UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934

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VENTAS, INC.

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VENTAS, INC.

 

NOTICE OF 2011 ANNUAL MEETING OF STOCKHOLDERS

AND

PROXY STATEMENT

 

 

 

TABLE OF CONTENTS

 

 

111 South Wacker Drive

Suite 4800

Chicago, Illinois 60606

(877) 483-6827

 

March 28, 2011

 

Dear Stockholder:

 

I am pleased to invite you to attend Ventas, Inc.’s 2011 Annual Meeting of Stockholders. This year’s meeting will be held at 8:00 a.m. local time on Thursday, May 12, 2011, at our corporate headquarters at 111 South Wacker Drive in Chicago, Illinois.

 

Please refer to the accompanying Notice of Annual Meeting of Stockholders and Proxy Statement for detailed information on each of the proposals to be considered and acted upon at the meeting.

 

Your vote is very important — if you do not vote your shares, you will not have a say in the matters to be voted on at the meeting. To ensure your vote is recorded promptly, I urge you to vote your shares as soon as possible by telephone, over the Internet or, if you have requested paper copies of our proxy materials by mail, by signing, dating and returning the proxy card in the envelope provided, even if you plan to attend the meeting in person.

 

The Board of Directors appreciates your interest in Ventas, Inc.

 

Sincerely,

 

Debra A. Cafaro

Chairman of the Board and
  Chief Executive Officer

PROXY STATEMENT

 

Solicitation of Proxies

 

This Proxy Statement is being furnished in connection with the solicitation of proxies by or on behalf of the Board of Directors (the “Board”) of Ventas, Inc. (“Ventas,” “we” or “us”) for use at our Annual Meeting of Stockholders (the “Annual Meeting”) to be held at 8:00 a.m. local time on Thursday, May 12, 2011 at 111 South Wacker Drive, 29th Floor, Chicago, Illinois 60606, and at any adjournments thereof. This Proxy Statement includes information that we are required to provide to you under the rules of the Securities and Exchange Commission (“SEC”) and the New York Stock Exchange (“NYSE”) and that is designed to assist you in voting your shares.

 

Notice of Electronic Availability of Proxy Statement and Annual Report

 

We are making this Proxy Statement and the materials accompanying it available to our stockholders electronically via the Internet, as permitted by the SEC’s rules. We will mail to stockholders a Notice of Internet Availability containing instructions on how to access our proxy materials and how to vote online. Starting on or about March 28, 2011, we will also mail this Proxy Statement and the materials accompanying it to stockholders who have requested paper copies. If you would like to receive a printed copy of our proxy materials by mail, you should follow the instructions for requesting those materials included in the Notice described above.

 

IMPORTANT NOTICE REGARDING INTERNET AVAILABILITY OF PROXY MATERIALS
FOR THE ANNUAL MEETING TO BE HELD ON MAY 12, 2011:

 

This Proxy Statement and our 2010 Annual Report (consisting of the 2010 Chairman’s Letter to
Investors and 2010 Form 10-K) are available at www.proxyvote.com.

 

Householding

 

We have adopted a procedure, approved by the SEC, which permits us to deliver a single set of proxy materials (other than proxy cards, which will remain separate) to stockholders who have the same address and consent in writing to this delivery method or to stockholders who have the same address and last name, unless we are notified that one or more of these stockholders wishes to continue receiving individual copies. This procedure, known as “householding,” is designed to eliminate duplicate mailings and conserve natural resources and will reduce our printing costs and postage fees.

 

If you share an address with another stockholder and currently receive multiple copies of our proxy materials, but wish to receive only a single copy of such documents for your household, please contact Broadridge Financial Solutions, Inc. at (800) 542-1061 or in writing at Householding Department, 51 Mercedes Way, Edgewood, NY 11717. Similarly, if you currently participate in householding and wish to receive a separate copy of our proxy materials, please contact Broadridge as indicated above. Upon receipt of your request, we will promptly deliver the requested materials to you.

 

Cost of Proxy Solicitation

 

We will bear the cost of soliciting proxies by the Board. In addition to mail, proxies may be solicited in person or by telephone or electronic communication by our directors, officers and employees, none of

whom will receive additional compensation for these services. We have engaged Georgeson Inc. to distribute and solicit proxies. We will pay Georgeson Inc. a fee of $9,500, plus reimbursement of reasonable out-of-pocket expenses, for these services. We will also reimburse brokers and other nominees for their reasonable out-of-pocket expenses incurred in connection with distributing forms of proxies and proxy materials to the beneficial owners of our common stock.

 

Who Can Vote

 

Only stockholders of record at the close of business on March 16, 2011 are entitled to vote at the Annual Meeting. As of that date, 162,962,827 shares of our common stock, par value $0.25 per share, were outstanding. Each share of our common stock entitles the owner to one vote on each matter properly brought before the Annual Meeting. However, certain shares designated as “Excess Shares” (which are generally any shares owned in excess of 9.0% of the outstanding common stock) or as “Special Excess Shares” pursuant to our Amended and Restated Certificate of Incorporation, as amended (“Charter”), may not be voted by the record owner thereof, but will instead be voted in accordance with Article IX of our Charter.

 

A list of all stockholders entitled to vote at the Annual Meeting will be available for inspection by any stockholder for any purpose reasonably related to the Annual Meeting during ordinary business hours for a period of ten days prior to the meeting at our principal executive offices located at 111 South Wacker Drive, Suite 4800, Chicago, Illinois 60606.

 

How to Vote

 

You may vote your shares in one of several ways, depending on how you own your shares. If you own shares registered in your name (a “stockholder of record”), you may vote in one of the following ways:

 

 

If you own shares registered in the name of a bank, broker or other holder of record (a “beneficial owner”), you should follow the instructions provided by your broker or nominee in order for your shares to be voted. If you are a beneficial owner and you plan to vote your shares in person at the Annual Meeting, you should contact your broker or nominee to obtain a legal proxy or broker’s proxy card and bring it to the Annual Meeting in order to vote.

 

All shares that have been properly voted by proxy and not revoked will be voted at the Annual Meeting in accordance with the instructions contained therein. Shares represented by proxy cards that are

signed and returned but do not contain any voting instructions will be voted as the Board recommends, which is:

 

 

In the discretion of the proxy holders, on such other business as may properly come before the Annual Meeting.

 

Revocation of Proxies

 

Stockholders of record may revoke a proxy at any time before it is voted at the Annual Meeting by:

 

 

A stockholder of record may also attend the Annual Meeting and vote in person, in which event any prior proxy given by the stockholder will be revoked automatically. Attendance at the Annual Meeting by itself will not constitute revocation of a proxy. Beneficial owners should follow the instructions provided by their broker or nominee to revoke a proxy, if applicable. No dissenters’ or appraisal rights are available with respect to the proposals presently being submitted to the stockholders for their consideration.

 

The holders of a majority of the shares of common stock outstanding as of the record date must be present, in person or represented by proxy, to constitute a quorum to transact business at the Annual Meeting. Abstentions and broker non-votes are counted for purposes of establishing a quorum. A broker non-vote occurs when a beneficial owner does not provide voting instructions to the broker or nominee with respect to a proposal on which the broker or nominee does not have discretionary authority to vote.

 

If you are a beneficial owner, your broker or nominee has discretionary authority, under current NYSE rules, to vote your shares on the ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm for fiscal year 2011 (Proposal 2), even if you do not provide voting instructions. However, your broker or nominee does not have discretionary authority to vote on the election of directors (Proposal 1), the advisory vote to approve our executive compensation (Proposal 3), or the advisory vote as to the frequency of advisory votes to approve our executive compensation (Proposal 4) without instructions from you, in which case your shares will not be voted on these matters.

 

Election of Directors (Proposal 1)

 

Under our Fourth Amended and Restated By-Laws (“By-Laws”), directors must be elected by a majority of votes cast in uncontested elections. This means that the number of votes cast “for” a director-nominee must exceed the number of votes cast “against” that nominee. Abstentions and broker non-votes are not counted as votes “for” or “against” a director-nominee and, therefore, will have no effect. Under our Director Resignation Policy, in an uncontested election, any incumbent director-nominee who does not receive a majority of votes cast “for” his or her election is required to tender his or her resignation promptly following

the certification of the election results. Our Nominating and Corporate Governance Committee (the “Nominating Committee”) is then required to make a recommendation to the Board as to whether it should accept or reject such resignation. Thereafter, the Board must decide whether to accept or reject such resignation and to publicly disclose its decision. In contested elections, the required vote is a plurality of votes cast.

