s target level and actual executive compensation.
Also as previously announced, in accordance with a majority of the votes cast at the 2012 Annual Meeting of Stockholders, the Company intends to hold an advisory stockholder vote on its executive compensation annually. The Company intends to hold an advisory vote on the frequency of such advisory votes on executive compensation at or before its 2017 Annual Meeting of Stockholders.
16Independent Compensation Consultant | Shareholders and Other Key Stakeholders | Provides guidance on executive compensation programs in terms of prevailing market practice Steven Hall & Partners is the Compensation Committee's independent compensation consultant | Provide feedback on various executive pay practices and governance during periodic meetings with management | | Chief Executive Officer | | Makes recommendations and provides input with respect to compensation for NEOs, other than himself. |
Objectives and Structure of Our Executive Compensation Programs:
The primary objectives of our executive compensation programs are: (i) to attract, retain and motivate experienced, effective executives, (ii) direct the performance of those executives with clearly defined goals and measures of achievement, (iii) align management’s interest with stockholders’ interests, and (iv) assure that compensation is aligned with performance.
For 2012, we utilized a combination of cash and equity-based compensation to provide appropriate incentives for our executives. Executive officers were eligible to receive a combination of annual base salary, annual cash bonuses, and annual restricted stock and option grants under our Stock Incentive Plan. Executive officers were also eligible for other benefits, including elective participation in a deferred compensation plan, a 401(k) retirement savings plan, an employee stock purchase plan, and certain insurance benefits and perquisites.
The component elements of each named executive officer’s annual compensation for 2012 are set forth in the following table:
Base Salary | | Annual Cash Bonus | | Annual Long-Term Incentive
Compensation | | Other Miscellaneous
Amounts | This amount, payable in cash, is generally established each year in February and effective in early March. | | The threshold, target and maximum dollar value targets for 2012 cash bonuses were established in February 2012, with the cash bonus paid in March 2013 based on an evaluation of achievements of 2012 goals. | | The threshold, target and maximum dollar value targets for long-term incentive compensation were established in February 2012, with 33% of the dollar value of the actual award (based on an evaluation of achievements of 2012 goals established at the time targets are set) awarded in the form of stock options (as described below) and 67% of such dollar value of the actual award granted in the form of restricted stock (as described below). | | Each named executive officer received certain other compensation, such as amounts contributed to the named executive officer’s 401(k) accounts and certain insurance premiums, all of which are detailed in the Summary Compensation Table and the footnotes to the table. |
In determining the total compensation for each Named Executive Officer, which is the sum of base salary, bonus and the threshold, target, and maximum cash and equity bonus for each named executive officer for a given year,long‑term incentives, the Compensation Committee generally considers a number of factors on a subjective basis, including (i) the scope of the officer’s responsibilities within the Company and in relation to comparable officers at various companies within the peer group referred to below; (ii) the experience of the officer within our industry and at the Company; (iii) performance of the named executive officer and his or her contribution to the Company; (iv) the Company’s financial budget and general level of wage increases throughout the Company for the coming year; (v) a review of historical compensation information for the individual officer; (vi) a subjective determination of the compensation needed to motivate and retain that individual; (vii) the recommendations of the Chief Executive Officer; and (viii) data regarding compensation paid to officers with comparable titles, positions or responsibilities at REITs that are considered by the Compensation Committee to be comparable for these purposes2. including: | | | (i) | the scope of the officer’s responsibilities within the Company and in relation to comparable officers at various companies within the peer group described below; |
| | | (ii) | the experience of the officer within our industry and at the Company; |
| | | (iii) | performance of the officer and his or her contribution to the Company; |
| | | (iv) | the Company’s financial budget and general level of wage increases throughout the Company for the coming year; |
| | | (v) | a review of historical compensation information for the individual officer; |
| | | (vi) | the recommendations of the Chief Executive Officer (other than with regard to his own compensation); and |
| | | (vii) | data regarding compensation paid to officers with comparable titles, positions or responsibilities at REITs that are considered by the Compensation Committee to be comparable for these purposes. |
An officer’s target compensation is not mechanically set to be a particular percentage of the peer group average, although, as noted, the Compensation Committee does review the officer’s compensation relative to the peer group to help the Compensation Committee perform the subjective analysis described above. Peer An officer’s target compensation may vary from the peer group data is not used as the determining factor in setting compensation for the following reasons: (a) the officer’s role and experience within the Company may be different from the role and experience of comparable officers at the peer companies; (b) the average actual compensation for comparable officers at the peer companies may be the result of a year of over performance or under performance by the peer group; and (c) the Compensation Committee believes that ultimately the decision as to appropriate target compensation for a particular officer should be made based on the full review described above. | 2 | | (a) | In establishing base salary, cash bonus,the officer’s role and long-term incentive award targets,experience within the REITs usedCompany may be different from the role and experience of comparable officers at the peer companies; |
| | | (b) | the actual compensation for reference in comparable officers at the peer companies may be the result of a year of over-performance or under-performance by the peer group; |
| | | (c) | the target compensation and performance goals for comparable officers at peer companies may not have the same rigor as at the Company; and |
| | | (d) | the Compensation Committee’sCommittee believes that ultimately the decision as to appropriate target compensation for a particular officer should be made based on the full review were: described above. |
Our incentive programs are designed so that actual performance in excess of the performance targets results in payouts above target (with caps on above target payouts) and actual performance below the performance targets results in payouts below target or no payout. | | | How We Select and Use Peer Groups |
Companies for Market Compensation Purposes: The Company regularly reviews the reference peer group described below, which it uses when evaluating the appropriate levels of executive compensation, in order to maintain consistency and relevancy. In determining the peer group composition, the following elements are considered. The final peers selected have one or more of the following characteristics: Asset Focus (multi‑family/complexity of operations): a meaningful portfolio of multi-family properties and/or intense property management operations Size: defined as total capitalization (equity plus debt) within 0.5x to 2.0x of AvalonBay Talent: companies with whom we could compete for talent The Company uses the following 14 companies in its peer group for comparison of total compensation. Source: S&P Global
Companies for Performance Award Measurement Purposes The Company uses a different peer group for determining performance under its performance awards. The peer group for determining the level of total target compensation is based in part on size parameters since the Company is competing with similar sized companies for executive talent. For the performance awards, size is less of a consideration and more emphasis is placed on multi‑family peers since operating performance and shareholder return are more appropriately compared with direct competitors in our specific industry. For the 2017 - 2019 performance awards relating to three‑year relative TSR, the following indices were used: FTSE NAREIT Apartment Total Return Index represents REITs in the multi-family housing industry across the U.S.
FTSE NAREIT Equity REITS Index represents a comprehensive group of REITs that spans a variety of commercial real estate space (such as retail, office, storage and multi-family) across the U.S.
For the 2017 - 2019 performance awards relating to operating metrics, the following multi-family REITs were used as peer companies: | | | – | Apartment Investment and Management Company Boston Properties, Inc., |
| | | – | Camden Property Trust Digital Realty Trust, Inc., |
| | | – | Essex Property Trust, Inc., Federal Realty Investment Trust, General Growth |
| | | – | Mid‑America Apartment Communities, Inc. |
| | | – | Post Properties, Inc., Host Hotels & Resorts, Inc., Kimco Realty Corporation, The Macerich Company, ProLogis, Inc., Public Storage, Inc., |
| | | – | UDR, Inc., Ventas, Inc., and Vornado Realty Trust. |
These companies were chosen primarily because they are publicly-traded companies in the multi-family industry. 17 | | | Who Are our Compensation Consultants |
The Company does not have specific, proportionate ratios to define the relative total compensation between the individual named executive officers, although the Compensation Committee from time to time does review the relationship in pay between executive officers to assure that relative compensation levels are appropriate and are designed to effectively motivate and retain executives.
In setting the total compensation of our executive officers, the Compensation Committee considers, for each executive officer, the approximate proportions of the different elements of total compensation that would be earned if compensation targets were achieved.
The allocation between base salary, cash bonus and long-term equity is determined by the Compensation Committee based upon its general consideration of the executive’s level within our organization. At the more senior levels, less of an officer’s total compensation is fixed and more is variable (i.e., in the form of cash bonuses and long-term equity awards). A significant percentage of the compensation of these senior executives for 2012 was composed of restricted stock and stock options for the following reasons: (i) we believe that the interests of these executives should be closely aligned with the interests of our stockholders; (ii) we want these individuals to maintain a long-term focus for the Company; and (iii) this type of pay arrangement is generally consistent with the compensation practices of our peer companies. In accordance with SEC rules, the five named executive officers shown in the executive compensation tables were identified based upon title (for CEO and CFO) and total compensation (as calculated in accordance with theSummary Compensation Table) of officers who are in charge of a principal business unit, division, or function or who perform a policymaking function.
The Compensation Committee views the granting of stock options and restricted stock as a means of aligning management and stockholder interests, incenting and rewarding management’s long-term perspective, and retaining the services of the executive. Stock options and restricted stock are designed to provide long-term performance incentives and rewards tied to the price of our Common Stock. Following the determination of 2012 annual performance and the resulting dollar value of the long-term incentive, 33% of that dollar value was awarded in the form of stock options (vesting as described below), using the Black-Scholes value on or about December 31 of the most recent year. The remaining dollar value was awarded in the form of stock awards (vesting as described below), using the closing price of our Common Stock as reported on the NYSE on the date of grant. (However, since Mr. Blair retired as an officer at the end of 2012, he was paid cash for the dollar value of his long-term incentive, rather than awarded restricted stock and options.) The Compensation Committee supports the use of stock options and stock awards for the following reasons: they have a strong retentive feature both during vesting and (in the case of options) after vesting; they provide a strong incentive to officers to maximize company performance; and they keep our compensation programs competitive with our peers. A greater percentage of the dollar value is allocated to restricted stock awards than to options because stock awards retain their value (and thus retentive feature) even if our stock price declines; they provide a current and immediate return to officers and thus are viewed as an important part of compensation; and they provide immediate exposure to the effect of a decline in stock price, thus aligning the interests of officers with our stockholders in protecting the value of our company.
Options awarded for 2012 performance vest over a period of three years on the anniversary of the award date, subject to accelerated vesting in the case of termination of employment due to retirement (as defined below), termination without cause, death, disability or change in control. Awards of restricted stock for 2012 vest in five tranches, with 20% of a restricted stock award vesting on March 1, 2012 and the remaining 80% vesting in equal annual installments on March 1 of each of the following four years subject to accelerated vesting in the case of termination of employment due to retirement (as defined below), termination without cause, death, disability or change in control. Dividends are paid on restricted stock, and the amounts of dividends on restricted stock received by each of the named executive officers during 2012 is included in theSummary Compensation Tableon page 29 of this Proxy Statement.
“Retirement” for purposes of our long-term incentive awards, including stock option grants and restricted stock awards, generally means the termination of employment and other business relationships, other than for cause, when the sum of the following equals or exceeds 70 years: (i) the number of full months (converted to years) of employment and other business relationships with the Company and any predecessor company (must be at least 120 months) and (ii) the employee’s age on the date of termination (must be at least 50 years old). To qualify for retirement, the employee must also give six months’ prior written notice to the Company of his intention to retire and enter into a one year non-solicitation and non-competition agreement. The Compensation Committee believes that this definition of retirement is appropriate and rewards long-term contributions of employees to the Company. Messrs. Naughton, Sargeant and Horey currently meet the 70 years age/service requirement, and Mr. McLaughlin will meet that requirement in June 2014. Mr. Blair, who retired as an officer on December 31, 2012, and will retire as a director at the Annual Meeting, also meets that requirement. The Compensation Committee believes that there is a retentive element to long-term incentive awards even for those officers who are eligible to benefit from accelerated vesting upon retirement. For example, in the case of stock options, retirement would trigger a 12-month period during which options must be exercised or forfeited. Continuing to have an employment or other business relationship with the Company, by contrast, would allow the officer to exercise an option at any time between the vesting of the option and the expiration of the original ten-year term of the option. In addition, there is a disincentive to retire in that a one-year non-competition agreement would apply that restricts the officer’s ability to work for any of the Company’s competitors.
At the beginning of each year, the Company’s management proposes corporate goals for that year for the Annual Bonus (cash) and Long-Term Incentive Plans. The Compensation Committee reviews these proposed goals, adopts any revisions it may deem appropriate, and recommends the final corporate goals to the full Board of Directors for ratification and approval by a vote of the independent directors who qualify for membership on the Compensation Committee. Annual business unit goals are drafted by the head of each business unit and reviewed, modified and approved by the Chief Executive Officer. The individual goals are determined in a similar manner, with the exception that the goals for the Chief Executive Officer are reviewed and approved by the Compensation Committee and ratified by the independent directors of the Board who qualify for membership on the Compensation Committee.
At the end of each year, the Chief Executive Officer reviews and recommends to the Compensation Committee the achievement of corporate, business unit and individual goals for the other named executive officers as well as any pay changes. With regard to pay changes, the Compensation Committee reviews the Chief Executive Officer’s recommendations, may review competitive market data, and consults with a third party compensation consultant to the extent it deems appropriate. Recommendations for bonus awards and compensation changes for the Chief Executive Officer and all executive officers are approved by the Compensation Committee and are then ratified by the independent directors of the Board who qualify for membership on the Compensation Committee. All annual awards of options and restricted stock are generally effective on the date (usually in February each year) of ratification, but may be delayed to a date after such ratification if there is a pending announcement by the Company of material non-public information, such as an earnings release. The Compensation Committee has engaged Steven Hall & Partners, an executive compensation consulting firm, to provide it with advice and counsel on executive and board compensation as well as competitive pay practices. Steven Hall & Partners did not provide any services directly to the Company or its management. The CompanyManagement uses the services of FPL Associates, another compensation consulting firm, to provide it with advice,information about competitive pay practices and data, compensation design work and other review services, including assistance with preparing a termination payment analysis and calculating the Black-Scholes value of the Company’s options at year end.data. The Compensation Committee undertook an assessment of whether any material conflict of interest exists in connection with the services of Steven Hall & Partners to the Compensation Committee or the services of FPL Associates to management and concluded that there was no such material conflict of interest.
Review
With respect to the three-year performance awards relating to TSR, the Company utilizes FAS Solutions Inc. to provide the Monte Carlo valuation. | | | What We Pay and Why: Elements of Compensation |
Our 2012 Compensation Decisions:executive compensation program contains the following pay components: Base Salary for 2012. The following were– Fixed cash compensation Annual Incentive Award – Payable in cash and stock contingent upon achievement of performance measures and goals Long‑Term Incentive Awards – Payable in the base salaries form of performance-based awards with pre‑established for 2012 for each of the named executive officers.measures and goals
Name | | | | | | Type | Component | Description | Connection to the Company’s business strategy/philosophy | | Fixed Compensation | Base Salary($)Salary | This amount, payable in cash, is generally established each year in February and effective in March. | Attract and retain key talent | | | Mr. BlairPerformance‑Based Compensation | Annual Incentive Award | Threshold, target and maximum targets and goals are established in February of each year and payouts are made the following year.
Two forms of payments - cash and restricted stock that vests ratably over three years.
| 700,000 | Drive Company and business unit performance Motivate individual performance Retain the services of the executive | Mr. NaughtonLong‑Term Incentive Awards | A target number of performance units is granted and the number of units earned may increase or decrease contingent upon absolute and relative TSR and operating performance against peer groups. Multi-year performance awards granted prior to 2018 are settled upon maturity in restricted shares that are subject to additional three-year time-vesting requirements. | | 800,000 | | Mr. Sargeant | | | 500,000 | | Mr. Horey | | | 400,000 | | Mr. McLaughlin | | | 415,000 | |
Annual Cash Bonus with Respect to 2012. The following table sets forth the target, threshold and maximum cash bonus established in February 2012 and the actual cash bonus award made in February 2013 with respect to performance in 2012 for each of the named executive officers:
19Align executive officers’ compensation with the interests of stockholdersMaximize the Company’s performance and reward management’s long‑term perspective |
Table of Contents | | | How We Establish Goals and Determine Achievement for Incentive Compensation |
| | | Annual Cash Bonus Targets | | | | | | Name | | Threshold
($) | | | Target
($) | | | Maximum
($) | | | Actual Cash
Bonus
($) | | | Mr. Blair1 | | | 217,350 | | | | 434,700 | | | | 869,400 | | | | 545,574 | | | Mr. Naughton | | | 500,000 | | | | 1,000,000 | | | | 2,000,000 | | | | 1,252,742 | | | Mr. Sargeant | | | 250,000 | | | | 500,000 | | | | 1,000,000 | | | | 613,680 | | | Mr. Horey | | | 160,000 | | | | 320,000 | | | | 640,000 | | | | 393,539 | | | Mr. McLaughlin | | | 166,000 | | | | 332,000 | | | | 664,000 | | | | 435,034 | |
| 1 | Mr. Blair’s 2012 compensation reflects the fact that he retired as Chief Executive Officer on December 31, 2012. The amounts described in this section for Mr. Blair’s 2012 compensation differ from the amounts reflected in the Summary Compensation Table on page 29 because the 2012 compensation for Mr. Blair in the Summary Compensation Table includes both his long-term incentive award for performance in 2011 and his long-term incentive award for performance in 2012, paid in cash in February 2013. |
Setting Goals: At the beginning of the year, the Board of Directors reviews and approves the Company’s business plan and budget. Subsequently, the Company’s management proposes corporate goals for that year for the annual bonus program and long‑term incentive program. The actual cash bonuses awarded above reflect (1)Compensation Committee reviews these proposed goals, adopts any revisions it may deem appropriate, and recommends the final corporate goals to the full Board of Directors for ratification and approval by a vote of the independent directors who would qualify for membership on the Compensation Committee. Annual business unit goals are drafted by the head of each business unit and reviewed, modified, and approved by the Chief Executive Officer. The individual goals for the annual bonus program are determined in a similar manner, with the exception that the goals for the Chief Executive Officer are determined by the Compensation Committee and ratified by the independent directors of the Board who would qualify for membership on the Compensation Committee. Determining Achievement: At the end of each year, the Chief Executive Officer reviews and recommends to the Compensation Committee his assessment of the achievement of specific Company performancecorporate goals (2)for both the performanceannual bonus program and the long‑term incentive program, and the business unit and individual goals for the annual bonus program for the other Named Executive Officers. Recommendations for bonus awards and compensation changes for the Chief Executive Officer and all executive officers are approved by the Compensation Committee and are then ratified by the independent directors who qualify for membership on the Compensation Committee. Design of the officer’s businessAnnual Cash Incentive Program: Our annual bonus program emphasizes short term goals and is paid in cash.
Three components are measured to determine performance under the 2019 Annual Cash Incentive Program: Corporate performance, consisting of Core FFO per share, development and redevelopment NOI, development yield and management performance Business unit where applicable,performance (applies to all Named Executive Officers except the Chief Executive Officer) Individual performance Why These Performance Measures are Selected:
| | | | Corporate Performance | Rationale | | Core FFO per Share | Core FFO per share (or similar measures such as Operating FFO) is a key metric used by many REITS and tracked by equity research analysts.
Core FFO per share is reported in our quarterly results and periodic guidance to the market. | | Development Lease-Up NOI and Redevelopment NOI vs. Budget | Development and redevelopment are core competencies of the Company that contribute to value creation. Development and redevelopment NOI are profit related measures that are important to fulfillment of the annual business plan.
NOI helps investors and management to understand the core operations of a community or communities prior to the allocation of any corporate-level or financing-related costs. NOI reflects the operating performance of a community and allows for an easy comparison of the operating performance of individual assets or groups of assets. | | Development Completions (Yield vs. Underwritten Yield) | Development yield (i.e., projected NOI/total capital cost) is a return measure that reflects the economic returns from a development community as a percentage of the capital we invested in it.
As a performance measure, we measure development yield on completed developments against the original underwritten yield for that asset, which is established at the start of construction. | | Management’s Performance vs. Goals | There are two components to the qualitative assessment of management’s performance for which we gauge ourselves against pre-established annual and multi-year goals and objectives: (i) strategic and corporate initiatives, and (ii) management effectiveness. |
| | | Review of 2019 Performance and Pay |
Annual Cash and (3)Stock Incentive Program:
The goals, metrics and achievement for the performancecorporate component of the individual officer. Various weightings2019 Annual Cash Incentive Program are applied to each category based on each officer’s position and his or her ability to impact performance for the Company as a whole or a particular business unit.For 2012,graphically illustrated in the following categoriescharts. Total performance under all corporate goals was determined to be 103.0% of performance goals and relative weightings were approved:
| | Weight of Each Component | | | Name | | Corporate | | | Business Unit | | | Individual | | | Mr. Blair | | | 75 | % | | | — | | | | 25 | % | | Mr. Naughton | | | 75 | % | | | — | | | | 25 | % | | Mr. Sargeant | | | 75 | % | | | — | | | | 25 | % | | Mr. Horey | | | 75 | % | | | — | | | | 25 | % | | Mr. McLaughlin | | | 30 | % | | | 50 | % | | | 20 | % |
Corporatetarget.
Individual Goals and Achievement for Annual Cash Bonus. The corporate component of the annual bonus included four categories of performance goals, with weightings applicable to each goal set in advance. The following corporate goals were established for 2012: | (i) | The achievement of a targeted level of Operating FFO per share, both on an absolute and relative basis, composed 55% of total corporate performance. For determining relative performance, the comparable peer group of multifamily REITs consisted of: Apartment Investment and Management Company (“AIMCO”), BRE Properties, Inc., Camden Property Trust, Inc., Equity Residential, Essex Property Trust, Inc., Home Properties, Inc., Post Properties, Inc., and UDR (collectively, the “Bonus Peer Group”). Operating FFO on an absolute basis was set at $5.15 per share for the achievement of threshold performance, $5.40 per share for the achievement of target performance, and $5.65 per share for the achievement of maximum performance. Actual 2012 Operating FFO on an absolute basis was determined to be $5.50 per share. For Operating FFO growth relative to the Bonus Peer Group, a 6th place ranking was threshold performance, 3rd place ranking was target performance and maximum performance was 1st place. For 2012, the Compensation Committee determined that the Company achieved a 2nd place ranking against this peer group. |
| (ii) | The revenue from development activities, as compared to the original budgeted revenue, made up 7.5% of the total corporate performance. Meeting budgeted revenue for this component was determined to be target performance, 7.5% below budgeted revenue was threshold performance, and exceeding budgeted revenue by 7.5% or more was maximum performance for this component. In 2012 budgeted revenue for this category, based upon 14 communities, was approximately $36.3million, while actual revenue was at approximately $36.4 million for 2012. |
| (iii) | The operating performance of redevelopment activities, as compared to the original budgeted performance, made up 7.5% of the total corporate performance. Meeting budgeted net operating income (“NOI”) for this component was determined to be target performance, 3.0% below budgeted NOI was threshold performance, and exceeding budgeted NOI by 3.0% or more was maximum performance for this component. In 2012, budgeted NOI for this category was approximately $65.6 million and actual NOI achievement for this category was approximately $66.0 million. |
| (iv) | The effectiveness of management (defined as the execution of business plans, flexibility in decision making, portfolio management, balance sheet management, and focus on the correct organizational priorities) and progress on various corporate initiatives made up 30% of the total corporate performance metrics for 2012. For 2012, the Compensation Committee determined that achievement on this category was 107.5% of target. |
Overall, achievement of the corporate component of performance for 2012 for cash bonuses was determined to be 128.9% of target.
Business Unit Goals and Achievement for Cash Bonus. As noted above, of the five named executive officers, Mr. McLaughlin received a cash bonus based in part upon the achievement of his business unit.
