DEF 14A
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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 (Amendment No.     )

Filed by Registrant

Filed by a Party other than the Registrant

Check the appropriate box:

 

Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material Pursuant to §240.14a-12

BOSTON PROPERTIES, INC.

 

 

(Name of Registrant as Specified in Its Charter)

 

 

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

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LOGO


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LOGO

April 5, 2019

Dear Fellow Stockholder:

You are cordially invited to attend the 2019 annual meeting of stockholders of Boston Properties, Inc. The annual meeting will be held on Tuesday, May 21, 2019 at 9:00 a.m., Eastern Time, at 599 Lexington Avenue, New York, New York 10022.

The proxy statement, with the accompanying formal notice of the meeting, describes the matters expected to be acted upon at the meeting. We urge you to review these materials carefully and to use this opportunity to take part in the affairs of Boston Properties by voting on the matters described in the proxy statement. Following the formal portion of the meeting, we will provide a brief report on the operations of our company and our directors and management team will be available to answer appropriate questions from stockholders.

Your vote is important. Your proxy or voting instruction card includes specific information regarding the several ways to vote your shares. We encourage you to vote as soon as possible, even if you plan to attend the meeting. You may vote over the internet, by telephone or by mail.

Thank you for your continued support of Boston Properties.

Sincerely,

 

 

LOGO

Owen D. Thomas

Chief Executive Officer


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Boston Properties, Inc.   

800 Boylston Street

Suite 1900

Boston, MA 02199-8103

Notice of 2019 Annual Meeting of Stockholders

 

Date:   Tuesday, May 21, 2019
Time:   9:00 a.m., Eastern Time
Place:   599 Lexington Avenue, New York, New York 10022
Record Date:   Wednesday, March 27, 2019
Items of Business:           1.     To elect the eleven nominees for director named in the proxy statement, each to serve for a one-year term and until their respective successors are duly elected and qualified.
  2.   To hold a non-binding, advisory vote on named executive officer compensation.
  3.   To approve the Boston Properties, Inc. Non-Employee Director Compensation Plan.
  4.   To ratify the Audit Committee’s appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019.
  5.   To consider and act upon any other matters that are properly brought by or at the direction of the Board of Directors before the annual meeting and at any adjournments or postponements thereof.
Proxy Voting:   If you do not plan to attend the meeting and vote your shares of common stock in person, we urge you to vote your shares as instructed in the proxy statement. If you received a copy of the proxy card by mail, you may sign, date and mail the proxy card in the postage-paid envelope provided.

 

If your shares of common stock are held by a broker, bank or other nominee, please follow the instructions you receive from your broker, bank or other nominee to have your shares of common stock voted.

  Any proxy may be revoked at any time prior to its exercise at the annual meeting.

Important Notice Regarding the Availability of Proxy Materials for the Stockholders Meeting to be Held on May 21, 2019. The proxy statement and our 2018 annual report to stockholders are available at www.edocumentview.com/bxp.

By Order of the Board of Directors

 

 

LOGO

FRANK D. BURT, ESQ.

Secretary

April 5, 2019


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PROXY SUMMARY      1  
PROXY STATEMENT      9  
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS      9  

The Board of Directors

     9  

Board Leadership

     10  

Board Committees

     12  

Board’s Role in Risk Oversight

     14  

Director Independence

     15  

Consideration of Director Nominees

     17  

Proxy Access By-Law Provisions

     19  

Code of Business Conduct and Ethics and Other Policies

     20  

Communications with the Board

     20  
PROPOSAL 1: ELECTION OF DIRECTORS      22  

Vote Required

     22  

Information Regarding the Nominees and Executive Officers

     23  
PRINCIPAL AND MANAGEMENT STOCKHOLDERS      34  

Section 16(a) Beneficial Ownership Reporting Compliance

     37  
COMPENSATION DISCUSSION AND ANALYSIS      38  

Executive Summary

     38  

Compensation Governance

     42  

Assessing Performance

     43  

Performance-Based Equity Awards; Three-Year TSR Drives Actual Earned Pay

     55  

Alignment of Pay with Performance

     58  

Allocation of LTI Equity Awards

     60  

Benchmarking Peer Group and Compensation Advisor’s Role

     61  

Role of Management in Compensation Decisions

     63  

Other Compensation Policies

     63  
COMPENSATION COMMITTEE REPORT      69  
COMPENSATION OF EXECUTIVE OFFICERS      70  

Summary Compensation Table

     70  

2018 Grants of Plan-Based Awards

     72  

Outstanding Equity Awards at December 31, 2018

     74  

2018 Option Exercises and Stock Vested

     76  

Nonqualified Deferred Compensation

     77  

Employment Agreements

     78  

Potential Payments Upon Termination or Change in Control

     80  

Pay Ratio Disclosure

     88  
PROPOSAL 2: ADVISORY VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION      90  

Proposal

     90  

Vote Required

     90  


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COMPENSATION OF DIRECTORS      91  

Director Compensation Table

     92  

Director Stock Ownership Guidelines

     93  
PROPOSAL 3: APPROVAL OF THE BOSTON PROPERTIES, INC. NON-EMPLOYEE DIRECTOR COMPENSATION PLAN      95  

Proposal

     95  

Background

     95  

Summary of the Director Compensation Plan

     96  

New Plan Benefits

     98  

Vote Required

     98  
EQUITY COMPENSATION PLAN INFORMATION      99  
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION      100  
PROPOSAL 4: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM      101  

Proposal

     101  

Fees to Independent Registered Public Accounting Firm

     102  

Audit and Non-Audit Services Pre-Approval Policy

     102  

Vote Required

     102  
AUDIT COMMITTEE REPORT      103  
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS      104  
INFORMATION ABOUT THE ANNUAL MEETING      105  
OTHER MATTERS      109  

Expenses of Solicitation

     109  

Stockholder Nominations for Director and Proposals for the 2020 Annual Meeting

     109  
APPENDIX A      A-1  

Reconciliation of Net Income Attributable to Boston Properties, Inc. Common Shareholders to BXP’s Share of Same Property Net Operating Income (NOI) (excluding termination income)

     A-1  

Reconciliation of Net Income Attributable to Boston Properties, Inc. Common Shareholders to BXP’s Share of Same Property Net Operating Income (NOI) - Cash (excluding termination income)

     A-3  

Consolidated Joint Ventures

     A-5  

Unconsolidated Joint Ventures

     A-7  
APPENDIX B      B-1  

Boston Properties, Inc. Non-Employee Director Compensation Plan

     B-1  


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PROXY SUMMARY

This summary highlights information contained elsewhere in the proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement carefully before voting.

VOTING MATTERS

 

 

Voting Matter         Board’s Voting
Recommendation
    

Page Reference for

more Information

 

 

Proposal 1:

 

 

 

Election of Directors

 

  

 

 

 

 

FOR each nominee

 

 

 

 

  

 

 

 

 

22

 

 

 

 

 

Proposal 2:

 

 

 

Non-binding, Advisory Vote on Named Executive Officer Compensation

 

  

 

 

 

 

FOR

 

 

 

 

  

 

 

 

 

90

 

 

 

 

 

Proposal 3:

 

 

 

Approval of the Boston Properties, Inc. Non-Employee Director Compensation Plan

 

  

 

 

 

 

FOR

 

 

 

 

  

 

 

 

 

95

 

 

 

 

 

Proposal 4:

 

 

 

Ratification of Appointment of Independent Registered Public Accounting Firm

 

  

 

 

 

 

FOR

 

 

 

 

  

 

 

 

 

101

 

 

 

 

 

BOARD AND GOVERNANCE HIGHLIGHTS

 

DIRECTOR SUCCESSION

Led by our lead independent director and Nominating and Corporate Governance (“NCG”) Committee, our Board of Directors remains focused on ensuring a smooth transition if and when directors decide to retire or otherwise leave our Board and that the composition of our Board is systematically refreshed so that, taken as a whole, the Board has the desired mix of skills, experience, reputation and diversity relevant to our strategic direction and operating environment, as well as the knowledge, ability and independence to continue to deliver the high standard of governance expected by investors. For more information on this process, see “Corporate Governance Principles and Board Matters – The Board of Directors – Director Succession Planning” beginning on page 9 of the proxy statement.

Consistent with this approach, between 2016 and 2018 our Board nominated, and our stockholders elected, three new directors (Senator Kelly A. Ayotte, Ms. Karen E. Dykstra and Mr. Bruce W. Duncan), and our Board of Directors is delighted to nominate two new candidates – Ms. Diane J. Hoskins and Mr. William H. Walton, III – for election to our Board of Directors at the 2019 annual meeting of stockholders. Mr. Martin Turchin, a director of Boston Properties since 1997, and Dr. Jacob A. Frenkel, a director of Boston Properties since 2010, are not standing for re-election. The Board of Directors extends its gratitude and appreciation to them for their dedication and contributions to Boston Properties.

Assuming the election of the eleven nominees for director at the 2019 annual meeting of stockholders, the average tenure for our independent directors will be approximately 5.9 years and the average age of our independent directors will be approximately 63.4 years. In addition, we added three female directors since May 2015, and we are nominating four women for election to our Board at the 2019 annual meeting of stockholders.

 

BOSTON PROPERTIES, INC.  |  2019 Proxy Statement    1


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PROXY SUMMARY

 

The following summarizes the changes to our Board composition over the past four years, assuming the election of the eleven nominees for director at the 2019 annual meeting of stockholders:

 

 

LOGO

APPOINTMENT OF INDEPENDENT, NON-EXECUTIVE CHAIRMAN

Our Board of Directors selected Mr. Joel I. Klein to serve as our independent, non-executive Chairman of the Board effective immediately following the 2019 annual meeting of stockholders. Mr. Klein has served as a director of Boston Properties, Inc. since 2013 and as lead independent director since 2016. See “Corporate Governance Principles and Board Matters – Board Leadership” beginning on page 10 of the proxy statement.

NON-EMPLOYEE DIRECTOR COMPENSATION

On February 26, 2019, our Board of Directors approved the Boston Properties, Inc. Non-Employee Director Compensation Plan (the “Director Compensation Plan”), which sets forth the cash and equity compensation that is to be paid to our non-employee directors in a specific, formulaic manner. Although we are not legally required to seek or receive stockholder approval for the Director Compensation Plan, we are submitting the plan to stockholders for approval. Our Compensation Committee and Board of Directors last reviewed our non-employee director compensation in 2016, or three years ago.

 

2    BOSTON PROPERTIES, INC.  |  2019 Proxy Statement


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PROXY SUMMARY

 

The Director Compensation Plan implements recommendations that our Compensation Committee made to our full Board of Directors based on a comprehensive review of the structure and amounts of our existing compensation for non-employee directors. For the 2019 review, our Compensation Committee engaged Frederic W. Cook & Co., Inc. (“FW Cook”) to help ensure that our non-employee director compensation remains competitive and is generally consistent with “best” practices. Our Compensation Committee also sought recommendations from FPL Associates, L.P. regarding compensation for the role of non-executive chairman.

Because of the interests that our non-employee directors have in the establishment of the compensation they receive, our Board determined to submit the plan for stockholder approval. See “Proposal 3 – Approval of the Boston Properties, Inc. Non-Employee Director Compensation Plan” beginning on page 95 of the proxy statement for more detail.

NEW DIRECTOR STOCK OWNERSHIP GUIDELINES

Based on FW Cook’s recommendations, our Board of Directors also approved new stock ownership guidelines for non-employee directors to better align their interests with those of our stockholders and conform to “best” practices. The effectiveness of these guidelines is conditioned upon stockholder approval of the Director Compensation Plan at the 2019 annual meeting of stockholders. Under the new guidelines, each non-employee director is generally expected to retain an aggregate number of shares of our common stock and its equivalents, including deferred stock units and units in Boston Properties Limited Partnership (the “Operating Partnership”), whether vested or not, having an aggregate value equal to at least five (5) times the value of the then-current annual cash retainer paid to non-employee directors. The current stock ownership guidelines require ownership of an aggregate number of shares and units that the director received as an annual retainer during the first three years following his or her election. See “Compensation of Directors – Director Stock Ownership Guidelines” beginning on page 93 of the proxy statement for more detail.

 

BOSTON PROPERTIES, INC.  |  2019 Proxy Statement    3


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PROXY SUMMARY

 

BOARD NOMINEES

 

Following the recommendation of the NCG Committee, our Board of Directors has nominated the following eleven (11) candidates for election as directors at the 2019 annual meeting of stockholders.

 

                          Current Committee Membership
Name and Principal Occupation    Age      Independent     

Director

Since

     Audit(1)      Compensation      NCG(1)

 

Kelly A. Ayotte

                 

Former United States Senator for the State of New Hampshire

 

  

 

 

 

50

 

 

         

 

 

 

2018

 

 

            

 

Bruce W. Duncan(2)(3)

                 

Chairman and former Chief Executive Officer of First Industrial Realty Trust, Inc.

 

     67            

 

 

 

2016

 

 

            

 

Karen E. Dykstra(3)

                 

Former Chief Financial and Administrative Officer of AOL, Inc.

 

     60              

 

2016

 

 

 

            

 

Carol B. Einiger

     69            

 

 

 

 

2004

 

 

 

 

        Chair     

President of Post Rock Advisors, LLC

 

     

 

Diane J. Hoskins(4)

        

 

 

 

 

New

Nominee

 

 

 

 

 

        

Chair and Co-Chief Executive Officer of M. Arthur Gensler Jr. & Associates, Inc.

 

     61                  

 

Joel I. Klein(5)

                 

Chief Policy and Strategy Officer of Oscar Health Corporation

 

     72              

 

2013

 

 

 

                

 

Douglas T. Linde

     55        

 

 

 

 

2010

 

 

 

 

        

President of Boston Properties, Inc.

 

           

 

Matthew J. Lustig

                 

Head of North America Investment Banking and Head of Real Estate & Lodging at Lazard Fréres & Co.

 

     58              

 

2011

 

 

 

         Chair

 

Owen D. Thomas

     57        

 

 

 

 

2013

 

 

 

 

        

Chief Executive Officer of Boston Properties, Inc.

 

 

David A. Twardock(3)

                 

Former President of Prudential Mortgage Capital Company, LLC

 

     61              

 

2003

 

 

 

     Chair            

 

William H. Walton, III(4)

        

 

 

 

 

New

Nominee

 

 

 

        

Managing Member & Co-Founder of Rockpoint Group, LLC

 

     67                                

 

(1)

Mr. Turchin currently serves on the Audit Committee and Dr. Frenkel currently serves on the NCG Committee. Messrs. Turchin and Frenkel are not standing for re-election.

 

(2)

Assuming his re-election to our Board of Directors, the Board expects to appoint Mr. Duncan to the Audit Committee and that Mr. Duncan will cease serving on the Compensation Committee following the 2019 annual meeting.

 

(3)

Our Board of Directors determined that each of Ms. Dykstra, Mr. Duncan and Mr. Twardock qualifies as an “audit committee financial expert” as that term is defined in the rules of the SEC.

 

(4)

Assuming their elections to our Board of Directors, the Board expects to appoint Ms. Hoskins to the NCG Committee and Mr. Walton to the Compensation Committee.

 

(5)

Mr. Klein currently serves as our lead independent director and, assuming his re-election, will become our independent, non-executive Chairman of the Board immediately following the 2019 annual meeting.

 

Mr. Klein serves as an ex officio member of each committee.

 

4    BOSTON PROPERTIES, INC.  |  2019 Proxy Statement


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PROXY SUMMARY

 

SNAPSHOT OF 2019 BOARD NOMINEES

 

Presented below is a snapshot of the expected composition of our Board of Directors immediately following the 2019 annual meeting, assuming the election of the eleven (11) nominees named in the proxy statement. Our Board of Directors believes that collectively the nominees exhibit an effective mix of skills, experience and diversity. For comparison purposes, we have also presented comparable metrics for the constituents of the S&P 500 Index, of which Boston Properties is a member. Data for the S&P 500 Index is based on the Spencer Stuart Board Index 2018.

 

LOGO   LOGO   LOGO

Tenure age gender diversity BXP average tenure: 6.2 years S&P 500 average tenure: 8.4 years BXP average age of all nominees: 62.2 years BXP average age of independent nominees: 63.4 years S&P 500 average age of independent directors : 63.0 years BXP % of female directors: 36% S&P 500 % of female directors: 24% S&P 500 average # of female directors: 2.6

 

The following chart summarizes the experience and skills possessed by our nominees for election to our Board:

 

 

LOGO

Summary of Qualifications and Experience (11 Nominees) REIT and/or Real Estate Capital Markets and Investment Banking CEO/ Executive management Strategic Planning and leadership Risk oversight Other Public Company Board expertise Financial Expertise Financial literacy Government and Public Policy Academia Teleology International Corporate Government Insurance Talent Management Sustainability

For a more detailed description of the above qualifications and experiences, see “Proposal 1: Election of Directors – Information Regarding the Nominees and Executive Officers” beginning on page 23 of the proxy statement.

 

BOSTON PROPERTIES, INC.  |  2019 Proxy Statement    5


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PROXY SUMMARY

 

GOVERNANCE AND COMPENSATION POLICIES AND KEY DATA

 

 

 Director

 Independence and

 Compliance

  

   Eleven (11) directors

 

  

   82% independent

 

  

   Regular executive sessions of independent directors

 

  

   All directors and officers are subject to a Code of Business Conduct and Ethics

 

  

   All directors attended 75% or more of Board and committee meetings

 

  

 Director

 Qualifications

  

   Annual self-evaluation process for the Board and each committee, and bi-annual interviews with individual directors; process overseen by our NCG Committee

 

  

   Retirement age: 75-year maximum age limit at time of nomination

 

  

   Currently, three directors are women; assuming all nominees are elected, our Board will have four women directors and one African-American director

 

  
 Board Leadership   

   Our Board has determined that its leadership structure should include either an independent, non-executive Chairman of the Board or a lead independent director, providing the Board flexibility to determine the best leadership structure and best candidate for position

 

  

   Subject to his re-election, our current lead independent director, Mr. Klein, will become our independent Chairman of the Board

 

  

 Strong

 Stockholder

 Rights

  

   Incorporated in Delaware; the Maryland Unsolicited Takeovers Act does not apply to us

 

  

   Proxy Access By-law right

 

  

   Annual election of all directors

 

  

   Majority voting standard in uncontested director elections

 

  

   Stockholder right to amend By-laws

 

  

   No Stockholder Rights Plan (or “poison pill”)

 

  

   Disclosure of Policy on Company Political Spending

 

  
 Compensation   

   Stock ownership requirements for executives

 

  

   Stock ownership requirements for directors

 

  

   Anti-hedging, anti-pledging and anti-short-sale policies

 

  

   “Double-Trigger” vesting for time-based equity awards

 

  

   Compensation Clawback Policy

 

  

   No future tax gross-up provisions

 

  

   We do not target compensation above median

 

 

 

6    BOSTON PROPERTIES, INC.  |  2019 Proxy Statement


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PROXY SUMMARY

 

SUSTAINABILITY

 

We pride ourselves as a global leader in sustainability and continue to implement sustainability initiatives that improve transparency and performance outcomes. Our sustainability strategy is broadly focused on the economic, social and environmental aspects of our activities, which include the design and construction of our new developments and the operation of our existing buildings. We are focused on creating healthy workspaces and high performance properties while simultaneously mitigating operational costs and the potential external impacts of energy, water, waste and greenhouse gas emissions. To that end, we have publicly adopted long-term energy, emissions, water and waste goals that establish aggressive reduction targets. As a company with a core strategy of long-term ownership, we are committed to charitable giving, volunteerism and public realm investments that make a positive impact on the communities in which we conduct business. Through these efforts, we demonstrate that operating and developing commercial real estate can be conducted with a conscious regard for the environment while mutually benefiting our tenants, investors, employees and the communities in which we operate.

2018 HIGHLIGHTS

 

In the 2018 Global Real Estate Sustainability Benchmark (GRESB®) assessment, Boston Properties ranked in the top quadrant, earning a seventh consecutive “Green Star” recognition and the highest GRESB 5-Star Rating. Overall, Boston Properties ranked among the top 8% of 874 worldwide participants.  

LOGO

 

LOGO   

LOGO

  

LOGO

As of December 31, 2018, we own and actively manage over 20 million square feet of green buildings certified at the highest LEED Gold and Platinum levels. Our recently-completed Salesforce Tower development earned more points under the LEED Version 3 rating system than any other project in the San Francisco Bay Area and became the highest rated new skyscraper in the State of California.    In November 2018, we issued our first Green bonds, having an aggregate principal amount of $1 billion. The offering was 2.5 times oversubscribed and attracted a pool of green investors that represented 23% of the total allocation. The proceeds can be allocated to the funding of eligible green projects, such as Salesforce Tower.    During 2018, we executed our first large-scale renewable energy purchase. We expect the procurement of 650,000 megawatt-hours (MWH) over three years will reduce our carbon footprint more than 55,000 metric tons of CO2 equivalent annually and will reduce the carbon intensity of our Massachusetts operations by approximately 78% compared to a 2008 base year.

 

BOSTON PROPERTIES, INC.  |  2019 Proxy Statement    7


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PROXY SUMMARY

 

PUBLIC SUSTAINABILITY GOALS AND PROGRESS

Our sustainability goals establish reduction targets for energy, greenhouse gas emissions, water consumption and waste. In 2016, we achieved our first round of energy, emissions and water targets three years early. By resetting company-wide goals, we raise stakeholder awareness and make best efforts to drive continuous year-over-year, like-for-like key performance indicator improvement. We have adopted goals with the following specific time frames, metrics and targets below a 2008 baseline:(1)

 

 

LOGO

 

(1)

Full 2018 calendar year energy and water data verified by a third party is not yet available. 2017 is the most recent year for which complete energy and water data is available and verified by a third party.

We are committed to transparent reporting of environmental, social and governance (“ESG”) sustainability indicators. Boston Properties publishes an annual sustainability report that is aligned with the Global Reporting Initiative (“GRI”) reporting framework. More detailed sustainability information, including our strategy, key performance indicators, annual like-for-like comparisons, achievements and historical sustainability reports are available on our website at http://www.bostonproperties.com under the heading “Sustainability.” Except for the documents specifically incorporated by reference into our Annual Report on Form 10-K, information contained on our website or that can be accessed through our website is not incorporated by reference into our Annual Report on Form 10-K.