 

Ratification of the Selection of Ernst & Young LLP as Our Independent Registered Public Accounting Firm for Fiscal Year 2011 (Proposal 2)

 

Under our By-Laws, a majority of the votes cast is required to ratify the selection of Ernst & Young LLP as our independent registered public accounting firm for 2011. Abstentions and broker non-votes will have no effect.

 

Advisory Vote to Approve Our Executive Compensation (Proposal 3)

 

A majority of the votes cast is required to approve, on an advisory basis, our executive compensation. Abstentions and broker non-votes will have no effect.

 

Advisory Vote as to the Frequency of Advisory Votes to Approve Our Executive Compensation (Proposal 4)

 

A plurality of votes cast will determine the preference of our stockholders, on an advisory basis, as to the frequency of advisory votes to approve our executive compensation. Pursuant to SEC rules, if an alternative receives a majority of votes cast and we adopt that frequency, we may exclude from future proxy statements any stockholder proposal asking that a different frequency be used. Abstentions and broker non-votes will have no effect.

 

A majority of the votes cast will be necessary to approve any other proposal that may properly come before the Annual Meeting. Accordingly, abstentions and broker non-votes will have no effect.

 

Our Guidelines on Governance, which were first adopted in 2004, reflect the fundamental corporate governance principles by which our Board and its committees operate. These guidelines set forth general practices the Board follows with respect to Board structure and function, Board and committee organization and composition, and Board conduct. These guidelines are reviewed at least annually by the Nominating Committee and updated periodically in response to changing regulatory requirements, evolving corporate governance practices, concerns of our stockholders and otherwise as circumstances warrant.

 

Our Guidelines on Governance are available on our website at www.ventasreit.com under the “For Investors” tab at the top of the page and then under the “Corporate Governance” link. In addition, we will provide a copy of the Guidelines on Governance, without charge, upon request to our Corporate Secretary at Ventas, Inc., 10350 Ormsby Park Place, Suite 300, Louisville, Kentucky 40223. The information on our website is not a part of this Proxy Statement.

 

In general, our Board provides guidance and oversight with respect to our financial and operating performance, strategic plans, key corporate policies and decisions and enterprise risk management. Among other things, our Board considers and approves significant acquisitions, dispositions and other transactions, advises and counsels senior management on key financial and business objectives and monitors our progress with respect to these matters. Members of the Board are kept informed about matters affecting our business by various reports and materials provided to them on a regular basis by senior management, including

presentations made at Board and committee meetings by our Chief Executive Officer, Chief Financial Officer and other executive officers.

 

Our Board recognizes that one of its key responsibilities is to evaluate and determine its optimal leadership structure so as to provide effective oversight of management. The Board understands that there is no single, generally accepted approach to providing Board leadership and that different structures may be appropriate for companies of varying sizes and performance characteristics and with different histories and culture. Consistent with this understanding, the Board (led by its Nominating Committee) considers our Board leadership structure as part of its annual self-evaluation process, taking into account our existing operations and the current governance environment, to determine the optimal leadership structure for us and for our stockholders.

 

Pursuant to our By-Laws and our Guidelines on Governance, the Board has discretion in evaluating its leadership structure to determine whether to separate or combine the roles of our Chief Executive Officer and Chairman of the Board. Debra A. Cafaro has served as both our Chief Executive Officer and Chairman of the Board since 2003, and the Board continues to believe that her combined role is the optimal structure for us and our stockholders because it enables decisive leadership, ensures clear accountability and enhances our ability to consistently communicate our message and strategy to all of our stakeholders. Moreover, Ms. Cafaro possesses detailed and in-depth knowledge of the issues, opportunities and challenges facing us and our business and, therefore, is best positioned to develop agendas that focus the Board’s time and attention on the most critical matters.

 

As required by our Guidelines on Governance, the independent members of our Board, after considering the recommendation of the Nominating Committee, annually select one independent director to serve as Presiding Director, whose specific responsibilities include, among other things, chairing the executive sessions and all other meetings of the independent directors. The Presiding Director also acts as the principal liaison between the Chairman and the independent directors, collaborating with the Chairman to set Board meeting agendas and schedules and to approve materials provided to directors, and has such additional duties as may be assigned from time to time by the independent directors or the Board. While the Presiding Director is elected on an annual basis, the Board generally expects that he or she will serve for more than one year, and Douglas Crocker II has been our Presiding Director since 2003. At this time, our Board believes that our current leadership structure—under which our Chief Executive Officer also serves as Chairman of the Board and a Presiding Director assumes specific responsibilities on behalf of the independent directors—is effective, provides the appropriate balance between the authority of those who oversee our company and those who manage it on a day-to-day basis and achieves the optimal governance model for us and for our stockholders.

 

While management has the responsibility to identify and manage on a daily basis our exposure to risk, our Board plays an active and primary role in overseeing the processes we establish to assess, monitor and mitigate that exposure. The Board, directly and indirectly through its committees, routinely discusses with management the significant risks facing us and reviews the guidelines, policies and procedures we have in place to address those risks, such as our approval process for investments. Directors regularly receive materials and information, including in-depth and in-person presentations from third-party experts, with respect to specific areas of risk, and the Board engages in comprehensive analyses and dialogue regarding those risks—a practice we have followed since 2008. This process enables the Board to focus on the strategic, financial, operational, legal, regulatory and other risks that are most significant to us and our business, and ensures that the risks we face are well understood, mitigated to the extent reasonable and consistent with the Board’s view of our risk profile and risk tolerance.

 

In addition to the risk oversight function administered directly by the Board, each of the Audit and Compliance, Executive Compensation and Nominating Committees exercises oversight related to the risks associated with the particular responsibilities of that committee. In accordance with NYSE requirements, the

Audit and Compliance Committee (the “Audit Committee”) reviews financial, accounting and internal control risks and the mechanisms through which we assess and manage risk. In addition, the Audit Committee has certain responsibilities with respect to our compliance programs, such as our Conflicts of Interest and Whistleblower Policies. Similarly, the Executive Compensation Committee (the “Compensation Committee”) considers whether the structure of our compensation programs, as they relate to both executive officers and employees generally, encourages excessive risk-taking, and the Nominating Committee focuses on risks related to succession planning. The chairs of these committees report on such matters to the full Board. We believe that this division of responsibilities is the most effective approach for identifying and addressing the risks facing us and that our Board leadership structure appropriately supports the Board’s role in risk oversight.

 

Our Board held a total of 15 meetings during 2010. Each director attended at least 75% of the total meetings of the Board and the committees on which he or she served that were held during the time he or she was a director in 2010. See “—Board and Committee Membership” below.

 

We encourage, but do not require, all directors to attend our annual meetings of stockholders. All directors who were nominated for re-election at our 2010 Annual Meeting of Stockholders attended that meeting.

 

Our independent directors meet in executive session, outside the presence of management, at a minimum, at each regularly scheduled quarterly Board meeting. The Presiding Director chairs all regularly scheduled executive sessions and all other meetings of the independent directors.

 

Stockholders and other parties interested in communicating directly with our Board or any director on Board-related issues may do so by writing to Board of Directors, c/o Corporate Secretary, Ventas, Inc., 10350 Ormsby Park Place, Suite 300, Louisville, Kentucky 40223, or by submitting an e-mail to bod@ventasreit.com. Communications addressed to the Board are screened by our Corporate Secretary for appropriateness before distributing to the Board, or to any individual director or directors, as applicable.

 

Additionally, stockholders and other parties interested in communicating directly with the Presiding Director of the Board or with the non-management directors as a group may do so by writing to Presiding Director, Ventas, Inc., 10350 Ormsby Park Place, Suite 300, Louisville, Kentucky 40223, or by sending an e-mail to independentbod@ventasreit.com.

 

Our Guidelines on Governance set forth, among other things, the process by which the Nominating Committee identifies and evaluates nominees for Board membership. Under this process, the Nominating Committee annually considers and recommends to the Board a slate of directors for election at the next annual meeting of stockholders. In selecting this slate, the Nominating Committee considers: incumbent directors who have indicated a willingness to continue to serve on our Board; candidates, if any, nominated by our stockholders; and other potential candidates identified by the Nominating Committee. Additionally, if at any time during the year a seat on the Board becomes vacant or a new seat is created, the Nominating Committee considers and recommends a candidate to the Board for appointment to fill the seat.