Mr. McLaughlin’s business unit component was based on the achievements of the Northeast Development and Construction group, as Mr. McLaughlin is the senior executive with direct oversight of that group. Mr. McLaughlin’s business unit was evaluated against the following goals: (i) sourcing of new development rights; (ii) construction start volume and projected stabilized yields relative to target yields, with $528 million of construction starts as target; (iii) construction completion volume as determined by total capital cost and actual stabilized yields relative to target yields; and (iv) actual construction costs relative to budgeted costs and actual schedule performance relative to budgeted schedule performance. For 2012, the overall achievement for Mr. McLaughlin’s Development and Construction group was determined to be 144% of target.
Individual Goals.Individual goals for the officers include the executive’s leadership and managerial performance as well as specific objectives, and are evaluated on a subjective basis annually. Individual performance for Messrs. Blair andMr. Naughton was determined by the Compensation Committee. The Compensation Committee also determined individual performance for the other named executive officersNamed Executive Officers after receiving recommendations from Mr. Naughton. The Compensation Committee determinations were ratified and approved by the independent members of the Board who are qualifiedwould qualify to serve on the Compensation Committee.
Specific individual goals for Mr. Blair in 2012 included(i) assisting with the oversight and guidance of the Company’s development and construction activities; (ii) consulting with management on investment and capital allocation decisions related to development, and (iii) providing effective board leadership, including addressing board succession.
Mr. Naughton’s individual goals for 2012 included2019 related to (i) ensuring effectivevarious strategic objectives, including expansion into Denver and Southeast Florida, and growing a pipeline of mixed use development opportunities; (ii) capital allocation and financial management throughobjectives, including goals related to portfolio management, the organization’s transition to new leadership; (ii) continuing to develop our Avalon, AVA and Eaves brands; (iii) identifying and capitalizing on growth opportunities; and (iv) maintaining a strongdevelopment rights pipeline, balance sheet and effectively managing capital.Individualliquidity management and overhead costs; (iii) operations and asset management, including goals relating to the customer experience, community performance, and expanding the scope of our asset management platform; (iv) talent management with respect to associate engagement, diversity, and leadership development; and (v) communication and culture, including goals related to stockholder engagement, corporate social responsibility, safety, and cyber security culture.
Mr. O’Shea’s individual goals for Mr. Sargeant in 20122019 included (i) focusing on operational efficiencies and process improvements; (ii) enhancing corporate controls; (iii) continued focus on team development and organizational structure; and (iv) proactiveeffective management of liquidity, key credit metricsthe Company’s capital plan, including the issuance of debt and debt maturity risk.equity, as well as joint venture activity; (ii) providing effective oversight of the accounting, financial reporting, financial planning and analysis, risk management, tax, treasury, and investment management functions; (iii) providing oversight of the Company’s shared service center; (iv) providing administrative oversight of the Company’s internal audit group; (v) directing the Company’s investor relations efforts; and (vi) strengthening talent management and leadership development in the Financial Services Department.
Mr. Breslin’s individual goals for 2019 included (i) achieving budgeted performance for the Company’s portfolio of communities; (ii) maintaining an engaged workforce that represents approximately two-thirds of the Company; (iii) achieving certain customer related metrics; (iii) continuing to execute the innovation strategy for the Company’s operating model; (iv) assessing the efficiency and effectiveness of the maintenance organization; and (v) developing core talent. Mr. Birenbaum's individual goals for 2019 related to: (i) making progress in market expansion and mixed use expansion; (ii) progress on portfolio management objectives; (iii) working with the development group to prioritize and optimize holdings of development rights, including land; (iv) continued progress on the corporate social responsibility function, including progress on ESG goals; and (v) assisting with executive leadership on organizational planning. Mr. Horey’s individual goals in 2012 includedfor 2019 included: (i) coordinatingmanagement embedding the application of data analytics across various departments; (ii) integrating Retail and Revenue departments into the organization and ensuring their resources are leveraged to optimize performance; (iii) evolving Information Technology initiatives and infrastructure projects for the Company; (ii) managing the internal messaging, communication and coordination ofto be more strategic with the Company’s senior officers and their respective groups; (iii) resolving issues related to management, staffing and training ofbusiness; (iv) being the Company’s Administrative, Operations, Investments and Corporate Support groups; (iv) managing the general and administrative resources of the Company;thought leader on key corporate initiatives; and (v) leadingdriving the Company’s revenue management group to optimize pricing.Mr. McLaughlin’s individual goals in 2012 included: (i) effectively managingtalent and staffing the Northeast Development and Construction businesses, with particular focus on building bench strength within the group during a time of growth; (ii) focusing on construction execution and lease up performance; (iii) replenishing the Northeast development rights pipeline with a balanced mix of new opportunities; and (iv) managing development and construction risks as we enter the mature phase of the business cycle.
succession planning initiative. The achievement of Mr. Naughton against his individual goals for 2019 was determined to be 125% of target. Achievement against individual goals by each of the named executive officers in 2012all other Named Executive Officers was determined to be within 20% of individual target performance. Annual Stock Bonus Component The actual cash bonus paid in 2013 with respect to performance in 2012 for each
Each of the named executive officersNamed Executive Officers had an annual stock bonus component in their total pay package in 2019. Mr. Naughton’s annual stock bonus is based on a mix of quantitative and qualitative factors, as includeddescribed below. Messrs. O’Shea, Breslin, Birenbaum and Horey each received an annual stock bonus based upon the achievement of their business unit goals. When the annual stock bonus award is earned, it is awarded in the table above, andform of restricted stock that vests ratably over three years, based on continued employment but subject to earlier acceleration of vesting in the Summary Compensation Table event of a termination due to death or disability, a termination without cause, or retirement. The value of Mr. Horey's annual stock bonus was paid to him in cash due to his retirement following year end because he retired on page 29 of this Proxy Statement, under the column “Non-Equity Incentive Plan Compensation,” were determined in accordance with the original methodology and goals described above.Annual Long-Term Incentive Awards with Respect to 2012. The following table sets forth theJanuary 1, 2020.
Mr. Naughton: Mr. Naughton’s performance measures for his annual long-term incentive award potential for 2012 performance established in February 2012 and the actual long-term incentive awards made in February 2013 with respect to performance in 2012 for eachstock bonus consisted of the named executive officers.| | | Annual Long-Term Incentive Targets | | | | | | Name | | Threshold
($) | | | Target
($) | | | Maximum
($) | | | Actual
Annual Long-Term
Incentive Award
($)(1) | | | Mr. Blair | | | 843,376 | | | | 1,265,000 | | | | 1,686,625 | | | | 1,407,945 | (2) | | Mr. Naughton | | | 1,466,740 | | | | 2,200,000 | | | | 2,933,260 | | | | 2,448,600 | | | Mr. Sargeant | | | 666,700 | | | | 1,000,000 | | | | 1,333,300 | | | | 1,113,000 | | | Mr. Horey | | | 420,021 | | | | 630,000 | | | | 839,979 | | | | 701,190 | | | Mr. McLaughlin | | | 450,023 | | | | 675,000 | | | | 899,978 | | | | 766,199 | |
| (1) | This dollar value for 2012construction performance, including budget, quality, schedule and safety; (iv) review and assessment of development starts and completions against plan; and (v) talent development and succession planning. Mr. Naughton’s achievement for 2019 was awarded in the form of stock options and restricted shares. In determining the number of options to award, one-third of the dollar value in this column was divided by $28.31, the Black-Scholes value of options as of December 31, 2012 as determined by the Company and verified by the Company’s third-party compensation consultant, FPL Associates. In determining the number of restricted shares to award, the remaining two-thirds of the long-term incentive award dollar value in this column was divided by $130.23, the closing price of our Common Stock on the NYSE on the date of the award. The options granted as part of the long-term incentive award were granted on February13, 2013, with an exercise price of $130.23 per share and vest over a three-year term subject to accelerated vesting (in the case of termination of employment without cause, or upon death, disability or retirement, or upon a sale of the Company, as defined in the 2009 Stock Option and Incentive Plan) or forfeiture of unvested options (in the case of termination of employment for any other reason). The shares of restricted stock granted as part of the long-term incentive award were granted on February 13, 2013. Twenty percent of such grants vested on March 1, 2013 and the remaining 80% of the shares vest in four equal annual installments on the anniversaries of that date, subject to accelerated vesting (in the case of termination of employment without cause, or upon death, disability or retirement, or upon a sale of the Company, as defined in the 2009 Stock Option and Incentive Plan) or forfeiture of unvested shares (in the case of termination of employment for any other reason). Dividends are payable on the shares at the same rate as dividends paid on all outstanding shares of our Common Stock. |
| (2) | In connection with Mr. Blair’s retirement as Chief Executive Officer at the end of 2011, the annual long-term incentive award value in respect of 2012 for Mr. Blair was paid in cash rather than in restricted stock and options. |
Under our annual long-term incentive awards program, the Compensation Committee may award long-term incentive compensation to officersbe 107.7% of target.
Mr. O’Shea: Mr. O’Shea’s business unit component was based on the achievement of specific Company performance goals and the performanceachievements of the officer’s business unit. For 2012Financial Services Group, for which Mr. O’Shea has direct supervisory responsibility. The Financial Services Group includes the weightings applied to the two categoriesareas of capital markets, accounting, financial reporting, financial planning and analysis, risk management, tax, internal audit (for which he has administrative oversight), investor relations, and investment fund management, as well as our call center operations, which support our apartment communities. The major goals for each of the named executive officers were as follows:| | | Weight of Each
Component | | | Name | | Corporate | | | Business Unit | | | Mr. Blair | | | 100 | % | | | | | | Mr. Naughton | | | 100 | % | | | | | | Mr. Sargeant | | | 100 | % | | | | | | Mr. Horey | | | 100 | % | | | | | | Mr. McLaughlin | | | 33 | % | | | 67 | % |
2012 Corporate GoalsFinancial Services Group in 2019 included: (i) sourcing an attractive mix of debt, equity and Achievement for Annual Long-Term Incentive Awards. The corporate component ofjoint venture capital from the annual long-term incentive included four categories of performance goals, with weightings applicablecapital and transaction markets to each goal set in advance based on a review of recommendations made by management. The following corporate goals were established for 2012:
| (i) | The achievement of Total Stockholder Return (on an annualized, compounded three year average) on both an absolute and a relative basis (as compared to the Bonus Peer Group) comprised 50% of total corporate performance. Threshold Total Stockholder Return on an absolute basis was set at 6%, target was set at 9%, and maximum was 12%. For 2012, Total Stockholder Return was 21.9%. For total stockholder return relative to the Bonus Peer Group, a 6th place ranking was threshold performance, a 3rd place ranking was target, and maximum performance was 1st place. In 2012, the Company achieved a4th place ranking against this peer group. |
| (ii) | The multiple of the price of our Common Stock compared to our FFO per share (as measured against the Bonus Peer Group) represented 10% of the total corporate performance. Threshold for this factor was set at 6th place, target was a 3rd place ranking, and 1st place was maximum performance. In 2012, the Company’s ranking for this criterion was 1st. |
| (iii) | The initial year stabilized yield performance for communities stabilizing during the year as compared to the pre-established target yield for such developments represented 10% of the total corporate performance. Target achievement of this goal was set at meeting the pre-established target yield, with threshold performance being 0.75 percentage points below the target yield and maximum at 0.75 percentage points above the target yield. Actual performance was approximately 0.4% above the target yield. |
| (iv) | The effectiveness of management (defined as the execution of business plans, flexibility in decision making, portfolio management, balance sheet management, and focus on the correct organizational priorities) and progress on various corporate initiatives made up 30% of the total corporate performance metrics for 2012. For 2012, the Compensation Committee determined that achievement on this category was at 102.5% of target. |
For 2012, corporate achievement of the annual long-term incentive measures was 111.3% of target. In future years,fund our capital uses, primarily related to our investment and financing activity; (ii) executing the Company’s receipt of a “promoted” distribution fromaccounting, financial reporting, tax and risk management activities; (iii) executing and enhancing the Company’s first investmentbudgeting and forecasting process; (iv) executing our internal audit program; (v) ongoing management fund (i.e., a distribution in excess of the Company’s proportionate interest ininvestment management funds; (vi) executing the Fund) could be a supplemental overriding measure that could allow officers to achieve, but not exceed, maximum performance. ThisCompany’s investor relations activities; (vii) making improvements on the process and productivity for the Company’s shared service center; and (viii) strengthening talent management and leadership development. For 2019, the overall achievement for Mr. O’Shea’s business unit was not a factor in 2012, nor is it likelydetermined to be a factor in 2013.
Business Unit Goals for Annual Long-Term Incentive Awards. The Business Unit goals that were used for calculating cash bonuses as described above were also used for calculating long-term incentive awards, with108.0% of target.
Mr. Breslin: Mr. Breslin’s business unit component was based on the achievement described above.Based on those achievement levels and the formal approval and ratification of those determinations by the Compensation Committee and the independent membersachievements of the BoardResidential Services, Redevelopment and Asset Management, Marketing, Consumer Insight and Brand Strategy and Engineering functions, for which Mr. Breslin has direct oversight responsibility. The major goals of Directors who are qualifiedthese groups in 2019 included: (i) attaining certain portfolio performance targets, including absolute and relative rental revenue growth, and controllable NOI and operating expense performance vs. budget; (ii) achievement of NPS (the Company’s primary customer metric) targets; (iii) execution of changes to serve on the Compensation Committee, the dollar value of annual long-term incentive awards for each named executive officer was awarded as described in the table above, which resulted in the following annual awards made on February 13, 2013:
| Named Executive Officer | | Number of
Options(1) | | | Number of Shares
of Restricted
Stock(2) | | | Mr. Blair(3) | | 0 | | | 0 | | | Mr. Naughton | | | 28,542 | | | | 12,597 | | | Mr. Sargeant | | | 12,974 | | | | 5,726 | | | Mr. Horey | | | 8,174 | | | | 3,607 | | | Mr. McLaughlin | | | 8,931 | | | | 3,942 | |
| (1) | The options set forth in this column were granted on February 13, 2013, with an exercise price of $130.23 per share and vest over a three-year term subject to accelerated vesting (in the case of termination of employment without cause, or upon death, disability or retirement, or upon a sale of the company (as defined in the 2009 Stock Option and Incentive Plan)) or forfeiture of unvested options (in the case of termination of employment for any other reason). |
| (2) | The shares of restricted stock set forth in this column were granted on February 13, 2013. Twenty percent of such grants vested on March 1, 2013 and the remaining 80% of the shares vest in four equal annual installments on the anniversaries of that date, subject to accelerated vesting (in the case of termination of employment without cause, or upon death, disability or retirement, or upon a sale of the Company, as defined in the 2009 Stock Option and Incentive Plan) or forfeiture of unvested shares (in the case of termination of employment for any other reason). Dividends are payable on the shares at the same rate as dividends paid on all outstanding shares of our Common Stock. |
| (3) | In connection with Mr. Blair’s retirement as Chief Executive Officer at the end of 2011, the annual long-term incentive awards in respect of 2012 to Mr. Blair were made in the form of cash representing the full amount of his long-term incentive award, rather than in restricted stock and options. |
2013 Compensation:
As described in the Summary to this Compensation Discussion and Analysis, our Board has revised our compensation framework beginning in 2013 in orderCompany’s operating model to increase the transparencyefficiency of the operating platform; and (iv) certain production and performance metrics for the Company’s portfolio of redevelopment communities. For 2019, the overall achievement for Mr. Breslin’s business units was determined to be 114.0% of target.
Mr. Birenbaum: Mr. Birenbaum’s business unit component was based on the achievements of the Investments, Market Research, Sustainability/Corporate Responsibility, West Coast Development and Asset Management groups, for which Mr. Birenbaum has direct oversight responsibility. The major goals of these groups in 2019 included: (i) effective portfolio management through investments, acquisitions and dispositions; (ii) progress in expansion markets; (iii) working with senior leaders to prioritize and right-size the development pipeline; (iv) supporting the Company’s ESG efforts; and (v) introducing a broader-based portfolio management function within the asset management group. For 2019, the overall achievement for Mr. Birenbaum’s business unit was determined to be 118.6% of target. Mr. Horey: Mr. Horey’s business unit component was based on the achievements of Human Resources, Information Technology, Data Analytics, Retail Management, Revenue Management, Property Tax and Operations & Investment Services groups. The major goals of these groups in 2019 included: (i) creation of the human resources business partner model and integrating it with the various businesses; (ii) sunsetting legacy IT systems and integrating new business solutions for the Company; (iii) integration of data analytics into decision making; (iv) collaboration of retail work on all development deals; and (v) expansion of revenue management platform to non-traditional revenue avenues. For 2019, the overall achievement for Mr. Horey’s business unit was determined to be 110.1% of target. Long‑Term Incentive Program: Design of the Long‑Term Incentive Program: Under our multi‑year, long‑term incentive award program, performance awards are granted each year with a target number of performance units that may be reduced or increased at the end of the three year performance period depending on achievement against established metrics. For the 2019-2021 performance period, the performance units that are earned at the end of the performance period are settled in unrestricted shares of Common Stock. In addition to officers and investors and to more closely align our long term equity awards with long termreceiving one share of fully vested stock performance. As revised, therefor each unit earned as determined at the end of the performance period, a cash payment will be two bonuses programs each year, an annual short term bonus and a multiyear long term incentivemade equal to the dividends that accrued on such number of earned shares during the performance award program: | · | Our annual bonus program will emphasize short term goals and will be paid with a cash bonus and (for certain officers whose business unit performance is measured for bonus compensation purposes) an award of restricted stock that vests over three years. period.
The achievement of corporate, individual and, where appropriate, business unit goals will determine the level of achievement for the annual bonus program. Achievement under the annual bonus program can vary from 0% to 200% of target. For the 2013 Annual Bonus, there will be four corporate goals: 1) Operating FFO per Share which accounts for 50% of the goal, 2) Development and Redevelopment NOI which accounts for 15% of the goal, 3) Development Yield Metric which accounts for 10% of the goal and 4) Effectiveness of Management and progress on various specific corporate initiatives which accounts for the remaining 25% of the goal. |
| · | Our multiyear long term incentive performance award program will have as its sole metric TSR measured on an absolute and a relative basis over a three-year performance period. A performance award will be granted each year with a target number of restricted stock units that may be reduced or increased at the end of the performance period depending on TSR performance over the three-year period. If TSR goals are achieved at the end of the performance period, the restricted stock units that are earned by the participant will be settled in the form of restricted stock that vests over three years. Using performance awards that measure three-year TSR will help assure that the compensation of our officers is tied to long term shareholder return. |
The absolute and relative metrics under the performance awards made in 2019 with a three‑year performance period ending on December 31, 2021 are as follows:
| | | Performance Level and Metric1
(relative performance stated as basis points2above or below index performance) | | | | Threshold | | Target | | Maximum | | Absolute metric | | 6% | | 9% | | 12% | Relative to FTSE NAREIT Equity Index
| | -300 bp | | +100 bp | | +500 bp | | Relative to FTSE NAREIT Apartment Index | | -200 bp | | +100 bp | | +400 bp |
| | | | | | | TSR Metrics (Weighted 60%) | Performance Level and Metric(1)(2) (relative performance stated as percentage above or below index performance) | | | Threshold | Target | Maximum | Percent of TSR Metrics | | Absolute metric | 3.0% | 8.0% | 13.0% | 25.0% | | Relative to FTSE NAREIT Equity REITs Index | -5.0% | 0.0% | 5.0% | 25.0% | | Relative to FTSE NAREIT Apartments Index | -3.0% | 0.0% | 3.0% | 50.0% |
| | | | | | | Operating Metrics (Weighted 40%) | Performance Level and Metric(1) (relative performance stated as (i) percentage above or below average peer performance(3) or (ii) difference between AVB performance and average peer performance) | | | Threshold | Target | Maximum | Percent of Operating Metrics | | Core FFO per share growth vs. peers | -3.0% | Equal to Peer Avg. | +3.0% | 66.7% | | Net Debt-to-Core EBITDA ratio vs. peers | 1.5x | Equal to Peer Avg. | -1.5x | 33.3% |
| 1 | | (1) | For target performance, 100% achievement is earned, for performance at maximum or above, 200% achievement is earned, and for threshold performance, 50% achievement is earned. For results between threshold and target, or between target and maximum, payouts shall be based on interpolation. For performance below threshold, no achievement is earned. |
| | | (2) | The absolute and relative metrics above reflect the metrics used for the awards made in 2019 for the performance periodsperiod maturing on December 31, 2013, December 31, 2014, and December 31, 2015. Different metrics may be used for future awards.2021. |
| 2 | | (3) | A basis point (bp) equals one-one hundredthThe peers used in calculating each of a percent. 100 bp equals 1.0%the Operating Performance Metrics include: Apartment Investment and Management Company, Mid‑America Apartment Communities, Inc., Camden Property Trust, Equity Residential, Essex Property Trust, Inc., and UDR, Inc. Operating metrics for companies that are acquired during the performance period will be factored in for the portion of the performance period for which they were publicly traded companies that published operating results. |
Each metric will independently account for one third
Why These Performance Measures are Selected The performance awards strengthen the alignment of the total potential payout,executive compensation with long‑term stockholder value creation. TSR metrics provide our Named Executive Officers with the threshold, target and maximum achievement levelsopportunity to earn a number of 50%, 100% and 200%.Officers will have the right to elect, priorshares of AvalonBay Common Stock, which number adjusts based on absolute increases in our stock price as well as AvalonBay’s TSR relative to the endFTSE NAREIT Equity REITs Index and FTSE NAREIT Apartments Index. These two indices are selected because they represent the broader REIT industry and the REIT apartment industry, respectively.
Operating metrics in the form of aCore FFO per share growth and Net Debt‑to‑Core EBITDA ratio against peers are chosen to motivate our officers to focus on critical operating performance period,objectives that employee stock options (valued atwe believe will contribute to sustainable stockholder returns over the Black-Scholes value of an option atlong term.
How the end ofCompany Performed for Performance Awards Ending December 2019 The goals, metrics and achievement for the performance period) be awarded in lieu of 25% of the value of the restricted stock that would otherwise be awarded in respect of that year’s annual bonus and maturing performance award.Restricted stock and options awarded at the end of the performance period will be subject to vesting over three years.To transition to the new long term incentive program, in February 2013 the Board granted three performance awards for each participant. Each award measured TSR over a three-year period, with one award maturing on December 31, 2013, one on December 31, 2014, and one on December 31, 2015. An officer must be employed with2019 are graphically illustrated in the Company at the end of the performance period to receive a payout under the performance award for such period.
