Latest Survey Shows Modest Gains Since '02, But It's Still Good to be CEO of a Large Company An Overview of the NAIOP 2004-2005 Compensation Report [ By Shawn Six ] With the economy picking up steam in 2004, many companies are starting to add to their payrolls for the first time in several years. As a result, employee turnover throughout the commercial real estate development and property management industry will likely grow. In order to attract and retain quality employees, companies will be driven to offer competitive compensation and benefits. One of the best ways to ensure that your company offers competitive compensation and benefits is to benchmark your organization against your peers. The recently released NAIOP 2004-2005 Compensation Report should prove to be an invaluable benchmarking tool for companies looking to offer competitive compensation and benefits. The biennial study surveyed nearly 175 companies and more than 7,000 employees. The results show that most of the positions surveyed showed moderate increases in compensation over the past two years. For example, the average total compensation for CEOs increased four percent from 2002 to 2004 (see Figure 1). The Issues That Matter Employee compensation showed a direct relationship with size of the company for nearly all staff positions. Larger companies tended to pay more than smaller ones. Using the CEO as an example, Figure 2 shows the impact annual gross revenue has on compensation. For instance, CEOs in companies with annual gross revenue of $5 million or less earn a median total compensation of $170,200. Those in companies with annual gross revenue over $100 million, however, earn a median total compensation of $692,400. Similarly, CEOs in companies with larger staffs and more square footage (owned and managed) paid higher levels of compensation. In general, this same pattern was found with most of the other job titles. Responding companies were grouped by primary property type, which included industrial, office, raw land, retail, and mixed-use. Companies indicating their primary property type to be retail tended pay higher compensation than other property types. While there was no consistent relationship between geographic region and compensation, companies in the Northeast tended to pay the most. In addition, companies with properties in multiple regions also tended to pay higher than average compensation to their employees. Companies were also grouped by ownership type. These groupings include Publicly Traded (non-REIT), Real Estate Investment Trust (REIT), Private and Other. Companies that are publicly traded and REITs tended to pay the highest levels of compensation to their employees. Using the Chief Financial Officer (CFO) as an example, median total compensation for publicly traded companies was $414,400, while REITs paid $468,600. In contrast, private companies paid a median total compensation to their CFO of $163,300. Much of this difference is likely due to the disparity in annual gross revenue, with publicly traded companies and REITs being decidedly larger than private companies. The report also compares single-office real estate companies to multiple-office real estate companies. Companies with multiple offices tended to pay higher compensation than their single office counterparts. For example, CEOs of multiple-office companies paid a median total compensation of $355,700 compared to $248,500 for single-office companies (see Figure 3). Popular Incentives and "Perks" In addition to cash compensation, incentives and perquisites are an important ingredient in attracting and retaining quality employees. The most popular short-term incentive surveyed was the annual performance bonus, with 92 percent offering this incentive to all or some of their employees. Other short-term incentives surveyed include commissions (42 percent), annual cash profit sharing plan (25 percent) and overrides (14 percent). The most popular long-term incentive plan surveyed was equity participation (not stock), with 30 percent offering this incentive to some or all of their employees. Less popular plans include long-term cash incentives (20 percent), stock options (17 percent), restricted stock (16 percent) and stock purchase plans (14 percent). A car/car allowance was the most popular perquisite offered. Sixty-nine percent offered either a car or a car allowance to some or all of their employees. Other perquisites surveyed include company paid supplemental life insurance (45 percent), tax return preparation (17 percent), company-paid physicals (16 percent) and financial real estate planning (15 percent). Insurance benefits are a major component of an employee benefit package. More than half of the responding companies offered medical coverage, life insurance, dental benefits, disability insurance and a vision plan. Fewer than half offered long-term care insurance. The most popular form of medical coverage was Preferred Provider Organizations (PPO), with 77 percent offering this type of plan. Health Maintenance Organizations (HMO) were also popular, with nearly 50 percent offering this type of plan. Only one out of four companies offered a traditional medical indemnity plan (i.e., Blue Cross). The vast majority of companies used a 401(k) plan for retirement (90 percent), while only 12 percent used a defined benefit pension plan. Of those offering a 401(k) plan, 79 percent match employee contributions. Among other employee benefits, more than half offered a cafeteria/flexible benefits spending account, education assistance and payment of association/membership dues. Fewer than half offered an employee assistance program, transit reimbursement, adoption benefits and child day care allowance. Order Information The NAIOP 2004-2005 Compensation Report contains more than 120 pages detailing compensation on 45 job titles in the commercial real estate industry broken down by primary property type, ownership type, geographic region, office structure, number of full-time employees, annual gross revenue, square footage of assets owned and square footage of assets managed. The report also details long and short-term incentives, perquisites and employee benefits. Most important, it is organized in a manner that is easy to follow and understand. For more information or to order your copy, contact Sandy Hudson hudson@naiop.org at (800) 666-6780. ext. 106 Shawn Six is senior vice president, Industry Insights. Industry Insights consulted with NAIOP on this project.