 

In evaluating potential director candidates, the Nominating Committee considers, among other factors, the experience, qualifications and attributes listed below and any additional characteristics that it believes one or more directors should possess, based on an assessment of the perceived needs of our Board at that time. The Nominating Committee regularly reviews the composition of the Board in light of our changing requirements and seeks nominees who, taken together as a group, possess the skills and expertise appropriate for an effective Board. While different perspectives, skill sets, education, ages, genders, ethnic origins and

business experience are factors considered in its annual nomination process, the Nominating Committee has not established a formal policy regarding diversity in identifying potential director candidates. Moreover, no single factor or group of factors is necessarily dispositive of whether a candidate will be recommended by the Nominating Committee. The Nominating Committee will consider and apply these same standards in evaluating individuals recommended for nomination by our stockholders in accordance with the procedures described in this Proxy Statement under “Requirements, Including Deadlines, for Submission of Stockholder Proposals, Director Nominations and Other Business.”

 

In general, the Nominating Committee seeks to include on our Board a complementary mix of individuals with diverse backgrounds, knowledge and viewpoints reflecting the broad set of challenges that the Board confronts without representing any particular interest group or constituency. Accordingly, our Guidelines on Governance provide that, in general, nominees for membership on the Board should:

 

 

In addition, our directors are expected to be active participants in governing our enterprise, and the Nominating Committee looks for certain characteristics common to all Board members, including integrity, independence, leadership ability, constructive and collegial personal attributes, candor and the ability and willingness to evaluate, challenge and stimulate.

 

The Board’s satisfaction of these criteria is implemented and assessed through ongoing consideration of directors and nominees by the Nominating Committee and the Board, as well as the Board’s self-evaluation process. Based upon these activities and the Nominating Committee’s review of the current composition of the Board, the Nominating Committee and the Board believe that these criteria have been satisfied.

 

Upon the closing of our pending acquisition of substantially all of the real estate assets of Atria Senior Living Group, Inc. (together with its affiliates, “Atria”), we will enter into a Director Appointment Letter (the “Director Letter”) that will provide certain affiliates of Lazard Real Estate Partners LLC (“LREP”) the right to designate one individual for nomination to our Board for so long as they beneficially own 3% or more of the outstanding shares of our common stock. We expect to appoint Matthew J. Lustig to our Board as the LREP affiliates’ designee. Mr. Lustig is Chief Executive Officer and a Managing Principal of LREP and a Managing Director of Lazard Alternative Investments LLC, an affiliate of LREP. The Board has assessed Mr. Lustig’s qualifications, skills and attributes and has determined that his appointment will complement our existing Board. However, if our acquisition of Atria’s real estate assets is not completed in advance of the Annual Meeting, Mr. Lustig’s nomination for election at the Annual Meeting may be withdrawn.

 

We have from time to time retained search firms and other third parties to assist us in identifying potential candidates based on specific criteria that we provided to them, including the qualifications listed above. We may retain search firms and other third parties on similar or other terms in the future.

 

Our Guidelines on Governance require that at least a majority of the Board be comprised of directors who meet the criteria for independence under the rules and regulations of the NYSE. For a director to be considered independent under the NYSE’s listing standards, the Board must affirmatively determine that the director has no direct or indirect material relationship with us. On March 11, 2011, the Board evaluated the independence of each non-management director and director-nominee on a case-by-case basis. The Board

considered any matters that could affect the ability of each non-management director and director-nominee to exercise independent judgment in carrying out his or her responsibilities as a director, including all transactions and relationships between, on one hand, such director or director-nominee, his or her family members and organizations with which the director or director-nominee or his or her family members have an affiliation and, on the other hand, us, our subsidiaries and our management. Any such matters were evaluated both from the standpoint of the director or director-nominee and from that of persons or organizations with which the director or director-nominee has an affiliation, and each existing director abstained from the vote pertaining to the determination of his or her independence.

 

Based on its review, the Board has affirmatively determined that each of the following directors has no direct or indirect material relationship with us and qualifies as independent under the NYSE’s standards: Douglas Crocker II, Ronald G. Geary, Jay M. Gellert, Robert D. Reed, Sheli Z. Rosenberg, Glenn J. Rufrano, James D. Shelton and Thomas C. Theobald. Ms. Cafaro is not considered independent under the rules and regulations of the NYSE because of her employment as our Chairman and Chief Executive Officer. Mr. Lustig is not considered independent under the rules and regulations of the NYSE because of his affiliation with LREP and Atria Senior Living, Inc., an entity that is expected to manage all of the real estate assets we acquire from Atria.

 

In evaluating Mr. Geary’s independence, the Board considered our relationship with Res-Care, Inc. (“ResCare”), an entity for which Mr. Geary previously served as Chairman of the Board and Chief Executive Officer, pursuant to the Master Lease Agreement described under “Transactions with Related Persons—Transactions with ResCare” and determined that, under the NYSE listing standards, such relationship is not material to Mr. Geary, ResCare or us from a financial perspective or otherwise. In making its determination, the Board considered that Mr. Geary is no longer employed by ResCare, that the total annual payments made to us under the Master Lease Agreement in 2010 constituted less than one-tenth of one percent (0.1%) of the annual gross consolidated revenues of ResCare and less than one-tenth of one percent (0.1%) of our annual gross consolidated revenues, that the transaction with ResCare was made in the ordinary course of business and that the terms of the Master Lease Agreement represent market rates. The Board does not believe this relationship will affect Mr. Geary’s ability to exercise independent judgment in carrying out his responsibilities as a director of Ventas.

 

All of our directors and employees, including our Chief Executive Officer, our Chief Financial Officer and our Chief Accounting Officer and Controller, as well as all of the directors and officers of our subsidiaries, are required to comply with our Code of Ethics and Business Conduct to ensure that our business is conducted in accordance with consistent legal and ethical standards. The Code of Ethics and Business Conduct covers all major areas of professional conduct, including employment practices, conflicts of interest, unfair or unethical use of corporate opportunities, protection of confidential information and other company assets, compliance with applicable laws and regulations, and proper and timely reporting of financial results.

 

Our Code of Ethics and Business Conduct is available on our website at www.ventasreit.com under the “For Investors” tab at the top of the page and then under the “Corporate Governance” link. In addition, we will provide a copy of the Code of Ethics and Business Conduct, without charge, upon request to our Corporate Secretary at Ventas, Inc., 10350 Ormsby Park Place, Suite 300, Louisville, Kentucky 40223. Waivers from, and amendments to, the Code of Ethics and Business Conduct that apply to our Chief Executive Officer, Chief Financial Officer or persons performing similar functions will be timely posted on our website at www.ventasreit.com. The information on our website is not a part of this Proxy Statement.

 

Our Board has five standing committees that perform certain functions for the Board: the Audit Committee; the Compensation Committee; the Executive Committee; the Investment Committee; and the Nominating Committee.

 

The table below provides current membership and 2010 meeting information for each of our Board committees:

 

 

 

 

 

Each of the Audit, Compensation and Nominating Committees operates pursuant to a written charter. These charters are available on our website at www.ventasreit.com under the “For Investors” tab at the top of the page and then under the “Corporate Governance” link. In addition, we will provide copies of the Audit, Compensation and Nominating Committee charters, without charge, upon request to our Corporate Secretary at Ventas, Inc., 10350 Ormsby Park Place, Suite 300, Louisville, Kentucky 40223. Information on our website is not a part of this Proxy Statement.

 

The Audit Committee assists the Board in fulfilling its responsibilities relating to our accounting and reporting practices, including oversight of the quality and integrity of our financial statements, our compliance with legal and regulatory requirements, the independent registered public accounting firm’s qualifications and independence and the performance of our internal audit function and independent registered public accounting firm. Among other things, the Audit Committee:

 

 

 

The Audit Committee maintains free and open communication with the Board, our independent registered public accounting firm, our internal auditors and our financial management.

 

The Board has determined that each member of the Audit Committee is independent and satisfies the independence standards of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and related rules and regulations of the SEC and the NYSE listing standards, including the additional independence requirements for audit committee members. The Board has also determined that each member of the Audit Committee is financially literate and qualifies as an “audit committee financial expert” for purposes of the SEC’s rules.