To address the transition to the new program, restricted stock awarded in February 2014 in respect of the 2013 annual bonus or maturing long-term performance awards will vest 15% on March 1, 2014 and 42.5%following charts:
| | | 2019 Compensation Determinations |
The following tables provide information on the next two anniversaries.During the first quarterNamed Executive Officers’ 2019 Compensation:
Review of 2013 the following compensation decisions were made for each of the named executive officers (other than Mr. Blair, who retired as an officer of the Company at the end of 2011 and who is retiring from our Board in May 2013) by the Compensation Committee and ratified by the independent directors of the Board who qualify for membership on the Compensation Committee:2019 Base Salary: | · | Base Salary for 2013, effective March 3, 2013: |
| Name | | Base Salary ($) | | | | | | | | Mr. Naughton | | | 950,000 | 1,000,000 | Mr. SargeantO’Shea | | | 525,000 | 600,000 | Mr. HoreyBreslin | | | 425,000 | 600,000 | Mr. McLaughlinBirenbaum | 600,000 | | Mr. Horey* | | 430,000 | 525,000 |
| · | The target, threshold and maximum annual bonus for that officer, and the percentage of such award that will be paid in cash and restricted stock: |
| | | Annual Bonus Targets | | | Name | | Threshold ($) | | | Target ($) | | | Maximum ($) | | | % cash/% stock | | | | | | | | | | | | | | | | | | | | | Mr. Naughton | | | 593,750 | | | | 1,187,500 | | | | 2,375,000 | | | | 100/0 | | | Mr. Sargeant | | | 262,500 | | | | 525,000 | | | | 1,050,000 | | | | 100/0 | | | Mr. Horey | | | 170,000 | | | | 340,000 | | | | 680,000 | | | | 100/0 | | | Mr. McLaughlin | | | 426,000 | | | | 853,200 | | | | 1,706,400 | | | | 40/60 | |
| · | The target number of restricted stock units awarded each officer for their* Retired as of January 1, 2020
Review of 2019 Annual Cash Bonus: | | | | | | | | | Annual Weight of Each Component | | Name | Corporate | | Business Unit | | Individual | | Mr. Naughton | 75% | | — | | 25% | | Mr. O’Shea | 40% | | 40% | | 20% | | Mr. Breslin | 40% | | 40% | | 20% | | Mr. Birenbaum | 40% | | 40% | | 20% | | Mr. Horey | 40% | | 40% | | 20% |
| | | | | | | Name | Threshold ($) | Target ($) | Maximum ($) | Actual Cash Bonus ($) | | Mr. Naughton | 1,000,000 | 2,000,000 | 4,000,000 | 2,170,000 | | Mr. O’Shea | 375,000 | 750,000 | 1,500,000 | 798,000 | | Mr. Breslin | 375,000 | 750,000 | 1,500,000 | 823,500 | | Mr. Birenbaum | 375,000 | 750,000 | 1,500,000 | 844,800 | | Mr. Horey | 262,500 | 525,000 | 1,050,000 | 563,010 |
Review of 2019 Annual Stock Bonus (based on business unit performance for Named Executive Officers other than Mr. Naughton): | | | | | | | Name | Threshold ($) | Target ($) | Maximum ($) | Actual Stock Bonus ($) | | Mr. Naughton | 900,000 | 1,800,000 | 3,600,000 | 1,938,600 | | Mr. O’Shea | 380,000 | 760,000 | 1,520,000 | 820,800 | | Mr. Breslin | 430,000 | 860,000 | 1,720,000 | 980,400 | | Mr. Birenbaum | 430,000 | 860,000 | 1,720,000 | 1,019,960 | | Mr. Horey | 200,000 | 400,000 | 800,000 | 440,400 |
With the exception of Mr. Horey, the actual stock bonus payout is delivered in the form of restricted stock that vests ratably over three years from the date of grant. Mr. Horey retired on January 1, 2020 and received his stock bonus in the form of cash compensation. This stock bonus will be disclosed in the 2021 proxy statement Summary Compensation Table as it was awarded in February 2020 following review of 2019 results.
2017 – 2019 Performance Awards Update
The following table shows the actual performance awards associated with the performance periods ending on December 31, 2013, December 31, 2014, and December 31, 2015: |
| Performance Period | | Mr. Naughton | | Mr. Sargeant | | Mr. Horey | | Mr. McLaughlin | | 2011 - 2013 | | 20,061 | | 8,063 | | 5,260 | | 1,926 | | 2012 - 2014 | | 20,061 | | 8,063 | | 5,260 | | 1,926 | | 2013 - 2015 | | 20,061 | | 8,063 | | 5,260 | | 1,926 |
Any units earned at the endcompletion of athe three‑year performance period will beended December 31, 2019, that were settled in restricted shares of stock (and, if applicable as described above, employee stock options) with three-yearsubject to an additional three year service-based vesting following the endrequirement.
| | | | | | Name | Target Number of Performance Units | Actual Performance Achievement % | Actual Number of Performance Units Earned (restricted shares subject to additional time vesting) | | Mr. Naughton | 25,405 | 123.2% | 31,288 | | Mr. O’Shea | 5,927 | 123.2% | 7,300 | | Mr. Breslin | 5,927 | 123.2% | 7,300 | | Mr. Birenbaum | 5,927 | 123.2% | 7,300 | | Mr. Horey | 3,387 | 123.2% | 4,171 |
2019 – 2021 Performance Awards Update
The target, threshold and maximum number of performance units granted in 2019 that may be earned for the performance period.period 2019 - 2021:
| | | | | | | | | | | | 2019 – 2021 TSR Metric | 2019 – 2021 Operating Metric | | Name | Target Dollar Value ($) | Threshold (#) | Target(1) (#) | Maximum (#) | Threshold (#) | Target(1) (#) | Maximum (#) | | Mr. Naughton | $5,600,000 | 8,229 | 16,458 | 32,916 | 5,723 | 11,445 | 22,890 | | Mr. O’Shea | $1,140,000 | 1,675 | 3,350 | 6,700 | 1,165 | 2,330 | 4,660 | | Mr. Breslin | $1,290,000 | 1,896 | 3,791 | 7,582 | 1,318 | 2,636 | 5,272 | | Mr. Birenbaum | $1,290,000 | 1,896 | 3,791 | 7,582 | 1,318 | 2,636 | 5,272 | | Mr. Horey | $600,000 | 882 | 1,763 | 3,526 | 613 | 1,226 | 2,452 |
| | | (1) | To derive the target number of units, 60% of the target dollar value (representing the portion of the award tied to TSR Metrics) was divided by the Monte Carlo value as of February 14, 2019 (the approval date) to determine the number of units based solely on the TSR metrics ($204.15 per unit), and 40% of the target dollar value (representing the portion of the award tied to Operating Metrics) was divided by the closing price of the Common Stock on February 14, 2019 ($195.72 per share) to determine the number of units based solely on operating metrics. The shares of stock that may be issued upon settlement of awards are not subject to further additional time vesting requirements. |
Also in the first quarter of 2013, in consideration of the significant efforts and accomplishments associated with the Company’s acquisition of 40% of the assets of Archstone Enterprise LP, on March 13, 2013, and to successfully integrate the Archstone assets and realize the strategic benefits and value creation sought by the transaction, our Board approved the following special grants of restricted stock and employee stock options to Messrs Naughton, Sargeant and Horey:
| | | Restricted Stock1 | | | Stock Options2 | | | Mr. Naughton | | | 10,569 | | | | 26,634 | | | Mr. Sargeant | | | 2,642 | | | | 6,659 | | | Mr. Horey | | | 1,972 | | | | 5,044 | |
| 1 | 20% of the shares vested on April 1, 2013, and the remaining 80% vest in four annual installments beginning on March 1, 2014. |
| 2 | These options vest in three annual installments beginning on March 13, 2014. |
Other Benefits:
Pursuant to our Deferred Compensation Plan, certain employees, including the named executive officers,Named Executive Officers, may defer up to 25% of base annual salary and up to 50% of annual cash bonus on a pre-taxpre‑tax basis and receive a tax-deferredtax‑deferred return on those deferrals. Deferral elections are made by eligible employees during an open enrollment period each year for amounts to be earned in the following year. Participating employees direct the deemed investment of their deferral accounts by selecting among certain available investments in mutual funds. We have an employee stock purchase plan that allows our employees the opportunity to purchase up to $25,000 of our Common Stock per year at a 15% discount to the lower of the closing price of the Common Stock, as reported on the NYSE, on the first business day of the Purchase Perioda purchase period or the closing price of the Common Stock on the last day of a purchase period. For 2019 there were two purchase periods, January 1 - June 10 and July 1 - December 10, with the Purchase Period. The Purchase Period is defined asopportunity to purchase up to $12,500 of our Common Stock at the seven-month period beginning on April 1 and ending on October 31discounted rate previously mentioned during
each of a calendar year.the two purchase periods (up to $25,000 annually). In addition, we maintain a 401(k) retirement savings plan and annually match 50% of the contributions up to the first six percent of base salary and bonus contributed to such plan by any employeea participant's eligible compensation (subject to certain tax limitations). We offer medical, dental and vision plans, a portion of the cost of which is paid by the employee. We also provide life insurance, accidental dismemberment insurance, and short-termshort ‑term and long-termlong‑term disability insurance for each employee. Messrs. Naughton, Sargeant and Horey each have employment agreements with the Company pursuant to which certain other benefits are provided to them. The terms of each of such employment agreement are described in “Potential Payments Upon Termination or Sale Event” below.Compensation Policies:
Executive
Stock Ownership Guidelines.The Company believes that stock ownership by its executivesenior officers is important and has established formal Executivethe Senior Officer Stock Ownership Guidelines for officers who are subject to reporting under Section 16 ofat the Securities Exchange Act.Senior Vice President level or above. These guidelines provide that persons holding the titlefollowing classes of Chairman of the Board, Chief Executive Officer or Presidentsenior officers are expected to maintain ownership of Common Stock (including unvested restricted shares) equal to sixthe indicated multiple of base salary: Chairman of the Board, CEO and President 6 times their base salary. The multiples that apply to other covered officers are as follows: Chief Financial Officer and Executive Vice Presidents—three times; Presidents 3 times Senior Vice Presidents—one and one-half times; Vice Presidents—one time. Presidents 1.5 times The full text of the ExecutiveSenior Officer Stock Ownership Guidelines, which includes the time periods by which such ownership must be achieved and a retention policy during periods of non-achievement,non‑achievement, is posted on the “Investors”Investor Relations section of the Company’s website (www.avalonbay.com) under Corporate“Corporate Governance Documents.Prohibition Against Pledging or Borrowing Against Company Stock.” The Company also has Director Stock Ownership Guidelines as discussed in the “Director Compensation and Director Stock Ownership Guidelines” section of the proxy statement.
Anti-Hedging and Anti-Speculation Policy. AvalonBay’s Board of Directors has adopted the following Anti-Hedging and Anti-Speculation Policy which applies to all employees and the Board of Directors: "Associates (including officers) and members of the Board of Directors of AvalonBay Communities, Inc. (the 'Company') may not, directly or indirectly (including, without limitation, through trading done by immediate family members sharing the person’s household and/or not financially independent of such person or through trading done through an account over which the person has investment power or authority): | | | 1. | Sell Company equity securities short (i.e., sell Company equity securities that are not owned by the seller at the time of sale). |
| | | 2. | Buy or sell securities or financial instruments that are derivatives of Company equity securities, including, without limitation, puts, calls, futures contracts and options (other than receiving employee stock options under the Company’s Stock Incentive Plan). |
| | | 3. | Purchase financial instruments or engage in other transactions for the purpose of speculating in Company equity securities, including, without limitation, financial instruments and transactions designed for the purpose of providing the economic equivalent of profiting from a change in the value of Company equity securities. |
| | | 4. | Purchase financial instruments or engage in other transactions for the purpose of hedging or offsetting a decrease in the price of Company equity securities, including, without limitation, prepaid variable forward contracts, equity swaps and collars." |
No Pledging Policy. The Board has also adopted the following No Pledging Policy: "No officer and no member of the Board of Directors of AvalonBay Communities, Inc. (the “Company”) may, directly or indirectly (including, without limitation, through accounts owned by immediate family members sharing the person’s household and/or not financially independent of such person or through trading done through an account over which the person has investment power or authority), purchase Company equity securities on margin, hold Company equity securities in a formal policy prohibiting its executive officers and directors from (i) borrowingmargin account, or borrow money from a broker or other lender that is secured by Company securities without the consent of the Company, and (ii) holding Company securities in a brokerage account that has outstanding “margin” debt.Securities."
Severance Policy.The Board has adopted a Policy Regarding Shareholder Approval of Future Severance Agreements (the “Severance Policy”). The Severance Policy generally provides that the Company will not, without shareholder
stockholder approval or ratification, enter into or bind the Company to the terms of any future severance agreement entered into after adoption of the policy with a senior executive officer that provides for severance benefits (as defined) in excess of 2.993.0 times the sum of the officer’s base salary plus annual bonus. The Severance Policy, which is posted on the “Investors”Investor Relations section of the Company’s website (www.avalonbay.com) under “Corporate Governance Documents,” provides additional detail regarding the application of this policy.Policy on Recoupment of Incentive Compensation (Clawback Policy). The Board has adopted a Policy for Recoupment of Incentive Compensation (i.e., a compensation clawback policy), which applies to senior officers (generally senior vice presidents and above). Pursuant to this policy, in the event the Company is required to prepare an accounting restatement due to the material non-compliancenon‑compliance of the Company with any financial reporting requirement, then an independent committee of the Board of directorsDirectors may require any covered officer to repay to the Company all or part of any “Excess Compensation” that such officer had previously received. Excess Compensation is defined as that part of the cash or equity incentive compensation received by a covered officer during the 3-yearthree‑year period preceding the publication of the restated financial statement that was in excess of the amount that such officer would have received had such incentive compensation been calculated based on the financial results reported in the restated financial statement. The full text of the policy is posted on the “Investors”Investor Relations section of the Company’s website (www.avalonbay.com) under Corporate“Corporate Governance Documents.
Practices with regard to dates and pricing of stock and option grants:
” | | | Practices with Regard to Dates and Pricing of Stock and Option Grants |
The Compensation Committee determines the number of shares underlying options andand/or number of shares of restricted stock to award to each officerofficers as part of annual compensation. Those members of the Board of Directors who would qualify for service on the Compensation Committee review and ratify these awards at the Board’s regularly scheduled February meeting. The award date for options and stock grants is generally the date of ratification but may be delayed to a date after such ratification if there is a pending announcement by the Company of material non-publicnon‑public information, such as an earnings release. The exercise price of each option granted is the closing price of our Common Stock on the award date.In all cases, our options are granted: (i) on the dates described above; (ii) on the date of (or a date set in connection with) a new hire’s start with the Company as approved by the CEOChief Executive Officer in advance of the start date; or (iii) on the date of approval by the CEOChief Executive Officer for retention or recognition purposes up to a Board-authorizedBoard‑authorized maximum value of $100,000; or (iv) on the date of a terminated senior executive’s departure from the Company, as set out in formal terms approved by the Compensation Committee in advance.$250,000. Option exercise prices are determined byequal to the NYSE closing price of our Common Stock on the date of grant. Additionally, all officers must receive prior authorization for any purchase or sale of our Common Stock (unless made pursuant to a previously approved Rule 10b5‑1 plan), which, in the case of open market transactions, is generally only given during approved trading windows that are generally established in advance based upon earnings release dates. Risk Considerations:
The Compensation Committee reviewed and considered risks arising from the Company’s compensation policies and practices for its employees. This review included consideration of the following specific elements of the Company’s executive compensation policies and procedures: | · | annual bonus and long-term incentive awards are based upon pre-existing, defined goals; |
| · | such goals contain multiple financial targets, including performance against a pre-approved budget; |
| · | performance goals include both absolute performance and performance relative to industry peers; |
| · | goals balance financial and non-financial performance; |
| · | goals include corporate, business unit, and individual performance goals; |
| · | performance goals include achievement against both single year and multiyear metrics; |
| · | executive compensation is structured as a mix among salary,cash bonus, and equity awards; |
| · | equity awards vest over time; |
| · | bonus and long-term equity programs include maximum payouts or “caps”; |
annual bonus and long‑term incentive awards are based upon pre‑existing, defined goals; | · | all unvested equity awards are forfeited upon a termination for cause or voluntary termination under certain circumstances; |
| · | the CEO’s individual goals include a goal addressing appropriate leverage ratios; |
| · | achievement of metrics is not determined on an “all or nothing” basis, but rather goals may be achieved on a graduated basis based on performance against the stated target; and |
| · | while awards are generally made in relation to performance against specific goals, the Compensation Committee retains the discretion to adjust annual bonuses of cash and restricted stock as may be warranted by specific circumstances. |
annual goals contain multiple financial targets, including performance against a pre‑approved budget; performance goals include both absolute performance and performance relative to industry peers; annual goals balance financial and non‑financial performance; goals include corporate, business unit, and individual performance goals; performance goals include achievement against both single year and multi-year metrics; executive compensation is structured as a mix among salary, cash bonus, and equity awards; equity awards vest over time or are earned based upon achievement of pre-determined goals; bonus and long‑term equity programs include maximum payouts or “caps”;
all unvested equity awards are forfeited upon a termination for cause or voluntary termination under certain circumstances; the metrics that are included in our long‑term performance awards include a goal addressing appropriate leverage ratios; achievement of metrics is not determined on an “all or nothing” basis, but rather goals may be achieved on a graduated basis based on performance against the stated target; and while awards are generally made in relation to performance against specific goals, the Compensation Committee retains the discretion to adjust annual bonuses of cash and restricted stock as may be warranted by specific circumstances. Following this review, the Compensation Committee concluded that any risks arising from the Company’s compensation policies and practices are not reasonably likely to have a material adverse effect on the Company at this time.Section 162(m):
time, although no assurances can be given in this regard. The SEC requires that this report comment upon the Company’s policy with respect to Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Tax Code"), which limits the deductibility on the Company’s tax return of compensation over $1 million paid to any of the namedcertain executive officers of the Company unless, in general, the compensation is paid pursuant to a plan which is performance- related, non-discretionary and has been approved by the Company’s stockholders.or former executive officers. The Company believes that, because it qualifies as a REIT under the Tax Code and pays dividends sufficient to minimize federal income taxes, the payment of compensation that does not satisfy the requirements of Section 162(m) will generally not affect the Company’s net income. Toincome, although the extent that compensation does not qualify for a deductionloss of deductibility under Section 162(m) , could modestly affect the Company’s dividend requirements to qualify as a larger portionREIT or the tax characterization of stockholder distributions may be subject to federal income taxation as dividend income rather than return of capital.such dividends. The Company does not believe that Section 162(m) will materially affect its dividend requirements or the taxability of stockholder distributions, although no assurance can be given in this regard due to the variety of factors that affect the tax position of each stockholder. For these reasons, the Compensation Committee’s compensation policy and practices are not directly guided by considerations relating to Section 162(m). Compensation Committee Report
| | | Compensation Committee Report |
The Compensation Committee of the Board of Directors of AvalonBay Communities, Inc., a Maryland corporation, has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-KS‑K of the Securities and Exchange Commission with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
Submitted by the Compensation Committee Peter S. Rummell
W. Edward Walter (Chair) Lance R. Primis
Alan B. Buckelew Richard J. Lieb Compensation Committee Interlocks and Insider Participation The
During 2019, the members of the Compensation Committee currently consists of Peter S. Rummell, Lance R. Primis, andwere W. Edward Walter (Chair), Alan B. Buckelew, H. Jay Sarles.Sarles, and Richard J. Lieb. None of them has served as an officer of the Company or any of its subsidiaries. None of our Named Executive Officers serves as a member of the board of directors or compensation committee of any company that has one or more of its executive officers serving as a member of our Board of Directors or Compensation Committee. No member of the Compensation Committee has any other business relationship or affiliation with the Company or any of its subsidiaries (other than his service as a director).
