Companies Addressing Say-on-Pay Votes

Companies are now being forced to respond to the "say-on-pay" votes required by the financial reform legislation enacted in 2010, according to Scott Hodgkins, partner with the law firm of Latham & Watkins.

In a video interview with REIT.com last month at REITWise 2012: NAREIT's Law, Accounting & Finance Conference in Hollywood, Fla., Hodgkins addressed some of the major trends in compliance and regulation for REITs. Say-on-pay votes were first held a year ago. Now, according to Hodgkins, companies have to decide the best ways to react to the results.

"For 2012, people are now old hat with respect to the votes themselves," Hodgkins said. "The key issue is what do you do and how do you respond to the vote results from 2011."

The majority of companies had high approval ratings, and Hodgkins said they should focus on doing "more of the same," including measures like pay for performance. For companies with poor approval ratings, they need to determine how to address those concerns going forward. Stakeholders are "going to be looking for very express, responsive initiatives or actions by the committee or the board in response to those votes," Hodgkins said.

"I think companies need to keep their eye on the ball on that for this proxy season," he said.

In terms of other regulatory developments, the Securities and Exchange Commission (SEC) "seems to be on a roll with respect to its comments," according to Hodgkins. For REITs, there are a number of areas of emphasis.

First, regulators are focusing on net operating income (NOI). Additionally, they're looking at capitalization rates and their disclosure for both acquisitions and dispositions.

"I don't know that there's a real trend there or a consensus view, but sometimes that disclosure may or may not be meaningful to investors," Hodgkins said.

The SEC is also focusing on capitalized expenditures and enhancing disclosure in that regard.

It's really a "little bit more slicing of that apple, so to speak, to show investors what's going on," Hodgkins said.