 

8    BOSTON PROPERTIES, INC.  |  2019 Proxy Statement


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LOGO

PROXY STATEMENT

This proxy statement is being made available to stockholders of Boston Properties, Inc. (“we,” “us,” “our,” “Boston Properties” or the “Company”) on or about April 5, 2019 via the Internet or by delivering printed copies by mail, and is furnished in connection with the solicitation of proxies by the Board of Directors of Boston Properties, Inc. (our “Board” or our “Board of Directors”) for use at our 2019 annual meeting of stockholders to be held on Tuesday, May 21, 2019 at 9:00 a.m., Eastern Time, at 599 Lexington Avenue, New York, New York, and at any adjournments or postponements thereof.

CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS

 

THE BOARD OF DIRECTORS

Composition of the Board of Directors

Boston Properties is currently governed by an eleven-member Board of Directors. The current members of our Board of Directors are Kelly A. Ayotte, Bruce W. Duncan, Karen E. Dykstra, Carol B. Einiger, Dr. Jacob A. Frenkel, Joel I. Klein, Douglas T. Linde, Matthew J. Lustig, Owen D. Thomas, Martin Turchin and David A. Twardock. At the 2019 annual meeting of stockholders, directors will be elected to hold office for a one-year term expiring at the 2020 annual meeting of stockholders or until his or her successor is duly elected and qualified, or until his or her earlier resignation or removal. Any director appointed to our Board of Directors to fill a vacancy will hold office for a term expiring at the next annual meeting of stockholders following such appointment.

Meetings

Our Board of Directors met eight times during 2018. Each incumbent director attended at least 75% of the aggregate of (1) the total number of meetings of our Board of Directors in 2018 held during the period for which he or she has been a director and (2) the total number of meetings in 2018 of all committees of our Board of Directors on which the director served during the periods that he or she served. Directors are expected to attend annual meetings of our stockholders in person unless doing so is impracticable due to unavoidable conflicts. Nine of the eleven directors then serving attended the 2018 annual meeting of stockholders. One director did not attend the 2018 annual meeting of stockholders because he was not standing for re-election and one director was unable to attend due to an unavoidable personal matter.

Directors who qualify as “non-management” within the meaning of the rules of the New York Stock Exchange (“NYSE”) meet on a regular basis in executive sessions without management participation. The executive sessions occur after each regularly scheduled meeting of our entire Board and at such other times that the non-management directors deem appropriate, and they are chaired by our lead independent director. Each director has the right to call an executive session. Currently, all of our non-management directors are independent.

Director Succession Planning

Led by our lead independent director and our Nominating and Corporate Governance Committee (the “NCG Committee”), our Board of Directors remains focused on ensuring a smooth transition if and when directors decide to retire or otherwise leave our Board and that the composition of our Board is systematically refreshed so that, taken as a whole, our Board has the desired mix of skills, experience, reputation and diversity relevant to our strategic direction and operating environment, as well as the

 

BOSTON PROPERTIES, INC.  |  2019 Proxy Statement    9


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CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS

 

knowledge, ability and independence to continue to deliver a high standard of governance expected by investors. Among other aspects of the process, our Board of Directors:

 

   

identifies the collective mix of desired skills, experience, knowledge, diversity and independence for our Board of Directors, taken as a whole, and identifies potential opportunities for enhancement in one or more of those areas;

 

   

considers each current director’s experience, skills, principal occupation, reputation, independence, age, tenure, committee membership and diversity (including geographic, gender and ethnicity); and

 

   

considers the results of our Board and committee self-evaluations, which, in 2018, we conducted through written questionnaires.

Our Board of Directors recognizes the importance of continuity and that refreshment should not be effectuated all at once. Consistent with this approach, since 2016, our Board nominated and our stockholders elected three new directors (Senator Ayotte, Ms. Dykstra and Mr. Duncan). For the 2019 annual meeting of stockholders, the NCG Committee recommended to our Board of Directors for nomination, and our Board nominated, two new candidates for election – Ms. Diane J. Hoskins and Mr. William H. Walton, III. Ms. Hoskins was initially recommended for consideration by Raymond A. Ritchey, our Senior Executive Vice President, and Mr. Walton was initially recommended for consideration by Mr.  Thomas, our Chief Executive Officer.

BOARD LEADERSHIP

Leadership Structure

Our Corporate Governance Guidelines provide that our Board of Directors does not have a policy with respect to whether or not the role of Chairman of the Board and Chief Executive Officer should be separate or combined. However, our Board has determined that its leadership structure should include either an independent, non-executive Chairman of the Board or a lead independent director who satisfies our standards for independence. Accordingly, our Corporate Governance Guidelines provide that it is the Board’s policy that if (1) the positions of Chairman of the Board and Chief Executive Officer are held by the same person, (2) the position of Chairman of the Board is held by a non-independent director or (3) none of the directors has been elected to serve as Chairman of the Board, then the independent directors shall select an independent director to serve as lead independent director.

In 2013, our Board separated the roles of the Executive Chairman and Chief Executive Officer, and in 2014 our Board established a lead independent director role and our independent directors selected Ivan G. Seidenberg to assume the new position. Since the 2016 annual meeting of stockholders, at which time Mortimer B. Zuckerman ceased serving as a director and our Board conferred upon him the honorary title of Chairman Emeritus, our Board of Directors has operated without a Chairman of the Board. Currently, Mr. Thomas serves as Chief Executive Officer and Mr. Klein serves as our lead independent director, a role he has held since Mr. Seidenberg’s retirement from our Board of Directors in May 2016. See “– Lead Independent Director” below. Our Board of Directors determined that this structure was appropriate because it (1) allows for the efficient and effective handling of the responsibilities of our Board of Directors with a key leading role played by our Chief Executive Officer, who is most directly responsible for developing and executing our strategic direction, and (2) helps ensure strong independent oversight by our Board of Directors through the role played by the lead independent director.

 

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Lead Independent Director

Our lead independent director has been selected annually by the vote of a majority of our independent directors since 2014, and the position has well-defined, substantive responsibilities that include, among others that may be assigned from time to time:

 

   

presiding at all meetings of the Board if none of the directors has been elected to serve as the Chairman of the Board or at which the Chairman of the Board is not present, including executive sessions of independent directors;

 

   

serving as liaison between the Chairman of the Board, if one is elected, the Chief Executive Officer and the independent directors;

 

   

approving information sent to the Board;

 

   

approving Board meeting agendas;

 

   

approving Board meeting schedules to assure that there is sufficient time for discussion of all agenda items;

 

   

having the authority to call meetings of the independent directors of the Board; and

 

   

if requested by major stockholders, ensuring that he or she is available for consultation and direct communication.

Establishment of Chairman of the Board

When our Board of Directors amended our Corporate Governance Guidelines in 2014 to create the position of lead independent director, the Board contemplated that in the future it might determine that it is advisable to appoint an independent, non-executive Chairman of the Board. As a result, our Corporate Governance Guidelines provide that the independent director selected to serve as lead independent director will serve in that role until (1) he or she ceases to be an independent director or resigns from the position, (2) a successor is selected by a majority of the independent directors or (3) an independent director is serving as the Chairman of the Board. In addition, they provide that, if the Chairman of the Board is an independent director, then the Chairman of the Board shall assume the responsibilities of the lead independent director referenced above and there will not be a separate lead independent director.

Our Board of Directors determined that it is advisable to appoint Mr. Klein as independent, non-executive Chairman of the Board, effective immediately following the 2019 annual meeting of stockholders. In addition to the responsibilities of the lead independent director outlined above and others that may be assigned from time to time, the Board expects that, as Chairman, Mr. Klein will:

 

   

coordinate the work of each committee with the activities of the Board as a whole;

 

   

work with the CEO and the Chair of the NCG Committee to provide strategic direction on all Board and governance matters;

 

   

work with the Compensation Committee to establish and review annual and long-term goals for assessing performance and to evaluate the performance of the CEO;

 

   

independently review with the CEO the Company’s succession plan for executive officers;

 

   

conduct bi-annual interviews with individual directors regarding individual contributions and overall Board composition and planning; and

 

   

work with the CEO on matters of strategic importance to the Board and the Company.

Our Board of Directors encourages strong communication among all of our independent directors and the Chief Executive Officer and believes that it has been able to effectively provide independent oversight of our business and affairs, including risks facing the Company, through our lead independent director, the independent committees of our Board of Directors, the overall composition of our Board of Directors and contributions of all of our independent directors and other corporate

 

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governance processes in place. Given Mr. Klein’s current role, our Board believes that his appointment as the independent, non-executive Chairman of the Board will only serve to enhance our independent directors’ oversight of our business and affairs.

BOARD COMMITTEES

Our Board of Directors has an (1) Audit, (2) Compensation and (3) NCG Committee. Each of the Audit Committee, Compensation Committee and NCG Committee operates pursuant to a charter that was approved by our Board of Directors and that is reviewed and reassessed at least annually. A copy of each of these charters is available on our website at http://www.bostonproperties.com under the heading “Corporate Governance.” Our Board of Directors may from time to time establish other special or standing committees to facilitate the management of Boston Properties or to discharge specific duties delegated by the full Board of Directors.

The membership and the function of each of the Audit Committee, Compensation Committee and NCG Committee, and the number of meetings each held during 2018, are described below.

 

Audit Committee

 

 

 

Members:

 

David A. Twardock (Chair)*

Karen E. Dykstra*

Martin Turchin

 

Number of Meetings in 2018: 8

 

*Our Board of Directors determined that each of Ms. Dykstra and Mr. Twardock qualifies as an “audit committee financial expert” as that term is defined in the rules of the SEC.

  

 

 

The Audit Committee’s responsibilities include:

 

   sole authority to appoint, retain, terminate and determine the compensation of our independent registered public accounting firm;

 

   reviewing with our independent registered public accounting firm the scope and results of the audit engagement;

 

   approving professional services provided by our independent registered public accounting firm;

 

   reviewing the independence of our independent registered public accounting firm;

 

   overseeing the planning and conduct of our annual risk assessment;

 

   evaluating the Company’s internal audit function and reviews the internal audit plan; and

 

   performing such other oversight functions as may be requested by our Board of Directors from time to time.

 

Each member of the Audit Committee is “independent” as that term is defined in the rules of the Securities and Exchange Commission (“SEC”) and the NYSE.

 

For additional disclosures regarding the Audit Committee, including the Audit Committee Report, see “Proposal 4: Ratification of Appointment of Independent Registered Public Accounting Firm” beginning on page 101.

 

 

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Compensation Committee

 

 

 

Members:

 

Carol B. Einiger (Chair)

Kelly A. Ayotte*

Bruce W. Duncan

David A. Twardock

 

Number of Meetings in 2018: 10

 

*Sen. Ayotte was appointed to the Compensation Committee on May 23, 2018.

  

 

 

The Compensation Committee’s responsibilities include:

 

   reviewing and approving the corporate goals and objectives relevant to the compensation of the Chief Executive Officer and certain designated senior executive officers;

 

   evaluating the performance of the Chief Executive Officer and designated senior executive officers in light of such goals and objectives and determines and approves compensation of these officers based on such evaluation;

 

   reviewing and approving the compensation of other executive officers;

 

   reviewing and approving grants and awards under all incentive-based compensation plans and equity-based plans;

 

   reviewing and making recommendations to the full Board of Directors regarding the compensation of non-employee directors; and

 

   performing other functions and duties deemed appropriate by our Board of Directors.

 

None of the members of the Compensation Committee is an employee of Boston Properties and each of them is an independent director under the NYSE rules.

 

The Compensation Committee makes all compensation decisions for all executive officers. With respect to compensation decisions relating to executive officers other than the Chief Executive Officer, the Compensation Committee takes into consideration recommendations made by the Chief Executive Officer and/or the President. Decisions regarding the non-equity compensation of other officers and employees are made by the Chief Executive Officer and the President and reviewed with the Compensation Committee. The Compensation Committee reviews and approves all equity awards for all employees although it has delegated limited authority to the Chief Executive Officer to make equity grants to employees who are not executive officers.

 

In 2018, the Compensation Committee engaged FPL Associates L.P. (“FPL”) to assist the committee in determining the amount and form of executive compensation. Information concerning the nature and scope of FPL’s assignments and related disclosures is included under “Compensation Discussion and Analysis” beginning on page 38. We have concluded that the work of FPL did not raise any conflict of interest.

 

The Compensation Committee Report is included in this proxy statement on page 69.

 

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Nominating and Corporate Governance Committee

 

 

 

Members:

 

Matthew J. Lustig (Chair)

Kelly A. Ayotte*

Bruce W. Duncan*

Jacob A. Frenkel

 

Number of Meetings in 2018: 4

 

*Sen. Ayotte and Mr. Duncan were appointed to the NCG Committee on May 23, 2018.

  

 

 

The NCG Committee’s responsibilities include:

 

   identifying individuals qualified to become Board members, consistent with criteria established by the NCG Committee, and recommending to the Board director nominees for election at each annual meeting of stockholders;

 

   establishing a policy with regard to the consideration by the NCG Committee of director candidates recommended by securityholders;

 

   establishing procedures to be followed by securityholders submitting such recommendations and establishing a process for identifying and evaluating nominees for the Board of Directors, including nominees recommended by securityholders; and

 

   performing such other functions as may be requested by our Board of Directors from time to time.

 

The NCG Committee is also responsible for annually reviewing our Corporate Governance Guidelines and recommending any changes to the Board of Directors. These Corporate Governance Guidelines provide that the NCG Committee, together with our Chief Executive Officer, is responsible for coordinating succession planning by the Board of Directors. A copy of the Corporate Governance Guidelines is available on our website at http://www.bostonproperties.com under the heading “Corporate Governance” and subheading “Governance Guidelines.”

 

Each member of the NCG Committee is an independent director under the NYSE rules.

BOARD’S ROLE IN RISK OVERSIGHT

Our Board of Directors plays an important role in the risk oversight of Boston Properties. Our Board of Directors is involved in risk oversight through direct decision-making authority with respect to significant matters and the oversight of management by our Board of Directors and its committees. In particular, our Board of Directors administers its risk oversight function through:

 

   

the review and discussion of regular periodic reports to our Board of Directors and its committees on topics relating to the risks that Boston Properties faces, including, among others:

 

  Ø   

market conditions;

 

  Ø   

tenant concentrations and credit worthiness;

 

  Ø   

leasing activity and expirations;

 

  Ø   

the status of current and anticipated development projects;

 

  Ø   

compliance with debt covenants;

 

  Ø   

management of debt maturities;

 

  Ø   

access to debt and equity capital markets;

 

 

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  Ø   

existing and potential legal claims against Boston Properties;

 

  Ø   

potential cyber attacks and intrusions; and

 

  Ø   

various other matters relating to Boston Properties’ business;

 

   

the required approval by our Board of Directors (or a committee thereof) of significant transactions and other decisions, including, among others:

 

  Ø   

acquisitions and dispositions of properties;

 

  Ø   

development projects, new borrowings; and

 

  Ø   

the appointment and retention of Boston Properties’ senior management;

 

   

the direct oversight of specific areas of Boston Properties’ business by the Audit, Compensation and NCG Committees; and

 

   

regular periodic reports from Boston Properties’ independent registered public accounting firm and other outside consultants regarding various areas of potential risk, including, among others, those relating to the qualification of Boston Properties as a real estate investment trust (“REIT”) for tax purposes and Boston Properties’ internal control over financial reporting.

Our Board of Directors also relies on management to bring significant matters impacting Boston Properties to its attention.

Pursuant to the Audit Committee’s charter, the Audit Committee is specifically responsible for discussing the guidelines and policies that govern the process by which Boston Properties’ exposure to risk is assessed and managed by management. As part of this process, the Audit Committee oversees the planning and conduct of an annual risk assessment that is designed to identify and analyze risks to achieving Boston Properties’ business objectives. The results of the risk assessment are then discussed with management and used to develop Boston Properties’ annual internal audit plan. In addition, as one component of Boston Properties’ anti-fraud program, Boston Properties, under the supervision of the Audit Committee, established a hotline that is available for the anonymous and confidential submission of complaints relating to any matter to encourage the reporting of questionable activities directly to our senior management and the Audit Committee (see “– Communications with the Board” below).

Because of the role of our Board of Directors in the risk oversight of Boston Properties, our Board of Directors believes that any leadership structure that it adopts must allow it to effectively oversee the management of the risks relating to Boston Properties’ operations. Our Board of Directors recognizes that there are different leadership structures that could allow it to effectively oversee the management of the risks relating to Boston Properties’ operations, and while our Board believes its current leadership structure enables it to effectively manage such risks, it was not the primary reason our Board of Directors selected its current leadership structure over other potential alternatives. See the discussion under the heading “– Board Leadership” above for a discussion of why our Board of Directors has determined that its current leadership structure is appropriate.

DIRECTOR INDEPENDENCE

Under the rules of the NYSE, a majority of the Board of Directors must qualify as “independent directors.” To qualify as an “independent director,” the Board of Directors must affirmatively determine that the director has no material relationship with us (either directly or as a partner, stockholder or officer of an organization that has a relationship with us). Our Board of Directors established categorical standards to assist it in making the required independence determinations.

 

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Under these categorical standards, any relationship with us shall be deemed not material if:

 

1.

The relationship does not preclude a finding of independence under Sections 303A.02(b) of the NYSE Listed Company Manual (the “NYSE Disqualifying Rules”);

 

2.

The relationship does not involve any of the following, whether currently existing or occurring since the end of the last fiscal year or during the past three fiscal years:

 

  (a)

a director being an executive officer of, or owning, or having owned, of record or beneficially in excess of ten percent (10%) equity interest in, any business or professional entity that has made during any of such fiscal years, or proposes to make during the Company’s current fiscal year, payments to the Company, an executive officer of the Company or an entity controlled by an executive officer of the Company for property or services in excess of five percent (5%) of: (i) the Company’s consolidated gross revenues for such fiscal year (or, in the case of proposed payments, its last fiscal year), or (ii) the other entity’s consolidated gross revenues for such fiscal year (or, in the case of proposed payments, its last fiscal year);

 

  (b)

a director being an executive officer of, or owning, or having owned, of record or beneficially in excess of ten percent (10%) equity interest in, any business or professional entity to which the Company, an executive officer of the Company or an entity controlled by an executive officer of the Company has made during any of such fiscal years, or proposes to make during the Company’s current fiscal year, payments for property or services in excess of five percent (5%) of: (i) the Company’s consolidated gross revenues for such fiscal year (or, in the case of proposed payments, its last fiscal year), or (ii) the other entity’s consolidated gross revenues for such fiscal year (or, in the case of proposed payments, its last fiscal year);

 

  (c)

a director or an immediate family member of the director being an officer, director or trustee of a charitable organization where the annual discretionary charitable contributions of the Company, an executive officer of the Company or an entity controlled by an executive officer of the Company in any single year to the charitable organization exceeded the greater of $1 million or two percent (2%) of that organization’s consolidated gross revenues for the fiscal year;

 

  (d)

a director or an immediate family member of a director being indebted to the Company, an executive officer of the Company or an entity controlled by an executive officer of the Company in an amount in excess of $120,000;

 

  (e)

a director being an executive officer, partner or greater than 10% equity owner of an entity, or being a trustee or a substantial beneficiary of a trust or estate, indebted to the Company, an executive officer of the Company or an entity controlled by an executive officer of the Company in an amount in excess of the greater of $120,000 or 5% of such entity’s total consolidated assets, or to whom the Company or an entity controlled by an executive officer of the Company is indebted (other than with respect to (i) any publicly traded debt securities of the Company or such entity or (ii) non-recourse loans secured by real estate where both the lender and the Company or such entity intend for the lender to transfer all right to, and control over, the loan within 12 months and the documentation includes customary provisions for loans targeted at the commercial mortgage backed securities (CMBS) or collateralized debt obligation (CDO) markets) in an amount in excess of 5% of the Company’s or such entity’s total consolidated assets;

 

  (f)

a transaction or currently proposed transaction (other than relating to the ownership of securities), which involved or involves the direct or indirect payment in a single year of in excess of $120,000 from the Company, an executive officer of the Company or an entity controlled by an executive officer of the Company to a director or an immediate family member of a director;

 

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  (g)

a director or an immediate family member of a director being an executive officer, general or managing partner or owner of more than 10% of the outstanding equity securities of an entity that has a co-investment or is a joint venture partner with the Company where the amount of the entity’s equity investment in any single year exceeds the greater of $1 million or 2% of the total consolidated assets of the entity; or

 

  (h)

a director or an immediate family member of a director being an executive officer, general or managing partner or owner of more than 10% of the outstanding equity securities of an entity (other than the Company) in which an executive officer of the Company or an entity controlled by an executive officer of the Company is an executive officer, general or managing partner or owner of more than 10% of the outstanding equity securities of the entity.

For purposes of these standards, “immediate family” member has the same meaning as in the NYSE Disqualifying Rules.

Relationships not specifically deemed not material by the above categorical standards may, in the Board’s judgment, be deemed not to be material.

The Board of Directors concluded that Mses. Ayotte, Dykstra, Einiger and Hoskins and Messrs. Duncan, Frenkel, Klein, Lustig, Turchin, Twardock and Walton qualify as independent directors under NYSE rules because none of them (1) has any relationships that would disqualify him or her from being considered independent under the minimum objective standards contained in the NYSE rules or (2) has any relationships other than those deemed to be immaterial under the categorical standards adopted by the Board of Directors. In determining that each of Ms. Ayotte and Messrs. Duncan and Twardock qualified as an independent director for purposes of his or her service on the Compensation Committee, our Board considered that (1) each serves or previously served as a non-employee director for a company with which Boston Properties has a commercial relationship or engaged in transactions in the ordinary course of business, (2) each transaction was on arms’-length terms and the director had no direct or indirect involvement in the transaction, and (3) the director had no pecuniary interest in the success of the transaction.

CONSIDERATION OF DIRECTOR NOMINEES

Securityholder Recommendations

The NCG Committee’s current policy is to review and consider any director candidates who have been recommended by securityholders in compliance with the procedures established from time to time by the NCG Committee. All securityholder recommendations for director candidates must be submitted to our Secretary at Boston Properties, Inc., 800 Boylston Street, Suite 1900, Boston, Massachusetts 02199-8103, who will forward all recommendations to the NCG Committee. We did not receive any securityholder recommendations for director candidates for election at the 2019 annual meeting in compliance with the procedures set forth below. All securityholder recommendations for director candidates for election at the 2020 annual meeting of stockholders must be submitted to our Secretary on or before December 7, 2019 and must include the following information:

 

   

the name and address of record of the securityholder;

 

   

a representation that the securityholder is a record holder of our securities, or if the securityholder is not a record holder, evidence of ownership in accordance with Rule 14a-8(b)(2) under the Securities Exchange Act of 1934;

 

   

the name, age, business and residential address, educational background, current principal occupation or employment, and principal occupation or employment for the preceding five (5) full fiscal years of the proposed director candidate;

 

   

a description of the qualifications and background of the proposed director candidate which addresses the minimum qualifications and other criteria for Board membership as approved by the Board from time to time;

 

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a description of all arrangements or understandings between the securityholder and the proposed director candidate;

 

   

the consent of the proposed director candidate (1) to be named in the proxy statement relating to our annual meeting of stockholders and (2) to serve as a director if elected at such annual meeting; and

 

   

any other information regarding the proposed director candidate that is required to be included in a proxy statement filed pursuant to the rules of the SEC.