 

The Board has delegated to the Executive Committee the power to direct the management of our business and affairs in emergency situations during the intervals between meetings of the Board, except for matters specifically reserved for the Board and its other committees. The Executive Committee exercises its delegated authority only under extraordinary circumstances and has not held a meeting since 2002.

 

The Compensation Committee has primary responsibility for the design, review, approval and administration of all aspects of our executive compensation program. The Compensation Committee makes all

compensation decisions for, and reviews the performance of, each of our executive officers other than the Chief Executive Officer. The Compensation Committee also reviews the performance of, and makes compensation recommendations for, the Chief Executive Officer. However, final decisions regarding compensation for the Chief Executive Officer are made by the non-management members of the Board, taking into consideration the Compensation Committee’s recommendations.

 

The Compensation Committee meets regularly throughout the year to review our compensation philosophy and its continued alignment with our business goals and to consider and approve the executive compensation program for the coming year. The Compensation Committee, with the assistance of a nationally recognized independent compensation consultant, discusses changes, if any, to the program structure, assesses the appropriate peer comparators, sets base salaries, determines annual and long-term incentive award levels and establishes the applicable company and individual performance goals for annual and long-term incentive awards. Our executive officers provide support to the Compensation Committee throughout this process by coordinating meeting logistics, preparing and disseminating relevant financial and non-financial company information and relevant data concerning our peer comparators as a supplement to the comparative market data prepared by the compensation consultant and making recommendations with respect to company goals and related performance metrics. Our Chief Executive Officer attends meetings at the Compensation Committee’s request and recommends to the Compensation Committee any compensation changes affecting the other executive officers. However, Ms. Cafaro does not play any role in setting her own compensation. In addition, at the Compensation Committee’s request, either our General Counsel or our Senior Vice President, Human Resources will attend meetings to act as secretary and record the minutes of the meetings. At each regularly scheduled meeting, the Compensation Committee meets in executive session without management present.

 

The Compensation Committee meets during the first quarter of each year, typically in January, to review the achievement of corporate and individual performance goals for executives and to determine annual and long-term incentive awards for the prior year. Our executive officers provide support to the Compensation Committee in this process, and the Chief Executive Officer makes award recommendations with respect to the other executive officers.

 

Under its charter, the Compensation Committee has authority to retain compensation consultants, outside counsel and other advisors that the Compensation Committee deems appropriate, in its sole discretion, to assist it in discharging its duties and to approve the terms of retention and fees to be paid to those consultants and advisors. The compensation consultant reports to the Compensation Committee and receives no other fees from us outside its role as advisor to the Board and the Compensation Committee. Although the compensation consultant periodically interacts with company employees to gather and review information related to our executive compensation program, this work is done at the direction of the Compensation Committee. Pursuant to our Compensation Consultant Independence Policy, any compensation consultant retained by the Compensation Committee must be independent, as determined annually by the Compensation Committee in its reasonable business judgment, considering all relevant facts and circumstances.

 

The Board has determined that each member of the Compensation Committee is independent and satisfies the NYSE listing standards. The Board has also determined that each member of the Compensation Committee meets the additional requirements for compensation committee members under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), and Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

Independent Compensation Consultant

 

The Compensation Committee retained Pearl Meyer & Partners (“PM&P”) as its independent consultant to advise it and the non-management members of the Board, as applicable, on matters related to our executive compensation levels and program design for 2010. The Compensation Committee reviews the scope of work provided by PM&P on an annual basis and has determined that PM&P meets the independence criteria under our Compensation Consultant Independence Policy and applicable SEC guidelines. PM&P and its affiliates did not perform any non-executive compensation consulting services for us during the year ended December 31, 2010.

 

Compensation Risk Assessment

 

The Compensation Committee has considered whether our compensation policies and practices for all employees, including executive officers, create risks that are reasonably likely to have a material adverse effect on our company. As part of this risk assessment, management reviewed our existing compensation plans and programs, including our severance and change-in-control arrangements, in the context of our business risk environment. In its review, the Compensation Committee noted several design features of our compensation programs that reduce the likelihood of excessive risk-taking, including, without limitation: a balanced mix of cash and equity compensation and annual and long-term incentives; multiple performance measures with payouts subject to the Compensation Committee’s or the Board’s overall assessment of performance; and equity compensation weighted more heavily towards restricted stock than stock options to provide greater incentive to create and preserve long-term stockholder value. Based on its evaluation, the Compensation Committee has determined, in its reasonable business judgment, that our compensation practices and policies for all employees do not encourage excessive risk and instead promote behaviors that support long-term sustainability and stockholder value creation.

 

Compensation Committee Interlocks and Insider Participation

 

During the year ended December 31, 2010, Messrs. Gellert, Shelton and Theobald served on the Compensation Committee. No member of the Compensation Committee is, or has been, employed by us or our subsidiaries or is an employee of any entity for which any of our executive officers serves on the board of directors.

 

The function of the Investment Committee is to review and approve certain investments in, and acquisitions or development of, seniors housing and healthcare properties, as well as divestitures of properties, in accordance with our Amended and Restated Investment and Divestiture Approval Policy.

 

The Nominating Committee is responsible for matters of corporate governance and matters relating to the practices, policies and procedures of the Board, such as: identifying individuals qualified to become members of the Board; selecting, or recommending to the Board for selection, director-nominees; overseeing evaluation of the Board and Board committees; developing and recommending to the Board a set of corporate governance guidelines and the corporate code of ethics; and generally advising the Board on corporate governance and related matters. Under the terms of its charter, the Nominating Committee also:

 

 

 

The Nominating Committee has the authority to form subcommittees of independent directors and delegate its authority, to the extent not otherwise inconsistent with its obligations and responsibilities.

 

The Board has determined that each member of the Nominating Committee is independent and satisfies the NYSE listing standards.

 

Our Board believes that the level of non-employee director compensation should be competitive with comparable companies and should enable us to attract and retain individuals of the highest quality to serve as our directors. In addition, the Board believes that a significant portion of that compensation should align director interests with the long-term interests of our stockholders. Accordingly, non-employee directors receive a combination of cash and equity-based compensation for their services. Each of these components is described below. We also reimburse each non-employee director for travel and other expenses associated with attending Board and committee meetings, director education programs and other Board-related activities.

 

Ms. Cafaro, our only employee director, does not receive compensation for her service as a director.

 

The cash compensation paid to, or earned by, our non-employee directors in 2010 was comprised of the following two components:

 

 

Pursuant to our Nonemployee Directors’ Deferred Stock Compensation Plan (the “Director Deferred Compensation Plan”), non-employee directors may elect to defer receipt of all or a portion of their retainer and meeting fees. Deferred fees are credited to each participating director in the form of stock units, based on the fair market value of our common stock on the deferral date. At the prior election of the participating director, dividend equivalents on the stock units are paid either in additional units or cash. After a participating director ceases to serve on the Board, or at such later time as he or she has previously designated, the director’s stock unit account is settled in whole shares of common stock on a one-for-one basis and distributed either in one lump sum or in installments over a period of not more than ten years, at the director’s prior election. Fractional stock units are paid out in cash.

 

The equity-based compensation paid to our non-employee directors consists of stock options and shares of restricted stock or restricted stock units, at the director’s prior election, granted pursuant to our 2006 Stock Plan for Directors as follows:

 

 

 

Stock options granted to our non-employee directors generally vest in two equal annual installments, beginning on the date of grant, and are subject to a ten-year term. The stock option exercise price is the closing price of our common stock on the date of grant. Shares of restricted stock and restricted stock units granted to our non-employee directors generally vest in two equal annual installments, beginning on the first anniversary of the date of grant.

 

The Nominating Committee is responsible for annually reviewing the amount and types of compensation to be paid to our non-employee directors. During this process, the Nominating Committee generally reviews and evaluates information contained in surveys compiled by the National Association of Real Estate Investment Trusts (“NAREIT”) and the National Association of Corporate Directors and may, as necessary, retain an independent compensation consultant to advise it on appropriate director compensation levels. Any changes to our non-employee director compensation program must be recommended by the Nominating Committee for approval by the Board.

 

In 2011, the Nominating Committee recommended, and the Board approved, certain changes to the cash compensation paid to our non-employee directors, based on a competitive analysis performed by The Delves Group, an independent compensation consultant retained by the Nominating Committee. The changes approved by the Board were effective January 1, 2011 and position our non-employee director compensation at market-competitive levels.