Summary Compensation Table
The table below summarizes the compensation amounts paid in or earned by each of the named executive officersNamed Executive Officers for the fiscal years ended December 31, 2010,2019, December 31, 20112018 and December 31, 2012.2017. Executives are eligible to defer a portion of their salaries and bonuses under our Nonqualified Deferred Compensation Plan. The amounts shown below are before any deferrals under the Nonqualified Deferred Compensation Plan. Amounts deferred in 2012 are shown in theNonqualified Deferred Compensation Tablebeginning on page 35 below.Name and Principal
Position | | Year | | | Salary
($)(1) | | | Bonus
($) | | | Stock
Awards
($)(2)(3) | | | Option
Awards
($)(2)(4) | | | Non-equity
Incentive Plan
Compensation
($)(5) | | | Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)(6) | | | All Other
Compensation
($)(7) | | | Total
($) | | | (a) | | (b) | | | (c) | | | (d) | | | (e) | | | (f) | | | (g) | | | (h) | | | (i) | | | (j) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Bryce Blair | | | 2012 | | | | 702,373 | | | | — | | | | 3,203,962 | | | | 0 | | | | 1,953,519 | (8) | | | — | | | | 292,041 | | | | 6,151,895 | (8) | | Chairman of the Board | | | 2011 | | | | 823,368 | | | | — | | | | 1,889,419 | | | | 980,990 | | | | 1,316,102 | | | | — | | | | 284,903 | | | | 5,294,782 | | | | | | 2010 | | | | 823,368 | | | | — | | | | 1,408,984 | | | | 584,084 | | | | 1,268,501 | | | | — | | | | 232,972 | | | | 4,317,909 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Tim Naughton | | | 2012 | | | | 799,038 | | | | — | | | | 1,073,305 | | | | 540,388 | | | | 1,252,742 | | | | — | | | | 166,870 | | | | 3,832,343 | | | Chief Executive Officer | | | 2011 | | | | 750,000 | | | | — | | | | 944,709 | | | | 490,480 | | | | 959,063 | | | | — | | | | 173,146 | | | | 3,317,399 | | | | | | 2010 | | | | 750,000 | | | | — | | | | 704,529 | | | | 292,042 | | | | 924,375 | | | | — | | | | 129,724 | | | | 2,800,670 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Tom Sargeant | | | 2012 | | | | 499,231 | | | | — | | | | 697,722 | | | | 351,244 | | | | 613,680 | | | | — | | | | 133,672 | | | | 2,295,549 | | | Chief Financial Officer | | | 2011 | | | | 460,000 | | | | — | | | | 1,614,019 | | | | 318,814 | | | | 524,228 | | | | — | | | | 111,105 | | | | 3,028,166 | | | | | | 2010 | | | | 460,000 | | | | — | | | | 457,962 | | | | 189,832 | | | | 510,255 | | | | — | | | | 95,646 | | | | 1,713,695 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Leo Horey | | | 2012 | | | | 396,154 | | | | — | | | | 436,741 | | | | 219,850 | | | | 393,539 | | | | — | | | | 78,811 | | | | 1,525,095 | | | EVP, Property Operations | | | 2011 | | | | 380,000 | | | | — | | | | 694,853 | | | | 205,036 | | | | 400,368 | | | | — | | | | 75,559 | | | | 1,755,815 | | | | | | 2010 | | | | 380,000 | | | | — | | | | 298,358 | | | | 123,683 | | | | 369,816 | | | | — | | | | 57,090 | | | | 1,228,947 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | William McLaughlin | | | 2012 | | | | 410,193 | | | | — | | | | 495,904 | | | | 249,627 | | | | 435,034 | | | | — | | | | 63,139 | | | | 1,653,896 | | | EVP, Development & Construction | | | 2011 | | | | 390,000 | | | | — | | | | 462,046 | | | | 239,904 | | | | 434,616 | | | | — | | | | 62,530 | | | | 1,589,095 | | | | | | 2010 | | | | 390,000 | | | | — | | | | 303,033 | | | | 125,628 | | | | 399,110 | | | | — | | | | 43,017 | | | | 1,260,788 | |
| | | | | | | | | | | | Name and Principal Position | Year | Salary ($)(1) | Bonus ($) | Stock Awards ($)(2)(3) | | Option Awards ($)(2)(4) | Non–Equity Incentive Plan Compensation ($)(5) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(6) | All Other Compensation ($)(7) | Total ($) | | (a) | (b) | (c) | (d) | (e) | | (f) | (g) | (h) | (i) | (j) | | Timothy Naughton | 2019 | 1,000,000 | - | 7,727,980 | (8) | - | 2,170,000 | - | 23,382 | 10,921,362 | | Chairman, CEO and | 2018 | 1,000,000 | - | 6,688,757 | | - | 2,368,500 | - | 22,177 | 10,079,434 | | President | 2017 | 990,385 | - | 5,064,956 | |
| 1,750,000 | - | 88,486 | 7,893,827 | | Kevin O’Shea | 2019 | 600,000 | - | 1,905,782 | (9) | - | 798,000 | - | 25,237 | 3,329,019 | | Chief Financial Officer | 2018 | 595,192 | - | 1,804,617 | | - | 846,900 | - | 24,979 | 3,271,688 | | | 2017 | 570,192 | - | 1,626,097 | | | 711,528 | - | 23,608 | 2,931,425 | | Sean Breslin | 2019 | 600,000 | | 2,246,921 | (10) | - | 823,500 | - | 24,456 | 3,694,877 | | Chief Operating Officer | 2018 | 595,192 | - | 1,983,318 | | - | 886,800 | - | 23,577 | 3,488,887 | | | 2017 | 570,192 | - | 1,718,139 | | | 734,712 | - | 23,445 | 3,046,488 | | Matthew Birenbaum | 2019 | 600,000 | - | 2,157,282 | (11) | - | 844,800 | - | 24,711 | 3,626,793 | | Chief Investment Officer | 2018 | 595,192 | - | 1,960,925 | | - | 867,300 | - | 23,757 | 3,447,174 | | | 2017 | 570,192 | - | 1,798,004 | | | 725,880 | - | 23,608 | 3,117,684 | | Leo Horey | 2019 | 525,000 | - | 1,041,805 | (12) | - | 1,003,410 | - | 18,208 | 2,588,423 | | Former Chief | | | | | | | | | | | | Administrative Officer | | | | | | | | | | |
| | | (1) | The amounts shown as salary in column (c) reflect actual payments received in each indicated year, which may vary slightly from the salary described in theCompensation Discussion and Analysisas a result of (i) the number of pay periods in each calendar year and (ii) the fact that any salary increases diddo not go into effect until early March of each year. |
| | | (2) | The amounts in column (e) and column (f) include restricted stock and option awards actually granted during the fiscal year for service in the prior fiscal year. For example, the row for 2012 shows2019 includes the value (computed in accordance with FASB ASC Topic 718 and as further discussed in the footnotes 3 and 4) of stock and option awards made in February 20122019 with respect to 20112018 service. In connection with Mr. Blair’s retirement as Chief Executive Officer at the end of 2011, the annual long term incentive award value in respect of 2011 was paid in restricted stock rather than restricted stock and options. |
| | | (3) | The amounts in column (e) reflect the aggregate grant date fair value for awards made in the fiscal years ended December 31, 2010,2019, December 31, 2011,2018, and December 31, 20122017 computed in accordance with FASB ASC Topic 718 for restricted stock awards and performance unit awards made pursuant to the Company’s 2009 Stock Option andEquity Incentive Plan. The value of restricted stock awards is based solely on the closing price of our Common Stock on the NYSE on the date of grant; as a result,grant and no assumptions were used in the calculation of this value. InThe value of performance unit awards based on operating metrics established in 2019 for measurement period 2019 - 2021 is based on the caseclosing price of our Common Stock on the NYSE on the date of grant of $195.72. The value of performance unit awards based on TSR metrics made in 2019 for measurement period 2019‑2021 is based on the Monte Carlo value of $204.15. The total value of 2019‑2021 performance unit awards, if earned at maximum and valued at the closing price of our Common Stock on the NYSE on the date of grant, for the Named Executive Officers is: Mr. SargeantNaughton-$10,922,350, Mr. O’Shea-$2,223,379, Messrs. Birenbaum and Breslin-$2,515,785, and Mr. Horey the amounts in this column for 2011 include Supplemental Awards granted on December 30, 2011.- $1,170,014. |
| | | (4) | The amounts in column (f) reflect the aggregate grant date fair value for awards made pursuantNo stock options were granted to the Company’s 2009 Stock Option and Incentive PlanNamed Executive Officers in the fiscal years ended December 31, 2010, December 31, 2011, and December 31, 2012 computed in accordance with FASB ASC Topic 718. Assumptions used in the calculation of this amount are included in footnote 9 to the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 22, 2013.2019, 2018 or 2017. |
| | | (5) | The amounts shown in column (g) reflect the cash awards to the named individuals determined by the Compensation Committee in February of the following year (based upon the achievement of the performance metrics established in the year indicated, as more fully described in theCompensation Discussion and Analysisabove). For Mr. Horey, the non-equity incentive plan compensation payouts included both his 2019 cash and ratified by the membersstock bonus payments paid in cash as a result of the full Board of Directors who would be qualified to servehis retirement on the Compensation Committee.January 1, 2020. |
| | | (6) | All earnings under the Company’s nonqualified deferred compensation program are determined by reference to returns of actual mutual funds and the Company does not consider such earnings to be above market. |
| | | (7) | For 2012,2019, the amounts shown in column (i) include, for each named executive officerNamed Executive Officer (a) dividends paid on unvested shares of restricted stock during 2012 in the following amounts: Mr. Blair—$221,918; Mr. Naughton—$123,128; Mr. Sargeant—$97,404; Mr. Horey—$60,791; and Mr. McLaughlin—$54,329; (b) amounts contributed by the Company to the named executive officers’Named Executive Officers’ 401(k) accounts in the amount of $7,500 each. The amounts shown in column (i) also include (i) premiums paid by the company on disability insurance in the following amounts: Mr. Blair—$4,764; Mr. Naughton—$3,296; Mr. Sargeant—$2,947; Mr. Horey—$0,$8,400 each for Messrs. Naughton, O’Shea, Breslin, Birenbaum, and Mr. McLaughlin—$0; (ii) andHorey, (b) medical benefit premiums paid by the Company in 2012 for Company-owned life insurance policies on the lives of such named executive officers for which the Company has endorsed the respective policies so that any death benefit, in excess of the cumulative premiumsand contribution to health savings accounts paid by the Company will be paid to the beneficiaries of the deceased, which premiums were in the following amounts for each officer (such amounts representing paymentaggregate amount of a whole-life premium which builds cash value in the Company-owned policy to support future repayment of the cumulative premiums; see “Potential Payments Upon Termination or Sale Event—Endorsement Split Dollar Agreements”): Mr. Blair—$57,859; Mr. Naughton—$32,946; Mr. Sargeant—$25,821; Mr. Horey—$10,521; and Mr. McLaughlin—$0. The amount shown$14,982 for Mr. McLaughlin includesNaughton, $14,987 for Mr. O'Shea, $14,461 for Messrs. Breslin and Birenbaum, and $7,350 for Mr. Horey and (c) the premiums in the amount of $1,310 paid by the Company for a standard term life insurance policy in the face amount of $750,000.$750,000 for: Messrs. O'Shea and Birenbaum - $1,850; Mr. Breslin-$1,595; and Mr. Horey - $2,458. For Mr. O'Shea, his 2018 all other compensation has been updated to include the health savings account amount. |
| | | (8) | Stock awards for Mr. Naughton in 2019 included the following: 10,873 shares of restricted stock awarded in respect of 2018 performance; 27,903 total target performance units maturing at the end of 2021. |
| (8) | | (9) | 2012 compensationStock awards for Mr. Blair includesO’Shea in 2019 included the following: (i) base salary received in 2012; (ii) the value3,913 shares of restricted stock awarded in respect of 2018 performance; 5,680 total target performance units maturing at the end of the end of 2021. |
| | | (10) | Stock awards receivedfor Mr. Breslin in 20122019 included the following: 4,890 shares of restricted stock awarded in respect of 2018 performance; 6,427 total target performance units maturing at the end of 2021. |
| | | (11) | Stock awards for Mr. Birenbaum in 2019 included the following: 4,432 shares of restricted stock awarded in respect of 2018 performance; 6,427 total target performance units maturing at the end of 2021. |
| | | (12) | Stock awards for Mr. Horey in 2011 under2019 included the Company’s long-term incentive compensation plan; (iii)following: 2,258 shares of restricted stock awarded in respect of 2018 performance; 2,989 total target performance units maturing at the cash bonus received in 2013 for performance in 2012; (iv) the cash received in 2013 for performance in 2012 under the Company’s long-term incentive compensation plan; and (v) all other compensation as described in footnote (7) above.end of 2021. |
Grants of Plan-BasedPlan‑Based Awards The table below sets out the grants made to the named executive officersNamed Executive Officers in 20122019 under the Company’s 2009 Stock Option andEquity Incentive Plan. Grants of Plan-Based Awards
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | All Other
Stock
Awards:
Number of
Shares of
Stock or
Units
(#)(3)
(i) | | All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)(4)
(j) | | Exercise or
Base Price
of Options
Awards
($/Share)
(k) | | Grant Date Fair
Value of Stock
and Options
Awards
($)(5)
(l) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Estimated Future Payouts Under Non-
Equity Incentive Plan Awards(1) | �� | Estimated Future Payouts Under Equity
Incentive Plan Awards(2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Name
(a) | | Grant Date
(b) | | Threshold
($)
(c) | | Target
($)
(d) | | Maximum
($)
(e) | | Threshold
($)
(f) | | Target
($)
(g) | | Maximum
($)
(h) | | | | | | | Mr. Blair | | | 2/16/2012 | | $ | 1,060,376 | | $ | 1,699,000 | | $ | 2,554,625 | | | | | | | | | | | | | | | | | | | | | | | | | | | 2/16/2012 | | | | | | | | | | | | | | | | | | | | | 24,099 | | | | | | | | $ | 3,203,962 | | | Mr. Naughton | | | 2/16/2012 | | $ | 500,000 | | $ | 1,000,000 | | $ | 2,000,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | 2/16/2012 | | | | | | | | | | | $ | 1,466,740 | | $ | 2,200,000 | | $ | 2,933,260 | | | | | | | | | | | | | | | | | | 2/16/2012 | | | | | | | | | | | | | | | | | | | | | 8,073 | | | | | | | | $ | 1,073,305 | | | | | | 2/16/2012 | | | | | | | | | | | | | | | | | | | | | | | | 18,602 | | $ | 132.95 | | $ | 540,388 | | | Mr. Sargeant | | | 2/16/2012 | | $ | 250,000 | | $ | 500,000 | | $ | 1,000,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | 2/16/2012 | | | | | | | | | | | $ | 666,700 | | $ | 1,000,000 | | $ | 1,333,300 | | | | | | | | | | | | | | | | | | 2/16/2012 | | | | | | | | | | | | | | | | | | | | | 5,248 | | | | | | | | $ | 697,722 | | | | | | 2/16/2012 | | | | | | | | | | | | | | | | | | | | | | | | 12,091 | | $ | 132.95 | | $ | 351,244 | | | Mr. Horey | | | 2/16/2012 | | $ | 160,000 | | $ | 320,000 | | $ | 640,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | 2/16/2012 | | | | | | | | | | | $ | 420,021 | | $ | 630,000 | | $ | 839,979 | | | | | | | | | | | | | | | | | | 2/16/2012 | | | | | | | | | | | | | | | | | | | | | 3,285 | | | | | | | | $ | 436,741 | | | | | | 2/16/2012 | | | | | | | | | | | | | | | | | | | | | | | | 7,568 | | $ | 132.95 | | $ | 219,850 | | | Mr. McLaughlin | | | 2/16/2012 | | $ | 166,000 | | $ | 332,000 | | $ | 664,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | 2/16/2012 | | | | | | | | | | | $ | 450,023 | | $ | 675,000 | | $ | 899,978 | | | | | | | | | | | | | | | | | | 2/16/2012 | | | | | | | | | | | | | | | | | | | | | 3,730 | | | | | | | | $ | 495,904 | | | | | | 2/16/2012 | | | | | | | | | | | | | | | | | | | | | | | | 8,593 | | $ | 132.95 | | $ | 249,627 | |
| | | Grants of Plan-Based Awards |
| | | | | | | | | | | | | | | | Estimated Future Payouts Under Non–Equity Incentive Plan Awards(1) | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | All Other Stock Awards: Number of Shares of Stock or Units (#)(3) (i) | All Other Option Awards: Number of Securities Underlying Options (#) (j) | Exercise or Base Price of Options Awards ($/Share) (k) | Grant Date Fair Value of Stock and Options Awards ($)(2)(4) (l) | Name (a) | Grant Date (b) | Threshold ($) (c) | Target ($) (d) | Maximum ($) (e) | Threshold (#) (f) | Target (#) (g) | Maximum (#) (h) | | Mr. Naughton | 2/14/2019 | 1,900,000 | 3,800,000 | 7,600,000 | - | - | - | - | - | - | - | | | 2/14/2019 | - | - | - | 13,952 | 27,903 | 55,806 | - | - | - | 5,599,916 | | | 2/14/2019 | - | - | - | - | - | - | 10,873 | - | - | 2,128,064 | | Mr. O’Shea | 2/14/2019 | 755,000 | 1,510,000 | 3,020,000 | - | - | - | - | - | - | - | | | 2/14/2019 | - | - | - | 2,840 | 5,680 | 11,360 | - | - | - | 1,139,930 | | | 2/14/2019 | - | - | - | - | - | - | 3,913 | - | - | 765,852 | | Mr. Breslin | 2/14/2019 | 805,000 | 1,610,000 | 3,220,000 | - | - | - | - | - | - | - | | | 2/14/2019 | - | - | - | 3,214 | 6,427 | 12,854 | - | - | - | 1,289,851 | | | 2/14/2019 | - | - | - | - | - | - | 4,890 | - | - | 957,071 | | Mr. Birenbaum | 2/14/2019 | 805,000 | 1,610,000 | 3,220,000 | - | - | - | - | - | - | - | | 2/14/2019 | - | - | - | 3,214 | 6,427 | 12,854 | - | - | - | 1,289,851 | | | 2/14/2019 | - | - | - | - | - | - | 4,432 | - | - | 867,431 | | Mr. Horey | 2/14/2019 | 462,500 | 925,000 | 1,850,000 | - | - | - | - | - | - | - | | | 2/14/2019 | - | - | - | 1,495 | 2,989 | 5,978 | - | - | - | 599,869 | | | 2/14/2019 | - | - | - | - | - | - | 2,258 | - | - | 441,936 |
| | | (1) | The amounts shown in columns (c), (d) and (e) reflect the threshold, target and maximum payment levels for 20122019 under our cashannual bonus plan, which were established on February 16, 2012.14, 2019. The annual bonus is paid in cash and restricted stock. The actual cash bonuses received by each of the named executive officersNamed Executive Officers for performance in 2012,2019, paid in 2013,2020, are set out in column (g) of the Summary Compensation Table. Under applicable SEC rules earned stock bonuses will be disclosed in the 2021 proxy statement Summary Compensation Table. as the actual grant of stock based on 2019 achievement occurred in 2020. |
| | | (2) | The amounts shown in columns (f), (g) and (h) reflect the threshold, target and maximum dollar values for 2012 performance for annual equity grants under our equity incentive plan, which were adopted on February 16, 2012. As noted in the “Compensation Discussion and Analysis” section above, the actual number of sharesperformance units awarded in 2019 for the performance period 2019‑2021 under the long‑term incentive performance program. The grant date fair value of restricted2019‑2021 awards is based on the closing price on the grant date of $195.72 for the operating metric portion of the award and the Monte Carlo value of $204.15 for the TSR metric portion of the award. In addition to receiving one share of fully vested stock grantedfor each unit earned as determined at the end of the performance period, a cash payment will be made equal to the named executive officersdividends that accrued on February 13, 2013, based upon achievement under this plan were as follows: Mr. Blair—0, Mr. Naughton—12,597, Mr. Sargeant—5,726, Mr. Horey—3,607, and Mr. McLaughlin—3,942. Information about the vesting of such shares of restricted stock is provided in footnote (3) below. The actual number of earned shares underlying options granted toduring the named executive officers on February 13, 2013, based upon achievement under this plan was as follows: Mr. Blair—0, Mr. Naughton—28,542, Mr. Sargeant—12,974, Mr. Horey—8,174, and Mr. McLaughlin—8,931. Each of such options was granted at an exercise price of $130.23. Information about the vesting of such options is provided in footnote (4) below.performance period. |
| | | (3) | The number of shares of restricted stock shown in column (i) were granted on February 16, 2012 represent14, 2019 represents the actual number of shares of restricted stock granted to the named executive officers,Named Executive Officers, with respect to performance in 2011,2018, and such shares do not represent compensation for performance in 2012. With respect to all shares of restricted stock granted on February 16, 2012, described in this table, 20% of the shares vested on March 1 in the year of issuance and the remaining 80% of the shares vest in four equal annual installments on the anniversaries of that date, subject to accelerated vesting (in the case of termination of employment without cause, upon death, disability or retirement, or upon a sale of the Company (as defined in the 2009 Stock Option and Incentive Plan)) or forfeiture of unvested shares (in the case of termination of employment for any other reason).2019. Dividends are payable on the shares at the same rate as dividends are paid on all outstanding shares of our Common Stock. |
| (4) | The number of shares underlying options shown in column (j) represents the number of options granted to the named executive officers on February 16, 2012, with respect to performance in 2011, and does not represent compensation for performance in 2012. All options described in this table become exercisable in three equal installments on the first, second and third anniversaries of the date of grant. In accordance with the 2009 Stock Option and Incentive Plan and our standard form of stock option agreement at the time of the award, all unvested options awarded in 2012 will automatically vest upon a termination without cause, or termination by death, disability or retirement, in which case the remaining term of the option will be 12 months or, if earlier, the expiration of the original ten year term of the option. |
| (5)(4) | For the February 16, 2012, option grants, the value was calculated using the Black-Scholes model with the following material assumptions: dividend yield of 3.5%, volatility of 35.0%, risk-free interest rates of 0.87%, and an expected life of approximately five years. The actual realized value will depend upon the difference between the market value of the Common Stock on the date the option is exercised and the exercise price. For the February 16, 201214, 2019 grants of restricted stock, the value was calculated based on the closing price of the Common Stock on the date of grant of $132.95.$195.72. |
31 | | | Outstanding Equity Awards at Fiscal Year-End |
The table below sets out outstanding equity awards held by the Named Executive Officers as of December 31, 2019. Outstanding Equity Awards at Fiscal Year-End
| | | Option Awards(1) | | | Stock Awards(2) | | | Name | | Grant
Date | | | Number of
Securities
Underlying
Unexercised
Options:
Exercisable
(#) | | | Number of
Securities
Underlying
Unexercised
Options:
Unexercisable
(#)(3) | | | Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#) | | | Option
Exercise
Price ($) | | | Option
Expiration
Date | | | Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)(4) | | | Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)(5) | | | Equity
Incentive
Plan Awards:
Number of
Unearned
Shares,
Units or Other
Rights That
Have Not
Vested
(#) | | | Equity
Incentive
Plan Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or Other
Rights That
Have Not
Vested