Board Membership Criteria

The NCG Committee has established criteria for NCG Committee-recommended director nominees. These criteria include the following specific, minimum qualifications that the NCG Committee believes must be met by an NCG Committee-recommended nominee for a position on the Board:

 

   

the candidate must have experience at a strategic or policymaking level in a business, government, non-profit or academic organization of high standing;

 

   

the candidate must be highly accomplished in his or her respective field, with superior credentials and recognition;

 

   

the candidate must be well regarded in the community and must have a long-term reputation for high ethical and moral standards;

 

   

the candidate must have sufficient time and availability to devote to our affairs, particularly in light of the number of boards on which the nominee may serve;

 

   

the candidate’s principal business or occupation must not be such as to place the candidate in competition with us or conflict with the discharge of a director’s responsibilities to us and our stockholders; and

 

   

to the extent the candidate serves or has previously served on other boards, the candidate must have a history of actively contributing at board meetings.

In addition to the minimum qualifications for each nominee set forth above, the NCG Committee will recommend director candidates to the full Board for nomination, or present director candidates to the full Board for consideration, to help ensure that:

 

   

a majority of the Board of Directors will be “independent” as defined by the NYSE rules;

 

   

each of its Audit, Compensation and NCG Committees will be comprised entirely of independent directors; and

 

   

at least one member of the Audit Committee will have such experience, education and other qualifications necessary to qualify as an “audit committee financial expert” as defined by the rules of the SEC.

Finally, in addition to any other standards the NCG Committee may deem appropriate from time to time for the overall structure and composition of the Board, the NCG Committee may consider the following factors when recommending director candidates to the full Board for nomination, or presenting director candidates to the full Board for consideration:

 

   

whether the candidate has direct experience in the real estate industry or in the markets in which we operate; and

 

   

whether the candidate, if elected, assists in achieving a mix of Board members that represents a diversity of background and experience.

 

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Identifying and Evaluating Nominees

The NCG Committee may solicit recommendations for director nominees from any or all of the following sources: non-management directors, the Chief Executive Officer, other executive officers, third-party search firms or any other source it deems appropriate.

The NCG Committee will review and evaluate the qualifications of any proposed director candidate that it is considering or has been recommended to it by a securityholder in compliance with the NCG Committee’s procedures for that purpose, and conduct inquiries it deems appropriate into the background of these proposed director candidates. In identifying and evaluating proposed director candidates, the NCG Committee may consider, in addition to the minimum qualifications for NCG Committee-recommended director nominees, all facts and circumstances that it deems appropriate or advisable, including, among other things, the skills of the proposed director candidate, his or her depth and breadth of business experience, his or her independence and the needs of our Board. Neither the NCG Committee nor the Board has a specific policy with regard to the consideration of diversity in identifying director nominees, although both may consider diversity when identifying and evaluating proposed director candidates. As noted above, the NCG Committee, when recommending director candidates to the full Board for nomination, may consider whether a director candidate, if elected, assists in achieving a mix of Board members that represents a diversity of background and experience. Other than circumstances in which we may be legally required by contract or otherwise to provide third parties with the ability to nominate directors, the NCG Committee will evaluate all proposed director candidates that it considers or who have been properly recommended to it by a securityholder based on the same criteria and in substantially the same manner, with no regard to the source of the initial recommendation of the proposed director candidate.

PROXY ACCESS BY-LAW PROVISIONS

Our By-laws include a proxy access right for stockholders, pursuant to which a stockholder, or group of no more than five stockholders, meeting specified eligibility requirements, may include director nominees in our proxy materials for annual meetings of our stockholders. In order to be eligible to utilize these proxy access provisions, a stockholder, or group of stockholders, must, among other requirements:

 

   

have owned shares of common stock equal to at least 3% of the aggregate of the issued and outstanding shares of common stock continuously for at least the prior three years;

 

   

represent that such shares were acquired in the ordinary course of business and not with the intent to change or influence control and that such stockholder or group does not presently have such intent; and

 

   

provide a notice requesting the inclusion of director nominees in our proxy materials and provide other required information to us not less than 120 days prior to the anniversary of the date of the proxy statement for the prior year’s annual meeting of stockholders (with adjustments if the date for the upcoming annual meeting of stockholders is more than 30 days before or more than 60 days after the anniversary date of the prior year’s annual meeting).

For purposes of the foregoing requirements, issued and outstanding common units, other than those owned by us, our Operating Partnership or any of their directly or indirectly wholly owned subsidiaries and excluding issued and outstanding long term incentive units, will be treated as issued and outstanding shares of common stock.

Additionally, all director nominees submitted through these provisions must be independent and meet specified additional criteria, and stockholders will not be entitled to utilize this proxy access right at an

 

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annual meeting if we receive notice through our traditional advanced notice by-law provisions that a stockholder intends to nominate a director at such meeting. The maximum number of director nominees that may be submitted pursuant to these provisions may not exceed 25% of the number of directors then in office.

The foregoing proxy access right is subject to additional eligibility, procedural and disclosure requirements set forth in our By-laws.

CODE OF BUSINESS CONDUCT AND ETHICS AND OTHER POLICIES

Code of Business Conduct and Ethics

Our Board of Directors adopted a Code of Business Conduct and Ethics (the “Code of Ethics”), which governs business decisions made and actions taken by our directors, officers and employees. A copy of this Code of Ethics is available on our website at http://www.bostonproperties.com under the heading “Corporate Governance” and subheading “Code of Conduct and Ethics.” We intend to disclose on this website any amendment to, or waiver of, any provision of this Code of Ethics applicable to our directors and executive officers that would otherwise be required to be disclosed under the rules of the SEC or the NYSE rules.

Corporate Governance Guidelines

Our Board of Directors adopted Corporate Governance Guidelines, a copy of which is available on our website at http://www.bostonproperties.com under the heading “Corporate Governance” and subheading “Governance Guidelines.”

Policy on Company Political Spending

Our Board of Directors adopted a Policy on Company Political Spending, a copy of which is available on our website at http://www.bostonproperties.com under the heading “Corporate Governance” and subheading “Policy on Political Spending.”

COMMUNICATIONS WITH THE BOARD

Stockholders and other interested parties who wish to communicate with any of our directors or the Board of Directors as a group, may do so by writing to them at Name(s) of Director(s)/Board of Directors of Boston Properties, Inc., c/o Compliance Officer, Boston Properties, Inc., 800 Boylston Street, Suite 1900, Boston, Massachusetts 02199-8103.

Stockholders and other interested parties who wish to contact the Audit Committee to report complaints or concerns regarding accounting, internal accounting controls or auditing matters, may do so by:

 

   

following any of the “Procedures for Submission of Complaints under the Audit Committee Complaint Procedures” that are attached as Exhibit 1 to our Code of Ethics (see “– Code of Business Conduct and Ethics and Other Policies – Code of Business Conduct and Ethics” above), or

 

   

writing to the Chair of the Audit Committee of Boston Properties, Inc., c/o Compliance Officer, Boston Properties, Inc., 800 Boylston Street, Suite 1900, Boston, Massachusetts 02199-8103.

You are welcome to make any such reports anonymously, but we prefer that you identify yourself so that we may contact you for additional information if necessary or appropriate.

 

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CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS

 

Stockholders and other interested parties who wish to communicate with our non-management directors as a group, may do so by writing to Non-Management Directors of Boston Properties, Inc., c/o Compliance Officer, Boston Properties, Inc., 800 Boylston Street, Suite 1900, Boston, Massachusetts 02199-8103.

We recommend that all correspondence be sent via certified U.S. mail, return receipt requested. All correspondence received by the Compliance Officer will be forwarded by the Compliance Officer promptly to the addressee(s).

 

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At the annual meeting, directors shall be elected to hold office for a one-year term expiring at the 2020 annual meeting of stockholders or until his or her successor is duly elected and qualified, or until his or her earlier resignation or removal. Following the recommendation of the NCG Committee, our Board of Directors has nominated Kelly A. Ayotte, Bruce W. Duncan, Karen E. Dykstra, Carol B. Einiger, Diane J. Hoskins, Joel I. Klein, Douglas T. Linde, Matthew J. Lustig, Owen D. Thomas, David A. Twardock and William H. Walton, III for election. Each nominee other than Ms. Hoskins and Mr. Walton is currently serving as a director of Boston Properties. In making its recommendations, the NCG Committee considered a number of factors, including its criteria for Board membership, which include the minimum qualifications that must be possessed by a director candidate in order to be nominated for a position on our Board. Our Board of Directors anticipates that, if elected, the nominees will serve as directors. However, if any person nominated by our Board of Directors is unable to serve or for good cause will not serve, the proxies will be voted for the election of such other person as our Board of Directors may recommend.

VOTE REQUIRED

Our By-laws provide for a majority voting standard. This means that, in an uncontested election, nominees for director are elected if the votes cast for such nominee’s election exceed the votes cast against such nominee’s election. The majority voting standard would not apply in contested elections, which, generally, will include any situation in which Boston Properties receives a notice that a stockholder has nominated a person for election to our Board of Directors at a meeting of stockholders that is not withdrawn on or before the tenth day before Boston Properties first mails its notice for such meeting to the stockholders.

The majority voting standard will apply to the election of directors at the 2019 annual meeting of stockholders. Accordingly, nominees for director will be elected if the votes cast for such nominee’s election exceed the votes cast against such nominee’s election. Broker non-votes, if any, and abstentions will not be treated as votes cast.

Our Board of Directors has also adopted a resignation policy, included in our Corporate Governance Guidelines, under which a director who fails to receive the required number of votes for re-election will tender his or her resignation to our Board of Directors for its consideration. The NCG Committee will act on an expedited basis to determine whether it is advisable to accept the director’s resignation and will submit the recommendation for prompt consideration by our Board of Directors. Our Board of Directors will act on the tendered resignation within 90 days following certification of the stockholder vote and will promptly and publicly disclose its decision. The director whose resignation is under consideration will abstain from participating in any decision regarding his or her resignation. If the resignation is not accepted, the director will continue to serve until the next annual meeting of stockholders and until the director’s successor is duly elected and qualified or until the director’s earlier resignation or removal. The NCG Committee and our Board of Directors may consider any factors they deem relevant in deciding whether to accept a director’s resignation.

 

The Board of Directors unanimously recommends a vote FOR each of its nominees, Kelly A. Ayotte, Bruce W. Duncan, Karen E. Dykstra, Carol B. Einiger, Diane J. Hoskins, Joel I. Klein, Douglas T. Linde, Matthew J. Lustig, Owen D. Thomas, David A. Twardock, and William H. Walton, III. Properly authorized proxies solicited by the Board of Directors will be voted FOR each of the nominees unless instructions to the contrary are given.

 

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INFORMATION REGARDING THE NOMINEES AND EXECUTIVE OFFICERS

Summary of Board Nominee Experience and Skills

In addition to the minimum qualifications that our Board of Directors believes are necessary for all directors, the following chart highlights certain skills and experience that are relevant to our long-term strategy and therefore relevant when considering candidates for election to our Board. A mark for an attribute indicates that the nominee gained the attribute through a current or prior position other than his or her service on the Boston Properties Board of Directors. Our Board did not assign specific weights to any of these attributes or otherwise formally rate the level of a nominee’s attribute relative to the rating for any other potential nominee. The absence of a mark for an attribute does not necessarily mean that the nominee does not possess that attribute; it means only that when the Board considered that nominee in the overall context of the composition of our Board of Directors, that attribute was not a key factor in the determination to nominate that individual. Further information on each nominee’s qualifications and relevant experience is provided in the individual biographies that follow the chart.

 

 Experience/Skills

 

Ayotte

 

Duncan

 

Dykstra

 

Einiger

 

Hoskins

 

Klein

 

Linde

 

Lustig

 

Thomas

 

Twardock

 

Walton  

 Strategic Planning and Leadership

 

 

 

 

 

 

 

 

 

 

 

 CEO/Executive Management

   

 

 

 

 

 

 

 

 

 

 Risk Oversight

 

 

 

 

 

 

 

 

 

 

 

 REITs/Real Estate

   

     

   

 

 

 

 

 Asset Management

   

 

 

     

 

 

 

 

 Capital Markets/ Investment Banking

   

 

 

     

 

 

 

 

 Other Public Company Board Experience

 

 

 

 

   

   

 

   

 Government/Public Policy

 

         

         

 International

 

 

 

 

 

 

   

 

 

 

 Financial Literacy

 

 

 

 

 

 

 

 

 

 

 

 Technology Industry

 

   

   

 

         

 Corporate Governance

 

 

   

 

 

 

 

 

 

 

 Sustainability

 

       

   

   

   

 Talent Management

 

 

 

 

 

 

 

 

 

 

 

 

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Nominees for Election

The following biographical descriptions set forth certain information with respect to the nominees for election as directors at the annual meeting and the executive officers who are not directors, based on information furnished to Boston Properties by each nominee and executive officer. Each executive officer holds office until the regular meeting of the Board of Directors following the next annual meeting of stockholders and until his or her successor is duly elected and qualified, or until his or her earlier resignation or removal.

The biographical description below for each nominee includes the specific experience, qualifications, attributes and skills that led to the conclusion by our Board of Directors that such person should serve as a director of Boston Properties.

 

LOGO

 

 

 

Senator Kelly A. Ayotte

 

 

Independent

 

Director since May 2018

 

Age 50

 

 

Board Committees

Compensation

Nominating and Corporate Governance

 

Senator Ayotte has significant legal experience and experience in government and public affairs, as well as leadership and strategic planning skills.

 

Senator Ayotte represented New Hampshire in the United States Senate from 2011-2016, where she chaired the Armed Services Subcommittee on Readiness and the Commerce Subcommittee on Aviation Operations. She also served on the Budget, Homeland Security and Governmental Affairs, Small Business and Entrepreneurship, and Aging Committees. From 2004-2009, Senator Ayotte served as New Hampshire’s first female Attorney General having been appointed to that position by Republican Governor Craig Benson and reappointed twice by Democratic Governor John Lynch. Prior to that, she served as the Deputy Attorney General, Chief of the Homicide Prosecution Unit and as Legal Counsel to Governor Craig Benson. She began her career as a law clerk to the New Hampshire Supreme Court and as an associate at the McLane Middleton law firm.

 

Senator Ayotte serves on the boards of Caterpillar Inc., News Corporation, BAE Systems, Bloom Energy Corporation and Blink Health LLC, and the advisory boards of Microsoft Corporation, Chubb Insurance and Cirtronics Corporation. Senator Ayotte is a Senior Advisor for Citizens for Responsible Energy Solutions. She also serves on the non-profit boards of the One Campaign, the International Republican Institute, the McCain Institute, Swim with a Mission and Veterans Count of New Hampshire. In 2017, Senator Ayotte was a joint visiting fellow at the Harvard Institute of Politics and the Belfer Center for Science and International Affairs. In 2018, she was a visiting fellow at the University of Chicago’s Institute of Politics and the Perkins Bass Distinguished Visitor at Dartmouth College. She also is a member of the Aspen Institute’s Economic Strategy and Homeland Security groups and serves on the Board of Advisors for the Center on Military and Political Power at the Foundation for Defense of Democracies.

 

Senator Ayotte graduated with honors from the Pennsylvania State University and received a JD from the Villanova University School of Law.

 

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LOGO  

 

Bruce W. Duncan

 

 

Independent

 

Director since May 2016

 

Age 67

 

 

Board Committees

Compensation

Nominating and Corporate Governance

 

Mr. Duncan has more than 30 years of diverse real estate management and investment experience, including as a chief executive officer and a director of other publicly traded companies.

 

Mr. Duncan serves as Chairman of the Board of Directors of First Industrial Realty Trust, Inc. (“First Industrial”), a REIT that engages in the ownership, management, acquisition, sale, development and redevelopment of industrial real estate properties. Mr. Duncan has served as a director of First Industrial since January 2009 and as its Chairman of the Board since January 2016. He previously served as President and Chief Executive Officer of First Industrial from January 2009 until he stepped down as President in September 2016 and retired as Chief Executive Officer in November 2016. Mr. Duncan has been a senior advisor to Kohlberg Kravis Roberts & Co. (“KKR”), a global investment firm, since November 2018.

 

Previously, Mr. Duncan served as Chairman of the Board of Directors of Starwood Hotels & Resorts Worldwide, Inc. (“Starwood”), a leading worldwide hotel and leisure company, from May 2005 until its acquisition by Marriott International, Inc. in September 2016. Mr. Duncan currently serves as a director of Marriott International, Inc., the world’s largest hotel company. Since September 2013, Mr. Duncan has also served as a director of the T. Rowe Price Mutual Funds. From April 2007 to September 2007, Mr. Duncan served as Chief Executive Officer of Starwood on an interim basis. Mr. Duncan served as a director of Starwood since 1999 and served on its Corporate Governance and Nominating Committee. Mr. Duncan also served as a Trustee of Starwood Hotels & Resorts, a real estate investment trust and former subsidiary of Starwood, from 1995 to 2006. He also was a senior advisor to KKR, from July 2008 until January 2009. He was a private investor from January 2006 to January 2009. From March 2002 to December 2005, Mr. Duncan held various positions at Equity Residential (“EQR”), one of the largest publicly traded apartment REITs in the United States. In particular, from May 2005 to December 2005, Mr. Duncan was Chief Executive Officer and a Trustee of EQR, from January 2003 to May 2005, he was President, Chief Executive Officer and a Trustee of EQR and from March 2002 to December 2002 he was President and a Trustee of EQR. From December 1995 until March 2000, Mr. Duncan served as Chairman, President and Chief Executive Officer of Cadillac Fairview Corporation, one of North America’s largest owners and developers of retail and office properties.

 

Mr. Duncan is a Life Trustee of Rush University Medical Center in Chicago, and is on the Board of Governors of the Investment Company Institute (ICI) and is on the Governing Board of the Independent Directors Council (IDC). He previously served on the Advisory Board of Governors of Nareit, the Executive Committees of the Board of the Canadian Institute for Public Real Estate Companies (CIPREC) and the National Multi-Housing Council (NMHC). He also previously served on the Board of Directors of The Rouse Company, a diversified commercial real estate firm, and as a Trustee of the International Council of Shopping Centers (ICSC).

 

Mr. Duncan received a BA in Economics from Kenyon College and an MBA in Finance from the University of Chicago.

 

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LOGO  

 

Karen E. Dykstra

 

 

Independent

 

Director since May 2016

 

Age 60

 

 

Board Committees

Audit

 

Ms. Dykstra has extensive strategic, management, financial, accounting and oversight experience, particularly with companies in the technology sector.

 

Ms. Dykstra served as Chief Financial and Administrative Officer of AOL, Inc., a global media technology company, from November 2013 until July 2015 and as Chief Financial Officer of AOL, Inc. from September 2012 until November 2013. From January 2007 until December 2010, Ms. Dykstra was a Partner of Plainfield Asset Management LLC (“Plainfield”), and she served as Chief Operating Officer and Chief Financial Officer of Plainfield Direct Inc., Plainfield’s business development company, from May 2006 to 2010, and as a director from 2007 to 2010. Prior to joining Plainfield, she spent over 25 years with Automatic Data Processing, Inc., serving most recently as Chief Financial Officer from January 2003 to May 2006, and as Vice President – Finance, Corporate Controller and in other capacities.

 

Ms. Dykstra currently serves on the Board of Directors of Gartner, Inc. and VMware, Inc. Ms. Dykstra is a former director of Crane Co. and AOL, Inc.

 

Ms. Dykstra received a BA in Accounting from Rider University and an MBA from Fairleigh Dickinson University.

 

LOGO  

 

Carol B. Einiger

 

 

Independent

 

Director since May 2004

 

Age 69

 

 

Board Committees

Compensation (Chair)

 

Ms. Einiger has more than 40 years of experience as an investment banker and investment advisor, during which time she has gained significant expertise in the operation of public and private debt and equity capital markets and the evaluation of investment opportunities.

 

Ms. Einiger has been President of Post Rock Advisors, LLC, a private investment firm, since July 2018. From January 2017 to June 2018, she served as Senior Advisor of Roundtable Investment Partners LLC, a registered investment advisory firm. From 2005 to 2016, she was founder and President of Post Rock Advisors, LLC. From 1996 to 2005, she served as Chief Investment Officer of The Rockefeller University, where she was responsible for the management of the University’s endowment. Ms. Einiger began her investment career in 1971 at Goldman, Sachs & Co. and worked at The First Boston Corporation from 1973 to 1988, becoming Managing Director and Head of the Capital Markets Department; from 1988 to 1989 as Visiting Professor and Executive-in-Residence at Columbia Business School; and from 1989 to 1992 as Managing Director at Wasserstein Perella & Co. From 1992 to 1996, Ms. Einiger served as Chief Financial Officer and then Acting President of the Edna McConnell Clark Foundation, before joining The Rockefeller University.

 

Ms. Einiger is a Director and member (and former Chair) of the Investment Committee of UJA-Federation of New York, a member of the Investment Committee of the JPB Foundation, and a member of the Board of Overseers of Columbia Business School. She previously served on the Boards of Trustees and Investment Committees of the University of Pennsylvania, the Lasker Foundation and the Horace Mann School; as Vice Chair of the Investment Committee of The Museum of Modern Art; as

 

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a Director of Credit Suisse First Boston (USA) and The New York Stem Cell Foundation; and on the Advisory Board of Blackstone Alternative Asset Management. Ms. Einiger is the recipient of numerous awards, including the Alumni Award of Merit of the University of Pennsylvania, the Columbia Business School Distinguished Alumna Award, the AJC National Human Relations Award, the Anti-Defamation League Woman of Achievement Award and the Catalyst Award for Corporate Leadership.

 

Ms. Einiger received her BA from the University of Pennsylvania and her MBA with honors from Columbia Business School.

 

LOGO

 

 

 

Diane J. Hoskins

 

 

Independent

 

Director Nominee

 

Age 61

 

    

 

Ms. Hoskins has more than 30 years of architecture, design, real estate, and business experience, including as a chief executive officer of a global brand. During this time, she has gained extensive leadership, strategic planning, and organizational development experience, as well as a deep understanding of markets and clients.