 

The following table sets forth the compensation awarded or paid to, or earned by, our non-employee directors during 2010:

 

 

Mr. Crocker		35,278 shares
Mr. Geary		13,544 shares
Mr. Gellert		11,588 shares
Mr. Reed		5,375 shares
Ms. Rosenberg		11,588 shares
Mr. Rufrano		2,763 shares
Mr. Shelton		5,375 shares
Mr. Theobald		11,588 shares

 

 

Mr. Crocker		35,000 shares
Mr. Geary		10,000 shares
Mr. Gellert		55,000 shares
Mr. Reed		10,000 shares
Ms. Rosenberg		35,000 shares
Mr. Rufrano		2,849 shares
Mr. Shelton		10,000 shares
Mr. Theobald		45,000 shares

 

 

Our minimum share ownership guidelines require each non-employee director to maintain a minimum number of shares of our common stock equal to the number of shares granted by us to the non-employee director as compensation during the 36-calendar month period immediately preceding the test date, minus any shares forfeited by the director to pay taxes on the vesting of those shares under our share withholding program. Compliance with the guidelines is reviewed on July 1 of each year, and each non-employee director has three years from the date that he or she first becomes subject to the guidelines to satisfy the minimum share ownership levels. Taking into account any permitted transition period, all of our non-employee directors are currently in compliance with these guidelines.

 

Set forth below is certain biographical information concerning each of our current executive officers. Ages shown for all executive officers are as of the date of the Annual Meeting.

 

 

The following table shows, as of March 16, 2011, the number of shares of our common stock beneficially owned by each of our directors and director-nominees, each of our Named Executive Officers (defined in this Proxy Statement under “Executive Compensation — Compensation Discussion and Analysis”), and all of our directors, director-nominees and executive officers as a group:

 

 

 

The following table shows, as of March 16, 2011, the number of shares of common stock beneficially owned by each person known by us to be the beneficial owner of more than 5% of our outstanding common stock:

 

 

 

 

Section 16(a) of the Exchange Act requires our directors, officers and persons who own more than 10% of our outstanding common stock to file reports of beneficial ownership and changes in such ownership with the SEC. Based solely on our records and on written representations from certain reporting persons that no Form 5 was required for such persons, we believe that during 2010 all of our directors, officers and persons who own more than 10% of our common stock complied with all applicable Section 16(a) filing requirements.

 

Our Board has an unwritten policy requiring that any transaction between us and any of our officers, directors or their affiliates be approved by the disinterested members of the Board and be on terms no less favorable to us than those available from unaffiliated parties. In addition, our Audit Committee charter provides that any such transaction and all other conflict of interest or similar matters involving any of our officers or directors must also be reviewed by the Audit Committee. Pursuant to our Conflicts of Interest Policy, officers and directors must disclose in writing to our General Counsel, who will review the matter with the Presiding Director, any existing or proposed transaction in which he or she has a personal interest, or in

which there is or might appear to be a conflict of interest by reason of his or her connection to another business organization, and must refrain from voting on any such transaction.

 

Transactions with ResCare

 

In 1998, we acquired eight personal care and related facilities for approximately $7.1 million from Tangram Rehabilitation Services, Inc. (“Tangram”), a wholly owned subsidiary of ResCare, for which Mr. Geary served as Chairman of the Board until December 2010 and as President and Chief Executive Officer until June 2006. The purchase price for the Tangram facilities was determined by an appraisal conducted by Graham & Associates, Inc., San Marcos, Texas, a certified General Real Estate Appraiser for the State of Texas. Since the acquisition, we have leased these facilities to Tangram pursuant to a Master Lease Agreement, which is guaranteed by ResCare. During 2010, Tangram paid us approximately $1,002,000 in base rent payments, which constituted less than one-tenth of one percent (0.1%) of each of our and ResCare’s annual gross consolidated revenues for the year. In May 2010, Tangram exercised its option to renew the Master Lease Agreement for a period of five years upon expiration of the initial term. The lease renewal was reviewed and approved by the disinterested Audit Committee members, and we believe that the terms of the Master Lease Agreement represent market rates.

 

Transactions with Mr. Lillibridge

 

In connection with the closing of our Lillibridge acquisition in 2010, we entered into an Intellectual Property Rights Purchase and Sale Agreement (the “Lillibridge IP Agreement”) with Mr. Lillibridge pursuant to which we acquired Mr. Lillibridge’s rights in and to the use of the Lillibridge name and the “LILLIBRIDGE” trademark not otherwise owned by the Lillibridge companies, as well as certain derivative trademarks, design marks, and slogans for an aggregate purchase price of $3.0 million. The Board approved the Lillibridge IP Agreement in connection with its approval of the Lillibridge acquisition, and we believe the terms of the Lillibridge IP Agreement are no less favorable to us than those available from an unaffiliated party.

 

Transactions with LREP

 

In October 2010, we signed a definitive agreement to acquire substantially all of Atria’s real estate assets from private equity funds managed by LREP or its affiliates for a total purchase price of $3.1 billion, comprised of $1.35 billion of our common stock (a fixed 24.96 million shares), $150 million in cash and the assumption or repayment of $1.6 billion of net debt. Upon the closing of the acquisition, we will enter into a Registration Rights Agreement, pursuant to which, among other things, we will agree to file with the SEC a registration statement on Form S-3 to cover resales of the shares of our common stock issued as merger consideration. We will also enter into management agreements whereby Atria Senior Living, Inc., an entity affiliated with LREP, will manage all of the real estate assets we acquire from Atria. At this time, we are unable to determine the amount of payments that we will make to Atria Senior Living, Inc. under the management agreements. The Board approved the terms of the management agreements in connection with its approval of the Atria acquisition, and we believe that the terms of the management agreements will be no less favorable to us than those available from an unaffiliated party.

 

Mr. Lustig, one of our director-nominees, is Chief Executive Officer and a Managing Principal of LREP and a Managing Director of Lazard Alternative Investments LLC, an affiliate of LREP.

 

The Compensation Committee has reviewed and discussed with management the following Compensation Discussion and Analysis and, based on such review and discussion, has recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

 

This Compensation Discussion and Analysis (or “CD&A”) describes the compensation program in place for 2010 for our principal executive officer (Ms. Cafaro), our principal financial officer (Mr. Schweinhart) and our three other executive officers (Messrs. Lewis, Lillibridge and Riney) (collectively, our “Named Executive Officers”). In particular, this CD&A explains the overall objectives of our executive compensation program, each element of our executive compensation program, and the policies underlying our 2010 compensation program and the related compensation awards for our Named Executive Officers. This discussion contains forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. Future compensation programs that we adopt may differ materially from currently planned programs.

 

Executive Summary

 

Through our executive compensation program, we strive to attract, retain and motivate talented executives and link the compensation realized by our executive officers to the achievement of financial and strategic corporate goals and individual goals. Our executive compensation program emphasizes variable pay, and a significant portion of total annual direct compensation is in the form of equity awards that vest over time. Our approach to performance — based compensation provides balanced incentives for our executive officers that align their interests with our stockholders and discourage excessive risk-taking.

 

Our Performance in 2010

 

The Board’s 2010 compensation decisions supported our general executive compensation philosophy and reflected our exceptional financial and operational performance during the year. In particular:

 

 

 

2010 Compensation Decisions

 

Based on our Named Executive Officers’ contributions to the achievements described above and the additional factors described below under “Elements of Our Compensation Program”:

 

 

In addition, following a review of individual performance and compensation data from a group of peer comparators, each of our Named Executive Officers (other than Mr. Lillibridge) received an increase in base salary for 2010 to more closely align with market competitive levels and, in certain cases, to recognize future advancement potential and past contributions to our success.

 

We believe that our executive compensation program is appropriately structured to achieve our objectives, including attracting and retaining talented executives. In this regard, no significant changes were made to the structure of our executive compensation program in 2010. However, in connection with the closing of our Lillibridge acquisition, Mr. Lillibridge became our Executive Vice President, Medical Property Operations, and continued to serve as President and Chief Executive Officer of Lillibridge, which became a wholly owned subsidiary of ours. As a result, Mr. Lillibridge is one of our Named Executive Officers for fiscal year 2010.