($) | | | (a) | | | | | (b) | | | (c) | | | (d) | | | (e) | | | (f) | | | (g) | | | (h) | | | (i) | | | (j) | | | Mr. Blair | | | 2/8/2007 | | | | 75,831 | | | | — | | | | — | | | $ | 143.34 | | | | 2/8/2017 | | | | | | | | | | | | | | | | | | | | | | 2/11/2010 | | | | — | | | | 10,010 | | | | — | | | $ | 74.20 | | | | 2/11/2020 | | | | | | | | | | | | | | | | | | | | | | 2/16/2011 | | | | 11,122 | | | | 22,245 | | | | — | | | $ | 115.83 | | | | 2/16/2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 42,372 | | | | 5,745,219 | | | | — | | | | — | | | Mr. Naughton | | | 2/11/2005 | | | | 22,868 | | | | — | | | | — | | | $ | 67.86 | | | | 2/11/2015 | | | | | | | | | | | | | | | | | | | | | | 2/9/2006 | | | | 116,148 | | | | — | | | | — | | | $ | 96.19 | | | | 2/9/2016 | | | | | | | | | | | | | | | | | | | | | | 2/8/2007 | | | | 45,363 | | | | — | | | | — | | | $ | 143.34 | | | | 2/8/2017 | | | | | | | | | | | | | | | | | | | | | | 2/11/2008 | | | | 52,161 | | | | — | | | | — | | | $ | 86.40 | | | | 2/11/2018 | | | | | | | | | | | | | | | | | | | | | | 2/11/2009 | | | | 38,724 | | | | — | | | | — | | | $ | 48.60 | | | | 2/11/2019 | | | | | | | | | | | | | | | | | | | | | | 2/11/2010 | | | | 10,010 | | | | 5,005 | | | | — | | | $ | 74.20 | | | | 2/11/2020 | | | | | | | | | | | | | | | | | | | | | | 2/16/2011 | | | | 5,561 | | | | 11,122 | | | | — | | | $ | 115.83 | | | | 2/16/2021 | | | | | | | | | | | | | | | | | | | | | | 2/16/2012 | | | | — | | | | 18,602 | | | | — | | | $ | 132.95 | | | | 2/16/2022 | | | | | | | | | | | | | | | | | | | | | | 2/13/2013 | | | | — | | | | 28,542 | | | | — | | | $ | 130.23 | | | | 2/13/2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 30,602 | | | | 4,149,325 | | | | — | | | | — | | | Mr. Sargeant | | | 2/8/2007 | | | | 37,026 | | | | — | | | | — | | | $ | 143.34 | | | | 2/8/2017 | | | | | | | | | | | | | | | | | | | | | | 2/11/2010 | | | | — | | | | 3,254 | | | | — | | | $ | 74.20 | | | | 2/11/2020 | | | | | | | | | | | | | | | | | | | | | | 2/16/2011 | | | | 3,614 | | | | 7,230 | | | | — | | | $ | 115.83 | | | | 2/16/2021 | | | | | | | | | | | | | | | | | | | | | | 2/16/2012 | | | | — | | | | 12,091 | | | | — | | | $ | 132.95 | | | | 2/16/2022 | | | | | | | | | | | | | | | | | | | | | | 2/13/2013 | | | | — | | | | 12,974 | | | | — | | | $ | 130.23 | | | | 2/13/2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 25,087 | | | | 3,401,546 | | | | — | | | | — | | | Mr. Horey | | | 2/8/2007 | | | | 18,526 | | | | — | | | | — | | | $ | 143.34 | | | | 2/8/2017 | | | | | | | | | | | | | | | | | | | | | | 2/11/2010 | | | | 4,239 | | | | 2,120 | | | | — | | | $ | 74.20 | | | | 2/11/2020 | | | | | | | | | | | | | | | | | | | | | | 2/16/2011 | | | | 2,324 | | | | 4,650 | | | | — | | | $ | 115.83 | | | | 2/16/2021 | | | | | | | | | | | | | | | | | | | | | | 2/16/2012 | | | | — | | | | 7,568 | | | | — | | | $ | 132.95 | | | | 2/16/2022 | | | | | | | | | | | | | | | | | | | | | | 2/13/2013 | | | | — | | | | 8,174 | | | | — | | | $ | 130.23 | | | | 2/13/2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 13,462 | | | | 1,825,313 | | | | — | | | | — | | | Mr. McLaughlin | | | 2/11/2005 | | | | 1,472 | | | | — | | | | — | | | $ | 67.86 | | | | 2/11/2015 | | | | | | | | | | | | | | | | | | | | | | 2/9/2006 | | | | 1,039 | | | | — | | | | — | | | $ | 96.19 | | | | 2/9/2016 | | | | | | | | | | | | | | | | | | | | | | 2/8/2007 | | | | 20,404 | | | | — | | | | — | | | $ | 143.34 | | | | 2/8/2017 | | | | | | | | | | | | | | | | | | | | | | 2/11/2008 | | | | 12,132 | | | | — | | | | — | | | $ | 86.40 | | | | 2/11/2018 | | | | | | | | | | | | | | | | | | | | | | 2/11/2009 | | | | 16,107 | | | | — | | | | — | | | $ | 48.60 | | | | 2/11/2019 | | | | | | | | | | | | | | | | | | | | | | 2/11/2010 | | | | 4,306 | | | | 2,153 | | | | — | | | $ | 74.20 | | | | 2/11/2020 | | | | | | | | | | | | | | | | | | | | | | 2/16/2011 | | | | 2,720 | | | | 5,440 | | | | — | | | $ | 115.83 | | | | 2/16/2021 | | | | | | | | | | | | | | | | | | | | | | 2/16/2012 | | | | — | | | | 8,593 | | | | — | | | $ | 132.95 | | | | 2/16/2022 | | | | | | | | | | | | | | | | | | | | | | 2/13/2013 | | | | — | | | | 8,931 | | | | — | | | $ | 130.23 | | | | 2/13/2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 12,141 | | | | 1,646,198 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | Option Awards | | Stock Awards(1) | | Name | Grant Date | | Number of Securities Underlying Unexercised Options: Exercisable (#) | | Number of Securities Underlying Unexercised Options: Unexercisable (#) | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | | Option Exercise Price ($) | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested (#) (2) | | Market Value of Shares or Units of Stock That Have Not Vested ($)(6) | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(7) | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(6) | | (a) | | | (b) | | (c) | | (d) | | (e) | | (f) | | (g) | | (h) | | (i) | | (j) | | Mr. Naughton | 2/28/2014 | | — | | — | | — | | — | | — | | 14,106 | (2 | ) | 2,958,028 | | — | | — | | | 2/26/2015 | | — | | — | | — | | — | | — | | 20,292 | (3 | ) | 4,255,232 | | — | | — | | | 2/11/2016 | | — | | — | | — | | — | | — | | 24,205 | (4 | ) | 5,075,789 | | — | | — | | | 2/16/2017 | | — | | — | | — | | — | | — | | 32,340 | (5 | ) | 6,781,698 | | — | | — | | | 2/15/2018 | | — | | — | | — | | — | | — | | 5,954 | | 1,248,554 | | 67,608 | | 14,177,398 | | | 2/14/2019 | | — | | — | | — | | — | | — | | 10,873 | | 2,280,068 | | 27,903 | | 5,851,259 | | Mr. O’Shea | 2/28/2014 | | — | | — | | — | | — | | — | | 2,203 | (2 | ) | 461,969 | | — | | — | | | 2/26/2015 | | — | | — | | — | | — | | — | | 3,122 | (3 | ) | 654,683 | | — | | — | | | 2/11/2016 | | — | | — | | — | | — | | — | | 4,640 | (4 | ) | 973,008 | | — | | — | | | 2/16/2017 | | — | | — | | — | | — | | — | | 8,373 | (5 | ) | 1,755,818 | | — | | — | | | 2/15/2018 | | — | | — | | — | | — | | — | | 3,123 | | 654,893 | | 13,522 | | 2,835,563 | | | 2/14/2019 | | — | | — | | — | | — | | — | | 3,913 | | 820,556 | | 5,680 | | 1,191,096 | | Mr. Breslin | 2/28/2014 | | — | | — | | — | | — | | — | | 2,392 | (2 | ) | 501,602 | | — | | — | | | 2/26/2015 | | — | | — | | — | | — | | — | | 3,844 | (3 | ) | 806,087 | | — | | — | | | 2/11/2016 | | — | | — | | — | | — | | — | | 4,869 | (4 | ) | 1,021,029 | | — | | — | | | 2/16/2017 | | — | | — | | — | | — | | — | | 8,544 | (5 | ) | 1,791,677 | | — | | — | | | 2/15/2018 | | — | | — | | — | | — | | — | | 3,366 | | 705,850 | | 15,066 | | 3,159,340 | | | 2/14/2019 | | — | | — | | — | | — | | — | | 4,890 | | 1,025,433 | | 6,427 | | 1,347,742 | | Mr. Birenbaum | 2/28/2014 | | — | | — | | — | | — | | — | | 2,990 | (2 | ) | 627,003 | | — | | — | | | 2/26/2015 | | — | | — | | — | | — | | — | | 3,844 | (3 | ) | 806,087 | | — | | — | | | 2/11/2016 | | — | | — | | — | | — | | — | | 5,156 | (4 | ) | 1,081,213 | | — | | — | | | 2/16/2017 | | — | | — | | — | | — | | — | | 8,693 | (5 | ) | 1,822,922 | | — | | — | | | 2/15/2018 | | — | | — | | — | | — | | — | | 3,274 | | 686,558 | | 15,066 | | 3,159,340 | | | 2/14/2019 | | — | | — | | — | | — | | — | | 4,432 | | 929,390 | | 6,427 | | 1,347,742 | | Mr. Horey | 2/28/2014 | | — | | — | | — | | — | | — | | 2,518 | (2 | ) | 528,025 | | — | | — | | | 2/26/2015 | | — | | — | | — | | — | | — | | 2,882 | (3 | ) | 604,355 | | — | | — | | | 2/11/2016 | | — | | — | | — | | — | | — | | 3,438 | (4 | ) | 720,949 | | — | | — | | | 2/16/2017 | | — | | — | | — | | — | | — | | 4,983 | (5 | ) | 1,044,935 | | — | | — | | | 2/15/2018 | | — | | — | | — | | — | | — | | 1,794 | | 376,202 | | 7,728 | | 1,620,562 | | | 2/14/2019 | | — | | — | | — | | — | | — | | 2,258 | | 473,503 | | 2,989 | | 626,793 |
| | | (1) | Stock options granted under the Company’s 1994 Stock Incentive Plan and 2009 Stock Option and Incentive Plan become exercisable in three equal installments on the first, second and third anniversaries of the date of grant. All unvested options will automatically vest upon a termination without cause, or termination by death, disability or retirement, in which case the remaining term of the option will be 12 months or, if earlier, the expiration of the original ten year term of the option. |
| (2) | Stock awards granted under the Company’s 1994 Stock Incentive Plan and 2009 Stock Option and Incentive Plan have been made in the form of Restricted Stock. Annual stock awards are made in the form of Restricted Stock which vests 20% on March 1st of the year of grant, and the remaining 80% which vests over the next four years, with 20% vestingvest one-third starting on March 1 of eachthe year subject to accelerated vesting infollowing the case of termination of employment without cause, upon death, disability or retirement, or upon a change-in-controldate of the Company (as defined in the Plans), or forfeiture of unvested shares in the case of termination of employment for any other reason. Stock awards granted to Messrs. Sargeant and Horey on December 30, 2011, vest 75% on December 31, 2013 and the remaining 25% vest on December 31, 2014. In addition, in the case of Messrs. Naughton, Sargeant and Horey, vesting of restricted stock will be accelerated under certain conditions, as described in their employment agreements with the Company.grant. Dividends are payable on the shares at the same rate as dividends paid on all outstanding shares of our Common Stock. For performance units, cash dividends will be accrued and paid at the end of the performance period based on the actual number of performance units earned starting with the 2018 - 2020 performance awards. |
| | | (2) | Represents restricted stock issued on the conversion of performance units that were earned under the 2014-2016 performance period on February 16, 2017 vesting in three annual installments beginning March 1, 2018. |
| | | (3) | Represents restricted stock issued on the conversion of performance units that were earned under the 2015-2017 performance period on February 15, 2018 vesting in three annual installments beginning March 1, 2019. |
| | | (4) | Represents restricted stock issued on the conversion of performance units that were earned under the 2016-2018 performance period on February 14, 2019 vesting in three annual installments beginning March 1, 2020. |
| (3) | | (5) | The table below showsRepresents annual stock bonus awards issued in 2017 for 2016 performance and performance unit awards that were earned under the 2017-2019 performance period, which converted into time-based restricted stock on February 13, 2020 vesting schedule for all unexercisable options. All options vest on the anniversary of the grant date in the year indicated:three annual installments beginning March 1, 2021. |
Vesting Schedule for Unexercisable Options
| | | | | Vesting Schedule | | | Name | | Grant Date | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | Bryce Blair | | 2/11/2010 | | | 10,010 | | | | | | | | | | | | | | | | | 2/16/2011 | | | 11,122 | | | | 11,123 | | | | | | | | | | | Timothy J. Naughton | | 2/11/2010 | | | 5,005 | | | | | | | | | | | | | | | | | 2/16/2011 | | | 5,561 | | | | 5,561 | | | | | | | | | | | | | 2/16/2012 | | | 6,200 | | | | 6,201 | | | | 6,201 | | | | | | | | | 2/13/2013 | | | | | | | 9,514 | | | | 9,514 | | | | 9,514 | | | Thomas J. Sargeant | | 2/11/2010 | | | 3,254 | | | | | | | | | | | | | | | | | 2/16/2011 | | | 3,615 | | | | 3,615 | | | | | | | | | | | | | 2/16/2012 | | | 4,030 | | | | 4,030 | | | | 4,031 | | | | | | | | | 2/13/2013 | | | | | | | 4,324 | | | | 4,325 | | | | 4,325 | | | Leo S. Horey | | 2/11/2010 | | | 2,120 | | | | | | | | | | | | | | | | | 2/16/2011 | | | 2,325 | | | | 2,325 | | | | | | | | | | | | | 2/16/2012 | | | 2,522 | | | | 2,523 | | | | 2,523 | | | | | | | | | 2/13/2013 | | | | | | | 2,724 | | | | 2,725 | | | | 2,725 | | | William McLaughlin | | 2/11/2010 | | | 2,153 | | | | | | | | | | | | | | | | | 2/16/2011 | | | 2,720 | | | | 2,720 | | | | | | | | | | | | | 2/16/2012 | | | 2,864 | | | | 2,864 | | | | 2,865 | | | | | | | | | 2/13/2013 | | | | | | | 2,977 | | | | 2,977 | | | | 2,977 | |
| (4) | The table below shows the vesting schedule for all unvested shares of restricted stock. |
Vesting Schedule for Unvested Restricted Stock
| | | | | Vesting Schedule | | | Name | | Grant Date | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017 | | | Bryce Blair | | 2/11/2009 | | | 5,708 | | | | | | | | | | | | | | | | | | | | | 2/11/2010 | | | 3,798 | | | | 3,798 | | | | | | | | | | | | | | | | | 2/16/2011 | | | 3,263 | | | | 3,262 | | | | 3,263 | | | | | | | | | | | | | 2/16/2012 | | | 4,820 | | | | 4,820 | | | | 4,820 | | | | 4,820 | | | | | | | Timothy J. Naughton | | 2/11/2009 | | | 2,854 | | | | | | | | | | | | | | | | | | | | | 2/11/2010 | | | 1,899 | | | | 1,899 | | | | | | | | | | | | | | | | | 2/16/2011 | | | 1,631 | | | | 1,631 | | | | 1,632 | | | | | | | | | | | | | 2/16/2012 | | | 1,615 | | | | 1,614 | | | | 1,615 | | | | 1,615 | | | | | | | | | 2/13/2013 | | | 2,519 | | | | 2,519 | | | | 2,520 | | | | 2,519 | | | | 2,520 | | | Thomas J. Sargeant | | 2/11/2009 | | | 1,855 | | | | | | | | | | | | | | | | | | | | | 2/11/2010 | | | 1,234 | | | | 1,235 | | | | | | | | | | | | | | | | | 2/16/2011 | | | 1,060 | | | | 1,060 | | | | 1,061 | | | | | | | | | | | | | 12/30/2011 | | | 5,742 | | | | 1,915 | | | | | | | | | | | | | | | | | 2/16/2012 | | | 1,050 | | | | 1,049 | | | | 1,050 | | | | 1,050 | | | | | | | | | 2/13/2013 | | | 1,145 | | | | 1,145 | | | | 1,145 | | | | 1,145 | | | | 1,146 | | | Leo S. Horey | | 2/11/2009 | | | 1,275 | | | | | | | | | | | | | | | | | | | | | 2/11/2010 | | | 804 | | | | 805 | | | | | | | | | | | | | | | | | 2/16/2011 | | | 682 | | | | 682 | | | | 682 | | | | | | | | | | | | | 12/30/2011 | | | 1,722 | | | | 575 | | | | | | | | | | | | | | | | | 2/16/2012 | | | 657 | | | | 657 | | | | 657 | | | | 657 | | | | | | | | | 2/13/2013 | | | 721 | | | | 721 | | | | 722 | | | | 721 | | | | 722 | | | William McLaughlin | | 2/11/2009 | | | 1,187 | | | | | | | | | | | | | | | | | | | | | 2/11/2010 | | | 817 | | | | 817 | | | | | | | | | | | | | | | | | 2/16/2011 | | | 798 | | | | 798 | | | | 798 | | | | | | | | | | | | | 2/16/2012 | | | 746 | | | | 746 | | | | 746 | | | | 746 | | | | | | | | | 2/13/2013 | | | 788 | | | | 788 | | | | 789 | | | | 788 | | | | 789 | |
| (5)(6) | Based on the closing price of the Common Stock as reported on the NYSE on December 31, 20122019 of $135.59$209.70 per share. |
33 | | | (7) | The amounts in column (i) include performance unit awards at maximum payout maturing at the end of 2020 and performance unit awards at target performance for awards maturing at the end of 2021. |
Option Exercises and Stock Vested Table
The following table identifies the number of shares underlying options exercised during 20122019 for each of the named executive officers,Named Executive Officers, the value realized on such exercises, the number of shares of restricted stock that vested during 20122019 for each such officer and the value of such shares on the date of vesting. The value realized upon exercise of the options is the product of (1) the closingstock price on the NYSE of our Common Stock on the date of exercise minus the exercise price multiplied by (2) the number of shares of Common Stock underlying the exercised options. | | | Option Awards | | | Stock Awards | | | Name (a) | | Number of Shares
Acquired on
Exercise (#)
(b) | | | Value Realized
on Exercise ($)
(c) | | | Number of Shares
Acquired on Vesting (#)
(d) | | | Value Realized
on Vesting
($)(1)
(e) | | | Mr. Blair | | | 35,827 | | | | 2,999,430 | | | | 55,442 | | | | 7,468,225 | | | Mr. Naughton | | | 79,448 | | | | 6,545,002 | | | | 38,669 | | | | 5,236,081 | | | Mr. Sargeant | | | 23,289 | | | | 1,998,645 | | | | 18,837 | | | | 2,540,477 | | | Mr. Horey | | | 87,564 | | | | 5,050,186 | | | | 16,351 | | | | 2,214,587 | | | Mr. McLaughlin | | | 10,000 | | | | 536,505 | | | | 16,611 | | | | 2,248,671 | |
| (1) | These shares of restricted stock vested on March 1, 2012 and June 1, 2012. The closing price of the stock, as reported on the NYSE for March 1, 2012, was$131.09per share. The closing price of the stock, as reported on the NYSE for June 1, 2012, was $137.01 per share. |
| | | | | | | | Option Awards | Stock Awards | | | | | | | Name (a) | Number of Shares Acquired on Exercise (#) (b) | Value Realized on Exercise ($) (c) | Number of Shares Acquired on Vesting (#) (d) | Value Realized on Vesting ($)(1) (e) | | Mr. Naughton | 73,778 | 5,282,608 | 40,560 | 7,878,780 | | Mr. O’Shea | - | - | 9,105 | 1,768,646 | | Mr. Breslin | 1,544 | 64,706 | 10,754 | 2,088,965 | | Mr. Birenbaum | - | - | 11,595 | 2,252,329 | | Mr. Wilson | - | - | 9,109 | 1,769,423 |
(1) Value reflects shares of restricted stock that vested on March 1, 2019. The closing price of our Common Stock, as reported on the NYSE for March 1, 2019 was $194.25 per share.
Nonqualified Deferred Compensation
Pursuant to our Deferred Compensation Plan, certain employees of the Company, including the named executive officers,Named Executive Officers, may defer up to 25% of base annual salary and up to 50% of annual cash bonus on a pre-taxpre‑tax basis and receive a tax-deferredtax‑deferred return on those deferrals. Deferral elections are made by eligible employees during an open enrollment period each year for amounts to be earned in the following year. Participating employees direct the deemed investment of their deferral accounts by selecting among certain available Investment Funds.investment funds. The table below shows the Investment Fundsinvestment funds available under the Deferred Compensation Plan and their annual rate of return for the calendar year ended December 31, 2012.2019. Since the Investment Fundsinvestment funds are all publicly available, we do not consider any of the earnings credited under the Deferred Compensation Plan to be “above market.”market".
| | | | Name of Fund | | 20122019 Rate of
Return (%) | | American Funds EuroPacificEuropacific GrowthR4 (REREX) | | | 19.22 | 26.98 | American Funds Fundamental InvestorInvs R4 (RFNEX) | | | 17.13 | | American Funds Growth Fund of America R4 | | | 20.56 | | Artisan Mid Cap Value | | | 11.39 | 27.56 | | Cohen & Steers Realty Shares (CSRSX) | | | 15.72 | 32.90 | Columbia Dividend Opportunity ZInst (CDOZX) | | | 13.34 | 23.67 | Fidelity Retirement Money MarketFidelity® 500 Index Institutional (FXSIX) | | | 0.01 | 31.47 | JP MorganFidelity® Government MMkt (SPAXX) | 1.84 | | Fidelity® International Index Premium (FSIVX) | 22.00 | | Fidelity® Mid Cap Index Premium (FSCKX) | 30.51 | | Fidelity® Small Cap Index Premium (FSSVX) | 25.71 | Fidelity® US Bond Index (FXNAX)1 | 8.48 | | Janus Henderson Triton A (JGMAX) | 28.02 | | JHancock Disciplined Value Mid Cap I (JVMIX) | 30.14 | JPMorgan Large Cap Growth SelectI (SEEGX) | | | 12.11 | 39.04 | MFSMFS® Value R3 (MEIHX) | | | 16.13 | 29.74 | PIMCO Total Return InstitutionalInstl (PTTRX) | | | 10.36 | | Royce Pennsylvania Mutual Service | | | 14.15 | | Spartan 500 Index Advantage | | | 15.97 | 8.26 | | T. Rowe Price Emerging Markets Stock (PRMSX) | | | 20.03 | 26.49 | T. Rowe Price Mid CapMid-Cap Growth Adv (PAMCX) | | | 13.62 | 31.19 | T. Rowe Price Retirement 2005 Adv(TRRFX) | | | 11.01 | 15.08 | T. Rowe Price Retirement 2010 Adv(TRRAX) | | | 12.16 | 16.16 | T. Rowe Price Retirement 2015 Adv(TRRGX) | | | 13.58 | 17.40 | T. Rowe Price Retirement 2020 Adv(TRRBX) | | | 14.78 | 19.37 | T. Rowe Price Retirement 2025 Adv(TRRHX) | | | 15.70 | 20.95 | T. Rowe Price Retirement 2030 Adv(TRRCX) | | | 16.56 | 22.48 | T. Rowe Price Retirement 2035 Adv(TRRJX) | | | 17.05 | 23.70 | T. Rowe Price Retirement 2040 Adv(TRRDX) | | | 17.29 | 24.68 | T. Rowe Price Retirement 2045 Adv(TRRKX) | | | 17.21 | 25.39 | T. Rowe Price Retirement 2050 Adv(TRRMX) | | | 17.21 | 25.32 | T. Rowe Price Retirement 2055 Adv(TRRNX) | | | 17.20 | 25.38 | T. Rowe Price Retirement Income Adv2060 (TRRLX) | | | 9.78 | 25.37 | Wells Fargo Advantage Growth AdmAdmin (SGRKX) | | | 16.89 | 37.33 |
| | | 1. | Vanguard Total Bond Market Index was replaced with Fidelity U.S. Bond Index on March 1, 2019. |
Benefits under our Deferred Compensation Plan will be paid out on the earlier of (i) the employee’s death or (ii) at the election of the employee (a) the date six months, 66 months, or 126 months following termination of employment (depending upon the employee’s properly made election), or(b) in ten annual installments beginning in the seventh month following departure from the company,Company, or (c) in one lump sum (or four annual installments) on a specified date that is at least five years after the deferral year while the employee is still employed with the company, orCompany. Benefits may be paid out earlier in the event of an “Unforeseeable Financial Emergency” as determined by our Retirement Planning Committee (a committee of management designated by the Compensation Committee of the Board of Directors) in its sole discretion and in accordance with tax law requirements. | Name | | Executive
Contributions
in Last Fiscal Year
($)(1) | | | Registrant
Contributions
in Last Fiscal Year
($) | | | Aggregate
Earnings in
Last Fiscal
Year
($) | | | Aggregate
Withdrawals/
Distributions
in Last Fiscal
Year
($) | | | Aggregate
Balance at
Last Fiscal
Year End
($)(2) | | | (a) | | (b) | | | (c) | | | (d) | | | (e) | | | (f) | | | Mr. Blair | | | — | | | | — | | | $ | 437,843 | | | | — | | | $ | 3,142,612 | | | Mr. Naughton | | | — | | | | — | | | $ | 319,488 | | | | — | | | $ | 2,696,221 | | | Mr. Sargeant | | | — | | | | — | | | $ | 303,182 | | | | — | | | $ | 1,971,702 | | | Mr. Horey | | $ | 39,538 | | | | — | | | $ | 112,423 | | | | — | | | $ | 871,172 | | | Mr. McLaughlin | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | Name | Executive Contributions in Last Fiscal Year ($)(1) | Registrant Contributions in Last Fiscal Year ($) | Aggregate Earnings in Last Fiscal Year ($) | Aggregate Withdrawals/ Distributions in Last Fiscal Year ($) | Aggregate Balance at Last Fiscal Year End ($) | | (a) | (b) | (c) | (d) | (e) | (f) | | Mr. Naughton | 1,434,250 | — | 3,667,971 | — | 15,777,489 | | Mr. O’Shea | — | — | — | — | — | | Mr. Breslin | 88,680 | — | 29,404 | — | 185,412 | | Mr. Birenbaum | — | — | — | — | — | | Mr. Horey | 52,500 | — | 304,900 | — | 2,368,873 |
| | | (1) | All contributions in column (b) are also included as compensation to the named executive officersNamed Executive Officers in the Salary column of theSummary Compensation Table. |
| (2) | Amounts in column (f) include amounts that were previously reported as compensation to the named executive officers in the Salary columnand Non-Equity Incentive Plan columns of the Summary Compensation Table for 2011 and 2010, as follows:Table. |
| | | Executive Contributions
by Year | | | Name | | 2011 | | | 2010 | | | Bryce Blair | | | 130,017 | | | | 178,876 | | | Timothy J. Naughton | | | 187,760 | | | | 213,752 | | | Thomas J. Sargeant | | | — | | | | — | | | Leo S. Horey | | | 38,000 | | | | 38,000 | | | William McLaughlin | | | — | | | | — | |
Potential Payments Upon Termination or Sale Event
The summaries of agreements below are qualified in their entirety by reference to the complete plans and agreements described, which have been included as exhibits to the Company’s filings with the SEC.As noted in the narrative disclosure to theSummary Compensation Tableabove, we are aSEC filings.
The Company is not party to employment agreements with Messrs. Naughton, Sargeant and Horeyany individual executive officers.
| | | Officer Severance Plan for Sale Events |
We adopted an Officer Severance Plan that will expire on December 31, 2015, unless renewed by mutual agreement, and that provideprovides for severance benefits in the event thatof certain terminations of employment following a sale event. Under this program, in the executiveevent an officer's employment is terminated without cause. The employment agreements provide that it would be considered a termination without cause: (a) of Mr. Naughton, if his title is reduced to below that of Chief Executive Officer or if he does not report directly to the full Board, (b) of Mr. Sargeant, if his title is not that of Chief Financial Officer or he is not the most senior financial officer, and (c) of Mr. Horey, if his title is reduced to below that of Executive Vice President or he is not a member of the executive officer group. The employment agreements also provide that it would be a default ifby the Company takes bad faith actions(other than for cause or as a result of death or disability) in connection with respect to an executive’s annual compensation and bonus awards, which bad faith must be demonstrated by reference to the awards set for and awarded other officers. The executive must provide the Company noticeor within 24 months of a sale event (as defined therein), such an alleged default and an opportunity to cure. In the event of such a default that is not cured, the executive would be entitled to terminate his employment andofficer will generally receive the same level of severance as in a termination without cause.Under the employment agreements, upon a termination of the executive’s employment without cause the executive would be entitled to a multiple of his “CoveredCovered Compensation” which is defined (defined as the sum of the executive’shis annual base salary plus the average of the executive’shis or her last two annual cash bonuses as of the date of termination. Intermination date) depending on the case of Messrs. Naughton and Sargeant,officer’s title: for the Chief Executive Officer, the multiple is three times, for the Chief Financial Officer or an Executive Vice
President, the multiple is two times, unless the termination is in connection with a sale of the Company, in which case the multiple is three times. In Mr. Horey’s case,and for other officers the multiple is one times unless the termination is in connection with a sale of the Company, in which case the multiple is two times. The executiveterminated officer would also receive (i) a cash payment representing the pro rata value of his or her annual bonus (cash and long term incentive awardstock) for the portion of the year worked, valued at target. The executives’target, (ii) accelerated vesting of the officer’s unvested restricted stock and options, would also vest. Severance benefits upon a saleand (iii) payment of the Company are based on a “double trigger”: the executive must be terminated without cause, as described above, following the sale in orderCOBRA insurance premiums for severance benefitsup to be triggered under the agreements.The employment agreements do not provide for a tax gross up if an excise tax is imposed on the severance benefits under Section 4999 of the Internal Revenue Code of 1986, as amended (the “golden parachute tax”), but if an executive would be better off with reduced severance benefits in order to avoid the effect of the golden parachute tax then the benefits will be reduced accordingly. The employment agreements do not provide for additional perquisites.