 

Ms. Hoskins has been the Co-CEO of M. Arthur Gensler Jr. & Associates, Inc. (“Gensler”), the world’s largest architecture, design, and planning firm since 2005, and Chair of the Gensler Board of Directors since 2018. She has broad responsibility for managing Gensler, overseeing the company’s global platform and its day-to-day operations, which spans over 6,000 employees networked across 48 offices in the Americas, Europe, Asia, and the Middle East. She founded the Gensler Research Institute to generate new knowledge and develop a deeper understanding of the connection between design, business, and the human experience. Ms. Hoskins has held various positions at Gensler since 1995, including Southeast Regional Managing Principal and Managing Director of the Washington, DC office.

 

Previously, Ms. Hoskins was Senior Vice President of Epstein Architecture and Engineering from 1990 to 1994, Development Analyst at Olympia & York from 1987 to 1990, Architect Designer at Gensler from 1983 to 1985 and Architect at Skidmore Owings & Merrill from 1980 to 1983.

 

Ms. Hoskins is a member of the World Economic Forum’s Global Future Council on Cities & Urbanization, and the CEO Initiative by Fortune and Time. She is a Fellow of the American Institute of Architects and member of several organizations, including the D.C. Board of Trade and the Economic Club of Washington, DC. She is on the Visiting Committee of the School of Architecture at the Massachusetts Institute of Technology (MIT) and serves on the University of California, Los Angeles (UCLA) Anderson School of Management Board of Advisors. Ms. Hoskins has been honored by several organizations for her work, including the Spirit of Life Award from City of Hope and the Outstanding Impact Award from the Council of Real Estate Women. In 2016, she was inducted into the Washington Business Hall of Fame and, along with her Co-CEO, were ranked on the Business Insider’s 100 “Creators” list, a who’s who of the world’s 100 top creative visionaries. Ms. Hoskins is sought after by the media to share her expertise in many top tier media outlets, including The New York Times, Harvard Business Review, Fortune, Financial Times, Bloomberg TV, and global architecture and design trade publications. She is a frequent speaker at premier conferences, including the Bloomberg Business/CEO Summit, the Economist Human Potential Conference, and the Wall Street Journal Future of Cities Conference.

 

 

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Ms. Hoskins graduated from MIT and holds an MBA from the Anderson Graduate School of Management at UCLA.

 

LOGO

 

 

 

Joel I. Klein

 

 

Independent

 

Director since January 2013

 

Age 72

 

  Lead Independent Director

 

Mr. Klein has worked for more than 40 years in private industry and government during which time he has gained significant experience in senior policy making and executive roles, as well as a broad range of legal matters.

 

Mr. Klein is the Chief Policy and Strategy Officer of Oscar Health Corporation, a health insurance company. In addition, he has been a Director of News Corporation since January 2011 where he was also Executive Vice President, Office of the Chairman of News Corporation and Chief Executive Officer of Amplify, the education division of News Corporation, from January 2011 through December 2015.

 

From 2002 through 2010, Mr. Klein was Chancellor of the New York City Department of Education where he oversaw a system of over 1,600 schools with 1.1 million students, 136,000 employees and a $22 billion budget. He was the U.S. Chairman and Chief Executive Officer of Bertelsmann, Inc. and Chief U.S. Liaison Officer to Bertelsmann AG, a media company, from 2001 to 2002. Mr. Klein also served with the Clinton administration in a number of roles, including Assistant U.S. Attorney General in charge of the Antitrust Division of the U.S. Department of Justice from 1997 until 2000 and Deputy White House Counsel to President Clinton from 1993 to 1995. Mr. Klein entered the Clinton administration after 20 years of public and private legal work in Washington, DC.

 

Mr. Klein serves on the Boards of Teach for America, The Foundation for Excellence in Education (ExcelinEd), and StudentsFirstNY. He is also Co-Chair of the Zuckerman Mind Brain Behavior Institute and is on the Advisory Board of Columbia College.

 

Mr. Klein received a BA with honors from Columbia University and a JD with honors from Harvard Law School. He has also received honorary degrees from ten colleges and universities.

 

LOGO

 

 

 

Douglas T. Linde

 

 

Director since January 2010

 

Age 55

 

   

 

Mr. Linde serves as President of Boston Properties, Inc. Prior to his appointment to this position in May 2007, he served as Executive Vice President since January 2005 and he also served as Chief Financial Officer and Treasurer from 2000 until November 2007. He joined Boston Properties in January 1997 as Vice President of Acquisitions and New Business to help identify and execute acquisitions and to develop new business opportunities and was promoted to Senior Vice President for Financial and Capital Markets in October 1998.

 

 

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Prior to joining Boston Properties, Mr. Linde served from 1993 to 1997 as President of Capstone Investments, a Boston real estate investment company. From 1989 to 1993, he served as Project Manager and Assistant to the Chief Financial Officer of Wright Runstad and Company, a private real estate developer in Seattle, WA. He began his career in the real estate industry with Salomon Brothers’ Real Estate Finance Group.

 

Mr. Linde is a Trustee of the Beth Israel Lahey Health Board of Trustees. Mr. Linde is a Director Emeritus of the Board of Directors of Beth Israel Deaconess Medical Center (“BIDMC”) and co-chairs the BIDMC capital campaign. He is a member of the Real Estate Roundtable and serves as a director of the Boston Municipal Research Bureau and Jobs for Massachusetts. Mr. Linde also serves on the Urban Studies and Planning Visiting Committee at MIT and is a member of the Wesleyan University Board of Trustees.

 

Mr. Linde received a BA from Wesleyan University and an MBA from Harvard Business School.

 

LOGO

 

 

 

 

Matthew J. Lustig

 

 

Independent

 

Director since January 2011

 

Age 58

 

 

Board Committees

Nominating and Corporate Governance (Chair)

 

Mr. Lustig has worked for more than 35 years in the real estate industry, during which time he has gained extensive experience providing strategic and financial advice and transaction execution to clients, and investing in real estate companies and assets as a principal.

 

Mr. Lustig has been Head of North America Investment Banking at Lazard Frères & Co. (“Lazard”), the investment bank, since 2012, and he is also Head of Real Estate & Lodging at Lazard, a position he has held for more than 20 years. He is responsible for managing Lazard’s broad investment banking businesses in North America, as well as serving clients and running its Real Estate and Lodging industry group. In recent years, he has played an active role in more than $300 billion of advisory assignments and transactions involving leading real estate and lodging companies in the public and private markets. Mr. Lustig separately served previously as Chief Executive Officer of the real estate investment business of Lazard and its successors, and oversaw multiple funds with over $2.5 billion of equity capital invested in REITS and real estate operating companies.

 

Mr. Lustig is a member of the Board of Directors at Ventas, Inc. and had served as the Chairman of Atria Senior Living Group, Inc., which was acquired by Ventas in May 2011. He has also served as a director of several other public and private fund portfolio REITs and companies.

 

Mr. Lustig is a member of the Real Estate Roundtable, the Urban Land Institute, and the Pension Real Estate Association (former Board and Executive Committee member) as well as the Real Estate centers at the business schools of Wharton/UPenn (Chairman of the Advisory Board) and Columbia University. He is also a member of the Council on Foreign Relations and serves on the Board of Advisors at the School of Foreign Service at Georgetown University from which he graduated with a BSFS.

 

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LOGO

 

 

 

Owen D. Thomas

 

 

Director since April 2013

 

Age 57

 

   

 

Mr. Thomas has served as our Chief Executive Officer since April 2, 2013. Mr. Thomas served as Chairman of the Board of Directors of Lehman Brothers Holdings Inc. (“LBHI”) from March 2012 until March 2013 and continues to serve as a member of the Board of Directors of LBHI.

 

From 1987 until 2011, Mr. Thomas held various positions at Morgan Stanley, including Chief Executive Officer of Morgan Stanley Asia Ltd., President of Morgan Stanley Investment Management, Head of Morgan Stanley Real Estate and Managing Director. Mr. Thomas was also a member of Morgan Stanley’s Management Committee from 2005 to 2011. He is a Director of the University of Virginia Investment Management Company, a director of the Urban Land Institute, an officer and a member of the Executive Board of Nareit, a director of the Real Estate Roundtable and the former Chairman of the Pension Real Estate Association.

 

Mr. Thomas received a BS in Mechanical Engineering from the University of Virginia and an MBA from Harvard Business School.

 

 

LOGO

 

 

David A. Twardock

 

 

Independent

 

Director since May 2003

 

Age 61

 

 

Board Committees

Audit (Chair)

Compensation

 

Mr. Twardock has more than 30 years of experience in the real estate finance industry, during which time he has overseen the lending and asset management of billions of dollars of commercial mortgages and other real estate debt financing and the management and disposition of billions of dollars of real estate equity.

 

From December 1998 to March 2013, Mr. Twardock was the President of Prudential Mortgage Capital Company, LLC, the real estate finance affiliate of Prudential Financial, Inc., which had more than $70 billion in assets under management and administration as of December 31, 2012 and annually lent billions of dollars in real estate debt financing. From 1982 to December 1998, Mr. Twardock held numerous positions relating to real estate equity and debt with Prudential, including his position from 1996 to November 1998 as Senior Managing Director of Prudential Realty Group.

 

Mr. Twardock serves on the advisory boards of Blue Vista Capital Management and LBA Realty and served on the Board of Directors of Morgan Stanley Bank, N.A. from 2015 through 2018. Mr. Twardock is a member of the Urban Land Institute and the Economics Club of Chicago. Mr. Twardock previously served as a director of the Real Estate Roundtable and Chairman of the Real Estate Roundtable Capital Markets Committee.

 

Mr. Twardock received a BS in Civil Engineering from the University of Illinois and an MBA in Finance and Behavioral Science from the University of Chicago.

 

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LOGO

 

 

 

William H. Walton, III

 

 

Independent

 

Director Nominee

 

Age 67

 

 

    

 

Mr. Walton has 40 years of real estate investment, development and management experience, as well as executive leadership experience having served in various roles and as a director of several public and private companies.

 

Mr. Walton is co-founder and managing member of Rockpoint Group, LLC (“Rockpoint”), a global real estate investment management firm. Mr. Walton is responsible for the overall operations and management of Rockpoint, as well as overseeing the origination, structuring and asset management of all of Rockpoint’s investment activities. In 1994, Mr. Walton also co-founded Westbrook Real Estate Partners, LLC (“Westbrook”), a similar real estate investment management firm. Since 1994, the Rockpoint founding managing members have invested in approximately $60 billion of real estate.

 

Prior to co-founding Westbrook, Mr. Walton was a managing director in the real estate group of Morgan Stanley & Co., Inc., which he joined in 1979.

 

Mr. Walton is involved with several real estate industry organizations and serves on the boards of Crow Holdings, a privately owned real estate and investment firm, and FRP Holdings, Inc., a company engaged in the real estate business. He is a former trustee of Corporate Office Properties Trust and a former director of Florida Rock Industries and The St. Joe Company. Mr. Walton also serves as a director or trustee of several non-profit organizations, with a particular interest in educational entities, including the American Enterprise Institute, the Jacksonville University Public Policy Institute, KIPP Jacksonville Schools, Mpala Wildlife Foundation and the University of Florida Investment Corporation, and previously served on the boards of Communities in Schools, the Episcopal School of Jacksonville, Princeton University and Princeton University Investment Company.

 

Mr. Walton received an AB from Princeton University and an MBA from Harvard Business School.

Executive Officers who are not Directors

Raymond A. Ritchey serves as Senior Executive Vice President. Prior to his appointment to this position in January 2016, Mr. Ritchey served as Executive Vice President, Head of our Washington, DC Office and National Director of Acquisitions and Development since April 1998 and Senior Vice President and Co-Manager of our Washington, DC office. Mr. Ritchey is responsible for all business development, leasing and marketing, as well as new opportunity origination in the Washington, DC area. He also directly oversees similar activities on a national basis. Mr. Ritchey joined us in 1980, leading our expansion to become one of the dominant real estate firms in the Washington, DC metropolitan area. For four years prior to joining us, Mr. Ritchey was one of the leading commercial real estate brokers in the Washington, DC area with Coldwell Banker. Mr. Ritchey is the President of the Board of Spanish Education Development (SED) Center; a member of the Federal City Council; a member of The Economic Club of Washington; Founding member of the National Association of Industrial and Office Properties (NAIOP), Northern Virginia; Chair of the JDRF Real Estate Games; and an active volunteer with numerous civic, charitable, and real estate industry organizations. A sampling of Mr. Ritchey’s professional honors include: ULI Lifetime Achievement Award; Man of the Year, CREW; Brendan McCarthy Award, GWCAR; Good Scout of the Year, Boy Scouts; Trendsetter of the Year, Transwestern; Developer of the Year (numerous organizations); and Junior Achievement Man of the Year. He is a graduate of the U.S. Naval Academy and a graduate of the U.S. Naval Post Graduate School in Monterey, California. He is 68 years old.

 

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PROPOSAL 1: ELECTION OF DIRECTORS

 

Michael E. LaBelle serves as Executive Vice President, Chief Financial Officer and Treasurer. Prior to his appointment to this position in January 2016, Mr. LaBelle served as Senior Vice President, Chief Financial Officer and Treasurer since November 2007 and he also served as Senior Vice President, Finance from February 2005 to November 2007. In his current role, Mr. LaBelle oversees the finance, accounting, tax, information systems, internal audit and investor relations departments and is also responsible for capital raising, treasury management, credit underwriting, financial strategy and planning. Prior to joining us in March 2000, Mr. LaBelle held the position of Vice President & Relationship Manager with Fleet National Bank for nine years with the responsibility of financing large-scale commercial real estate developments. He started his career as an Associate National Bank Examiner with the Office of the Comptroller of the Currency in New York City specializing in commercial real estate debt portfolio analysis and valuation in commercial banks located throughout the Mid-Atlantic and Northeastern United States. Mr. LaBelle is on the National Advisory Board for the University of Colorado Real Estate Center. Mr. LaBelle holds a BS degree in Economics from the University of Colorado. He is 54 years old.

Peter D. Johnston serves as Executive Vice President, Washington, DC Region. Prior to his appointment to this position in January 2016, Mr. Johnston served as Senior Vice President and Regional Manager of our Washington, DC office. He is in charge of all operations including project development, leasing, construction, property management and administrative activities for our Washington, DC office, with a staff of approximately 181 people. Mr. Johnston joined the Company in 1987. In 1989 he was promoted to Project Manager, with subsequent promotions in 1991 to Vice President and in 1997 to Senior Vice President. In 2003 he was appointed head of the development team in the Washington, DC Region and held this position until his promotion in September 2005 to the position of Regional Manager. Mr. Johnston has been responsible for more than eight million square feet of new development and renovation projects. He is a past member of the board of directors of the Northern Virginia Chapter of NAIOP. Mr. Johnston received a BA in Business Administration from Roanoke College, an MA from Hollins College and an MBA from the University of Virginia. He is 60 years old.

Bryan J. Koop serves as Executive Vice President, Boston Region. Prior to his appointment to this position in January 2016, Mr. Koop served as Senior Vice President and Regional Manager of our Boston office since 1999. Mr. Koop is responsible for overseeing the operation of our existing regional portfolio in the Boston area, which includes the Prudential Center and Kendall Center. He is also responsible for developing new business opportunities in the area. Prior to joining us in 1999, Mr. Koop served at Trammell Crow Company from 1982 to 1999 where his career covered high-rise office building leasing and the development of commercial office buildings and shopping centers. From 1993 to 1999, his position was Managing Director and Regional Leader for Trammell Crow Company’s New England region, which included all commercial office and shopping center operations. Mr. Koop is a member of the Board of Directors for the Massachusetts Chapter of NAIOP, the Boston Green Ribbon Commission and the Kendall Square Association and previously served as chairman of the Back Bay Association. Mr. Koop received a BBA and an MBA from Texas Christian University. He is 60 years old.

Robert E. Pester serves as Executive Vice President, San Francisco Region. Prior to his appointment to this position in January 2016, Mr. Pester served as Senior Vice President and Regional Manager of our San Francisco office since 1998. Mr. Pester is responsible for overseeing existing operations in San Francisco and our other Bay Area properties on the Peninsula and in Silicon Valley, and developing new business opportunities in the area. Prior to joining us in 1998, he served as Executive Vice President and Chief Investment Officer of Bedford Property Investors, a real estate investment trust in Lafayette, CA, where he led the acquisitions and development program. Prior to 1994, he was President of Bedford Property Development, a private West Coast development concern that held more than $2 billion in real estate assets. From 1980 to 1989, he was a leading commercial real estate broker with Cushman & Wakefield in northern California, where he last served as Vice President. He is a graduate of the University of California at Santa Barbara with a BA in Economics and Political Science. He is 62 years old.

 

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PROPOSAL 1: ELECTION OF DIRECTORS

 

John F. Powers serves as Executive Vice President, New York Region. He oversees all aspects of our New York and Princeton, New Jersey activities, including development, acquisitions, leasing and building operations. Prior to joining us on January 2, 2014 as Senior Vice President and Regional Manager of our New York office, he served from 2004 as Chairman of CBRE, Inc. for the New York Tri-State Region overseeing the strategic direction of CBRE’s Tri-State operations. He joined the Edward S. Gordon Company, which was subsequently merged into CBRE, in 1986 after working eight years at Swiss Bank Corp (now UBS). At ESG, he developed and managed the Consulting Division into a strong and integral part of the firm’s service delivery platform, which facilitated its sustained leadership in the Manhattan office leasing market. He also brokered millions of square feet of transactions, representing both tenants and landlords, led numerous strategic consulting assignments for large corporate occupiers and advised on many ground-up developments. He is a frequent speaker on commercial real estate in New York valued for his insight linking economic trends and conditions to their eventual impact on the office market. Mr. Powers is chairman of Right to Dream, Inc. He received a BA in Mathematics from St. Anselm College, an MA in Economics from the University of Massachusetts and an MBA from the University of Massachusetts. He also studied international economics at the Graduate Institute of International Studies, Geneva. He is 72 years old.

Frank D. Burt serves as Senior Vice President, Chief Legal Officer and Secretary, positions he has held since 2003. He is responsible for overseeing the legal and risk management departments. Mr. Burt has served in various capacities since he joined us in 1986, and he represented us in the acquisition of the Prudential Center in Boston and the Embarcadero Center in San Francisco, as well as in the development activities at the Prudential Center. He previously worked in the real estate department at Nutter, McClennen & Fish in Boston. Mr. Burt is a member of the American College of Real Estate Lawyers and the Boston Bar Association and a speaker for the American College of Real Estate Lawyers, the Association of Corporate Counsel, Massachusetts Continuing Legal Education, NAIOP and Nareit. Mr. Burt received a BA, magna cum laude, from Brown University and a JD, cum laude, from the University of Pennsylvania Law School. He is 60 years old.

Michael R. Walsh serves as Senior Vice President, Chief Accounting Officer. He is responsible for overseeing financial reporting, property accounting and tax compliance and is also responsible for providing transactional support on capital markets activity. Prior to his appointment to this position in May 2016, Mr. Walsh served as Executive Vice President, Chief Financial Officer and Treasurer of Paramount Group, Inc. (“Paramount”), a real estate investment trust focused on Class A office properties in New York City, Washington, DC and San Francisco, from March 2015 to March 2016. Before joining Paramount, Mr. Walsh was a Senior Vice President, Finance and Capital Markets at Boston Properties where he served in various capacities since 1986, and was most recently responsible for overseeing its accounting, financial reporting, financial analysis and tax functions and participated extensively in investor relations matters. Mr. Walsh received a BS, magna cum laude, from Eastern Nazarene College. He is 52 years old.

 

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Table of Contents

PRINCIPAL AND MANAGEMENT STOCKHOLDERS

 

The table below shows the amount of common stock of Boston Properties, Inc. and units of partnership interest in our Operating Partnership beneficially owned as of February 1, 2019 by:

 

   

each director;

 

   

each nominee for director;

 

   

each of our named executive officers (“NEOs”);

 

   

all directors, nominees for director and executive officers of Boston Properties as a group; and

 

   

each person known by Boston Properties to be the beneficial owner of more than 5% of our outstanding common stock.

On February 1, 2019, there were:

 

  (1)

154,500,220 shares of our common stock outstanding;

 

  (2)

16,791,376 common units of partnership interest in our Operating Partnership (“common units”) outstanding (other than the common units held by Boston Properties), each of which is redeemable for one share of Boston Properties’ common stock (if Boston Properties elects to issue common stock rather than pay cash upon such redemption);

 

  (3)

1,145,303, long term incentive units of partnership interest in our Operating Partnership (“LTIP units”) outstanding that were issued as part of our long-term incentive (“LTI”) program, excluding LTIP units issued pursuant to 2016 Multi-Year Long-Term Incentive Program (“MYLTIP”) awards, 2017 MYLTIP awards and 2018 MYLTIP awards, each of which, upon the satisfaction of certain conditions, is convertible into one common unit; and

 

  (4)

75,512 deferred stock units outstanding.

All references in this proxy statement to LTIP units exclude LTIP units issued pursuant to 2016 MYLTIP awards, 2017 MYLTIP awards and 2018 MYLTIP awards because the three-year performance periods of these awards had not ended by February 1, 2019. LTIP units issued pursuant to 2016 MYLTIP awards, 2017 MYLTIP awards and 2018 MYLTIP awards are collectively referred to herein as “Performance Awards.” None of our directors or NEOs beneficially owns preferred units or shares of our preferred stock.