We also continued our commitment to responsible compensation and corporate governance practices by adopting a majority vote standard for director elections and, in March 2011, amending Ms. Cafaro’s employment agreement and Mr. Riney’s change-in-control severance agreement to eliminate the change of control “modified single trigger” from both agreements and to eliminate certain tax gross-up payments from Ms. Cafaro’s agreement. In addition, we:

 

 

Objectives of Our Compensation Program

 

We recognize that effective compensation strategies are critical to recruiting and retaining key employees who contribute to our long-term success and thereby build value for our stockholders. Accordingly, our compensation program is designed to achieve the following primary objectives:

 

 

By establishing and maintaining a performance- and achievement-oriented environment that provides the opportunity to earn market-competitive levels of cash and equity compensation, the interests of our executives and stockholders are aligned.

 

Compensation Consultant and Benchmarking

 

The Compensation Committee retained PM&P as its compensation consultant to advise it and the non-management members of the Board, as applicable, on matters related to our Named Executive Officers’ compensation and compensation program design for 2010. The Compensation Committee has determined that PM&P meets the criteria for an independent consultant pursuant to our Compensation Consultant Independence Policy and in accordance with SEC guidelines for such services.

 

In 2010, PM&P provided the Compensation Committee and the non-management members of the Board, as applicable, with comparative market data on compensation practices and programs based on an analysis of peer comparators and provided guidance on best practices. Using this market data, PM&P advised the Compensation Committee and the non-management members of the Board, as applicable, and made recommendations with respect to setting salary levels and establishing performance goals and incentive award levels. For 2010, PM&P compared our executive compensation structure and levels to executive compensation at a comparative group of 21 companies. Our comparative group consisted of (i) real estate investment trusts (“REITs”) similar to us in terms of operations and FFO and generally falling within a range of 50% to 200% of our enterprise value and market capitalization and (ii) selected healthcare operators that operate properties of the type owned by us.

 

The reference group set forth below (the “Comparable Companies”) was approved by the Compensation Committee at its August 19, 2009 meeting as the appropriate benchmark for 2010 comparative purposes. These companies report compensation data for executive positions with responsibilities similar in

breadth and scope to those of our executive officers, and we believe these companies generally compete with us for executive talent and stockholder investment:

 

 

The Compensation Committee annually reviews the Comparable Companies to ensure that the companies included remain comparable to us in terms of size and operations. The Compensation Committee may change the composition of the group from time to time as appropriate. In selecting the 2010 Comparable Companies, the Compensation Committee, after consultation with PM&P and in consideration of the increase in our size and the scope of our operations, removed Camden Property Trust and Developers Diversified Realty Corp. due to their poor performance and smaller size. At the recommendation of PM&P, the Compensation Committee added Boston Properties, Inc., Equity Residential Properties Trust, ProLogis and Vornado Realty Trust because they met the applicable selection criteria in terms of enterprise value and market capitalization.

 

In determining 2010 compensation targets for our Named Executive Officers, the Compensation Committee, in consultation with PM&P, considered the competitive positioning of our executive compensation levels relative to market data for the following components of pay: base salary; total annual compensation (base salary plus annual incentives); long-term incentives (annualized expected value of long-term incentives); and total direct compensation (base salary plus annual incentives plus annualized expected value of long-term incentives). We generally target the 50th percentile of the Comparable Companies for base salary and the 65th percentile of the Comparable Companies for total annual compensation, long-term incentives and total direct compensation. The Compensation Committee has established these targets based on our size and superior historical performance relative to the Comparable Companies. Our compensation program is designed to deliver compensation levels above or below these targets if executive officer performance is well above or below established goals. We believe this methodology is appropriate for our operating style and reflects the need to attract, retain and stretch top executive talent.

 

In addition to evaluating the compensation data described above, the Compensation Committee considers the unique roles held by our Named Executive Officers. Specifically, each Named Executive Officer performs duties that are traditionally assigned to multiple senior officers at competitive companies. For example, Mr. Riney, in his capacity as our Executive Vice President, Chief Administrative Officer, General Counsel and Corporate Secretary, is not only responsible for legal matters, but plays a critical role in our asset management and acquisition strategies. Similarly, Mr. Lewis, who was promoted to President from Executive Vice President and Chief Investment Officer in 2010 to reflect his increased responsibilities, serves as the head of acquisitions and is also responsible for overseeing our asset management function and our marketing activities. Our uncommon division of responsibilities fosters a cohesive and streamlined management team, which enables us to operate with a smaller staff of senior executives than is typically found at companies experiencing the type of growth we have achieved historically. Therefore, the Compensation Committee considers available compensation data for executives at the Comparable Companies but also recognizes the need for adjustments to set appropriate compensation targets for each Named Executive Officer.

 

Elements of Our Compensation Program

 

The structure of our compensation program has been in place for several years. For 2010, the compensation provided to our Named Executive Officers consisted of the same elements generally available to our non-executive officers, including base salary, annual cash incentive compensation and long-term incentive compensation, as well as other perquisites and benefits, each of which is described in more detail below. Our executive compensation philosophy promotes a compensation mix that emphasizes variable pay, in addition to long-term value. Accordingly, our compensation structure is designed to grant a significant portion of total direct

compensation in the form of equity awards that vest over time. This emphasis on variable compensation creates greater alignment with stockholders, ensures that risk is managed by decision makers in a manner that focuses on the creation of long-term value rather than only short-term results, and diminishes the probability of excessive risk taking. We believe that our executive compensation program is well balanced between cash and equity-based compensation and between fixed and performance-based compensation to support our compensation philosophy.

 

The following chart illustrates target levels of base salary, annual cash incentive compensation and long-term incentive compensation as a percentage of total direct compensation for 2010.

 

 

 

Base Salary

 

The base salary payable to each Named Executive Officer provides a fixed component of compensation that reflects the executive’s position and responsibilities. Base salary is generally targeted to approximate the competitive market median of the Comparable Companies, but may deviate from this target based on an individual’s sustained performance, contribution, experience, expertise and specific roles within our company as compared to the benchmark data. Base salary is reviewed annually and may be adjusted to better match competitive market levels or to recognize an executive’s professional growth and development or increased responsibility. The Compensation Committee also considers the success of the executive officer in developing and executing our strategic plans, exercising leadership and creating stockholder value, but does not assign any specific weights to these factors.

 

In connection with its review of 2010 base salaries for our Named Executive Officers, the Compensation Committee analyzed and evaluated base salary information from a compensation study of the Comparable Companies prepared by PM&P. Although the Compensation Committee periodically considers data from REIT industry and other compensation surveys, the Compensation Committee places primary emphasis on publicly available data from the Comparable Companies’ proxy statements, which is more detailed by individual executive officer position than the data typically provided in compensation surveys.

 

For 2010, the Compensation Committee and, in the case of the Chief Executive Officer, the non-management members of the Board approved the following increases in base salary for the Named Executive Officers (other than Mr. Lillibridge, who joined us in July 2010):

 

With these increases, the 2010 base salary for each Named Executive Officer generally approximated the market median for the Comparable Companies. Mr. Lewis received a higher base salary increase than our other Named Executive Officers to reflect his leadership development, future advancement potential and active management of our senior living operations, and Ms. Cafaro received a higher base salary increase to reflect her strong leadership, her contributions to our superior performance and her continuing value to our company.

 

Annual Cash Incentive Compensation

 

We provide our Named Executive Officers with the opportunity to earn cash incentive awards for achieving corporate financial and non-financial goals and individual goals on an annual basis. At the beginning of each year, an earnings opportunity range, expressed as multiples of base salary and corresponding to three levels of performance (threshold, target and maximum), is established for each executive officer. Based on each executive officer’s performance with respect to the corporate and individual goals, annual cash incentive awards are then determined and paid in the first quarter of the year following the performance year.

 

The table below illustrates the earnings opportunities of our Named Executive Officers under our annual cash incentive plan for performance in fiscal 2010. The earnings opportunities were approved in December 2009 by the Compensation Committee (other than for Mr. Lillibridge, who joined us in July 2010) and, in the case of the Chief Executive Officer, the non-management members of the Board.

 

 

 

At the target opportunities shown in the above table, the 2010 total annual compensation for each Named Executive Officer (other than Mr. Lillibridge) approximates the 65th percentile of the Comparable Companies. The Compensation Committee believes that the Chief Executive Officer should have the greatest alignment with our shareholders, and, therefore, Ms. Cafaro’s annual cash incentive compensation is more sensitive to our performance than the annual cash incentive compensation of our other Named Executive Officers.