18 months.
36 | | | Other Severance Arrangements |
To receive severance benefits under the employment agreements, the executive must enter into a separation and release agreement with the Company containing general release, confidentiality, return of property, mutual non-disparagement and a one-year employee non-solicitation provision.
Other Severance Arrangements.
Our agreements with our directors and officers governing compensatory stock option and restricted stock awards provide for immediate vesting (and, in the case of stock options, immediate exercisability)exercisability for one year) if a sale of“sale event” with respect to the Company occurs. occurs and the participant’s employment or other business relationship with the Company terminates for good reason or without cause in connection with or within 24 months following the sale event (as each such term is defined therein). In addition, upon death, disability, termination without cause, or the retirement of an employee (as defined in the award agreements under the StockEquity Incentive Plan), (a) all of such employee’s options shall automatically become fully exercisable and (absent a specific agreement providing otherwise) shall be exercisable for one year thereafter and (b) all of such employee’s restricted shares of stock shall automatically vest.vest 30 days following the triggering event; provided, at the Company’s option, that a separation agreement is executed and effective during such 30-day period. Retirement of an employee as defined in the award agreements under the Equity Incentive Plan generally means the termination of employment, other than for cause, when the sum of the following equals or exceeds 70 years: (i) the number of full months (converted to years) of employment and other business relationships with the Company and any predecessor company (must be at least 120 months) and (ii) the employee’s age on the date of termination (must be at least 50 years old). To qualify for retirement, the employee must also give six months’ prior written notice to usthe Company of histhe employee's intention to retire and enter into a release and a two year non‑solicitation and one year non-solicitation and non-competition agreement with us. non‑competition agreement. Under this formula, Messrs. Naughton, SargeantO'Shea and HoreyBreslin are currently eligible for retirement, and Messr. McLaughlinMr. Birenbaum will become eligible for retirement in June 2014.2020. Mr. Blair, whoHorey retired as an officer on December 31, 2012, and will retire as a director at the Annual Meeting, also meets that requirement. The supplemental restricted stock awards that Messrs. Sargeant and Horey received in December 2011 will not vest on an accelerated basis in the event of a retirement before December 31, 2013.We have adopted an Officer Severance Program for the benefit of officers who do not have employment agreements. Under this program, in the event an officer who is not otherwise covered by a severance arrangement is terminated (other than for cause) within eighteen months of a sale offrom the Company (as defined) or duringeffective January 1, 2020, and his retirement was consistent with the six months prior to a saledefinition of the Company, such officer will generally receive a multiple of his Covered Compensation (as defined above) depending on the officer’s title: for the Chief Executive Officer, the multiple is three times, for the Chief Financial Officer or an Executive Vice President, the multiple is two times, and for other officers the multiple is one times. The terminated officer would also receive (i) a cash payment representing the pro rata value of his annual bonus and long term incentive award for the portion of the year worked, valued at target, (ii) accelerated vesting of the officer’s unvested restricted stock and options, and (iii) payment of COBRA insurance premiums for up to 18 months.
"retirement" above. Our multiyearmulti-year performance awards under which restricted stock units are awarded and may be earned at the end of a performance period are not subject to the terms described above, but any restricted stock or options that are granted in settlement of units once a performance period is complete are subject to these terms (exceptterms. Our current performance award agreements provide that, following one full year of employment during the stock options that may be awarded in lieu of 25%performance period, a pro rata portion of the valueaward will be paid at the end of the restricted stock that would otherwise be awarded will generally not expire, even afterperformance period based on actual achievement if there is a separation of employment fordue to death, disability, retirement, or a minimum of five years from their date of grant). In the event a participant’s employment terminates for any reason prior to the completion of a performance period, whether with ortermination without cause, or by reason of death or disability or voluntary departure or retirement, the participant forfeits all units with respect to that performance period.cause. If a sale of the Companyevent occurs during a performance period, (i)then all outstanding performance awards vest at their target number of units and stock is issued for such number
of units but subject (in the case of awards made before January 1, 2018) to the three year time based vesting described above for compensatory restricted stock, if there is more than 12 months remaining in the performance period, all units with respect to that performance period are forfeited (unless the successor makes other arrangements for their continuation), and (ii) if there is less than 12 months remaining in the performance period, the performance period is deemed complete on the date of sale and achievement against the performance metrics is measured through the date of sale, with no proration on account of the shortened performance period and with vested stock (or options) issued in settlement of any units earned.applicable. Endorsement Split Dollar Agreements. The Company owns whole-life insurance policies with respect to Messrs. Blair, Naughton, Sargeant and Horey. The face amount of each policy is $2,500,000 (for Mr. Blair), $1,500,000 (for Messrs. Sargeant, and Naughton), and $750,000 (for Mr. Horey). The Company has endorsed each of these Company-owned policies such that in the event of the death of an insured, the Company will be paid insurance proceeds equal to the cumulative premiums paid on the policy by the Company, with excess insurance proceeds being paid to the insured’s estate or named beneficiary. The Company has agreed to (i) pay the premiums due on each policy through 2017 (provided that the insured pays a portion of the premium equal to the current term rate for the insured’s age multiplied by the insured’s current interest in the policy), (ii) after the last Company payment, withdraw cash from the policy equal to the cumulative premiums paid and (iii) thereafter assign the policy to the insured. The Company will cease making premium payments, and will withdraw an amount from the cash surrender value of the policy equal to the lesser of the cumulative premiums or the cash surrender value earlier than 2017, in the event of the insured’s termination for cause or voluntary resignation without a constructive termination. In such case the policy will be reduced to a fully paid-up policy.
Severance Benefits.
The tables below, together with the footnotes thereto and the additional information below, reflect the payments and benefits that the named executive officersNamed Executive Officers would receive in the event of their termination of employment with the Company on December 31, 2012,2019, under the indicated circumstances. Where applicable, values are based on the Company’s closing stock price on December Bryce Blair, Chairman
31, 2019, the final trading day of the Board(fiscal year, of $209.70. As disclosed previously, Mr. Birenbaum will retire on May 22, 2013)
Executive Benefits and
Payments Upon Termination | | For Cause or
Voluntary($) | | | Termination
Without Cause
(Unrelated to a
Sale Event)($) | | | Death($) | | | Termination
Without Cause
(Related to a
Sale Event)($) | | | A | | Severance (Cash) | | | — | | | | — | | | | — | | | | 1,992,302 | (1) | | B | | Life Insurance | | | 38,390 | (2) | | | 224,599 | (3) | | | (4 | ) | | | 224,599 | (3) |
Timothy J. Naughton, Chief Executive Officerbecome eligible for retirement in June 2020. Therefore, no acceleration of vesting of restricted stock and President
Executive Benefits and
Payments Upon Termination | | For Cause or
Voluntary($) | | | Termination
Without Cause
(Unrelated to a
Sale Event)($) | | | Death($) | | | Termination
Without Cause
(Related to a
Sale Event)($) | | | A | | Severance (Cash) | | | — | | | | 3,483,438 | (5) | | | — | | | | 5,225,157 | (6) | | B | | Life Insurance | | | 20,992 | (2) | | | 128,112 | (3) | | | (4 | ) | | | 128,112 | (3) |
Thomas J. Sargeant, Chief Financial Officer
Executive Benefits and
Payments Upon Termination | | For Cause or
Voluntary($) | | | Termination
Without Cause
(Unrelated to a
Sale Event)($) | | | Death($) | | | Termination
Without Cause
(Related to a
Sale Event)($) | | | A | | Severance (Cash) | | | — | | | | 2,034,483 | (5) | | | — | | | | 3,051,725 | (6) | | B | | Life Insurance | | | 21,234 | (2) | | | 100,406 | (3) | | | (4 | ) | | | 100,406 | (3) |
Leo S. Horey, Chief Administrative Officer
Executive Benefits and
Payments Upon Termination | | For Cause or
Voluntary($) | | | Termination
Without Cause
(Unrelated to a
Sale Event)($) | | | Death($) | | | Termination
Without Cause
(Related to a
Sale Event)($) | | | A | | Severance (Cash) | | | — | | | | 792,681 | (5) | | | — | | | | 1,585,361 | (6) | | B | | Life Insurance | | | 9,351 | (2) | | | 40,909 | (3) | | | (4 | ) | | | 40,909 | (3) |
William McLaughlin, Executive Vice President
Executive Benefits and
Payments Upon Termination | | For Cause or
Voluntary($) | | | Without Cause
(Unrelated to a
Sale Event)($) | | | Death($) | | | Termination
Without Cause
(Related to a
Sale Event)($) | | | A | | Severance (Cash) | | | — | | | | — | | | | — | | | | 1,663,726 | (1) | | B | | Life Insurance | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | Timothy Naughton, Chairman, Chief Executive Officer and President | | | | | | | | | | | | | Executive Benefits and Payments Upon Termination | For Cause or Voluntary ($) | | Termination Without Cause (Unrelated to a Sale Event) ($) | | Death or Disability ($) | | Qualified Retirement (1) ($) | | Termination Without Cause (Related to a Sale Event) ($) | | | Severance (Cash) | — | | — | (2) | — | | — | | 9,177,750 | (3) | | Restricted Stock Vesting | — | | 16,038,275 | | 16,038,275 | | 16,038,275 | | 16,038,275 | | | Performance Awards Vesting | — | | 13,237,313 | (4) | 13,237,313 | (4) | 13,237,313 | (4) | 19,501,052 | (5) | | Health Benefits | — | | — | | 9,734 | (6) | 9,734 | | 29,203 | (7) | | Prorated Target Cash & Stock Bonus Provided in the Most Recent Fiscal Year | — | | 4,108,600 | (8) | 4,108,600 | (8) | 4,108,600 | (8) | 4,108,600 | (8) |
| | | | | | | | | | | | | Kevin O’Shea, Chief Financial Officer | | | | | | | | | | | | | Executive Benefits and Payments Upon Termination | For Cause or Voluntary ($) | | Termination Without Cause (Unrelated to a Sale Event) ($) | | Death or Disability ($) | | Qualified Retirement ($) | | Termination Without Cause (Related to a Sale Event) ($) | | | Severance (Cash) | — | | — | (2) | | | — | | 2,758,428 | (9) | | Restricted Stock Vesting | — | | 3,790,118 | | 3,790,118 | | 3,790,118 | | 3,790,118 | | | Performance Awards Vesting | — | | 2,872,890 | (4) | 2,872,890 | (4) | 2,872,890 | | 4,139,688 | (5) | | Health Benefits | — | | — | | 10,456 | (6) | 10,456 | | 31,369 | (7) | | Prorated Target Cash & Stock Bonus Provided in the Most Recent Fiscal Year | — | | 1,618,800 | (8) | 1,618,800 | (8) | 1,618,800 | (8) | 1,618,800 | (8) |
| | | | | | | | | | | | | Sean Breslin, Chief Operating Officer | | | | | | | | | | | | | Executive Benefits and Payments Upon Termination | For Cause or Voluntary ($) | | Termination Without Cause (Unrelated to a Sale Event) ($) | | Death or Disability ($) | | Qualified Retirement ($) | | Termination Without Cause (Related to a Sale Event) ($) | | | Severance (Cash) | — | | — | (2) | — | | — | | 2,821,512 | (9) | | Restricted Stock Vesting | — | | 4,320,869 | | 4,320,869 | | 4,320,869 | | 4,320,869 | | | Performance Awards Vesting | — | | 3,033,101 | (4) | 3,033,101 | (4) | 3,033,101 | | 4,458,222 | (5) | | Health Benefits | — | | — | | 10,456 | (6) | 10,456 | | 31,369 | (7) | | Prorated Target Cash & Stock Bonus Provided in the Most Recent Fiscal Year | — | | 1,803,900 | (8) | 1,803,900 | (8) | 1,803,900 | (8) | 1,803,900 | (8) |
| | | | | | | | | | | | | Matthew Birenbaum, Chief Investment Officer | | | | | | | | | | | | | Executive Benefits and Payments Upon Termination | For Cause or Voluntary ($) | | Termination Without Cause (Unrelated to a Sale Event) ($) | | Death or Disability ($) | | Qualified Retirement ($) | | Termination Without Cause (Related to a Sale Event) ($) | | | Severance (Cash) | — | | — | (2) | — | | — | | 2,793,180 | (9) | | Restricted Stock Vesting | — | | 4,422,363 | | 4,422,363 | | — | | 4,422,363 | | | Performance Awards Vesting | — | | 3,033,101 | (4) | 4,422,363 | (4) | — | | 4,458,222 | (5) | | Health Benefits | — | | — | | 10,456 | (6) | 10,456 | | 31,369 | (7) | Prorated Target Cash & Stock Bonus Provided in the Most Recent Fiscal Year
| — | | 1,864,760 | (8) | 1,864,760 | (8) | 1,864,760 | (8) | 1,864,760 | (8) |
| | | | | | | | | | | | | Leo Horey, Former Chief Administrative Officer | | | | | | | | | | | | | Executive Benefits and Payments Upon Termination | For Cause or Voluntary ($) | | Termination Without Cause (Unrelated to a Sale Event) ($) | | Death or Disability ($) | | Qualified Retirement (1) ($) | | Termination Without Cause (Related to a Sale Event) ($) | | | Severance (Cash) | — | | — | (2) | — | | — | | 2,161,940 | (9) | | Restricted Stock Vesting | — | | 2,873,309 | | 2,873,309 | | 2,873,309 | | 2,873,309 | | | Performance Awards Vesting | — | | 1,623,707 | (4) | 1,623,707 | (4) | 1,623,707 | (4) | 2,311,733 | (5) | | Health Benefits | — | | — | | 7,735 | (6) | 7,735 | | 23,204 | (7) | Prorated Cash & Stock Bonus for current year through date of terminating event
| — | | 1,003,410 | (8) | 1,003,410 | (8) | 1,003,410 | (8) | 1,003,410 | (8) |
Footnotes for all tables above:
| (1) | | 1. | Upon termination of any employee’s employment due to a qualified retirement as described above, in addition to the accelerated vesting of restricted stock and performance awards, the employee will receive their prorated annual bonus (cash and stock) paid in cash, six months of Company-paid COBRA premiums, and choice of retirement gift from an online catalog. Retirement benefits are available on the same terms to all associates. |
| | | 2. | The Compensation Committee of the Board of Directors from time to time reviews and establishes severance guidelines in the case of a termination without cause of an executive officer. The guidelines do not constitute a contractual right of an executive and are subject to change without notice as business needs and practices evolve. The Company may require that certain conditions be met before providing severance to an executive, such as requiring the executive to execute a general release, to continue employment with the Company for a period of time, to provide on-going cooperation on various matters, etc. As well, the severance amount suggested in the guideline may be decreased, or eliminated, on a case by case basis depending on the nature of the executive’s termination (e.g., reorganization, poor performance, etc.). |
In the absence of a decrease in the current guideline amount, the guidelines suggest a cash severance payment of two times base salary plus target cash bonus in the case of Mr. Naughton ($6,000,000 as of December 31, 2019) and one and one-half times base salary plus target cash bonus in the case of the other named executive officers ($2,025,000 for Messrs. O'Shea, Breslin and Birenbaum and $1,575,000 for Mr. Horey as of December 31, 2019). Outstanding equity awards would vest in accordance with their terms as is the case with other equity award participants who are terminated without cause, which is reflected in the Termination Without Cause (Unrelated to a Sale Event) column. | | | 3. | In accordance with the terms of the Company’s Officer Severance Plan (as adopted on September 9, 1999, and amended and restated on November 18, 2008, November 9, 2011, and February 11, 2016), represents three times covered compensation (base salary and the average of the prior two year’s cash bonuses) for Mr. Naughton. |
| | | 4. | For 2017-2019 awards, value based on actual achievement. For 2018-2020 and 2019-2021 awards, value assumes prorated vesting based on portion of the performance period completed and achievement assumed at target. |
| | | 5. | For 2017-2019 awards, value based on actual achievement. For 2018-2019 and 2019-2021 awards, value based on full vesting at target. |
| | | 6. | COBRA will be paid for six months for the family in the event of death. |
| | | 7. | Reflects payment of healthcare premiums for up to 18 months. |
| | | 8. | Zero cash and stock payment if terminated prior to April 1, 2019. Prorated target cash and stock bonus payment if terminated on or after April 1, 2019, but prior to December 31, 2019. If departure is close to the year end, actual cash and stock bonus may be provided. Figures in the table represent target values with the exception of the table for Mr. Horey, which reflected actual values because he retired on January 1, 2020. |
| | | 9. | In accordance with the terms of the Company’s Officer Severance Plan, represents two times Covered Compensationcovered compensation (base salary and the average of the prior two year’s cash bonuses) for Mr. McLaughlinMessrs. O’Shea, Breslin, Birenbaum and one times Covered Compensation for Mr. Blair. |
| (2) | Represents the cash surrender value of the policy less the total aggregate premiums paid by the Company. The Company will recover its premiums in the future. |
| (3) | Represents the estimated present value of four years of future premiums paid by the Company on the whole-life portion of a split-dollar life insurance policy. The Company will recover its premiums in the future. |
| (4) | Upon death, (i) the officer’s estate will receive a death benefit under a life insurance policy owned by the Company in the amount of $2.5 million with respect to Mr. Blair, $1.5 million with respect to Messrs. Naughton and Sargeant, and $750,000 with respect to Mr. Horey, and (ii) the Company will receive repayment of all premiums paid by the Company.Horey. |
| (5) | In accordance with the terms of their respective employment agreements, represents two times Covered Compensation for Messrs. Naughton and Sargeant and one times Covered Compensation for Mr. Horey. |
| (6) | In accordance with the terms of their respective employment agreements, represents three times Covered Compensation for Messrs. Naughton and Sargeant and two times Covered Compensation for Mr. Horey. |
The following benefits apply generally to all similarly situated employees and are not included in the tables above:
| · | Upon a termination of any employee’s employment without cause or upon death, disability or retirement of the employee or upon a sale of the Company (as defined in the Stock Incentive Plan), all unvested shares of restricted stock held by an employee will immediately vest. The full value of the shares of restricted stock for which vesting would accelerate upon a termination on December 31, 2012 of each of the named executive officers, based on a closing price of $135.59 on December 31, 2012 is: Mr. Blair—$5,745,000; Mr. Naughton—$2,441,000; Mr. Sargeant—$2,615,000; Mr. Horey—$1,336,000; and Mr. McLaughlin—$1,104,000. |
| · | All unvested employee stock options provide for accelerated vesting upon termination of employment without cause or upon death, disability, retirement, or a sale of the Company (as defined in the Stock Incentive Plan). The full in the money value of unvested options for which vesting would accelerate upon a termination on December 31, 2012 of each of the named executive officers is: Mr. Blair—$1,054,000; Mr. Naughton—$576,000; Mr. Sargeant—$375,000; Mr. Horey—$241,000; and Mr. McLaughlin—$262,000. |
| · | Upon a termination of any employee’s employment due to retirement, the employee will receive the following: |
| · | For six months, the Company will pay the employee’s premium due for insurance benefits extended under COBRA. |
| · | Pro-rated Company match under the 401(k) plan. |
| · | The employee may choose a gift from an on-line catalogue of retirement gifts. |
To receive retirement benefits, the officer must give six months’ prior written notice to the Company of his intention to retire and enter into a one year non-solicitation and non-competition agreement.