 

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PRINCIPAL AND MANAGEMENT STOCKHOLDERS

 

    Common Stock      Common
Stock and Units
 
Name and Address of Beneficial Owner*  

Number of

Shares

Beneficially

Owned(1)

   

Percent of

Common

Stock(2)

    

Number of

Shares

and Units

Beneficially

Owned(1)

   

Percent of

Common

Stock and

Units(3)

 

Directors, Nominees for Director and Named Executive Officers

        

Kelly A. Ayotte(4)

 

 

 

 

 

**

 

  

 

1,047

 

 

 

**

 

Bruce W. Duncan(5)

 

 

 

 

 

**

 

  

 

3,110

 

 

 

**

 

Karen E. Dykstra(6)

 

 

4,537

 

 

 

**

 

  

 

5,062

 

 

 

**

 

Carol B. Einiger(7)

 

 

17,930

 

 

 

**

 

  

 

24,050

 

 

 

**

 

Jacob A. Frenkel(8)

 

 

1,013

 

 

 

**

 

  

 

8,492

 

 

 

**

 

Diane J. Hoskins

 

 

 

 

 

**

 

  

 

 

 

 

**

 

Joel I. Klein(9)

 

 

5,080

 

 

 

**

 

  

 

10,290

 

 

 

**

 

Douglas T. Linde(10)

 

 

288,013

 

 

 

**

 

  

 

474,826

 

 

 

**

 

Matthew J. Lustig(11)

 

 

6,058

 

 

 

**

 

  

 

14,126

 

 

 

**

 

Owen D. Thomas(12)

 

 

63,399

 

 

 

**

 

  

 

244,682

 

 

 

**

 

Martin Turchin(13)

 

 

26,241

 

 

 

**

 

  

 

29,299

 

 

 

**

 

David A. Twardock(14)

 

 

33,442

 

 

 

**

 

  

 

33,442

 

 

 

**

 

William H. Walton, III

 

 

 

 

 

**

 

  

 

 

 

 

**

 

Raymond A. Ritchey(15)

 

 

96,802

 

 

 

**

 

  

 

456,462

 

 

 

**

 

Michael E. LaBelle(16)

 

 

29,258

 

 

 

**

 

  

 

114,509

 

 

 

**

 

Bryan J. Koop(17)

 

 

25,509

 

 

 

**

 

  

 

82,769

 

 

 

**

 

All directors and executive officers as a group (19 persons)(18)

 

 

671,972

 

 

 

**

 

  

 

1,702,415

 

 

 

**

 

5% Holders

        

The Vanguard Group(19)

 

 

19,920,963

 

 

 

12.89%

 

  

 

19,920,963

 

 

 

11.55%

 

BlackRock, Inc.(20)

 

 

16,120,682

 

 

 

10.43%

 

  

 

16,120,682

 

 

 

9.34%

 

Norges Bank (The Central Bank of Norway)(21)

 

 

10,634,382

 

 

 

6.88%

 

  

 

10,634,382

 

 

 

6.16%

 

State Street Corporation(22)

 

 

8,711,108

 

 

 

5.64%

 

  

 

8,711,108

 

 

 

5.05%

 

 

*

Unless otherwise indicated, the address is c/o Boston Properties, Inc., 800 Boylston Street, Suite 1900, Boston, Massachusetts 02199-8103.

 

**

Less than 1%.

 

(1)

The number of shares of common stock “beneficially owned” by each beneficial owner is determined under rules issued by the SEC regarding the beneficial ownership of securities. This information is not necessarily indicative of beneficial ownership for any other purpose. “Number of Shares Beneficially Owned” includes (a) shares of common stock that may be acquired upon the exercise of options that are exercisable on or within 60 days after February 1, 2019 and (b) the number of shares of common stock issuable to directors upon settlement of deferred stock units. The “Number of Shares and Units Beneficially Owned” includes all shares included in the “Number of Shares Beneficially Owned” column plus the number of shares of common stock for which common units and LTIP units may be redeemed (assuming, in the case of LTIP units, that they have first been converted into common units). Under the limited partnership agreement of the Operating Partnership, the holders of the common units and LTIP units (assuming conversion in full into common units, as applicable) have the right to redeem the units for cash or, at our option, shares of common stock, subject to certain conditions. Except as otherwise noted, each beneficial owner has sole voting and investment power over the shares and units. Holders of common units, LTIP units and deferred stock units are not entitled to vote such units on any of the matters presented at the 2019 annual meeting.

 

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PRINCIPAL AND MANAGEMENT STOCKHOLDERS

 

(2)

The total number of shares outstanding used in calculating this percentage assumes (a) the exercise of all options to acquire shares of common stock that are exercisable on or within 60 days after February 1, 2019 held by the beneficial owner and that no options held by other beneficial owners are exercised and (b) the conversion into shares of common stock of all deferred stock units held by the beneficial owner and that no deferred stock units held by other beneficial owners are converted.

 

(3)

The total number of shares outstanding used in calculating this percentage assumes (a) that all common units and LTIP units are presented (assuming conversion in full into common units, if applicable) to the Operating Partnership for redemption and are acquired by Boston Properties for shares of common stock, (b) does not separately include outstanding common units held by Boston Properties, as these common units are already reflected in the denominator by the inclusion of all outstanding shares of common stock, (c) the exercise of all options to acquire shares of common stock that are exercisable on or within 60 days after February 1, 2019 held by the beneficial owner and that no options held by other beneficial owners are exercised and (d) the conversion into shares of common stock of all deferred stock units.

 

(4)

Represents 1,047 LTIP units (all of which are subject to vesting).

 

(5)

Represents 3,110 LTIP units (of which 1,047 LTIP units are subject to vesting).

 

(6)

Includes 4,085 shares of common stock held directly (of which 1,047 shares are subject to vesting) and 452 deferred stock units. Also includes, only under the “Number of Shares and Units Beneficially Owned” column, 525 LTIP units.

 

(7)

Represents 17,930 deferred stock units. Also includes, only under the “Number of Shares and Units Beneficially Owned” column, 6,120 LTIP units (of which 1,047 LTIP units are subject to vesting).

 

(8)

Represents 1,013 shares of common stock. Also includes, only under the “Number of Shares and Units Beneficially Owned” column, 7,479 LTIP units (of which 1,047 LTIP units are subject to vesting).

 

(9)

Represents 5,080 deferred stock units. Also includes, only under the “Number of Shares and Units Beneficially Owned” column, 5,210 LTIP units (of which 1,047 LTIP units are subject to vesting).

 

(10)

Includes 182,190 shares of common stock held directly (of which 4,568 shares are subject to vesting), 700 shares of common stock held by Mr. Linde’s spouse, 2,100 shares of common stock held by Mr. Linde’s children, and 103,023 shares of common stock underlying exercisable stock options. Also includes, only under the “Number of Shares and Units Beneficially Owned” column, 186,813 LTIP units (of which 41,832 LTIP units are subject to vesting). Excludes Performance Awards. Mr. Linde has shared voting and dispositive power with respect to 700 shares of common stock.

 

(11)

Represents 6,058 deferred stock units. Also includes, only under the “Number of Shares and Units Beneficially Owned” column, 8,068 LTIP units (of which 1,047 LTIP units are subject to vesting).

 

(12)

Includes 9,117 shares of common stock held directly and 54,282 shares of common stock underlying exercisable stock options. Also includes, only under the “Number of Shares and Units Beneficiary Owned” column, 181,283 LTIP units (of which 71,756 LTIP units are subject to vesting). Excludes Performance Awards.

 

(13)

Includes 3,007 shares of common stock held directly, 200 shares of common stock held by Mr. Turchin’s spouse, 650 shares of common stock held through trusts and 22,384 deferred stock units. Also includes, only under the “Number of Shares and Units Beneficially Owned” column, 3,058 LTIP units (of which 1,047 LTIP units are subject to vesting). Mr. Turchin has shared voting and dispositive power with respect to 650 shares of common stock.

 

(14)

Includes 9,834 shares of common stock held directly (of which 1,047 shares are subject to vesting) and 23,608 deferred stock units.

 

(15)

Represents 96,802 shares of common stock underlying exercisable stock options. Also includes, only under the “Number of Shares and Units Beneficially Owned” column, 99,305 common units held directly, 35,600 common units held by a limited liability company of which Mr. Ritchey is the sole manager and a member, 31,265 common units held by a trust of which Mr. Ritchey is a beneficiary and Mr. Ritchey’s spouse is the sole trustee, and 193,490 LTIP units (of which 3,801 LTIP units are subject to vesting). Excludes Performance Awards.

 

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(16)

Includes 12,921 shares of common stock held directly (of which 6,929 shares are subject to vesting) and 16,337 shares of common stock underlying exercisable stock options. Also includes, only under the “Number of Shares and Units Beneficially Owned” column, 85,251 LTIP units (of which 13,419 LTIP units are subject to vesting). Excludes Performance Awards.

 

(17)

Includes 4,559 shares of common stock held directly and 20,950 shares of common stock underlying exercisable stock options. Also includes, only under the “Number of Shares and Units Beneficially Owned” column, 57,260 LTIP units (of which 14,420 LTIP units are subject to vesting). Excludes Performance Awards.

 

(18)

Includes an aggregate of 286,484 shares of common stock, 309,976 shares of common stock underlying exercisable stock options and 75,512 deferred stock units. Also includes, only under the “Number of Shares and Units Beneficially Owned” column, 184,944 common units and 845,499 LTIP units. See also Notes (4) – (17) above. Excludes Performance Awards.

 

(19)

Information regarding The Vanguard Group (“Vanguard”) is based solely on a Schedule 13G/A filed by Vanguard with the SEC on February 11, 2019. Vanguard’s address is 100 Vanguard Blvd., Malvern, PA 19355. The Schedule 13G/A indicates that Vanguard has sole voting power with respect to 316,389 shares of common stock, shared voting power with respect to 203,394 shares of common stock, sole dispositive power with respect to 19,541,270 shares of common stock and shared dispositive power with respect to 379,693 shares of common stock.

 

(20)

Information regarding BlackRock, Inc. (“BlackRock”) is based solely on a Schedule 13G/A filed by BlackRock with the SEC on January 30, 2019. BlackRock’s address is 55 East 52nd Street, New York, NY 10055. The Schedule 13G/A indicates that BlackRock has sole voting power with respect to 14,777,063 shares of common stock and sole dispositive power with respect to all of the shares of common stock.

 

(21)

Information regarding Norges Bank (The Central Bank of Norway) (“Norges Bank”) is based solely on a Schedule 13G/A filed by Norges Bank with the SEC on January 24, 2019. Norges Bank’s address is Bankplassen 2, PO Box 1179 Sentrum, NO 0107 Oslo, Norway. The Schedule 13G/A indicates that Norges Bank has sole voting and dispositive power with respect to all of the shares of common stock.

 

(22)

Information regarding State Street Corporation (“State Street”) is based solely on a Schedule 13G filed by State Street with the SEC on February 13, 2019. State Street’s address is State Street Financial Center, One Lincoln Street, Boston, MA 02111. The Schedule 13G indicates that State Street has shared voting with respect to 7,866,892 shares of common stock and shared dispositive power with respect to 8,709,669 shares of common stock.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires the executive officers and directors of Boston Properties, and persons who own more than ten percent of a registered class of Boston Properties’ equity securities, to file reports of ownership and changes in ownership with the SEC and the NYSE. Officers, directors and greater than ten percent beneficial owners are required by SEC regulations to furnish Boston Properties with copies of all Section 16(a) forms they file. To our knowledge, based solely on our review of the copies of such reports furnished to us and written representations that no other reports were required during the fiscal year ended December 31, 2018, all Section 16(a) filing requirements applicable to our executive officers, directors and greater than ten percent beneficial owners were timely satisfied.

 

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Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

 

This “Compensation Discussion and Analysis,” or “CD&A,” sets forth our philosophy and objectives regarding the compensation of our named executive officers (“NEOs”), including how we determine the elements and amounts of executive compensation. When we use the term “Committee” in this CD&A, we mean the Compensation Committee of the Board of Directors of Boston Properties, Inc. Our NEOs for 2018 were:

 

   

Owen D. Thomas, Chief Executive Officer

 

   

Douglas T. Linde, President

 

   

Raymond A. Ritchey, Senior Executive Vice President

 

   

Michael E. LaBelle, Executive Vice President, Chief Financial Officer and Treasurer

 

   

Bryan J. Koop, Executive Vice President, Boston Region

 

I.

EXECUTIVE SUMMARY

Introduction

We are the largest publicly-traded developer and owner of Class A office properties in the United States, concentrated in Boston, Los Angeles, New York, San Francisco and Washington, DC. We have a demonstrated history of creating long-term stockholder value in large part because we take on complex, technically challenging development and redevelopment projects, leveraging the skills of our management team to successfully develop and reposition properties that other organizations may not have the expertise, capacity or resources to pursue. Some of our most successful development projects have taken longer than a decade to acquire, obtain permits, construct and lease-up to stabilization. In addition, we seek to sign long-term leases with creditworthy tenants, and we generally seek long-term, fixed-rate financing in order to fix our interest expense and proactively manage our debt maturities. We recognize that our business is thus long-term in nature, and our success requires that we make business decisions with a focus on our long-term objectives, even if they have short-term negative implications.

As a result, our Committee strives to make compensation decisions that reward management for executing our strategy and promoting the best interests of the Company and its stockholders over the long term. Our market focus and strategy for creating long-term value for investors differ from many of our competitors in the office REIT segment, which makes direct comparisons in performance and compensation difficult. We therefore do not rely on a strict formulaic framework for measuring performance against short-term goals to determine compensation awards for a particular year, but instead aim for a balanced quantitative and qualitative approach, as outlined below, that our Committee believes is appropriate to ensure our continued success.

Process for Determining Executive Compensation

For the third year in a row, we received more than 90% stockholder support for our “Say-on-Pay” advisory vote at our annual meeting of stockholders. As a result of this continued support, and based on the overall positive feedback we received in our communications with investors throughout the year, our Committee followed the same general process when setting executive compensation for 2018 as in recent years, which includes:

 

   

using the median (50th percentile) of a peer group of 16 REITs that are constituents of the S&P 500 Index (the “Benchmarking Peer Group”) as the beginning reference point and as an indicator of competitive market trends;

 

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I.    EXECUTIVE SUMMARY

 

   

considering an analysis prepared by FPL Associates L.P. (“FPL”), the Committee’s independent compensation consultant, that benchmarks each executive officer, and the NEOs as a group, against the Benchmarking Peer Group to determine their relative placement with respect to compensation for the prior year;

 

   

assessing performance not only against our own pre-established corporate goals, but also against the same performance metrics for six publicly-traded office REITs that we consider our most directly comparable peers (the “Office Peers”);

 

   

considering total NEO compensation over time, both on an awarded basis and on a realized basis after forfeitures;

 

   

considering projections for compensation increases and decreases among our peers and the market generally, and other input received from FPL; and

 

   

based on the foregoing, establishing a dollar amount for total compensation for each NEO and then allocating it among base salary, cash bonus and long-term incentive (“LTI”) equity awards (including time- based LTI awards and performance-based LTI awards that use relative TSR over overlapping three-year measurement periods as the performance metric, to further align management’s objectives with the interests of our investors).

Rather than relying on a strict formulaic framework, the Committee combines a quantitative and a qualitative assessment against pre-established goals because this approach allows it to:

 

   

evaluate management’s performance annually while taking into account our focus on value creation over the long-term and the difficulty of making precise comparisons to peers with different investment objectives and different strategies (see “– III. Assessing Performance – Focus on Long-Term Value Creation”);

 

   

strike the appropriate balance between short-term objectives and long-term strategies; and

 

   

properly emphasize quantitative results while also considering qualitative factors when assessing management’s performance.

Investor Outreach and Engagement

 

   

We value our relationships with our stockholders and believe it is important to maintain an ongoing dialogue with them throughout the year on a wide range of topics, including our financial and operating performance, compensation practices and ESG. Engaging with our investors helps us to understand how they view us and the topics they deem important.

 

   

In 2018, we undertook a review of our entire approach to our investor relations efforts. This included a review of the department’s needs, as well as those of our investors and analysts. We retained Rivel Research Group to conduct and present to our Board the results of a stockholder perception study.

 

   

We hired a new Vice President, Investor Relations to lead our efforts. This is the first time that our head of Investor Relations has held an officer title, which demonstrates the importance management and our Board place on this function. Led by our new Vice President, Investor Relations, we refreshed our overall investor relations approach and substantially increased our efforts to connect with a more diverse range of investors (including non-dedicated real estate investment fund managers and foreign investors).

 

   

We understand the importance of direct and regular access to our executive team. In total, in 2018, our senior management team met with more than 180 actively managed institutional investment firms, including approximately 92 existing stockholders representing almost 50%

 

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COMPENSATION DISCUSSION AND ANALYSIS

I.    EXECUTIVE SUMMARY

 

 

of our total shares outstanding (excluding holdings of passive investors such as index funds), and more than 70 new or prospective investors. These meetings occur at various locations and events, which, in 2018, included:

 

  Ø   

four non-deal roadshows;

 

  Ø   

five industry conferences;

 

  Ø   

37 property tours with investors across our five regions; and

 

  Ø   

an investor-analyst event at our new Salesforce Tower building in San Francisco during Nareit’s REITWorld conference.

2018 Performance Highlights

In addition to management meeting or exceeding the set of corporate goals established at the beginning of the year, as detailed in “– III. Assessing Performance 2018 Corporate Goals” below, highlights of our 2018 performance include the following:

 

LOGO   Ø   leased approximately 7.2 million square feet, the second largest annual total in our history, including 2.0 million square feet for development properties;
   
LOGO   Ø   commenced development of three projects in 2018 totaling approximately 2.0 million square feet that are 80% pre-leased;
   
LOGO   Ø   delivered 2.3 million square feet of new developments representing $1.5 billion (our share) of investment, including Salesforce Tower in San Francisco, which is 100% leased (including leases with future commencement dates);
   
LOGO   Ø   increased diluted FFO per share from $6.22 to $6.30, which includes the unbudgeted loss from early extinguishment of debt of approximately $16.5 million, or $0.10 per share, resulting from the early redemption of our 5.875% unsecured senior notes due 2019; excluding this loss and the impact of unbudgeted acquisitions and dispositions, our FFO per share would have increased by 3.5%;
   
LOGO   Ø   increased our regular quarterly dividend by 18.75% to $0.95 per share of common stock in the third quarter;
   
LOGO   Ø   reduced our future borrowing costs and extended our debt maturities by refinancing $700 million of 5.875% unsecured senior notes that were scheduled to mature in October 2019 with the proceeds from the green bond offering of $1.0 billion of 4.500% unsecured senior notes maturing in December 2028;
   

 

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LOGO   Ø   completed the sale of a total of six non-core assets and assets with lower growth profiles for an aggregate sale price of approximately $492.0 million, including the sale of the ongoing TSA development project in Springfield, Virginia that reduced our future capital needs by an additional $215.6 million, resulting in approximately $708 million of total consideration from dispositions in 2018;
   
LOGO   Ø   ranked in the top 8% of 874 worldwide participants earning a “Green Star” recognition from the Global Real Estate Sustainability Benchmark for the seventh consecutive year; and
   
LOGO   Ø   ranked #5 out of 83 U.S. REITs in Green Street Advisors’ 2018 Corporate Governance rankings.

Highlights of 2018 Compensation Decisions

The Committee concluded that the Company had a very strong year in 2018, noting, in particular, our achievements in leasing, growth in FFO per share, new investments, development activity and dispositions. (See “– III. Assessing Performance 2018 Corporate Goals.”) In light of the quantitative and qualitative assessments of performance relative to the corporate goals, performance against our Office Peers and individual performance, and reported and realized NEO compensation, the Committee determined to award 2018 total compensation for the NEOs, as a group, at a level that, based on advice from FPL, the Committee expects will result in the total compensation awarded to our NEOs ranking at approximately the 60th percentile of our Benchmarking Peer Group.

As part of its benchmarking review, FPL analyzed the allocation between performance-based and time- based LTI equity awards and, for 2018, the Committee determined that it would be advisable to maintain the 50% – 50% mix of performance-based and time-based LTI equity awards that is widely accepted in the market and prevalent among our peers. The precise allocation may vary among different NEOs and from year to year based on circumstances. (See “– V. Alignment of Pay with Performance” beginning on page 58.)

The following are highlights of 2018 compensation:

 

2018 Pay Highlights
CEO:
0%   93%   70%   50%
Change in base salary
between 2016 - 2018
  Amount of pay that is
variable and not
guaranteed
  Amount paid in equity
with remaining 30%
paid in cash
  Amount of total equity
awarded as TSR-based
performance equity
All NEOs (as a group):
0%   91%   62%   50%
Change in base salary
between 2016 - 2018
  Amount of pay that is
variable and not
guaranteed
  Amount paid in equity
with remaining 38%
paid in cash
  Amount of total equity
awarded as TSR-based
performance equity

 

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II.

COMPENSATION GOVERNANCE

The objectives of our executive compensation program are to attract, retain and reward executives who have the motivation, experience and skills to lead the Company and continue our long-term track record of profitability, growth and TSR. The following are the key features of our executive compensation program:

 

     WHAT WE DO
   We use the median (50th percentile) of the Benchmarking Peer Group as the beginning reference point and the Committee then adjusts compensation based on a quantitative and qualitative review of corporate and individual performance.
   The vast majority of total compensation (for 2018, more than 91%) is variable pay (i.e., not guaranteed) and salaries comprise a small portion of each NEO’s total compensation opportunity.
   Variable pay is based on an assessment of annual performance compared to pre-established goals, as well as a comparison of performance against other office-focused REITs in key metrics.
   We align our NEOs with our long-term investors by awarding a significant percentage (approximately 50% in 2018) of equity compensation in the form of multi-year, performance-based equity awards that use relative TSR as the metric.
   We enhance executive officer retention with time-based, multi-year vesting schedules for equity incentive awards granted for prior-year performance.
   We have “double-trigger” vesting for time-based equity incentive awards following a change of control.
   We have a clawback policy that allows for the recovery of previously paid incentive compensation in the event of a financial restatement.
   We have stock ownership guidelines for our executives and directors.
   We engage an independent compensation consultant to advise the Committee.
     WHAT WE DON’T DO
Ð    We do not directly target compensation above the market median (50th percentile) of the Benchmarking Peer Group.
Ð    We do not provide any new executive with tax gross-ups with respect to payments made in connection with a change of control.
Ð    We do not allow hedging or pledging of Company securities.
Ð    We do not encourage unnecessary or excessive risk taking as a result of our compensation policies; incentive compensation is not based on a single performance metric and we do not have guaranteed minimum payouts.
Ð    We do not allow for repricing of stock options.
Ð    We do not rely on a strict formulaic framework for measuring annual performance against goals to determine compensation.
 

 

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III.

ASSESSING PERFORMANCE

Business Strategy

The core elements of our business strategy are:

 

   

to maintain a keen focus on select markets that exhibit the strongest economic growth and investment characteristics over time – currently Boston, Los Angeles, New York, San Francisco and Washington, DC;

 

   

to invest in the highest quality buildings (primarily office) with unique amenities and locations that are able to maintain high occupancy, achieve premium rental rates through economic cycles and that advance our commitment to sustainable development and operations;

 

   

in our core markets, to maintain scale and a full-service real estate capability (development, construction, leasing and property management) to ensure we (1) see all relevant investment deal flow, (2) maintain an ability to execute on all types of real estate opportunities, such as development, repositioning, acquisitions and dispositions, throughout the real estate investment cycle and (3) provide superior service to our tenants;

 

   

to be astute in market timing for investment decisions by developing into economic growth, acquiring properties in times of opportunity and selling assets at attractive prices, resulting in continuous portfolio refreshment;

 

   

to ensure a strong balance sheet to maintain consistent access to capital and the resultant ability to make opportunistic investments; and

 

   

to foster a culture and reputation of integrity, excellence and purposefulness, making us the employer of choice for talented real estate professionals and the counterparty of choice for tenants and real estate industry participants.