 

In December 2009, the Compensation Committee considered the external economic environment and determined that the performance measures and weightings under the annual cash incentive plan for 2010 should be consistent with those under the annual cash incentive plan for 2009. Accordingly, the specific performance measures and their weightings under the annual cash incentive plan for 2010 for each Named Executive Officer (other than Mr. Lillibridge, who joined us in July 2010), as set by the Compensation Committee and, in the case of the Chief Executive Officer, the non-management members of the Board were as follows:

 

 

 

 

We believe that the goals set by the Compensation Committee are stretch goals, such that significant performance is expected in order to pay out at target levels. However, as in past years, the goals are challenging, but achievable.

 

In January 2011, the Compensation Committee determined that each of the Named Executive Officers (other than Mr. Lillibridge, whose annual cash incentive award was predetermined in connection with the negotiation and execution of his employment agreement in July 2010) had achieved a high level of performance between the target and maximum levels overall under the annual cash incentive plan for 2010, with several specific accomplishments, including:

 

 

 

 

Accordingly, the annual cash incentive awards granted to the Named Executive Officers (other than Mr. Lillibridge) for 2010 performance were between their respective target and maximum levels. The table below illustrates each Named Executive Officer’s maximum annual cash incentive opportunity and the actual cash incentive award granted to each Named Executive Officer.

 

 

Ms. Cafaro’s annual cash incentive award represents a lower percentage of her maximum opportunity due to the fact that her compensation is structured to reflect a higher sensitivity to our performance (including our annual total shareholder return) and, therefore, has the greatest alignment with our shareholders. The actual award amounts, ranging from 1.88x to 3.02x base salary, for the Named Executive Officers (other than Mr. Lillibridge) are set forth in the “Non-Equity Incentive Plan Compensation” column of the 2010 Summary Compensation Table below. Since Mr. Lillibridge’s earnings opportunity under the annual cash incentive plan for 2010 was predetermined in connection with the negotiation and execution of his employment agreement in July 2010, his actual award amount of 1.4x base salary, prorated to reflect the portion of 2010 for which he was employed by us, is set forth in the “Bonus” column of the 2010 Summary Compensation Table below.

Long-Term Incentive Compensation

 

As explained above, the Compensation Committee believes that a substantial portion of each Named Executive Officer’s compensation should be in the form of long-term incentive compensation. Long-term incentive awards are based on certain criteria as determined by the Compensation Committee, including the achievement of pre-established corporate and individual goals for the performance year. At the beginning of each year, an earnings opportunity range, expressed as multiples of base salary and corresponding to three levels of performance (threshold, target and maximum), is established for each executive officer. The Compensation Committee annually reviews the long-term incentive compensation performance criteria in the context of market pay and performance when setting the earnings opportunity range and when determining the actual award earned for each executive officer. In this regard, the Compensation Committee increased Mr. Lewis’s earnings opportunity range under the long-term incentive plan for 2010 in recognition of his leadership development and future advancement potential. Long-term incentive awards are determined and granted in the first quarter of the year following the performance year.

 

The table below illustrates the earnings opportunities of our Named Executive Officers under our long-term incentive plan for performance in fiscal 2010. The earnings opportunities were approved in December 2009 by the Compensation Committee (other than for Mr. Lillibridge, who joined us in July 2010) and, in the case of the Chief Executive Officer, by the non-management members of the Board.

 

 

 

At the target opportunities shown in the above table, the 2010 long-term incentive award for each Named Executive Officer (other than Mr. Lillibridge) results in total direct compensation levels that approximate the 65th percentile of the Comparable Companies. Similar to our philosophy regarding the annual cash incentive opportunities, the Compensation Committee believes that our Chief Executive Officer and President should have the greatest alignment with our shareholders, and, therefore, their long-term incentive compensation is more sensitive to performance than the long-term incentive compensation of our other Named Executive Officers.

 

For 2010, the value of the long-term incentive award was based on the following factors, in each case at the discretion of the Compensation Committee:

 

 

 

While there was no specific weighting or target level attributed to any of these factors, the Compensation Committee carefully analyzed these factors in determining the 2010 long-term incentive awards for our Named Executive Officers.

 

In January 2011, the Compensation Committee determined that each of our Named Executive Officers (other than Mr. Lillibridge, whose long-term incentive award was predetermined in connection with the negotiation and execution of his employment agreement in July 2010) had performed well against the performance objectives under the long-term incentive plan for 2010 based on the accomplishments described above under “—Annual Cash Incentive Compensation” and several other key long-term value creating achievements, including:

 

 

Accordingly, the long-term incentive awards granted to the Named Executive Officers for 2010 performance equaled 100% of their respective maximum levels. The actual award amounts ranged from 3.0x to 9.0x base salary (except in the case of Mr. Lillibridge, whose long-term incentive award had a value of 1.6x base salary, prorated to reflect the portion of 2010 for which he was employed by us) as follows: Ms. Cafaro—$6,525,000; Mr. Schweinhart—$1,185,000; Mr. Lewis—$2,310,955 (which, due to an administrative error, is $15,545 less than the $2,326,500 (or 4.95x base salary) that the Compensation Committee intended (see “—Compensation of Our Named Executive Officers for 2010, 2009 and 2008 Performance”); Mr. Lillibridge—$302,466; and Mr. Riney—$1,110,000. These amounts will be reflected in next year’s Summary Compensation Table as restricted stock and stock option awards granted in 2011.

 

For 2010, long-term incentive compensation consisted of equity awards in the form of stock options and shares of restricted stock granted pursuant to our 2006 Incentive Plan. The Compensation Committee

recognizes that while the annual cash incentive plan rewards management actions that impact short- and mid-term performance, the interests of our stockholders are also served by giving key employees the opportunity to participate in the long-term appreciation of our common stock through grants of stock options and restricted stock awards. Equity awards encourage management to create stockholder value over the long term because the value of the equity awards is dependent on the appreciation of our common stock over time. In addition, equity awards are an effective tool for management retention because full vesting of the awards generally requires continued employment over a number of years.

 

For 2010, the Compensation Committee determined that 70% of the value of the long-term incentive awards should be granted in the form of shares of restricted stock and 30% should be granted as stock options. The long-term incentive awards are weighted more heavily toward restricted stock because we believe that restricted stock provides a stronger incentive to create and preserve long-term stockholder value. Furthermore, restricted stock is the most prevalent form of long-term incentive compensation among the Comparable Companies.

 

Shares of restricted stock and stock options are granted to our Named Executive Officers, other than the Chief Executive Officer, on the date that the Compensation Committee meets to review annual performance and determine the value of the long-term incentive awards. Shares of restricted stock and stock options are granted to the Chief Executive Officer on the date that the non-management members of the Board meet to review and approve the Compensation Committee’s recommendations with respect to the value of the Chief Executive Officer’s long-term incentive award. Typically, the non-management members of the Board approve the Chief Executive Officer’s equity awards on the same date on which the Compensation Committee approves the other Named Executive Officers’ equity awards. In general, equity awards granted to our executive officers vest in three equal annual installments, beginning on the date of grant. Stock options are generally subject to a ten-year term, and the stock option exercise price is the closing price of our common stock on the date of grant.

 

Benefits and Perquisites

 

The Named Executive Officers are generally eligible to participate in the same benefit programs that we offer to other employees, including:

 

 

We believe these benefits are competitive with overall market practices. In addition, we may provide certain perquisites and other personal benefits to enable us to attract and retain superior employees for key positions. For 2010, the only perquisites and benefits provided to our Named Executive Officers that were not otherwise available to all employees consisted of: supplemental disability and life insurance coverage for Ms. Cafaro; payment of limited spousal travel and entertainment benefits while accompanying the Named Executive Officer on certain company business and business development activities for Ms. Cafaro and Messrs. Schweinhart, Lewis and Riney; provision of a parking space (with no incremental cost to us) for Ms. Cafaro and Mr. Lewis; and reimbursement for the cost of parking and membership in certain professional and social organizations for Mr. Lillibridge. The Compensation Committee periodically reviews the perquisites and other personal benefits provided to each Named Executive Officer and has determined that they are consistent with current market practice. Except for the eligibility to participate in our 401(k) plan and our 3% contribution, as described above, we do not provide our Named Executive Officers with any retirement benefits.