| · | If any employee’s employment terminates on or after the end of the calendar year for any reason other than for cause, the Company would compensate that individual with the cash bonus and the cash value of the long-term incentive award that would have been paid to that employee in February or March of the following year. Accordingly, the value of the cash bonus and long-term incentive award earned by the Named Executive Officers in respect of 2012 service is not included in the table above (but is described elsewhere in this Proxy Statement). For Messrs. Naughton, Sargeant and Horey, if such a termination occurred in the middle of the year, they would receive a prorated portion of such amount (at target) under the terms of their employment agreements. Under the Company’s Officer Severance Plan, in the event of such a termination in connection with a sale of the Company, Messrs. Blair and McLaughlin would receive a prorated portion of such amount (at target). |
Director Compensation and Director Stock Ownership Guidelines
A director of the Company who is also an employee receives no additional compensation for his services as a director. Our Board and Nominating and Corporate Governance Committee periodically assess the total compensation for non-employeenon‑employee directors relative to the compensation provided by similarly sized real estate investment trusts, by our multi-familymulti‑family peer group, and by a group of cross-industrycross‑industry similarly sized companies. Our Nominating Committee reviews compensation for non-employee directors periodically.On the fifth business day following eachthe 2019 annual meeting of stockholders, each of our non-employeenon‑employee directors automatically receivesreceived a grant of a number of shares of restricted stock (or a deferred stock award in lieu thereof) equal to $125,000$160,000 divided by the closing price of Common Stock as reported by the NYSE on the date of grant. Based on this formula, following the 20122019 Annual Meeting, each non-employeenon‑employee director received a restricted stock or deferred stock grant of 976785 shares of Common Stock. Following the 2020 Annual Meeting, the value of the annual equity award to non-employee directors will increase to $170,000. All of such shares of restricted stock (or deferred stock awards) granted to non-employeenon‑employee directors vest at the rate of 20% on the date of issuance and on each of the firstin four anniversaries of the date of issuance,quarterly installments over a one-year period, subject to accelerated vesting upon departure from the Board except in the case of a voluntary departure by the director during histhe director’s elected term that is not due to death or disability or the director’s removal for cause. If a director elected to receive a deferred stock award in lieu of restricted stock, then the director will receive shares of stock in respect of the vested portion of the deferred stock award within 30 days following termination of service as a director of the Company. In addition, during 20122019 non‑employee directors received $90,000 as an annual retainer paid quarterly in the amount of $22,500. Following the 2020 Annual Meeting, the annual cash retainer for non-employee directors will remain at a rate of $90,000 per year, paid in quarterly installments. Non‑employee directors who served as the chairperson of the Audit Committee during 2019 received a quarterly paymentadditional cash compensation of $15,000 ($60,000 per year). A non-employee director may elect to receive all or a portion$25,000, paid in four installments of such cash payment in the form of$6,250 (or a deferred stock award equal toin lieu of cash). The chairperson of the Compensation Committee during 2019 received additional cash payment amount divided bycompensation of $20,000, paid in four installments of $5,000 (or a deferred stock award in lieu of cash). Non-employee directors who served as the last reported price onchairperson of the NYSE onInvestment and Finance or Nominating and Governance Committees during 2019 received additional cash compensation of $15,000, paid in four installments of $3,750 (or a deferred stock award in lieu of cash). All committee chair fees will remain unchanged following the date of grant.2020 annual meeting. In consideration for serving as Lead Independent Director, Mr. Primis currently receives, in addition to2019, the compensation described above,Lead Independent Director received an annual cash fee of $30,000, payablepaid in equal quarterly installments of $7,500. Mr. Sarles served as our Lead Independent Director until the 2019 Annual Meeting and Mr. Walter has served as the Lead Independent Director since then. Accordingly, each received $15,000 for his partial year of service as Lead Independent Director in 2019. Following the 2020 Annual Meeting, the annual cash fee payable to the Lead Independent Director will remain at $30,000. Under the Company��s Corporate Governance Guidelines, non‑employee directors are generally required to hold shares (or deferred stock units) having a value that equals or exceeds five times the annual cash retainer paid to non‑employee directors. Directors have five years from the commencement of their service as a director to comply with such requirement. The following table sets forth the compensation for service as a director of the Company received by each non-employeenon‑employee director in 2012,2019, as recognized for financial reporting purposes. | Director Compensation Table | | | | | | | | | | | | | | | | | | | | | | | | | (a) | | (b) | | | (c) | | | (d) | | | (e) | | | (f) | | | (g) | | | (h) | | | Name | | Fees Earned
or Paid in
Cash
($)(1) | | | Stock
Awards
($)(2) | | | Option
Awards
($) | | | Non-Equity
Incentive Plan
Compensation
($) | | | Change in Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($) | | | All other
Compensation
($)(3) | | | Total
($) | | | | | | | | | | | | | | | | | | | | | | | | | | Alan B. Buckelew | | $ | 60,000 | | | $ | 124,937 | | | | — | | | | — | | | | — | | | $ | 3,118 | | | $ | 188,055 | | | Bruce A. Choate | | $ | 60,000 | | | $ | 124,937 | | | | — | | | | — | | | | — | | | $ | 152,865 | | | $ | 337,802 | | | John J. Healy, Jr. | | | — | | | $ | 184,937 | | | | — | | | | — | | | | — | | | $ | 134,705 | | | $ | 319,642 | | | Lance R. Primis | | $ | 90,000 | | | $ | 124,937 | | | | — | | | | — | | | | — | | | $ | 9,238 | | | $ | 224,175 | | | Peter S. Rummell | | $ | 60,000 | | | $ | 124,937 | | | | — | | | | — | | | | — | | | $ | 14,401 | | | $ | 199,338 | | | H. Jay Sarles | | $ | 60,000 | | | $ | 124,937 | | | | — | | | | — | | | | — | | | $ | 9,238 | | | $ | 194,175 | | | W. Edward Walter | | $ | 60,000 | | | $ | 124,937 | | | | — | | | | — | | | | — | | | $ | 15,371 | | | $ | 200,308 | |
| | | | | | | | | | | | | | | | Director Compensation Table | | | | | | | | | | | | | | | | | (a) | (b) | | (c) | | (d) | | (e) | | (f) | | (g) | | (h) | | Name | Fees Earned or Paid in Cash ($)(1) | | Stock Awards ($)(2) | | Option Awards ($) | | Non-Equity Incentive Plan Compensation ($) | | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | | All Other Compensation ($)(3) | | Total ($) | | Glyn F. Aeppel | 97,500 | | 159,936 | | — | | — | | — | | — | | 257,436 | | Terry S. Brown | — | | 257,250 | | — | | — | | — | | — | | 257,250 | | Alan B. Buckelew | 100,000 | | 159,939 | | — | | — | | — | | — | | 259,936 | | Ronald L. Havner, Jr. | — | | 262,374 | | — | | — | | — | | — | | 262,374 | | Stephen P. Hills | 90,000 | | 159,936 | | — | | — | | — | | — | | 249,936 | | Richard J. Lieb | 90,000 | | 159,936 | | — | | — | | — | | — | | 249,936 | Peter S. Rummell (4) | 45,000 | | — | | | | | | | | | | 45,000 | | H. Jay Sarles | 120,000 | | 159,936 | | — | | — | | — | | — | | 279,936 | | Susan Swanezy | — | | 249,992 | | — | | — | | — | | — | | 249,992 | | W. Edward Walter | 125,000 | | 159,936 | | — | | — | | — | | — | | 284,936 |
| | | (1) | For Mr. Primis, this includes $30,000 paid in 2012 for his serviceSarles served as the Lead Independent Director during 2012.prior to the 2019 Annual Meeting and Mr. Walter served as the Lead Independent Director following the 2019 Annual Meeting. The amounts in the table above include the following fees paid in 2019: |
| | | | | | | Name | Annual Retainer | Committee Chair Fee | Lead Director Fee | Total Payment | | Glyn F. Aeppel | 90,000 | 7,500 | — | 97,500 | | Alan B. Buckelew | 90,000 | 10,000 | — | 100,000 | | Stephen P. Hills | 90,000 | — | — | 90,000 | | Richard J. Lieb | 90,000 | — | — | 90,000 | | Peter S. Rummell | 45,000 | — | — | 45,000 | | H. Jay Sarles | 90,000 | 15,000 | 15,000 | 120,000 | | W. Edward Walter | 90,000 | 20,000 | 15,000 | 125,000 |
| | | (2) | The amounts in column (c) reflect the grant date fair value of the shares of restricted stock or deferred stock units granted to each Director on May 31, 2012 equal to $125,000 divided byDirector. For Messrs. Brown and Havner and Ms. Swanezy, the closing price of Common Stock as reported by the NYSE on the date of grant. The value was calculated based on the closing price of the Common Stock on the date of grant of $139.75. Mr. Healy’s stock award amount also includes his electionelections to receive deferred stock units in lieu of cash payments totaling $60,000 in the form of deferred units.$90,000 for each director. This column also includes payment for service as Committee Chairpersons during 2019 as follows: Mr. Brown - $7,500 and Mr. Havner - $12,500. |
As of December 31, 2019, non-employee directors held the following number of unvested restricted stock and/or deferred stock units: | | | | | Director | Unvested Restricted Stock | Unvested Deferred Stock Units | | Glyn F. Aeppel | — | 393 | | Terry S. Brown | — | 393 | | Alan B. Buckelew | 393 | — | | Ronald L. Havner, Jr. | — | 393 | | Stephen P. Hills | — | 393 | | Richard J. Lieb | 393 | — | | H. Jay Sarles | 393 | — | | Susan Swanezy | — | 393 | | W. Edward Walter | — | 393 |
| | | (3) | The amounts in column (g) reflectCash dividends are paid on restricted stock and deferred stock. Dividendsdividend equivalent units are applied on deferred stock are automatically reinvestedunits. The total amount of cash dividends and/or dividend equivalent units totaled less than $10,000 and is not required to be disclosed in the plan as additional deferred stock. The number of shares of deferred stock is calculated based upon the closing price of the Common Stock on the dividend payment date.above table. |
41 | | | (4) | Mr. Rummell retired from the Board of Directors immediately following the 2019 Annual Meeting. |
CEO Pay Ratio
Under rules adopted pursuant to the Dodd-Frank Act of 2010, we are required to calculate and disclose the total compensation paid to our median paid employee, as well as the ratio of the total compensation paid to the median employee as compared to the total compensation paid to our Chief Executive Officer.
The following describes our methodology and the resulting Chief Executive Officer pay ratio and is a reasonable estimate, based on all individuals employed by AvalonBay Communities, Inc. as of December 31, 2019. To identify the median employee, we utilized wages reported in Box 1 of IRS Form W-2. Box 1 pay was selected as the most appropriate, consistently applied compensation measure as it captures compensation earned through various incentive plans offered throughout the Company. Wages were annualized for employees who joined the Company during 2019. For employees who were hired in late December 2019 and did not receive wages until early 2020, wages were assumed to be below the median. After identifying the median employee based on W-2 wages, total compensation for the median employee was calculated using the same methodology as was used for calculating the Chief Executive Officer’s total compensation in the Summary Compensation Table. The annual total compensation for 2019 for the Chief Executive Officer was $10,921,362 and for the median employee was $70,917, which is comprised of approximately $62,000 in cash compensation and $9,000 in all other compensation, such as 401(k) Company contributions and Company paid health care benefits. As a result, the estimated ratio of the Chief Executive Officer's pay to the pay of the median employee is 154.0 to 1.
In an effort to provide additional context on the pay ratio disclosure, the Company is providing the following background information. The employee identified as the employee with median compensation, as described above, held an on-site position at one of our communities. As of December 31, 2019, we had 3,131 employees, of which 2,198 were employed on-site at our operating apartment communities and 105 employees are employed on a part-time basis. The total population also includes 195 employees at the Customer Care Center, our in-house administrative support and call center located in Virginia Beach, VA. The average tenure of all employees is approximately 5.5 years. The Company generally staffs its business with full time employees and not part-time employees or the employees of subcontractors; we do however use subcontractors on occasion to supplement the staffing at certain operating communities and we do on occasion use part time or seasonal employees. With regard to our development and construction activities, we engage various other firms to actually engage in the professional design and construction of our communities (i.e., architectural plans, engineering plans, foundation work, carpentry, drywall, framing, etc.).
As disclosed in the CD&A, AvalonBay’s total compensation program is designed to: Attract, retain and motivate talent within the Company, Align the interests of management with the interests of stockholders, Direct performance with clearly defined goals and measures of achievement, and Assure that compensation is aligned with performance.
The Chief Executive Officer's compensation and that of employees have been established within the parameters of the Company’s pay philosophy.
| | | V. Officers, Stock Ownership And Other Information |
V. OFFICERS, STOCK OWNERSHIP AND OTHER INFORMATION
Executive and Senior Officers
The following biographical descriptions set forth information with respect to the executive and senior officerseach officer who is subject to reporting under Section 16 of the Company, based on information furnished to the Company by each officer.Exchange Act. There is no family relationship between any director, nominee for director or executive officer of the Company. Officers of the Company are elected annually at the first meeting of the Board of Directors following each annual meeting of stockholders. Each officer holds office until the first meeting of the Board of Directors following the next annual meeting of stockholders and until his or her successor is duly elected and qualifies or until his or her earlier death, resignation or removal in the manner provided in the Company’s Bylaws. The Board of Directors has determined that Messrs. Blair, Naughton, Sargeant,O’Shea, Birenbaum, Breslin, Horey, McLaughlin, Morris, O’Shea,and Schulman, and Wilson, and Ms. Shea are executive officers of the Company within the meaning of Rules 3b-73b‑7 and 16a-1(f)16a‑1(f) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).Bryce BlairAct.
Timothy J. Naughton, 58, 54, is currently the Company’s Chairman of the Board, and has been a director of the Company since May 2001. As previously announced, Mr. Blair has chosen not to stand for election as a director at the Annual Meeting. Mr. Blair served as the Company’s Chairman of the Board since January 2002 and was Chief Executive Officer from February 2001 through December 2011 and President from September 2000 through February 2005. Mr. Blair was the Chief Operating Officer of the Company from February 1999 to February 2001. Prior to February 1999, Mr. Blair had served as Senior Vice President—Development, Acquisitions and Construction since the Merger, the same position he held with Avalon Properties from its formation in August 1993 through June 1998. Mr. Blair was a partner with the Northeast Group of TCR from 1985 until 1993. Mr. Blair received his Master’s degree in Business Administration from Harvard Business School. He graduated magna cum laude with an undergraduate degree in Civil Engineering from the University of New Hampshire. He is a member of NAREIT, where he is past Chairman, and the ULI, where he is a past trustee and past Chairman of the Multifamily Council. Mr. Blair has been a member of the Board of Directors of Pulte Group, Inc. since 2011 and was formerly a member of the Board of Directors of CarrAmerica Realty Corporation from 2005 to 2006.Timothy J. Naughton, 51, is the Company’s Chief Executive Officer and President and has been a director of the Company since September 2005. The Board of DirectorsHe has voted to appoint Mr. Naughton to the additional position ofserved as Chairman of the Board following his election as a director at the Annual meeting. Mr. Naughton has servedsince May 2013, as Chief Executive Officer since January 2012, and as President since February 2005. Previously, Mr. Naughton servedNaughton’s prior roles included serving as the Company’s Chief Operating Officer, since February 2001. Prior to assuming the Chief Operating Officer role, Mr. Naughton served as Senior Vice President—Chief Investment Officer, since January 2000, overseeing the Company’s investment strategy. Prior to becoming the Chief Investment Officer, Mr. Naughton served as the Company’sand Regional Vice President—Development and Acquisitions, with responsibility primarily in the Mid-Atlantic and Midwest regions of the country.Acquisitions. Mr. Naughton has been with the Company orand its predecessors since 1989. Mr. Naughton serves on the Boardis a director of GovernorsPark Hotels & Resorts, Inc., a publicly traded hotel real estate investment trust. Mr. Naughton is a former Chairman of NAREIT, is a member of The Real Estate Round Table, is a member and past chairman of the Multifamily Council of the ULI, and is a member of the NMHC, where he servesReal Estate Forum. He sits on the Executive Committee.board of the Jefferson Scholars Foundation at the University of Virginia. Mr. Naughton received his Masters of Business Administration from Harvard Business School in 1987 and earned his undergraduate degree in Economics with High Distinction from the University of Virginia, where he was elected to Phi Beta Kappa.
Thomas J. Sargeant, 54, has been Chief Financial Officer of the Company since the Merger. From March 1995 through June 1998, Mr. Sargeant served as the Chief Financial Officer and Secretary of Avalon Properties, and he was Treasurer of Avalon Properties from its formation in August 1993 through June 1998. Mr. Sargeant, a certified public accountant, is a magna cum laude graduate of the University of South Carolina, where he was elected to Phi Beta Kappa and the Honors College.
Matthew H. Birenbaum, 47, is the Company’s Executive Vice President—Corporate Strategy, a position he has held since October 2011, with responsibility for coordinating the Company’s brand and corporate strategies with its investment activities and providing leadership in setting overall portfolio allocation strategies. Prior to joining the Company in 2011, Mr. Birenbaum was the founding principal of Abbey Road Property Group, LLC, a multi-family development and investment firm based in Arlington, Virginia since 2006 and before that a Senior Vice President at EYA (formerly Eakin/Youngentob Associates). Prior to joining EYA in 2003, Mr. Birenbaum was a Regional Vice President of Development with the Company. Mr. Birenbaum received his Bachelor of Arts from Brown University, where he graduatedphi beta kappa, and his Masters Degree from The Kellogg Graduate School of Management at Northwestern University, where he graduated with honors. He served as Treasurer of the L’Enfant Trust, a historic preservation group in Washington, DC, and is an active member of ULI, as well as being certified LEED-AP.
Sean J. Breslin, 46, is the Company’s Executive Vice President—Investments and Asset Management, with overall responsibility for the Company’s investment platform, including acquisitions/dispositions, portfolio management and market research. Prior to assuming his current role in February 2010 he was the Senior Vice President—Redevelopment and Asset Management since 2008, and Senior Vice President—Investments from 2006 through 2007. Mr. Breslin joined the Company as Vice President—Investments in 2002 and prior to that was the Chief Operating Officer of CWS Capital Partners. He received his Bachelors Degree from California State University, Long Beach and his Masters of Business Administration from the University of Texas. Mr. Breslin is a member of the Executive Committee of NMHC and is Vice Chair of ULI’s Multifamily Council. He is also a member of the Executive Committee of the Real Estate Finance & Investment Center at the University of Texas at Austin.
Leo S. Horey, 50, is the Company’s Executive Vice President—Chief Administrative Officer. He has held this title since April 2012 and was Executive Vice President—Property Operations prior to that since January 2004. Mr. Horey was Senior Vice President—Property Operations from February 2001 through December 2003. Prior to assuming that office, Mr. Horey had served since the Merger as Regional Vice President—Property Operations. Prior to the Merger, Mr. Horey had served since 1994 as Vice President—Property Operations for Avalon Properties. Previously, Mr. Horey had worked for TCR since 1990. Mr. Horey received his Masters of Business Administration from the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill, where he was a Richard H. Jenrette Fellow. He also holds a Bachelor of Science degree in Computer Science and Economics from Duke University.
William M. McLaughlin, 48, is the Company’s Executive Vice President—Development & Construction. Prior to assuming his current title in February 2010 he was Senior Vice President—Development & Construction since 2009. He has been with the Company or its predecessors since 1994, and has also served as Senior Vice President—Development and Vice President—Development. Before joining the Company, Mr. McLaughlin was with Lincoln Property Company. Mr. McLaughlin received his Bachelors Degree in Economics from Harvard College in 1986.
Kevin P. O’Shea, 54, 47, has been the Company’s Executive Vice President—Capital MarketsChief Financial Officer since January 2013.June 2014. Prior to that he was Executive Vice President—Capital Markets, from January 2013 to May 2014 and Senior Vice President—Investment Management. Mr. O’SheaManagement from the time he joined the Company in July 2003.2003 until January 2013. Prior to joining the Company, Mr. O’Shea was an Executive Director at UBS Investment Bank, where his experience included real estate investment banking. Earlier in his career, Mr. O’Shea practiced commercial real estate and banking law as an attorney. Mr. O’Shea received his Masters Degree in Business Administration from Harvard Business School, his J.D. from Southern Methodist University and his undergraduate degree from Boston College. Mr. O’Shea is a Trustee of Urban Edge Properties, a publicly traded REIT. Matthew H. Birenbaum, 54, has been the Company’s Chief Investment Officer since January 2015. He is responsible for the Company’s investment strategy and oversees the Asset Management, Investments, Operations and Investment Services, Construction Support and Market Research functions as well as development on the West Coast and in the Denver area. Before assuming his current position, he was the Company’s Executive Vice President—Corporate Strategy, a position he held from October 2011 until January 2015. Prior to re-joining the Company in October 2011, Mr. Birenbaum was the founding principal of Abbey Road Property Group, LLC, a multi‑family development and investment firm based in Arlington, Virginia since 2006 and before that a Senior Vice President at EYA . Prior to joining EYA in 2003, Mr. Birenbaum was a Regional Vice President of Development with the Company. Mr. Birenbaum received his Bachelor of Arts from Brown University, where he graduated Phi Beta Kappa, and his Master's Degree from The Kellogg Graduate School of Management at Northwestern University, where he graduated with honors. He is a member of ULI, is certified LEED‑AP, serves on the Board of the Arlington Partnership for Affordable Housing (APAH), and is a Trustee of the Federal City Council.
Sean J. Breslin, 53, is the Company’s Chief Operating Officer, a position he has held since January 2015, with responsibility for the Company’s operating platform, including Property Operations, Technology, Human Resources, Corporate Innovation, and Marketing and Brand Strategy. He was previously the Company’s Executive Vice President—Investments and Asset Management since April 2012. Mr. Breslin’s other roles with the Company have included Senior Vice President—Redevelopment and Asset Management and Senior Vice President—Investments. Prior to joining the Company in 2002, Mr. Breslin was the Chief Operating Officer of CWS Capital Partners. He received his Bachelor's Degree from California State University, Long Beach and his Masters of Business Administration from the University of Texas. Mr. Breslin is a member of the Executive Committee of NMHC and is past Chair of ULI’s Multifamily Council. He is also a member of the Executive Committee of the Real Estate Finance & Investment Center at the University of Texas at Austin and a member of the Board of Directors of the American Red Cross. William M. McLaughlin, 55, has served as the Company’s Executive Vice President—Development and Construction since early 2020, with current responsibility for all of the Company’s development activity on the East Coast and construction activity nationally. He was Executive Vice President—Development from 2014 and the Executive Vice President Development and Construction from February 2010 until 2014. Prior to that Mr. McLaughlin was Senior Vice President—Development & Construction since 2009. He has been with the Company or its predecessors since 1994. Mr. McLaughlin received his BA in Economics from Harvard College. Edward M. Schulman, 57, 50, ishas served as the Company’s Executive Vice President—General Counsel and Secretary.Secretary since 2012. Mr. Schulman joined the Company in February 1999 and has served as General Counsel since that time. Prior to joining the Company he was a corporate and securities law partner at Goodwin Procter LLP. Mr. Schulman is a magna cum laude graduate of Harvard Law School and received his undergraduate degree in economics from Princeton University, where he graduated with high honors.Stephen W. Wilson, 56, is the Company’s Executive Vice President—Development & Construction. Priorhonors and was elected to assuming his current title in February 2010, he was Senior Vice President—Development & Construction for the West Coast and Mid-Atlantic. Mr. Wilson has also served as Senior Vice President—Development and Vice President—Development. Prior to joining the Company in 1998, Mr. Wilson was a Senior Vice President and Chief Operating Officer for SU Development, Inc. of Bellevue, Washington and Senior Vice President of Continental Pacific, Inc. of Bellevue, Washington. Mr. Wilson received his B.A. in Business Administration (Accounting) from Washington State University. He is a member of ULI and The American Institute of Certified Public Accountants.
David Bellman, 57, is the Company’s Senior Vice President—Construction. Mr. Bellman joined AvalonBay in 1998 and prior to that spent 16 years with Boston Properties. Mr. Bellman studied Engineering Administration at George Washington University and is a member of the New York City Builders Congress.
Kurt D. Conway, 53, is the Company’s Senior Vice President—Brand Strategy. Mr. Conway joined the Company in August 2010. Prior to joining the Company, Mr. Conway held senior level marketing roles in multi-site hospitality and healthcare businesses. Most recently, he was Senior Vice President Sales, Marketing and Corporate Communications for Sunrise Senior Living from 2003 until 2010. Previously, he was a Senior Vice President of Sales and Marketing for Marriott International and also held senior level roles in Product Management and Marketing for ManorCare, Inc. Mr. Conway earned a Master’s of Science degree from the University of Massachusetts and a Bachelor’s of Business Administration from the University of Michigan.
DeborahKeri A. CoombsShea, 50
, 57, is the Company’s Senior Vice President—Property Operations. Prior to joining the Company in 2003, Ms. Coombs was Area Vice President for the Southern California region of Equity Residential Property Management. From 1989 to 1994, Ms. Coombs was the Regional Director of Operations for Lexford Properties. She received her BA Degree in Education with Distinction from Purdue University.Jonathan B. Cox, 55, is the Company’s Senior Vice President—Development. Mr. Cox joined the Company in 2003 and has over 20 years of multifamily residential development experience, most recently prior to joining the Company as a Vice President with The Holladay Corporation. Mr. Cox graduated from Case Western Reserve University and has a Masters of Business Administration from the Wharton School.
Scott W. Dale, 54, is the Company’s Senior Vice President—Development. Prior to joining the Company in 1998, Mr. Dale was the Regional Real Estate manager for General Motors Worldwide Real Estate. Mr. Dale holds a Bachelor of Science Degree in Civil Engineering from the University of Calgary. He also attended Boston University School of Management, from which he graduated Beta Gamma Sigma with a Masters Degree in Business Administration. He is an affiliated member of the Real Estate Investment Advisory Council, the ULI, and the Association of Professional Engineers of Ontario.
Ronald S. Ladell, 51, is the Company’s Senior Vice President—Development. Prior to joining the Company in 2002, he was the Vice President for Business Development for Pinnacle Communities responsible for commercial and multifamily developments. Mr. Ladell also served as the Vice President, General Counsel and Director of Development for a restaurant and hotel franchisee developing, constructing and operating hotels and restaurants in the Northeast. Mr. Ladell received is JD from Rutgers School of Law-Newark and his BA from Rutgers College, Rutgers University.
Joanne M. Lockridge, 54, is the Company’s Senior Vice President—Finance. Ms. Lockridge has been with the Company since the Merger, and prior to that with Avalon Properties since its formation in 1993. She earned her Masters in Finance degree from Fairfield University and her undergraduate degree, magna cum laude, from St. Anselm College.
J. Richard Morris, 53, has been the Company’s Senior Vice President—Construction since February 2005. Mr. Morris has been with the Company since the Merger. He joined Avalon Properties in 1996 and prior to joining the Company worked for regional residential developers in the Mid-Atlantic area constructing numerous large residential communities. Mr. Morris graduated cum laude from West Virginia State University with a B.S. in Building Construction. He also completed graduate courses in Engineering Management at the West Virginia College of Graduate Studies. Mr. Morris is a member of the National Association of Home Builders, where he has served on subcommittees for Codes and Standards.