Focus on Long-Term Value Creation

Execution of our strategy spans multiple markets with different economic drivers over long periods. Development projects, which are particularly important to our strategy, take time to identify, acquire, permit, construct, lease and stabilize. This strategy of creating value for investors is multifaceted and differs from that of many of our competitors in the office REIT segment, which makes direct comparisons difficult and underlies our less formulaic approach to assessing performance, as contrasted with a purely quantitative “actual versus target” framework.

We manage every aspect of our business with a focus on the long-term, including, among others, developments, redevelopments, leasing, balance sheet management and our employees. To cite one recent example among many, we fully placed in-service our Salesforce Tower development project in San Francisco in the fourth quarter of 2018. Salesforce Tower is an approximately 1,400,000 square foot Class A office skyscraper in the South of Market district of downtown San Francisco, and as of December 31, 2018, was 100% leased (including leases with future commencement dates). Our involvement in the project began with the formation of a joint venture with Hines in 2012, and as of April 1, 2019, we now own 100% of Salesforce Tower. We expect the income from Salesforce Tower to have a significant impact on our results of operations in 2019, which is seven years after our initial involvement; Hines had been involved in the project since 2007. Other successful development projects have taken even longer. For example, it took more than 20 years to acquire, design, permit, construct and lease-up to stabilization 888 Boylston Street in Boston.

Redevelopment and repositioning of existing properties are also important components of maintaining and enhancing the overall quality and long-term value of our portfolio. However, redevelopment and repositioning activities often have a short-term dilutive impact. When we remove from service all or a portion of a property for redevelopment or repositioning, we typically recognize less rental revenue

 

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while the space is vacant. For example, our repositioning activity at One Five Nine East 53rd Street in New York City required that we pay some tenants to terminate their leases. Among other things, this can have a material negative impact on a comparison of our results of operations and funds from operations. However, we absorb the short-term negative impact because we believe investing in our assets to maintain and enhance the quality of our portfolio is in the best interest of stockholders. In addition to maintaining a full-service real estate platform and providing superior service to our tenants, our focus on long-term performance involves management of capital and liquidity, leverage ratios, interest-rate risk, capital commitments and debt maturities to reduce the impact of capital market volatility and provide us with the flexibility to take advantage of opportunities as they arise.

For all these reasons, we look at performance not only for the latest year and on a year-over-year basis, but also with a view to managing compensation to appropriately compensate, incentivize and retain our executives.

Performance Metrics

We focus on key drivers of value creation such as leasing, development activity, new investments, dispositions, growth in FFO per share, same property net operating income (NOI) growth and balance sheet management. While the Committee is aware that different companies may calculate relevant performance metrics differently, particularly non-GAAP financial measures, the Committee finds it useful to compare our performance to what the Office Peers disclose for similar measures, even though information is not always directly comparable among companies.

The Committee believes that internal and external data are important tools in the design and implementation of optimal compensation programs and that benchmarking against peers provides the Committee with a market check of its compensation awards. Different sections of this CD&A discuss in detail the data on which the Committee relied to make sure that different elements of compensation align with our performance. In addition, the Committee utilizes its collective experiences and judgment when establishing the appropriate types and amounts of compensation.

The Committee’s evaluation of our NEOs places strong emphasis on their contributions to overall Company performance because the Committee believes that the NEOs share responsibility for achieving the goals of the Company as a whole, and the goals are set with a view towards how they help achieve the overall long-term strategy by the Board. We also value and seek to reward performance that develops talent at all levels of our organization, promotes our culture of excellence, enhances our reputation and extends our track record of profitability and growth.

Direct Peer Competitors

In addition to assessing our performance against our pre-established internal goals, the Committee also reviews our performance against metrics from other companies to assess our performance relative to our peers’ performance and to ensure the goals are sufficiently challenging. Given our scale, national focus and development skills, we do not have a directly comparable peer in the public market. We often compete with larger, privately-owned and, in some cases, global office development companies for which performance data is not publicly available. In the public market where operating data is available, we assess our specific performance relative to the following six Office Peers (with their total capitalizations as of December 31, 2018 shown in parentheses), some of which we compete with in a single market and some of which do not have development capabilities or pursue significant development strategies.

 

   

Douglas Emmett, Inc. ($10.9 billion)

 

   

JBG Smith Properties ($6.9 billion)

 

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Kilroy Realty Corporation ($9.6 billion)

 

   

Paramount Group, Inc. ($7.3 billion)

 

   

SL Green Realty Corp. ($13.1 billion)

 

   

Vornado Realty Trust ($24.0 billion)

Boston Properties’ total capitalization as of the same date was $32.3 billion (see “– VII. Benchmarking Peer Group and Compensation Advisor’s Role”).

2018 Corporate Goals

In early 2018, the Committee established for management a rigorous set of operational, capital and management goals that the Committee believed challenged management to perform for our investors. We do not have a strictly formulaic framework for measuring annual performance against goals to determine compensation. (See “– III. Assessing Performance” above.) The Committee believes that:

 

   

the focus should be on performance over a time span that is consistent with the different core elements of our long-term strategy for creating value;

 

   

excessive reliance on short-term goals could have negative implications for the execution of our strategy;

 

   

business conditions and unforeseen developments during the year that lead our Board and management to make decisions that impact actual performance against the goals as originally established must be taken into account; and

 

   

calculations that formulaically determine the amount of compensation paid based on performance versus goals may have unintended results.

 

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The table below lists the principal operational and capital goals for 2018 and the Committee’s overall assessment of management’s performance with respect to each denoting whether a goal was “exceeded,” “met” or “not met.” The Committee attributes greater relative importance to certain goals based on what the Committee deems most important in the execution of our strategy in that year. For 2018, the Committee categorized the goals as follows:

 

2018 Goals    Overall Assessment
Primary Goals:   
Leasing    Exceeded
Growth in Diluted FFO per Share    Exceeded
New Investments    Exceeded
Key Leasing NOI Drivers    Met
Development Starts    Exceeded
Development Economics    Met
Secondary Goals:   
Dispositions    Exceeded
Balance Sheet Management/Financings    Exceeded
Development Deliveries    Exceeded
Growth in Same Property NOI    Met
Growth in Same Property NOI – Cash    Met
General & Administrative Expense    Met
Capital Expenditures & Repositioning    Met
Redevelopment    Met
Entitlements    Met
Additional Management Goals:   
Strategic Review    Met
Board Initiatives    Met
Investor Relations    Exceeded
New Markets    Met

Residential

   Met

Primary Goals

 

Ø   

Leasing

Why it is important: We generate revenue and cash primarily by leasing our operating and development properties. When making leasing decisions, we consider, among other things, the creditworthiness of the tenant, the term of the lease, the rental rate to be paid at inception and throughout the lease term, the costs of tenant improvements and other landlord concessions, current and anticipated operating expenses, real estate taxes, overall vacancy, anticipated rollover and expected future demand for the space, the impact of any expansion rights and general economic factors.

Goal: Following our successful leasing activity in 2016 and 2017, we set an even more aggressive leasing goal for 2018 of 6.3 million square feet (of which 4.8 million square feet were in our in-service portfolio and 1.5 million square feet were in our development properties). In addition, we set a goal of achieving 90% - 92% occupancy for our in-service portfolio and proactively managing future lease rollover.

 

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Quantitative Assessment: We exceeded the goal by leasing a total of 7.2 million square feet, or 14.6% of the total square footage in our total portfolio (excluding our residential and hotel properties). Of the total 7.2 million square feet, 5.2 million square feet were leased in our in-service portfolio and 2.0 million square feet were leased in our development portfolio. Also, of the total 7.2 million square feet, 1.8 million square feet of leasing was completed in our New York region, including approximately 529,000 square feet at 399 Park Avenue. The total number of square feet leased at our in-service and development properties was greater than all six of our Office Peers and the total as a percentage of our total portfolio was greater than three of the six Office Peers.

We also met our goal of achieving 90% - 92% occupancy for our in-service portfolio and proactively managed future lease rollover. We accomplished this goal by increasing our in-service occupancy by 70 basis points since December 31, 2017 to 91.4%, which was a greater percentage than three of the six Office Peers. Excluding Salesforce Tower in San Francisco, which was added to our in-service portfolio in the fourth quarter of 2018 at 69.9% occupancy, the occupancy for our in-service portfolio would have been 92.1%, which would have exceeded our occupancy goal. Salesforce Tower is 100% leased (including leases with future commencement dates), and we expect all office tenants to occupy the building by the second half of 2019.

Overall Assessment: Goal exceeded.

 

Ø   

Growth in Diluted FFO per Share

Why it is important: FFO is a non-GAAP financial measure that, when combined with the presentation of required GAAP financial measures, has improved the understanding of operating results of REITs among the investing public and has helped make comparisons of REIT operating results more meaningful. Management generally considers FFO and FFO per share to be useful measures for understanding and comparing our operating results because, by excluding real estate-related depreciation and amortization (which can differ across owners of similar assets in similar condition based on historical cost accounting and useful life estimates), impairment losses on depreciable real estate and gains or losses associated with disposition activities, FFO and FFO per share can help investors compare the operating performance of a company’s real estate across reporting periods and to the operating performance of other companies. Our computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in accordance with the current Nareit definition or that interpret the current Nareit definition differently.

Goal: Our goal was to exceed the midpoint of our guidance range for 2018 for diluted FFO per share of $6.20 to $6.36 (assuming no acquisitions and dispositions). This target range equated to projected growth of 0%-2.3% over 2017.

Quantitative Assessment: Our actual 2018 diluted FFO per share was $6.30, representing 1.3% year-over-year growth in diluted FFO per share, which was greater than one of the five Office Peers that reported year-over-year results. The sixth Office Peer, JBG Smith Properties, did not exist as a public company until mid-2017 and, therefore, year-over-year results are not available. (Refer to pages 100 through 105 of our Annual Report on Form 10-K for information relating to the calculation of FFO and diluted FFO.)

Qualitative Assessment: Our 2018 diluted FFO per share of $6.30 included the unbudgeted loss on extinguishment of debt of $0.10 per share resulting from the early redemption in December 2018 of $700 million of 5.875% unsecured senior notes that were scheduled to mature in October 2019. Excluding this loss and the impact of unbudgeted acquisitions and dispositions, our diluted FFO per share would have been $6.44, or $0.08 greater than the high end of the guidance range set at the beginning of the year, and would have equated to growth of 3.5% over 2017.

 

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Overall Assessment: Goal exceeded.

 

Ø   

New Investments

Why it is important: Active participation in new investments sustains our market-leading position and growth prospects, and new partnerships provide additional sources of capital and validate our strong reputation as a preeminent owner and developer.

Goal: Our goal was to:

 

   

complete the procurement of anchor tenants for office developments in Reston, Virginia;

 

   

secure at least one anchor tenant at certain office developments or buildings in Boston, Cambridge and Washington, DC;

 

   

make select acquisitions depending on market conditions, with a focus on opportunities in the Los Angeles and San Francisco markets; and

 

   

form a joint venture strategy for certain New York City investments.

Quantitative Assessment: In 2018, management completed each component of the goal, successfully securing anchor tenants for four of the Company’s office developments aggregating more than 2.1 million square feet of pre-leasing (subject to certain escrow conditions), consisting of:

 

   

850,000 square feet leased to Fannie Mae in Reston, Virginia;

 

   

440,000 square feet leased to Verizon Communications, Inc. at 100 Causeway Street in Boston, Massachusetts;

 

   

276,000 square feet leased to Leidos Holdings, Inc. in Reston, Virginia; and

 

   

an aggregate of 638,000 square feet leased to Google, LLC in Kendall Center in Cambridge, Massachusetts (which lease is currently in escrow pending satisfaction of certain conditions).

In addition, we significantly grew our footprint in Los Angeles with the acquisition of a 55% interest in Santa Monica Business Park and in the Bay Area with the execution of a 65-year ground lease for land totaling approximately 5.6 acres (with an option to purchase commencing in February 2020) branded as Platform 16 in San Jose, California. In New York City, we established a new partnership through the acquisition of a 25% interest in a development project that could accommodate up to 2.0 million square feet located at 3 Hudson Boulevard, and we entered into a cost-sharing arrangement with an existing joint venture partner for the Metropolitan Transportation Authority (MTA) development project. Overall, for 2018, we invested a greater percentage of our gross asset value than five of the six Office Peers.

Overall Assessment: Goal exceeded.

 

Ø   

Key Leasing NOI Drivers

Why it is important: Our current strategy to drive future growth is to invest primarily in higher yielding new development properties with significant pre-leasing commitments and in redevelopment opportunities, rather than lower yielding acquisitions of stabilized assets for which demand and pricing remain aggressive. Consistent with this strategy, beginning in 2015 we removed all or portions of some of our properties from service for redevelopment or repositioning, despite the near-term dilutive impact. In light of the significant amount of development and redevelopment projects, and the loss of occupancy and the dilutive impact of removing properties from service, management outlined for investors our plan to achieve incremental growth of approximately $366 million (including $256 million from development

 

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properties and $110 million from other key assets) in our share of annualized NOI by 2020. The Key NOI Drivers goal is the primary manner by which the Committee assesses progress against the “bridge” in the years leading up to 2020.

Goal: In addition to the overall leasing goal discussed above, we set specific goals to lease an aggregate of approximately 1.4 million square feet at seven in-service properties and an aggregate of approximately 270,000 square feet at two existing development projects in 2018.

Quantitative Assessment: As of December 31, 2018, we had signed leases for an aggregate of approximately 2.3 million square feet at the seven in-service properties, including more than 740,000 square feet at our Reston Town Center property in Reston, Virginia and approximately 529,000 square feet at 399 Park Avenue in New York City. The 529,000 square feet of leasing at 399 Park Avenue was twice the amount of the goal. Of the seven in-service properties, management only failed to achieve the specific goal for one property and only by approximately 23,000 square feet, but overall, management exceeded the total in-service leasing goal of 1.4 million square feet by 0.9 million square feet.

As of December 31, 2018, we had signed a lease for an aggregate of approximately 195,000 square feet at our One Five Nine East 53rd Street (the low rise portion of 601 Lexington Avenue) in New York City, meeting one of the two existing development projects targeted in the goal. We did not complete any new leasing at the Brooklyn Navy Yard development project in 2018.

Qualitative Assessment: Despite failing to achieve the leasing goals at two of the nine assets targeted by management, the Committee concluded that, taken as a whole, management successfully met this goal by leasing an aggregate of 2.3 million square feet at the nine assets, exceeding the goal by 0.9 million square feet, or 64%.

Overall Assessment: Goal met.

 

Ø   

Development Starts

Why it is important: Development starts are a useful indicator of future external growth, and they help us assess our ability to identify, underwrite and acquire new land parcels and air rights or redevelop existing properties, secure anchor tenants with significant pre-leasing commitments, obtain financing and/or joint venture partners, and commence construction of the building. Our investments in new developments and redevelopments are a product of the execution of our strategy to drive future growth, and the commencement of these projects substantiates our reputation and expertise in this area.

Goal: Our goal was to commence development of 17Fifty Presidents Street, a 276,000 square foot office development, and Reston Gateway, a 1.1 million square foot development, both located in Reston, Virginia.

Quantitative Assessment: We met the goal by commencing the developments of 17Fifty Presidents Street in the first quarter of 2018 and Reston Gateway in the third quarter of 2018. The aggregate budget for both projects is approximately $858.2 million. In addition, management successfully secured Verizon Communications, Inc. as the anchor tenant at 100 Causeway Street in Boston, Massachusetts, the office component of The Hub on Causeway development project that we own in a joint venture with Delaware North Companies, Inc., and commenced development in the third quarter of 2018.

When delivered, we expect these properties will total approximately 2.0 million square feet, which is approximately 0.7 million square feet more than the goal set for 2018. As of December 31, 2018, these three office development projects were 80% pre-leased. Our three development starts have

 

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an aggregate development budget (our share) of approximately $1.1 billion and represent approximately 4.5% of our gross asset value, which percentage is greater than five of the Office Peers.

Overall Assessment: Goal exceeded.

 

Ø   

Development Economics

Why it is important: The success of our development projects and realization of our plans for growth depend on the stabilized unleveraged cash yields we generate.

Goal: Our goal was to deliver three development/redevelopment projects – 191 Spring Street in Lexington, Massachusetts, Proto Kendall Square in Cambridge, Massachusetts and Signature at Reston in Reston, Virginia – on or below budget, which was an aggregate of approximately $429 million.

Quantitative Assessment: The actual cost for all three projects totaled approximately $429 million. The cash-on-cash return for 191 Spring Street was approximately 6.4%, performing in line with management’s expectations. The other two projects – Proto Kendall Square and Signature at Reston – are residential development projects that were 56% and 50% leased, respectively, as of December 31, 2018. Upon stabilization, we expect these residential properties to deliver unleveraged cash-on-cash returns of approximately 5.4% and 6.7%, respectively, both of which are slightly greater than management’s projected returns prior to project commencement. In addition to the three development/redevelopment projects targeted by management, we also fully placed in-service Salesforce Tower in the fourth quarter of 2018, which was 100% leased at December 31, 2018 (including leases with future commencement dates) and also exceeded management’s projected cash-on-cash return for the project.

Overall Assessment: Goal met.

Secondary Goals

 

Ø   

Dispositions

Why it is important: The disposition of non-core assets and assets with lower growth profiles helps to enhance the performance of our remaining portfolio through higher portfolio occupancy and revenue growth. In addition, older buildings require relatively greater operating costs and capital expenditures than new buildings, so we believe a consistent review of the properties in our portfolio and their future growth opportunities is an important component of our overall strategy.

Goal: Our goal was to sell an aggregate of at least $200 million in assets, depending on market conditions, and to specifically sell three of six non-core assets identified by management at the beginning of the year and at least one other asset not identified. The sale of additional assets or development projects to raise capital as needed was also included in the goal.

Quantitative Assessment: During 2018, we completed approximately $492.0 million in sales of six non-core assets or assets with lower growth profiles, including our development project for the TSA in Springfield, Virginia. We sold the TSA development project for approximately $98.1 million, and the buyer assumed the future funding needs to complete the construction. The estimated total project costs, including the land, are approximately $313.7 million. Therefore, the sale of the TSA development project resulted in a significant reduction in our near-term capital needs of approximately $215.6 million. Including this reduction, dispositions in 2018 totaled approximately $708 million of consideration, which represents approximately 2.8% of our gross asset value, and this percentage was greater than two of the six Office Peers.

 

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Overall Assessment: Goal exceeded.

 

Ø   

Balance Sheet Management/Financings

Why it is important: A strong balance sheet and superior access to capital help us minimize debt financing costs, enable us to act quickly on opportunistic investments and better manage our debt maturities to reduce the impact of capital market volatility.

Goal: Our goal was to manage near-term debt maturities and maintain a conservative balance sheet by:

 

   

financing the Hub on Causeway – Residential development project;

 

   

developing a strategy and begin marketing for construction financing for our Marriott Headquarters development project;

 

   

refinancing the loan collateralized by 540 Madison Avenue;

 

   

developing a strategy for refinancing our revolving facility to fund projected development costs;

 

   

evaluating the use and replacement for our delayed draw term loan;

 

   

completing a work-out arrangement with our partner in the Annapolis Junction Building One property; and

 

   

developing a strategy for refinancing the $700 million of our 5.875% unsecured senior notes maturing in October 2019.

Quantitative Assessment: In 2018, management executed our strategy to manage near-term debt maturities and maintain a conservative balance sheet by accomplishing all of the components in this goal. For example, in December 2018, we completed a public “green bond” offering of $1.0 billion in aggregate principal amount of 4.500% unsecured senior notes due 2028. The proceeds of the green bond issuance were initially used to redeem $700 million in aggregate principal amount of our 5.875% unsecured senior notes scheduled to mature in October 2019 and to repay amounts outstanding under our revolving credit facility. This had the effect of reducing our borrowing costs and extending our debt maturities. Also, in 2018, our 50%-50% joint venture that owned Annapolis Junction Building One modified a mortgage loan that was in default and distributed 100% of the interest in the property to our partner, including the assumption by our partner of the mortgage loan. We no longer have an ownership interest in this property.

In addition, we completed significant financings for two of our joint venture properties. In April 2018, a joint venture in which we have a 50% interest obtained construction financing with a total commitment of $180.0 million collateralized by its Hub on Causeway – Residential development project in Boston, bearing interest at a variable rate equal to LIBOR plus 2.00% per annum and maturing in April 2022. Also in April 2018, a joint venture in which we own a 60% interest refinanced a loan secured by interests in 540 Madison Avenue in New York City totaling $120.0 million, bearing interest at a variable rate equal to LIBOR plus 1.10% per annum and maturing in June 2023.

Overall Assessment: Goal exceeded.

 

Ø   

Development Deliveries

Why it is important: Development deliveries measure our ability to execute our development pipeline on time and within budget.

 

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Goal: Our goal was to deliver three development/redevelopment projects – 191 Spring Street, Proto Kendall Square and Signature at Reston – totaling approximately 839,000 square feet with an aggregate development budget of $429 million, which represents 1.8% of our gross asset value.

Quantitative Assessment: We met the goal by fully placing in-service all three development projects on budget and for an aggregate of approximately 855,000 square feet. In addition, we fully placed in-service our Salesforce Tower development project consisting of approximately 1.4 million square feet in San Francisco in the fourth quarter of 2018. In total, the four development projects delivered in 2018 represent an aggregate of 2.3 million square feet, which is greater than all six Office Peers, and 6.0% of our gross asset value, a greater percentage than four of the six Office Peers.

Overall Assessment: Goal exceeded.

 

Ø   

Growth in Same Property NOI

Why it is important: Same Property NOI (excluding termination income) reflects the combined impact of trends in occupancy rates, rental rates and operating costs on an unleveraged basis, providing perspective on the performance of our Same Property portfolio across fiscal periods which are not immediately apparent from net income.

Goal: Our goal for year-over-year growth in our share of Same Property NOI (excluding termination income) was a 0.5% - 2.5% increase.

Quantitative Assessment: We met the goal with a 1.5% increase. The growth in our share of Same Property NOI (excluding termination income) was greater than two of the Office Peers. (Refer to Appendix A to this proxy statement for reconciliations and other information regarding our share of Same Property NOI (excluding termination income) for the fiscal years ended December 31, 2018 and 2017.)