Compensation of Our Named Executive Officers for 2010, 2009 and 2008 Performance

 

In order to provide stockholders with a more complete picture of our Named Executive Officers’ compensation, we are providing additional information not required by the SEC. The table below shows each Named Executive Officer’s total direct compensation for services performed in 2010, 2009 and 2008 (with the exception of Mr. Lillibridge, who joined us in July 2010 and was not a Named Executive Officer for 2009 or 2008). In contrast to the Summary Compensation Table, which discloses the grant date fair value of equity awards granted in a given year, the table below discloses the grant date fair value of equity awards granted in the first quarter of the subsequent year for performance during a given year (e.g., equity awards granted in January 2011 for 2010 performance). This table supplements, and does not replace, the Summary Compensation Table.

 

 

 

		2010				2009				2008
Ms. Cafaro		$	6,525,000			$	5,574,600			$	3,546,900
Mr. Schweinhart			1,185,000				937,500				815,063
Mr. Lewis			2,310,955				1,594,931				1,067,800
Mr. Lillibridge			302,466				—				—
Mr. Riney			1,110,000				991,800				756,000

 

Per the 2010, 2009 and 2008 compensation programs established by the Compensation Committee and, in the case of Ms. Cafaro, approved by the non-management members of the Board, 70% of the value of the long-term incentive awards was granted in shares of restricted stock and 30% of the value of the long-term incentive awards was granted in stock options. The shares of restricted stock and stock options vest in three equal annual installments beginning on the date of grant, except as discussed in footnote (5) below.

 

 

 

 

 

Severance Benefits

 

Under existing employment or change of control severance agreements, our Named Executive Officers are entitled to receive severance benefits upon certain qualifying terminations of employment (subject to any required payment delay pursuant to Section 409A of the Code). Generally, the severance arrangements support executive retention and continuity of management and provide replacement income if an executive is terminated involuntarily other than for cause.

 

In March 2011, Ms. Cafaro’s employment agreement was amended to eliminate certain tax gross-up payments with respect to severance and certain other benefits in connection with a change of control. However, legacy arrangements with Messrs. Schweinhart, Lewis and Riney, which have been in existence and have not been amended (other than certain amendments to comply with Section 409A of the Code and except as described below) for several years, continue to provide these benefits. However, no tax gross-up would have been payable to any of our Named Executive Officers under the scenarios and assumptions presented under “—Potential Payments Upon Termination or Change of Control” in this Proxy Statement. At the time we entered into each such arrangement, the Compensation Committee considered the potential severance benefits, including any potential tax gross-up, to be necessary to attract and retain top executives and, based on PM&P’s market compensation analysis, to be consistent with then current competitive market practices. The employment agreement we entered into with Mr. Lillibridge in July 2010 does not provide tax gross-up payments with respect to severance benefits.

 

Tax Considerations

 

Section 162(m) of the Code places a limit of $1 million on the amount of compensation that we may deduct in any year with respect to each of our Named Executive Officers other than the Chief Financial Officer, unless the compensation is performance-based compensation and meets certain other requirements, as described in Section 162(m) and the related regulations. We generally consider qualification for deductibility under Section 162(m) for compensation paid to our Named Executive Officers, including stock options granted pursuant to our long-term incentive plan. The Compensation Committee believes, however, that our executive compensation program should be flexible, maximize our ability to recruit, retain and reward high-performing executives and promote varying corporate goals. Accordingly, the Compensation Committee may approve compensation that exceeds the $1 million limit or does not otherwise meet the requirements of Section 162(m), but that is deemed to be in our best interests and the best interests of our stockholders.

 

Minimum Share Ownership Guidelines for Executive Officers

 

Our minimum share ownership guidelines require each executive officer to maintain a minimum equity investment in our company based upon a multiple (five times, in the case of the Chief Executive Officer, and three times, in the case of all other executive officers) of his or her then current base salary. Each executive officer must achieve the minimum equity investment within five years from the date he or she first becomes subject to the guidelines. Until the minimum equity investment is met, such officer must retain at least 60% of our common stock granted to the officer or purchased by the officer through the exercise of

stock options. The non-management members of the Board annually review each executive officer’s compliance with the guidelines as of July 1. Taking into account any permitted transition period, all of our executive officers are currently in compliance with the minimum share ownership guidelines. Our minimum share ownership guidelines do not require a minimum holding period for stock option or other equity grants.

 

Adjustment or Recovery of Awards

 

Under Section 304 of the Sarbanes-Oxley Act, if we are required to restate our financial results due to material noncompliance with any financial reporting requirement as a result of misconduct, our Chief Executive Officer and Chief Financial Officer must reimburse us for (i) any bonus or other incentive-based or equity-based compensation received during the twelve months following the public issuance of the non-compliant document and (ii) any profits realized from the sale of our securities during those twelve months. Following the SEC’s adoption of final rules regarding executive compensation recoupment policies pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, we will consider and adopt a separate executive compensation recoupment policy in accordance with the final rules.

 

Amendments to Employment and Change of Control Severance Agreements; Lillibridge Employment Agreement

 

In March 2011, the terms of Ms. Cafaro’s employment agreement were amended to eliminate certain provisions from Ms. Cafaro’s prior employment agreement to reflect compensation practices more favorable to us and our stockholders. In particular, the amended employment agreement eliminated (1) a provision that provided for payment of severance benefits if Ms. Cafaro were to terminate employment with us without Good Reason (as defined under “—Employment and Change of Control Severance Agreement with Named Executive Officers—Employment Agreement: Cafaro” below) within the 30-day period commencing one year after a change of control (a so-called “modified single trigger”) and (2) certain tax gross-up payments with respect to severance and certain other benefits in connection with a change of control. In addition, to support Ms. Cafaro’s continued retention, in recognition of her superior performance and contributions to our success, and in consideration for the elimination of the change of control “modified single trigger” and change of control tax gross-up payments from her prior employment agreement, Ms. Cafaro received a special equity incentive award in the form of 152,934 shares of restricted stock having an aggregate fair market value of $8,000,000 on the date of grant. These shares vest in five equal annual installments beginning on the first anniversary of the date of grant. The shares are subject to accelerated vesting in the event of death, disability, termination of employment by us without Cause (as defined under “—Employment and Change of Control Severance Agreement with Named Executive Officers—Employment Agreement: Cafaro” below) or termination of employment by Ms. Cafaro with Good Reason but are not subject to accelerated vesting solely upon a change of control.

 

In addition, to reflect her strong leadership, contributions to our superior performance and continuing value to our company, Ms. Cafaro’s annual base salary was increased to $915,000, effective as of January 1, 2011. The material provisions of Ms. Cafaro’s employment agreement are summarized under “—Employment and Change of Control Severance Agreement with Named Executive Officers—Employment Agreement: Cafaro” below.

 

Also in March 2011, the terms of Mr. Riney’s change-in-control severance agreement were amended to eliminate a provision that provided for payment of severance benefits if Mr. Riney were to terminate employment with us without Good Reason (as defined under “—Employment and Change of Control Severance Agreement with Named Executive Officers—Employment Agreement and Change of Control Severance Agreement: Riney” below) within the 30-day period commencing 30 days after a change of control or within the 30-day period commencing one year after a change of control. The material provisions of Mr. Riney’s change-in-control severance agreement are summarized under “—Employment and Change of Control Severance Agreement with Named Executive Officers—Employment Agreement and Change of Control Severance Agreement: Riney” below.

 

In connection with the closing of our acquisition of Lillibridge in July 2010, we entered into an employment agreement with Mr. Lillibridge (the “Lillibridge Employment Agreement”) pursuant to which he

became our Executive Vice President, Medical Property Operations, and continued to serve as President and Chief Executive Officer of Lillibridge. Pursuant to the Lillibridge Employment Agreement, on July 1, 2010 Mr. Lillibridge received two special equity incentive awards in the form of 55,561 shares of restricted stock each, having an aggregate fair market value of $5,335,000 on the date of grant, to encourage his long-term retention. The first grant vests 30%, 60% and 100% on the first, second and third anniversaries, respectively, of the date of grant, and the second grant vests in equal annual installments on the fourth and fifth anniversaries of the date of grant. The material provisions of the Lillibridge Employment Agreement are summarized under “—Employment and Change of Control Severance Agreement with Named Executive Officers—Employment Agreement: Lillibridge” below.

 

The following table sets forth the compensation awarded or paid to, or earned by, each of the Named Executive Officers during 2010, 2009 and 2008 (for supplemental information regarding the total direct compensation earned by the Named Executive Officers for 2010 performance, see “Compensation Discussion and Analysis” above):