Christopher L. Payne, 43, is the Company’s Senior Vice President—Development. Prior to joining the Company in 2000, Mr. Payne managed new development activity for Belmont Corp. in Southern California. Mr. Payne received a B.S. in Business Administration / Finance from California State University, Fullerton and a Masters in Real Estate Development from the University of Southern California.
Martin Piazzola, 53, joined the Company as a Senior Vice President—Development in 2011. Prior to joining the Company, Mr. Piazzola was Vice President for Lincoln Property Company responsible for identifying, underwriting, acquiring and developing residential projects in the New York area. Previously, Mr. Piazzola was Executive Vice President of The Clarett Group. He earned a Bachelor of Science degree in accounting at the State University of New York at Binghamton, an MBA in Finance from New York University, is certified as a CPA, and is a member of the Board of Governors of the Real Estate Board of New York.
Keri A. Shea, 43, has been the Company’s Vice President—Finance & Treasurer since 2006,2013, and since 2009 has also been designated as the Company’s principal accounting officer. Ms. Shea joined the Company in 2002 as Assistant Corporate Controller and was promoted to Corporate Controller in 2005.2005 and Vice President in 2006. Prior to joining the Company, she most recently served as the Corporate Controller for two start-upstart‑up technology companies in the Washington, D.C. area. Prior to that, Ms. Shea was with Arthur Andersen LLP for eight years. She is a certified public accountant and has a B.B.A. in Accounting from the College of William & Mary.
Matthew T. Smith,45, is the Company’s Senior Vice President - Property Operations with responsibility for the East region. Mr. Smith joined AvalonBay concurrently with the closing of the Archstone Acquisition in February 2013. At Archstone he was the Executive Vice President of Operations for the East region from 2005 until 2013. Mr. Smith holds a BA in Economics and Urban Studies from the University of Pennsylvania and an MBA in Finance and Accounting from New York University.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the beneficial ownership of Common Stock, as of March 2, 2020, as to (i) each person or entity who is known by the Company to have beneficially owned more than 5% of the Common Stock as of December 31, 2012 or, in the case of Jupiter Enterprise LP, February 27, 2013;Stock; (ii) each of the Company’s directors and Nominees as of March 1, 2013;nominees; (iii) each of the Named Executive Officers as of March 1, 2013;Officers; and (iv) all directors and executive officers as a group, as of March 1, 2013, based on representations of officers and directors of the Company and filings through March 20132, 2020 received by the Company on Schedule 13G under the Exchange Act. All such information was provided by the stockholders listed and reflects their beneficial ownership known by the Company. All percentages have been calculated as of March 1, 20132, 2020 and are based upon 129,346,679shares140,736,367 shares of Common Stock outstanding at the close of business on such date (unless otherwise indicated). | Name and Business Address of Beneficial Owner(1) | | Number of Shares
of Common Stock
Beneficially Owned(2) | | | Percent
of Class
(%) | | | Bryce Blair | | | 251,119 | (3) | | | * | | | Alan B. Buckelew | | | 1,545 | | | | * | | | Bruce A. Choate | | | 60,953 | (4) | | | * | | | John J. Healy, Jr. | | | 37,394 | (5) | | | * | | | Leo S. Horey | | | 84,956 | (6) | | | * | | | William M. McLaughlin | | | 118,529 | (7) | | | * | | | Timothy J. Naughton | | | 398,574 | (8) | | | * | | | Lance R. Primis | | | 10,484 | | | | * | | | Peter S. Rummell | | | 7,305 | (9) | | | * | | | Thomas J. Sargeant | | | 178,207 | (10) | | | * | | | H. Jay Sarles | | | 14,075 | (11) | | | * | | | W. Edward Walter | | | 5,625 | (12) | | | * | | | All current directors and executive officers as a group (18 persons) | | | 1,299,647 | (13) | | | 0.01 | | Jupiter Enterprise LP.
1271 Avenue of the Americas, New York, NY 10020 | | | 14,889,706 | (14) | | | 11.5 | | The Vanguard Group, Inc.
100 Vanguard Blvd., Malvern, PA 19355 | | | 12,766,880 | (15) | | | 11.16 | | BlackRock, Inc.
40 East 52nd Street, New York, NY 10022 | | | 9,198,229 | (16) | | | 8.20 | | Vanguard Specialized Funds-Vanguard REIT Index Fund
100 Vanguard Blvd., Malvern PA 19355 | | | 7,427,816 | (17) | | | 6.49 | | State Street Corporation.
One Lincoln Street, Boston, MA 02111 | | | 6,036,359 | (18) | | | 5.4 | |
| | | | | Name and Business Address of Beneficial Owner(1) | Number of Shares of Common Stock Beneficially Owned(2) | | Percent of Class (%) | | Glyn F. Aeppel | 6,194 | (3) | * | | Matthew H. Birenbaum | 53,890 | | * | | Sean J. Breslin | 43,373 | | * | | Terry Brown | 6,661 | (3) | * | | Alan B. Buckelew | 7,210 | | * | | Ronald L. Havner, Jr. | 7,163 | (3) | * | | Stephen P. Hills | 2,008 | (4) | * | | Leo Horey | 11,560 | | * | | Richard Lieb | 2,861 | | * | | Timothy J. Naughton | 157,285 | | * | | Kevin O'Shea | 25,729 | | * | | H. Jay Sarles | 16,653 | | * | | Susan Swanezy | 4,468 | (3) | * | | W. Edward Walter | 13,012 | (5) | * | | All current directors, nominees and executive officers as a group (17 persons) | 436,478 | (6) | 0.31% | | The Vanguard Group, Inc., 100 Vanguard Blvd., Malvern, PA 19355 | 20,836,433 | (7) | 14.81% | | BlackRock, Inc., 40 East 52nd Street, New York, NY 10022 | 15,946,095 | (8) | 11.33% | | State Street Corporation, State Street Financial Center, One Lincoln Street, Boston MA 02111 | 9,491,673 | (9) | 6.74% |
| (1) | The address for all directors and executive officers is AvalonBay Communities, Inc., Ballston Tower, 671 N. Glebe Road, Suite 800, Arlington, VA 22203. |
| (2) | Except as otherwise noted, each individual in the table above has the sole voting and investment power over the shares listed. |
| (3) | Includes 108,085 shares issuable upon the exercise of stock options that vest on or before May 1, 2013. |
| (4) | Includes (i) 41,331 shares issuable in the future under deferred stock awards granted to Mr. Choate in lieu of restricted stock awards pursuant to elections under the Stock Incentive Plan and (ii) 19,622 shares held jointly with spouse. As of the date of this proxy statement no shares are subject to any lien, pledge or margin. |
| (5) | Includes 36,076 shares issuable in the future under deferred stock awards granted to Mr. Healy in lieu of restricted stock awards pursuant to elections under the Stock Incentive Plan. |
| (6) | Includes 32,056 shares issuable upon the exercise of stock options that vest on or before May 1, 2013. |
| (7) | Includes (i) 65,917 shares issuable upon the exercise of stock options that vest on or before May 1, 2013, and (ii) 1,160 held in trust for minor children. |
| (8) | Includes 291,474 shares issuable upon the exercise of stock options that vest on or before May 1, 2013. |
| (9) | Includes 1,503 shares issuable in the future under deferred stock awards granted to Mr. Rummell in lieu of restricted stock awards pursuant to elections under the Stock Incentive Plan. |
| (10) | Includes (i) 51,539 shares issuable upon the exercise of stock options that vest on or before May 1, 2013, (ii) 1,352 shares held by Mr. Sargeant’s spouse, and (iii) 33,829 shares held in various trusts. |
| (11) | All of such shares are held in a revocable trust. |
| (12) | Includes 2,298 shares issuable in the future under deferred stock awards granted to Mr. Walter in lieu of restricted stock awards pursuant to elections under the Stock Incentive Plan. |
| (13) | Includes (i) 605,126 shares issuable upon the exercise of stock options that vest on or before May 1, 2013, (ii) 81,208 shares issuable in the future under deferred stock awards, and (iii) 34,989 shares held in trust. |
| (14) | The information reported is based on a Schedule 13G filed on March 7, 2013 reporting beneficial ownership as of February 27, 2013 by Lehman Brothers Holdings Inc. The Schedule 13G indicates that the reporting entity holds sole voting power and sole dispositive power with respect to all reported shares. The Schedule 13G further reports that Jupiter Enterprise LP is managed by its general partner, Jupiter Enterprise GP LLC, which is managed by its managing member, Jupiter Multifamily JV LP. Jupiter Multifamily JV LP is managed by its general partner, Jupiter Multifamily (GP) LLC, which is managed by its general partner, Jupiter Multifamily (Governance) LLC. The Company issued these shares in connection with the Archstone Acquisition and entered into a Shareholders Agreement with Lehman Brothers Holdings, Inc., with respect to these shares, certain terms of which are described on page 14. |
| (15) | The information reported is based on a Schedule 13GA filed on February 7, 2013 reporting beneficial ownership as of December 31, 2012. The schedule 13G indicates that the reporting entity holds sole voting power with respect to 366,883 shares, shared voting power with respect to 85,537 shares, sole dispositive power with respect to 12,766,880 shares, and shared dispositive power with respect to 293,942 shares. |
| (16) | The information reported is based on a Schedule 13GA filed on February 4, 2013, reporting beneficial ownership as of December 31, 2012. The Schedule 13GA indicates that the reporting entity holds sole voting and dispositive power with respect to all reported shares. |
| (17) | The information reported is based on Schedule 13GA filed with the SEC on February 14, 2013 reporting beneficial ownership as of December 31, 2012. The Schedule 13G also reports that the reporting entity holds sole voting power with respect to all reported shares. |
| (18) | The information reported is based on a Schedule 13G filed with the SEC on February 8, 2013, reporting beneficial ownership as of December 31, 2012. The Schedule 13G indicates that the reporting entity holds shared voting and shared dispositive power with respect to all reported shares. |
(1) The address for all directors, nominees and executive officers is AvalonBay Communities, Inc., 4040 Wilson Blvd, Suite 1000, Arlington, VA 22203.
(2) Except as otherwise noted, each individual in the table above has the sole voting and investment power over the shares listed.
(3) Reflects shares issuable in the future under deferred stock awards in lieu of restricted stock awards pursuant to elections under the Stock Incentive Plan.
(4) Includes 1,498 shares issuable in the future under deferred stock awards granted to Mr. Hills in lieu of restricted stock awards pursuant to elections under the Stock Incentive Plan.
(5) Includes 6,852 shares issuable in the future under deferred stock awards granted to Mr. Walter in lieu of restricted stock awards pursuant to elections under the Stock Incentive Plan.
(6) Includes 32,836 shares issuable in the future under deferred stock awards. (7) The number of shares reported is based on a Schedule 13G/A filed on February 11, 2020, reporting beneficial ownership as of December 31, 2019. The schedule 13G/A indicates that the reporting entity holds sole voting power with respect to 352,142 shares, shared voting power with respect to 187,993 shares, sole dispositive power with respect to 20,456,443 shares, and shared dispositive power with respect to 379,990 shares.
(8) The number of shares reported is based on a Schedule 13G/A filed on February 4, 2020, reporting beneficial ownership as of December 31, 2019. The Schedule 13G/A indicates that the reporting person has sole voting power with respect to 14,566,864 shares and sole dispositive power with respect to 15,946,095 shares.
(9) The number of shares reported is based on a Schedule 13G filed February 13, 2020, reporting beneficial ownership as of December 31, 2019. The schedule 13G/indicates that the reporting entity holds shared voting power with respect to 7,914,760 shares and shared dispositive power with respect to 9,482,203 shares.
Delinquent Section 16(a) Beneficial Ownership Reporting ComplianceReports
Section 16(a) of the Exchange Act requires persons who are officers of the Company as defined by Section 16, directors of the Company and persons who own more than 10% of a registered class of the Company’s equity securities (collectively, “Insiders”) to file reports of ownership and changes in ownership with the SEC and one national securities exchange on which such securities are registered. In accordance with Rule 16a-3(c)16a‑3(c) under the Exchange Act, the Company has designated the NYSE as the national securities exchange with which reports
pursuant to Section 16(a) of the Exchange Act need to be filed. Insiders are required by SEC regulationregulations to furnish the Company with copies of all Section 16(a) forms they file. To the Company’s knowledge, based solely on a review of copies of such reports and written representations that no other reports were required during the fiscal year ended December 31, 2012,2019, all filing requirements applicable to the Insiders were timely satisfied withother than (a) one filing for each of Ronald L. Havner, Jr., Terry S. Brown and Susan Swanezy reporting the exceptionquarterly issuance of (i)stock or deferred stock units as payment for service as a Form 4director on May 15, 2019, which were filed on behalfJune 5, 2019, and (b) one filing for Ronald L. Havner Jr. reporting the quarterly issuance of Mr. Blair reflecting an option exercisedeferred stock units as payment for service as a director on February 27, 2012, thatDecember 1, 2019, which was filed on March 5, 2012, and (ii) a Form 4 filed on behalf of Mr. McLaughlin reflecting the cash out of a fractional share on June 7, 2012, and a sale of shares on August 16, 2012, that was filed on August 30, 2012.December 9, 2019.
VI. OTHER MATTERS
The cost of solicitation of proxies for the Annual Meeting will be paid by the Company. In addition to the solicitation of proxies by mail,internet, the directors, officers and employees of the Company may also solicit proxies personally or by telephone without additional compensation for such activities. The Company will also request persons, firms, and corporations holding shares in their names or in the names of their nominees, which are beneficially owned by others, to send proxy materials to and obtain proxies from such beneficial owners. The Company will reimburse such holders for their reasonable expenses. The Company has engaged Morrow & Co., LLC, 470 West Ave, Stamford, CT 06902, a third party proxy solicitation firm. We anticipate that the cost of such third party proxy solicitation, which will be borne by the Company, will be approximately $7,500 plus reasonable out-of-pocket expenses.
Stockholder Nominations for Directors and Proposals for Annual Meetings
Stockholder Proposals for our Proxy Statement.Stockholder proposals submitted pursuant to Exchange Act Rule 14a-814a‑8 for inclusion in the Company’s proxy statement and form of proxy for the 2014 annual meeting2021 Annual Meeting of stockholdersStockholders must be received by the Company by December __, 2013.1, 2020. Such a proposal must also comply with the requirements as to form and substance established by the SEC for such a proposal to be included in the proxy statement and form of proxy. Any such proposal and the supporting documentation should be mailed to: AvalonBay Communities, Inc., 4040 Wilson Boulevard, Suite 1000, Arlington, VA 22203, Attention: Secretary. Proxy Access Director Nominations. In order for an eligible stockholder or group of stockholders to nominate a director nominee for election at the Company’s 2021 annual meeting pursuant to the proxy access provision of our Bylaws, notice of such nomination and all other supporting documentation required by the Company’s Bylaws must be received by the Company within the time periods described below. In addition, our Bylaws require an eligible stockholder or group of stockholders to update and supplement such information (or provide notice stating that there are no updates or supplements) as of specified dates. Matters to be Considered at Annual Meetings.In accordance with our Bylaws, as currently in effect, for a stockholder to nominate a director or for a proposal of a stockholder to be presented at the Company’s 2014 annual meeting2021 Annual Meeting of stockholders,Stockholders, other than a stockholder proposal intended to be included in our proxy statement and submitted pursuant to Rule 14a-814a‑8 of the Exchange Act, a stockholder’s notice must be received by the Company within the time periods described below:
Time Periods and Address for Proxy Access and Other Stockholder Nominations and Proposals. In order to be eligible under the provisions of our Bylaws governing (A) proxy access director nominations and (B) other director nominations and proposed matters to be presented at an annual meeting, our Bylaws require that proper notice of such nomination(s) or business matters, together with all supporting documentation required by our Bylaws, must be delivered to, or mailed and received at theour principal executive offices of the Company, together with all supporting documentation required by the Company’s Bylaws,office, which is currently AvalonBay Communities, Inc., 4040 Wilson Boulevard, Suite 1000, Arlington, VA 22203, Attention: Secretary, (A) not prior to November __, 20131, 2020 nor later than 5:00 p.m., Eastern Time, on December __, 20131, 2020 or (B) in the event that the date of the 2014 annual meeting2020 Annual Meeting of Stockholders is advanced or delayed by more than 30 days from May 22, 2014,12, 2021, (i) not earlier than the 150th day prior to the date of suchthat meeting, and (ii) not later than 5:00 p.m., Eastern Time, on the later of (x) the 120th day prior to the date of such annualthat meeting or (y) the 10th day following the day on which public announcement of the date of such annual meeting is first made. You may contact the Company’s Secretary at the address mentioned belowabove for a copy of the relevant Bylaw provisions regarding the requirements for making stockholder proposals and nominating director candidates. Any such proposals should be mailed to: AvalonBay Communities, Inc., Ballston Tower, 671 N. Glebe Road, Suite 800, Arlington, VA 22203, Attention: Secretary.Appendix A
ARLINGTON, VA (March 28, 2013) – AvalonBay Communities, Inc. (NYSE: AVB)announced today that its Board of Directors has nominated Glyn F. Aeppel to stand for election to the company’s Board of Directors at its upcoming Annual Meeting of Stockholders, to be held on May 22, 2013. Ms. Aeppel, 54, is president and chief executive officer of Glencove Capital, a hotel investment and advisory company she founded in June 2010. Ms. Aeppel has more than 25 years of experience in property acquisitions, development and financing, including executive positions with Andre Balazs Properties and Loews Hotels.
“AvalonBay will benefit from Glyn’s substantial experience in many facets of the real estate business,” said Timothy J. Naughton, CEO, who has been appointed Chairman of the Board effective following his re-election to the Board at the Annual Meeting. Added Lance Primis, Lead Independent Director, “Glyn will add an additional independent voice to our Board, and we look forward to working with her.”
| | | | | | Please take a moment now to authorize a proxy to vote these shares of AvalonBay Communities, Inc. common stock at the 2013 Annual Meeting of Stockholders. | | | | | | | AVALONBAY COMMUNITIES, INC.
BALLSTON TOWER
671 N. GLEBE ROAD, SUITE 800
ARLINGTON, VA 22203 | YOU CAN AUTHORIZE A PROXY TO VOTE
THESE SHARES TODAY IN ONE OF THREE WAYS: | | | | | | BY INTERNET—www.proxyvote.com | | | Use the Internet to authorize your proxy and transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. | | | | | | | | ELECTRONIC DELIVERY OF FUTURE STOCKHOLDER COMMUNICATIONS | | | | If you would like to reduce the costs incurred by AvalonBay Communities, Inc. in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to authorize your proxy using the Internet and, when prompted, indicate that you agree to receive or access stockholder communications electronically in future years. | | | | | | | | BY PHONE - 1-800-690-6903 | | | | Use any touch-tone telephone to authorize your proxy and transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you call and then follow the instructions. | | | | | | | | BY MAIL | | | | Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to AvalonBay Communities, Inc., c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. If you vote these shares by internet or telephone you do NOT need to mail this proxy card | |
| | | TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | | | M56425-P36626 | KEEP THIS PORTION FOR YOUR RECORDS | | | DETACH AND RETURN THIS PORTION ONLY | THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. | |
| | | | | | | | | | | | | | | | | | | | | | | | AVALONBAY COMMUNITIES, INC. | | For
All | Withhold
All | For All
Except | To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. | | | | | | | | | THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR”
PROPOSALS 1, 2, 3 and 4. | | | | | | | | | | | | | | | | | o | o | o | | | | | | | | | | | 1. | To elect the following eight individuals to serve until the 2013 Annual Meeting of Stockholders and until their respective successors are elected and qualify: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 01) | Glyn F. Aeppel | 06) | Lance R. Primis | | | | | | | | | | | | | | 02) | Alan B. Buckelew | 07) | Peter S. Rummell | | | | | | | | | | | | | | 03) | Bruce A. Choate | 08) | H. Jay Sarles | | | | | | | | | | | | | | 04) | John J. Healy, Jr. | 09) | W. Edward Walter | | | | | | | | | | | | | | 05) | Timothy J. Naughton | | | | | | | | For | Against | Abstain | | | | | | | | | | | | | | | | | | | | | | 2. | To ratify the selection of Ernst & Young LLP as the Company’s independent auditors for the year ending December 31, 2013 | | o | o | o | | | | | | | | | | | | | | | | | | | | | | 3. | To adopt a resolution approving, on a non-binding advisory basis, the compensation paid to the Company’s Named Executive Officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion set forth in the proxy statement. | | o | o | o | | | | | | | | | | | | | | | | | | | | | | 4. | To approve an amendment to the Company’s Amended and Restated Articles of Amendment, as amended, to increase the number of authorized shares of the Company’s common stock, par value $.01 per share, by 140 million shares. | | o | o | o | | | | | | | | | | | | | | | | | | | | | | 5. | In addition, the proxies are authorized to vote and otherwise represent the undersigned on any other matter that may properly come before the Annual Meeting or any adjournment or postponement thereof in the discretion of the proxy holder. | | | | | | | | | | | | | | | | | | | | | | | | | | If you vote by mail, you must date, sign and return this card in order for these shares to be voted. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Yes | No | | | | Yes | No | | | | | | | | | | | | | | | | | | | | | | | Please indicate if you plan to attend this meeting. | o | o | | HOUSEHOLDING ELECTION—Please indicate if you consent to receive certain future investor communications in a single package per household. | | o | o | | | | | | | | | | | | | | | | | | | | | | | Please sign exactly as your name appears on this card and date. When signing as attorney, executor, administrator, trustee, guardian, officer of a corporation or other entity or in another representative capacity, please give your full title. If shares are held jointly, each holder should sign. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Signature [PLEASE SIGN WITHIN BOX] | | Date | | | | Signature (Joint Owners) | Date | | | | | |
  Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice, Proxy Statement and Annual Report to Stockholders are available at www.proxyvote.com.
| | | | M56426-P36626 | AVALONBAY COMMUNITIES, INC.
2013 ANNUAL MEETING OF STOCKHOLDERS, MAY 22, 2013, 9:00 A.M. EASTERN TIME
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY
The undersigned stockholder of AvalonBay Communities, Inc., a Maryland corporation (the “Company”), hereby appoints Timothy J. Naughton and Thomas J. Sargeant, and each of them, as proxies for the undersigned, each with full power of substitution, to attend the Annual Meeting of Stockholders of the Company (the “Annual Meeting”), to be held at the offices of the Company, Ballston Tower, 671 N. Glebe Road, Suite 800, Arlington, VA 22203 on May 22, 2013, 9:00 a.m. Eastern Time, and any adjournments or postponements thereof, to cast on behalf of the undersigned all votes that the undersigned is entitled to cast at the Annual Meeting and otherwise to represent the undersigned with all of the powers the undersigned would possess if personally present at the Annual Meeting. The undersigned hereby acknowledges receipt of the Notice of the Annual Meeting of Stockholders and of the Proxy Statement, the terms of each of which are incorporated herein by reference, and revokes any proxy heretofore given with respect to the Annual Meeting.
IF THIS PROXY IS PROPERLY EXECUTED, THE VOTES ENTITLED TO BE CAST BY THE UNDERSIGNED WILL BE CAST AS DIRECTED HEREIN, BUT IF THIS PROXY IS EXECUTED AND NO INSTRUCTIONS ARE SPECIFIED, THE VOTES ENTITLED TO BE CAST BY THE UNDERSIGNED WILL BE CAST “FOR” EACH OF THE NOMINEES FOR DIRECTOR IN PROPOSAL 1 AND “FOR”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
| | | | SEE REVERSE | PLEASE COMPLETE, DATE, SIGN AND PROMPTLY MAIL | SEE REVERSE | SIDE | THIS PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE | SIDE |
|
![[AVALONBAY LOGO]](https://capedge.com/proxy/PRE 14A/0001188112-13-000857/bt76030001_v1.jpg)