Overall Assessment: Goal met.

 

Ø   

Growth in Same Property NOI – Cash

Why it is important: Same Property NOI – Cash (excluding termination income) allows investors to compare the performance of our Same Property portfolio across periods without taking into account the effects of straight-lining rent, fair value lease revenue, straight-lined ground rent expense and certain lease transaction costs that qualify as rent inducements.

Goal: Our goal for year-over-year growth in our share of Same Property NOI (excluding termination income) – Cash was a 0.5% - 2.5% increase.

Quantitative Assessment: Management achieved the goal with year-over-year growth of 1.3% compared to 2017, which was less than five of the Office Peers that reported year-over-year results for this metric. The sixth Office Peer, JBG Smith Properties did not exist as a public company until mid-2017 and, therefore, year-over-year results for this metric are not available. (Refer to Appendix A to this proxy statement for reconciliations and other information regarding our share of Same Property NOI – Cash (excluding termination income) for the fiscal years ended December 31, 2018 and 2017.)

Overall Assessment: Goal met.

 

Ø   

General and Administrative Expense

Why it is important: To understand our expense base, of which executive compensation is a meaningful line item, our Committee assesses our management of G&A expense by targeting an absolute dollar amount for G&A expense as a percentage of total revenue.

 

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Goal: Our goal was to manage G&A expense (excluding transaction expenses) to an aggregate spend of approximately $117 million, including compensation, benefits and other expenses.

Quantitative Assessment: Our actual 2018 G&A expense was approximately $121.7 million, which represents approximately 4.5% of our total revenue for 2018. This is a smaller percentage of total revenue than five of the six Office Peers.

Overall Assessment: Goal met.

 

Ø   

Capital Expenditures and Repositioning

Why it is important: Consistent with our strategy to create long-term value, we reinvest in our existing properties through capital expenditures to maintain and enhance the overall high quality and value of our assets. This strategy includes thoughtful deliberations by management in selecting certain properties within our portfolio for repositioning to improve the assets’ value and better position them for competition.

Goal: Our goal was to make capital expenditures of up to $166 million, which includes approximately $51 million for repositioning projects.

Quantitative Assessment: Our actual capital expenditures in 2018 were approximately $142 million, representing approximately 0.6% of our gross asset value for 2018, which is a greater percentage of gross asset value than four of the six Office Peers, and $3.16 per square foot, which is greater than three of the six Office Peers.

Overall Assessment: Goal met.

 

Ø   

Redevelopment

Why it is important: Redevelopment of existing properties is important in maintaining the overall high quality of our portfolio of assets, and repositioning properties – e.g., to add amenities, incorporate technology, re-imagine interior spaces or upgrade infrastructure., etc., can better position specific properties to attract certain types of tenants and their workers.

Goal: Our goal was to:

 

   

finalize redevelopment plans for two of our assets;

 

   

commence lobby renovations at Embarcadero Center in San Francisco, California; and

 

   

complete the renovations and redevelopments of three assets.

Quantitative Assessment: In 2018, we finalized redevelopment plans for the two properties identified, which resulted in the commencement of renovations at Embarcadero Center and the sale of 1333 New Hampshire Avenue in Washington, DC. We also completed renovations at two of the three identified assets: 399 Park Avenue in New York City and 100 Federal Street Plaza in Boston, Massachusetts. The other property identified for completion of renovations remains ongoing as the tenant continues to perform tenant work and anticipates opening in early 2019.

Overall Assessment: Goal met.

 

Ø   

Entitlements

Why it is important: Obtaining the necessary entitlements and permits is an essential component to the execution of our development and redevelopment pipeline.

Goal: Our goals were to (1) obtain the remaining entitlements and/or complete the development plans for five projects and (2) advance the development plans for three projects.

 

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Quantitative Assessment: We obtained the necessary entitlements for four of the five projects, including Back Bay Station in Boston, Massachusetts, 2100 Pennsylvania Avenue in Washington, DC, Reston Gateway in Reston, Virginia and 7750 Wisconsin Avenue (Marriott Headquarters) in Bethesda, Maryland, which has commenced development. We did not receive the entitlements for the fifth property – Weston Corporate Center – because the town proposed a new development scheme. In addition, we advanced our development plans at each of the three properties that comprised the goal: Fourth and Harrison in San Francisco, MTA in New York City and 3625-3635 Peterson Way in Santa Clara.

Qualitative Assessment: Management made significant progress in 2018 by securing entitlements for four development projects totaling an aggregate of approximately 3.6 million square feet, and the Committee concluded that the failure to obtain entitlements was the result of the process not being within the control of management. We remain focused on obtaining the remaining entitlements so that we have more control over the timing of when to commence construction of these projects. In light of the entitlements obtained in 2018, the Committee concluded that management met this goal.

Overall Assessment: Goal met.

Additional Management Goals

Our executive officers were also given an additional set of management goals in 2018, as shown on page 46. These additional management goals, by their nature, did not lend themselves to quantitative assessments. The Committee concluded that management satisfied these goals and they were considered as part of the overall qualitative assessment of performance for the year.

 

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IV.

PERFORMANCE-BASED EQUITY AWARDS; THREE-YEAR TSR DRIVES ACTUAL EARNED PAY

Multi-Year Long-Term Incentive Program (MYLTIP)

Management’s performance against operational, capital and management goals drives the Committee’s annual compensation awards. What our NEOs actually earn is driven to a significant extent by our TSR through LTI awards under a rigorous performance-based program (our Multi-Year Long-Term Incentive Program, or “MYLTIP”). MYLTIP awards incorporate a formulaic link to our relative TSR over three-year overlapping measurement periods.

In 2018, the Committee, with the assistance of FPL, undertook a comprehensive review of the MYLTIP plan design with the objective of simplifying the program while maintaining its integrity. Based on this review, the 2019 MYLTIP reflects three key changes as compared to the 2018 MYLTIP:

 

   

the Company’s relative TSR performance will be measured against a single index – the FTSE Russell Nareit Office Index (the “Nareit Office Index”) (which is adjusted to include Vornado Realty Trust because it is one of the six Office Peers despite being categorized as a diversified REIT by FTSE Nareit). After receiving advice from FPL, including the lack of correlation between the Company and the multi-sector Cohen & Steers’ Realty Majors Index (“C&S Index”), the Committee felt that as a pay-for-performance tool the Nareit Office Index is the benchmark that is most relevant to the Company as a measure of performance relative to peers and concluded it should remove the C&S Index as a benchmark index;

 

   

awards are denominated in LTIP units (see “IX. Other Compensation Policies – LTIP Units” on page 65) as the Committee felt that denominating awards in LTIP units allows the value of the awards to fluctuate with the price of the Company’s common stock, which builds further alignment with stockholders; and

 

   

relative TSR will be the sole determinant of how many LTIP units are earned and eligible to vest. The Committee opted to simplify the program by removing both upside and downside modifiers, keeping the focus on relative performance to motivate the Company’s management team. We will continue to analyze market trends in LTI plan design and may consider including modifiers in future years, if appropriate.

For 2019 MYLTIP awards, the number of LTIP units that can be earned, whether in whole, in part or not at all, is based on levels of payout opportunity ranging from zero to 100% of the number of LTIP units initially issued (with target at 50%) on a straight-line basis depending on relative TSR performance compared to the Nareit Office Index (as adjusted) as follows:

 

LOGO

 

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The Committee believes that the new 2019 MYLTIP design provides management with quantifiable incentives that (i) span an appropriate, symmetrical range of relative TSR performance aligned with historical volatility in the REIT sector compared to our actual performance, (ii) will keep our management motivated over the entire three-year measurement period and (iii) reward management within a rigorous pay-for-performance philosophy. Based on advice from FPL, the Committee believes that the 2019 MYLTIP design is competitive as compared with current market practice in the REIT industry for similar plans and provides an appropriate risk-reward trade-off.

Status of MYLTIP Awards

The following summarizes the performance periods and outcomes of our 2013-2016 MYLTIP plans, all of which have ended, and the interim valuations as of December 31, 2018 for our 2017-2018 MYLTIP plans, in each case, based on calculations prepared by Appraisal Economics, Inc., our valuation expert. As shown below, only one plan – the 2013 MYLTIP – ultimately paid out at or above target.

 

LOGO

 

(1) 

All percentages are rounded. The percentages shown for 2017 and 2018 are estimates as of December 31, 2018 based on interim valuations performed by a valuation expert (which could change up or down over the balance of the respective measurement periods).

Reported vs. Realized Pay

The Committee is cognizant that a direct correlation does not exist between the successful execution of our long-term strategy, as demonstrated year after year through the achievement of goals set for management, and our TSR, particularly on a relative basis. This is particularly true when TSR is compared over a limited period of time. For example, for the most recently completed 2016 MYLTIP program, our NEOs, including our CEO, earned 69.5% of the target value for those awards. This result occurred despite management meeting or surpassing its goals.

 

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The following graph shows for our CEO (1) the reported value of the MYLTIP awards as of the respective grant dates, (2) the maximum payout opportunity that could have been earned under each plan based primarily on relative TSR performance, and (3) the actual realized pay for the 2013-2016 MYLTIP awards for which the measurement periods have ended, as well as interim valuations as of December 31, 2018 for the 2017 and 2018 MYLTIP awards:

 

LOGO

 

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V.

ALIGNMENT OF PAY WITH PERFORMANCE

Based on the goal assessments, FPL’s benchmarking analysis and projections for compensation increases and decreases among our peers and the market generally, and other input received from FPL, the Committee decided that 2018 total compensation for the NEOs, as a group, should be set at a level that will result in the total compensation awarded to our NEOs ranking at approximately the 60th percentile of our Benchmarking Peer Group, with a view towards retention and providing incentives aligned with the best long-term interests of the Company and its stockholders.

Variable Pay Mix

For each NEO, the Committee approves the appropriate level and mix of pay based on his role, responsibilities and performance. The Committee believes that our executive compensation is well- aligned with our stockholders’ interests and in line with the Benchmarking Peer Group. Variable pay, consisting of LTI equity awards and annual cash bonus, constitutes the vast majority of our executive compensation (for our CEO and NEOs as a group, variable pay increased modestly from 92.4% and 90.4%, respectively, in 2017 to 93.0% and 90.8%, respectively, in 2018). This allows the Committee to reward good performance and penalize poor performance. The following charts present the allocation of total pay among different components for our CEO and the weighted-average of each component for all NEOs as a group:

 

LOGO

2018 Compensation

The following table presents the total direct compensation of our NEOs, inclusive of salary, bonus and LTI equity awards, but not other items required by SEC rules to be reported in the Summary Compensation Table presented under “Compensation of Executive Officers.” We believe that this table most accurately reflects the awards made by the Committee with respect to executive compensation for 2018 compared to 2017, including MYLTIP awards whose ultimate value will be determined over a forward three-year period based on our relative TSR. To link annual awards of long-term equity incentive compensation to annual performance, the Committee, consistent with many other companies whose fiscal year ends on December 31, typically makes equity awards for a particular year in late January or early February of the following year. SEC rules for equity awards (unlike for cash bonuses)

 

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require that they be presented as compensation for the year in which they were actually granted, and therefore equity awards shown in the Summary Compensation Table presented under “Compensation of Executive Officers” on page 70 lag a year (i.e., awards made in February 2019 to reward performance in 2018 are not reflected in this year’s Summary Compensation Table).

 

     Salary(1)      Cash Bonus  
Executive    2018      2017      % Change      2018      2017      % Change  

Owen D. Thomas

   $ 875,000      $ 875,000        0%      $ 2,875,000      $ 2,425,000        18.6%  

Douglas T. Linde

   $ 725,000      $ 725,000        0%      $ 2,180,000      $ 1,935,000        12.7%  

Raymond A. Ritchey

   $ 720,000      $ 720,000        0%      $ 2,080,000      $ 2,080,000        0%  

Michael E. LaBelle

   $ 500,000      $ 500,000        0%      $ 1,450,000      $ 1,325,000        9.4%  

Bryan J. Koop

   $ 400,000      $ 400,000        0%      $ 1,550,000      $ 1,280,000        21.1%  
  

 

 

    

 

 

       

 

 

    

 

 

    

Total

   $ 3,220,000      $ 3,220,000        0%      $ 10,135,000      $ 9,045,000        12.1%  
     LTI Equity Awards      Total Compensation  
Executive    2018      2017      % Change      2018      2017      % Change  

Owen D. Thomas

   $ 8,750,000      $ 8,189,000        6.9%      $ 12,500,000      $ 11,489,000        8.8%  

Douglas T. Linde

   $ 5,395,000      $ 5,331,000        1.2%      $ 8,300,000      $ 7,991,000        3.9%  

Raymond A. Ritchey

   $ 4,200,000      $ 4,509,000        (6.9)%      $ 7,000,000      $ 7,309,000        (4.2)%  

Michael E. LaBelle

   $ 1,950,000      $ 2,050,000        (4.9)%      $ 3,900,000      $ 3,875,000        0.6%  

Bryan J. Koop

   $ 1,300,000      $ 1,308,000        (0.6)%      $ 3,250,000      $ 2,988,000        8.8%  
  

 

 

    

 

 

       

 

 

    

 

 

    

Total

   $ 21,595,000      $ 21,387,000        1.0%      $ 34,950,000      $ 33,652,000        3.9%  

 

(1)

From 2016 to 2018, the Committee did not increase the base salaries of the NEOs. For 2019, the Committee approved base salaries for the NEOs as follows: Mr. Thomas – $900,000; Mr. Linde – $750,000; Mr. Ritchey – $740,000; Mr. LaBelle – $510,000; and Mr. Koop – $410,000.

 

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VI.

ALLOCATION OF LTI EQUITY AWARDS

The Committee approved LTI equity awards to NEOs for 2018 performance as a mix of performance-based MYLTIP awards and time-based, full-value equity awards. The MYLTIP awards were denominated in a fixed number of LTIP units as of the date of initial grant. At the direction of the Committee, FPL conducted a multi-year, backward- and forwarding-looking analysis of peer equity award pay mix with the objective of finding the appropriate allocation to maintain the focus and dedication of a talented management team, which, in our case, has met or exceeded its goals as a whole. Based on the information received from FPL, the Committee determined that it would be advisable to maintain the allocation of LTI equity awards for the NEOs of 50% performance-based and 50% time-based that is widely accepted in the market and prevalent among our peers. The following table sets forth the dollar values of the performance-based and time-based equity awards to NEOs for 2018:

 

Executive     

Performance-
Based LTI

Equity

Awards

       Time-Based LTI
Equity Awards
      

Total LTI Equity

Awards

     Total LTI
Equity Awards
as % of Total
Compensation
 

Owen D. Thomas

     $ 4,375,000        $ 4,375,000        $ 8,750,000        70%  

Douglas T. Linde

     $ 2,697,500        $ 2,697,500        $ 5,395,000        65%  

Raymond A. Ritchey

     $ 2,100,000        $ 2,100,000        $ 4,200,000        60%  

Michael E. LaBelle

     $ 975,000        $ 975,000        $ 1,950,000        50%  

Bryan J. Koop

     $ 650,000        $ 650,000        $ 1,300,000        40%  
    

 

 

      

 

 

      

 

 

    

Total

     $ 10,797,500        $ 10,797,500        $ 21,595,000        62%  

The performance-based portion of LTI equity awards for 2018 performance was made by granting 2019 MYLTIP awards, which have a three-year performance period (February 5, 2019 to February 4, 2022), and an additional year of time-based vesting. The dollar values of the awards were converted into a fixed number of MYLTIP units on the initial grant date, and the number of units initially granted is the maximum number of units that may be earned and equals 200% of the target number of units. Following completion of the three-year performance period, the Committee will determine the final payout based on computations from our appraisal expert for this plan, AON plc, and if a number of units initially awarded exceeds the number of units ultimately earned, then the excess will be forfeited. Therefore, while the award of 2019 MYLTIP units is in recognition for performance in 2018, award recipients must continue to perform over the three-year term of the 2019 MYLTIP program in order to earn and vest in any of the MYLTIP units. The total target for NEOs was approximately 88,316 LTIP units and an aggregate payout opportunity ranging from zero to a maximum of 176,632 LTIP units. The baseline share price for 2019 MYLTIP awards was $131.60 (the average closing price per share of our common stock on the NYSE for the five trading days prior to and including February 5, 2019).

Under the Financial Accounting Standards Board’s Accounting Standards Codification 718 “Compensation – Stock Compensation” (“ASC Topic 718”), we expect that 2019 MYLTIP awards to NEOs will have an aggregate value of approximately $10.8 million, which amount will generally be amortized into earnings over the four-year plan period under the graded vesting method. 2019 MYLTIP awards were made in the form of LTIP units that are subject to forfeiture to the extent they are not earned or do not become vested.

The time-based portion of LTI equity awards granted for 2018 performance to the NEOs other than Mr. Ritchey consisted of LTIP units or restricted shares of our common stock that vest ratably over a four-year period (25% per year). In the case of Mr. Ritchey, the time-based portion of his 2018 LTI equity award was fully vested upon issuance because he had attained the retirement age of 65. In addition, LTI equity awards will become vested upon a Qualified Retirement, which generally means the

 

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termination of the grantee’s employment on or after the date on which the sum of years of service plus age equals or exceeds 70 (subject to certain conditions, including that the grantee is at least 58 years old on the date of termination of employment). Pursuant to our Equity Award Grant Policy discussed below, time-based full-value equity awards were issued as of the close of business on February 1, 2019 based on the closing price per share of our common stock on the NYSE on that date of $131.18.

 

VII.

BENCHMARKING PEER GROUP AND COMPENSATION ADVISOR’S ROLE

The Committee monitors the effectiveness of our executive compensation program on an ongoing basis. For it to be effective, among other things, we believe it is necessary for compensation to be competitive with other large public real estate companies with which we compete for executive talent. The Committee uses industry peer group data as one tool in assessing and determining pay for our executive officers. Other REITs, however, both in the office sector and in other sectors, are not always comparable to us because of differences in underlying business fundamentals. Peer group data is intended to provide the Committee with insight into overall market pay levels, market trends, “best” governance practices, and overall industry performance. The median (50th percentile) serves as a reference point and indicator of competitive market trends and the Committee uses it as the starting point when setting our executive compensation. We believe this use of peer company data is consistent with how stockholders and proxy advisory firms use such data.

The Committee has retained FPL as its advisor since 2012 and every year re-assesses and re-affirms the independence of FPL in connection with renewal of the engagement. The Committee directed FPL to, among other things: (1) benchmark our executive compensation against our peers and assist in developing compensation objectives, (2) analyze trends in compensation in the marketplace generally and among our peers specifically and (3) recommend the components and amounts of compensation for our top executive officers.

Following recommendations from FPL, the Committee selected the companies to be included in the peer group we use for benchmarking executive compensation. FPL’s recommendations were based on an annual review of the methodologies employed by sixteen of the REITs included in the S&P 500 Index. Based on these criteria, FPL recommended to the Committee that it update the peer group used last year to remove three REITs – GGP, Inc., HCP, Inc. and The Macerich Company – and replace them with Essex Property Trust, Inc., Regency Centers Corporation, and UDR, Inc. FPL recommended the changes, and the Committee agreed, because FPL advised that the three replacements are more comparable to the Company in terms of total capitalization and assets, irrespective of property focus. In general, FPL felt that size, as measured by total capitalization rather than equity market capitalization, is the most relevant criterion because top executives are ultimately responsible for managing the entire organization and total capitalization best depicts scale, complexity and breadth of operations, as well as the amount of capital and assets managed. Notably, fourteen out of the sixteen members of this Benchmarking Peer Group also list us as a peer company.

 

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The following table provides the names and key information for each peer company:

 

               Number of
Employees(1)
    UPREIT
Market
Capitalization
(in millions)(2)
    Total
Capitalization
(in millions)(3)
 

Alexandria Real Estate Equities, Inc.

  Office   Pasadena, CA     386       $12,793       $18,888  

American Tower Corporation (REIT)

  Specialty   Boston, MA     5,026       $69,771       $92,499  

AvalonBay Communities, Inc.

  Multifamily   Arlington, VA     3,087       $24,109       $31,169  

Digital Realty Trust, Inc.

  Specialty   San Francisco, CA     1,530       $23,122       $35,797  

Equity Residential

  Multifamily   Chicago, IL     2,700       $25,302       $34,155  

Essex Property Trust, Inc.

  Multifamily   San Mateo, CA     1,826       $16,722       $22,490  

Host Hotels & Resorts, Inc.

  Hotel   Bethesda, MD     184       $12,470       $16,379  

Prologis, Inc.

  Industrial   San Francisco, CA     1,617       $38,149       $52,145  

Public Storage

  Self-Storage   Glendale, CA     5,600       $35,293       $40,755  

Regency Centers Corporation

  Shopping Center   Jacksonville, FL     446       $9,873       $13,630  

Simon Property Group, Inc.

  Regional Mall   Indianapolis, IN     4,150       $59,775       $83,358  

SL Green Realty Corp.

  Office   New York, NY     1,058       $6,944       $13,106  

UDR, Inc.

  Multifamily   Highlands Ranch, CO     1,418       $11,890       $15,570  

Ventas, Inc.

  Health Care   Chicago, IL     500       $21,067       $31,870  

Vornado Realty Trust

  Office   New York, NY     3,928       $12,557       $23,962  

Welltower Inc.

  Health Care   Toledo, OH     384       $26,631       $42,025  

Median

        1,574       $22,095       $31,520  

Average

        2,115       $25,404       $35,488  

Boston Properties, Inc.

        760       $19,385       $32,304  

Relative Percentile Rank

            30%-ile       44%-ile       55%-ile  

Source: S&P Dow Jones Indices, a Division of S&P Global. Data as of December 31, 2018.

(1)

Represents the number of employees on a full-time equivalent basis.

(2)

Represents market value of outstanding common stock. May include the value of OP units, where available.

(3)

Total capitalization includes debt and the book value of any preferred stock.

FPL’s benchmarking review was based, in part, on information disclosed in the peer companies’ proxy statements filed in 2018 (the latest year for which comprehensive data is publicly available). FPL also reviewed the 2018 Nareit Compensation Survey (which FPL conducts) and additional proprietary real estate compensation surveys conducted throughout the year by FPL for additional context. FPL’s review compared our executive pay practices to cash and non-cash compensation awarded to executives in comparable positions at peer companies. FPL advised the Committee that the peer companies generally have compensation programs comparable to ours, with annual bonuses generally in the form of cash and annual long-term compensation generally in the form of equity with time-based vesting over three to five years with a combination of time-based and performance-based compensation.

 

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VIII.

ROLE OF MANAGEMENT IN COMPENSATION DECISIONS

Our CEO and President make recommendations to the Committee on the compensation of executive officers based on their assessment of achievement of the Company’s strategic and tactical plans, executives’ individual performance and a variety of other factors (e.g., compensation history, tenure, responsibilities, market data for competitive positions and retention concerns). The Committee considers these recommendations together with input from FPL. All final executive compensation decisions are made by the Committee.

 

IX.

OTHER COMPENSATION POLICIES

Double-Trigger Acceleration of Vesting of Equity Awards Upon a Change of Control

Time-based equity awards made in 2015 or later include “double-trigger” vesting, meaning that, if there is a “change of control” and the awards are not otherwise cancelled in connection with the change of control transaction, then they only become fully vested if, within 24 months after the change of control, the executive’s employment is terminated by the Company or its successor without “cause” or the executive resigns for “good reason.” We believe that this policy regarding acceleration of vesting upon a change of control is in line with current best practice while also continuing to remove potential disincentives for executives to pursue a change of control transaction that would benefit stockholders. Although not required, the Committee decided to make the policy applicable to senior officers, including our Chief Executive Officer, who were entitled to single-trigger vesting under their employment agreements, and those executives voluntarily agreed to the change. The Committee believes that this demonstrates its and management’s responsiveness to stockholders and that the policy addresses two key objectives:

 

   

Aligning executives’ interests with stockholders’ interests: when a change of control may be imminent, it is important to ensure that executives have the same incentive as stockholders to maximize stockholder value.

 

   

Minimizing conflicts of interest: double-trigger vesting in the context of a potential change of control reduces distraction and the risk that executives would leave the Company before a transaction is completed, while also preventing executives from receiving a windfall by compensating them only if their employment is terminated.

Clawback Policy

We have a formal “clawback” policy, which allows us to recoup from all executive officers and certain other specified officers’ incentive compensation paid on the basis of financial results that are subsequently restated. Under the policy, if we are required to prepare an accounting restatement due to material non-compliance with any financial reporting requirement, the Committee may require those officers to repay or forfeit “excess compensation,” which includes annual cash bonus and long-term incentive compensation in any form (including stock options, restricted stock and LTIP units, whether time-based or performance-based) received by them during the three-year period preceding the publication of the restated financial statements, that the Committee determines was in excess of the amount that they would have received had such compensation been determined based on the financial results reported in the restated financial statements.

The Committee may take into account any factors it deems reasonable in determining (1) whether to seek recoupment of previously paid excess compensation, (2) the amount of excess compensation to recoup from each individual officer, which may reflect whether the Committee concluded that he or she engaged in wrongdoing or committed grossly negligent acts or omissions, and (3) the form of the compensation to be recouped. The Committee intends to periodically review this policy and, as

 

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appropriate, conform it to any applicable final rules adopted pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Gross-Up for Excess Parachute Payments

In January 2014, we adopted a formal “no tax gross-up” policy with respect to our senior executives. Pursuant to this policy, we will not make or promise to make any tax gross-up payment to any senior executive in the future, other than payments in accordance with obligations existing at the time of the policy’s adoption or pursuant to arrangements applicable to our management employees generally, such as a relocation policy. All of the employment agreements that we have entered into with new senior executives since 2013, including our original and new employment agreements with our CEO, Mr. Thomas, do not provide for tax gross-up payments and, accordingly, this policy represents the formalization of the Committee’s pre-existing practice with respect to tax gross-ups. In addition, our Senior Executive Severance Plan and Executive Severance Plan provide that executives who become eligible to participate in these plans in the future will not be entitled to any tax gross-up payments under the plans.

Policy Concerning Hedging and Pledging Transactions

We have a policy prohibiting executive officers and directors from engaging in short sales and derivative transactions, purchasing our securities on margin and pledging our securities as collateral for a loan. Transactions such as purchases and sales of publicly traded put and call options, short sales, hedging transactions such as prepaid variable forwards, equity swaps and collars create a heightened compliance risk or could create the appearance of misalignment between management and stockholders. In addition, securities held in a margin account or pledged as collateral may be sold without consent if the owner fails to meet a margin call or defaults on the loan, thus creating the risk that a sale may occur at a time when an officer or director is aware of material, non-public information or otherwise is not permitted to trade in Company securities. Our Board may grant a waiver from the policy on a case-by-case basis where an executive officer or director who wishes to pledge Company securities as collateral for a loan (not including margin debt) clearly demonstrates the financial capacity to repay the loan without resort to the pledged securities. No such exceptions have ever been granted.

Mandatory Minimum Equity Ownership Policy for Senior Executives

To align senior management with our stockholders and demonstrate to the investment community that our senior management is personally committed to our continued financial success, we have a policy that requires the following officer positions to maintain equity ownership equal to a multiple of their base salaries as follows:

 

Title    Multiple of
Base Salary
 

Chief Executive Officer

     6.0x  

President

     5.0x  

Senior Executive Vice President

     5.0x  

Executive Vice President, Chief Financial Officer

     3.0x  

Executive Vice President, Regional Manager

     2.0x  

Senior Vice President

     1.5x  

If an executive’s ownership falls below the applicable guideline due solely to a decline in the value of our common stock, the executive will not be required to acquire additional shares to meet the

 

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guideline, but he or she will be required to retain all shares then held (except for shares withheld to pay withholding taxes or the exercise price of options) until such time as the executive again attains the target multiple.

Employees who are hired or promoted to senior management positions will have a five-year period beginning on January 1 of the year following their appointment to achieve this ownership requirement. Exceptions may be made for significant extenuating personal circumstances. The types of securities that will be counted toward the equity ownership requirement include shares of our common stock, common units and LTIP units (excluding performance-based LTIP units until and unless they have been earned), in each case both vested and unvested, as well as shares acquired and held through our stock purchase and dividend reinvestment plans. Stock options will not be counted.

LTIP Units

Since 2003, we have used a class of partnership interests in our Operating Partnership, called long term incentive units, or LTIP units, as a form of equity-based award for annual long-term incentive equity compensation. LTIP units are designed to qualify as “profits interests” in the Operating Partnership for federal income tax purposes, meaning that initially they are not economically equivalent in value to a share of our common stock, but over time can increase in value to one-for-one parity with common stock by operation of special tax rules applicable to profits interests. LTIP units are designed to offer executives a long-term incentive comparable to restricted stock, while allowing them to enjoy a more favorable income tax treatment. Each LTIP unit awarded is deemed equivalent to an award of one share of common stock reserved under our incentive equity plan. The key difference between LTIP units and restricted stock is that at the time of award, LTIP units do not have full economic parity with common units, but can achieve such parity over time upon the occurrence of specified events in accordance with partnership tax rules. Until and unless such parity is reached, the value that an executive will realize for a given number of vested LTIP units is less than the value of an equal number of shares of our common stock.

Under the 2017, 2018 and 2019 MYLTIP awards, during the performance period holders of LTIP units will receive distributions equal to one-tenth (1 / 10th) of the amount of regular quarterly distributions paid on a common unit, but will not receive any special distributions. After the end of the performance period, holders of earned LTIP units, both vested and unvested, will be entitled to receive distributions in an amount per LTIP unit equal to the distributions, both regular and special, payable on a common unit (which equal per share dividends (both regular and special) on our common stock). LTIP units awarded with time-based vesting conditions only, both vested and unvested, are entitled to receive distributions in an amount per LTIP unit equal to the distributions, both regular and special, payable on a common unit.

Employment Agreements

We have employment agreements with each of our NEOs. (See “Compensation of Executive Officers – Potential Payments Upon Termination or Change in Control” beginning on page 80) For NEOs other than Mr. Thomas, these agreements provide for a certain level of severance, generally the sum of base salary plus the prior year’s cash bonus, 12 additional months of vesting in equity-based awards and participation in our health plan for up to 12 months, in the event of a termination of employment by us without cause or by the executives for good reason. The employment agreement with Mr. Thomas provides for stipulated severance benefits in lieu of participation in severance plans for which other NEOs are eligible. In return, each executive agrees, during the term of employment and for one year thereafter, not to compete with us, solicit our tenants or employees or interfere with our relationship with our tenants, suppliers, contractors, lenders, employees or with any governmental agency. We

 

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believe that these agreements are fair to the executives and to our stockholders and, because the severance benefits are negotiated at the time of the agreement, avoid the need for protracted negotiations in the event of termination.

Change in Control Arrangements

We have an employment agreement with Mr. Thomas that provides him with cash severance and certain benefits in the event of his termination under certain circumstances within 24 months following a change in control. Although Mr. Thomas was entitled to “single-trigger” vesting upon a change in control under his original employment agreement, he has agreed to be subject to the “double-trigger” vesting policy adopted for all time-based LTI equity awards made in 2015 or later. We also have two change in control severance plans, one for our President, Senior Executive Vice President and Executive Vice Presidents, and the other for our Senior Vice Presidents and those Vice Presidents with ten (10) or more years of tenure with us. These plans also provide cash severance and certain benefits in the event of termination of employment under certain circumstances within 24 months following a change in control. The two change in control severance plans are “double trigger” arrangements, providing severance benefits only upon involuntary termination or constructive termination of the executive officer following a change in control. (See “Compensation of Executive Officers – Potential Payments Upon Termination or Change in Control” beginning on page 80) Officers who became eligible under the two severance plans described above prior to their amendment in January 2014 upon adoption by the Committee of a formal “no tax gross-up” policy are entitled to a gross-up payment in the event they become subject to the 20% golden parachute excise tax. This was market practice when these plans were adopted in 1998. Mr. Thomas is not entitled to a tax gross-up payment under his employment agreement.

In our experience, change in control cash severance protection for executive officers is common in the REIT industry. Our Committee believes it is fair to provide severance protection in the event of an involuntary termination or constructive termination of employment following a change in control because very often senior manager positions are eliminated following a change in control. By agreeing up front to provide severance benefits in the event of an involuntary termination or constructive termination of employment following a change in control, the Committee believes we can reinforce and encourage the continued attention and dedication of senior management to their assigned duties without distraction in the face of an actual or threatened change in control and ensure that management is motivated to negotiate the best consideration for our stockholders. For treatment of equity awards in the event of a change in control, please see “– Double-Trigger Acceleration of Vesting of Equity Awards upon a Change of Control” above.

Perquisites

We provide Messrs. Linde, Ritchey and Koop a monthly car allowance of $750 and we provide all of our executive officers a designated parking space. Mr. Thomas’ employment agreement provides that he is entitled to the use of a Company-owned or leased vehicle, but Mr. Thomas has declined this benefit at all times since 2013. Apart from these arrangements, we do not provide any other perquisites to our executive officers.

Deferred Compensation Plan

We offer a deferred compensation plan that enables our executives to defer up to 20% of their base salaries and bonuses. The amounts deferred are not included in the executive’s current taxable income and, therefore, are not currently deductible by us. The executives select from a limited number of mutual funds which serve as measurement funds, and the deferred amounts are increased or

 

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decreased to correspond to the market value of the mutual fund investments. Because the measurement funds are publicly traded securities, we do not consider any of the earnings credited under the deferred compensation plan to be “above market.” We do not provide any matching contribution to any executive officer who participates in this plan, other than a limited amount to make up for any loss of matching contributions under our Section 401(k) plan. We have made this plan available to our executives in order to ensure that our benefits are competitive. See “Compensation of Executive Officers – Nonqualified Deferred Compensation” beginning on page 77.

Retirement and Health and Welfare Benefits

We have never had a traditional or defined benefit pension plan. We maintain a Section 401(k) retirement plan in which all salaried employees can participate which provides a Company matching contribution of 200% of the first 3% of compensation contributed to the plan (utilizing earnings not in excess of an amount established by the Internal Revenue Service ($275,000 in 2018)). Other benefits, such as health and dental plans, group term life insurance, short- and long-term disability insurance and travel accident insurance, are also available generally to all of our salaried employees. Our executives participate in Company-sponsored benefit programs available broadly to generally all of our salaried employees, including our employee stock purchase plan and our Section 401(k) plan.

Deductibility of Executive Compensation

The Committee’s policy is to consider the tax treatment of compensation paid to our executive officers while simultaneously seeking to provide our executives with appropriate rewards for their performance. Under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), a publicly-held corporation may not deduct compensation of more than $1 million paid to any “covered employee” unless certain exceptions are met primarily related to performance-based compensation. Substantially all of the services rendered by our executive officers were performed on behalf of our operating partnership or its subsidiaries. The Internal Revenue Service has issued a series of private letter rulings which indicate that compensation paid by an operating partnership to executive officers of a REIT that serves as its general partner is not subject to limitation under Section 162(m) to the extent such compensation is attributable to services rendered to the operating partnership. We have not obtained a ruling on this issue, but have no reason to believe that the same conclusion would not apply to us. To the extent that compensation paid to our executive officers is subject to and does not qualify for deduction under Section 162(m), our Committee is prepared to exceed the limit on deductibility under Section 162(m) to the extent necessary to establish compensation programs that we believe provide appropriate incentives and reward our executives relative to their performance. Because we qualify as a REIT under the Code, we generally distribute at least 100% of our net taxable income each year and therefore do not pay federal income tax. As a result, and based on the level of cash compensation paid to our executive officers, the possible loss of a federal tax deduction would not be expected to have a material impact on us.

Accounting for Stock-Based Compensation

We account for stock-based awards in accordance with the requirements of ASC Topic 718.

 

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Assessment of Compensation-Related Risks

The Committee is responsible for overseeing the risks relating to compensation policies and practices affecting senior management on an ongoing basis. The Committee believes that because of the following there is a low likelihood that our compensation policies and practices would encourage excessive risk-taking:

 

Risk Mitigation Factors

   

our policies and programs are generally intended to encourage executives to focus on long- term objectives;

 

 

   

overall compensation is maintained at levels that are competitive with the market;

 

 

   

the mix of compensation rewards long-term performance with a significant at-risk component;

 

 

   

variable pay is based on the achievement of a variety of operational, capital and management goals with the Committee having discretion to determine how much each measure should impact pay, thereby mitigating the risk that any one measure can dominate the payouts based on a formula;

 

 

   

except for those employees who satisfy the conditions for Qualified Retirement, all equity awards are subject to multi-year vesting (see “– Potential Payments Upon Termination or Change in Control – Time-Based LTI Equity Awards Agreements – Qualified Retirement” on page 83);

 

 

   

executive officers are subject to minimum stock ownership guidelines and limitations on trading in our securities, including prohibitions on hedging and pledging; and

 

 

   

a clawback policy permits the Company to recoup compensation paid on the basis of financial results that are subsequently restated.

 

Equity Award Grant Policy

We have a policy that annual grants to employees are approved by the Committee in or around the third or fourth week of January each year, with an effective grant date immediately following the closing of the NYSE on the second trading day after we publicly release financial results for the prior year. We believe this policy provides the necessary certainty and transparency for both employees and stockholders, while allowing the Committee desired flexibility.

Our Committee approves equity awards in dollar values. To the extent these awards are paid in the form of full-value awards (either shares of restricted stock and/or LTIP units), the number of shares/ units granted is calculated by dividing the dollar value of the approved awards by the closing market price on the NYSE of a share of our common stock on the effective date of grant. To the extent these awards are made in the form of stock options, the number of shares underlying option grants is determined by dividing the dollar value of the approved awards by the fair value of a ten-year option with the exercise price equal to the closing market price on the NYSE of a share of our common stock on the effective date of grant, as calculated by an independent valuation expert in accordance with ASC Topic 718 using assumptions approved by the Committee. The Equity Award Grant Policy does not apply to MYLTIP awards because they are not “full-value” awards upon issuance and their value depends on our future TSR performance; accordingly, consistent with past practice for performance- based equity awards, the Committee determined that the MYLTIP baseline share price, from which TSR performance is measured, should be based on the average closing stock price for the five trading days prior to and including the effective date of grant.

 

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COMPENSATION COMMITTEE REPORT

 

The Compensation Committee of Boston Properties has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

Submitted by the Compensation Committee:

Carol B. Einiger, Chair

Kelly A. Ayotte

Bruce W. Duncan

David A. Twardock

 

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COMPENSATION OF EXECUTIVE OFFICERS

 

SUMMARY COMPENSATION TABLE

The following table shows the compensation for each of our NEOs in accordance with Item 402(c) of Regulation S-K.

 

Name and

Principal Position

  Year    

Salary

($)

   

Bonus

($)(1)

   

Stock

Awards

($)(2)

   

All Other

Compensation

($)(6)

   

Total

($)

 

 

Owen D. Thomas

Chief Executive Officer

 

 

 

 

 

2018

 

 

 

 

 

 

 

 

 

875,000

 

 

 

 

 

 

 

 

 

2,875,000

 

 

 

 

 

 

 

 

 

7,927,786

 

 

(3) 

 

 

 

 

 

 

17,160

 

 

 

 

 

 

 

 

 

11,694,946

 

 

 

 

   

 

2017

 

 

 

   

 

875,000

 

 

 

   

 

2,425,000

 

 

 

   

 

6,745,617

 

(4) 

 

   

 

16,680

 

 

 

   

 

10,062,297

 

 

 

   

 

2016

 

 

 

   

 

867,308

 

 

 

   

 

2,558,333

 

 

 

   

 

6,560,000

 

(5) 

 

   

 

16,380

 

 

 

   

 

10,002,021

 

 

 

 

Douglas T. Linde

President

 

 

 

 

 

2018

 

 

 

 

 

 

 

 

 

725,000

 

 

 

 

 

 

 

 

 

2,180,000

 

 

 

 

 

 

 

 

 

5,163,416

 

 

(3) 

 

 

 

 

 

 

34,380

 

 

 

 

 

 

 

 

 

8,102,796

 

 

 

 

   

 

2017

 

 

 

   

 

725,000

 

 

 

   

 

1,935,000

 

 

 

   

 

4,777,500

 

(4) 

 

   

 

33,600

 

 

 

   

 

7,471,100

 

 

 

   

 

2016

 

 

 

   

 

724,231

 

 

 

   

 

1,847,500

 

 

 

   

 

4,605,120

 

(5) 

 

   

 

33,300

 

 

 

   

 

7,210,151

 

 

 

 

Raymond A. Ritchey

Senior Executive Vice

President

 

 

 

 

 

2018

 

 

 

 

 

 

 

 

 

720,000

 

 

 

 

 

 

 

 

 

2,080,000

 

 

 

 

 

 

 

 

 

4,278,466

 

 

(3) 

 

 

 

 

 

 

33,576

 

 

 

 

 

 

 

 

 

7,112,042

 

 

 

 

   

 

2017

 

 

 

   

 

720,000

 

 

 

   

 

2,080,000

 

 

 

   

 

4,077,125

 

(4) 

 

   

 

33,096

 

 

 

   

 

6,910,221

 

 

 

   

 

2016

 

 

 

   

 

719,231

 

 

 

   

 

1,555,000

 

 

 

   

 

3,915,844

 

(5) 

 

   

 

32,796

 

 

 

   

 

6,222,871

 

 

 

 

Michael E. LaBelle

Executive Vice President,

Chief Financial Officer and Treasurer

 

 

 

 

 

2018

 

 

 

 

 

 

 

 

 

500,000

 

 

 

 

 

 

 

 

 

1,450,000

 

 

 

 

 

 

 

 

 

1,973,150

 

 

(3) 

 

 

 

 

 

 

25,380

 

 

 

 

 

 

 

 

 

3,948,530

 

 

 

 

   

 

2017

 

 

 

   

 

500,000

 

 

 

   

 

1,325,000

 

 

 

   

 

2,100,000

 

(4) 

 

   

 

24,600

 

 

 

   

 

3,949,600

 

 

 

   

 

2016

 

 

 

   

 

499,231

 

 

 

   

 

900,000

 

 

 

   

 

1,929,312

 

(5) 

 

   

 

24,300

 

 

 

   

 

3,352,843

 

 

 

 

Bryan J. Koop

Executive Vice President,

Boston Region

 

 

 

 

 

2018

 

 

 

 

 

 

 

 

 

400,000

 

 

 

 

 

 

 

 

 

1,550,000

 

 

 

 

 

 

 

 

 

1,257,523

 

 

(3) 

 

 

 

 

 

 

34,380

 

 

 

 

 

 

 

 

 

3,241,903

 

 

 

 

   

 

2017

 

 

 

   

 

400,000

 

 

 

   

 

1,280,000

 

 

 

   

 

1,316,874

 

(4) 

 

   

 

33,600

 

 

 

   

 

3,030,474

 

 

 

   

 

2016

 

 

 

   

 

399,231

 

 

 

   

 

835,000

 

 

 

   

 

1,295,910

 

(5) 

 

   

 

33,300

 

 

 

   

 

2,563,441

 

 

 

 

(1)

Represent cash bonuses paid to the NEOs in recognition of performance in the year reported. Such bonuses are paid in the subsequent year (e.g., the bonuses paid in recognition of performance in 2018 were paid in 2019).

 

(2)

A discussion of the assumptions used in calculating these values can be found in Note 16 to our 2018 audited financial statements beginning on page 175 of our annual report on Form 10-K for the year ended December 31, 2018 included in the annual report that accompanied this proxy statement.

 

(3)

Represents the grant date fair value of LTIP unit awards and 2018 MYLTIP awards granted in 2018, determined in accordance with ASC Topic 718, disregarding for this purpose the estimate of forfeitures related to service-based vesting conditions. The grant date fair values for the LTIP unit awards are as follows: Mr. Thomas – $3,588,786; Mr. Linde – $2,302,416; Mr. Ritchey – $2,178,466; Mr. LaBelle – $1,060,650; and Mr. Koop – $697,523. The grant date fair values for the 2018 MYLTIP awards, based upon the probable outcome of the performance conditions as of the grant date for the awards, are as follows: Mr. Thomas – $4,339,000; Mr. Linde – $2,861,000; Mr. Ritchey – $2,100,000; Mr. LaBelle – $912,500; and Mr. Koop – $560,000. The maximum values of the 2018 MYLTIP awards, assuming that the highest level of performance conditions is achieved, are as follows: Mr. Thomas – $10,582,927; Mr. Linde – $6,978,049; Mr. Ritchey – $5,121,951; Mr. LaBelle – $2,225,610; and Mr. Koop – $1,365,854. To have value, the 2018 MYLTIP awards require the Company to achieve relative total stockholder return thresholds (subject to limited absolute performance modifiers). See “Compensation Discussion and Analysis – IV. Performance-Based Equity Awards; Three-Year TSR Drives Actual Earned Pay” beginning on page 55.

 

(4)

Represents the grant date fair value of restricted common stock and LTIP unit awards and 2017 MYLTIP awards granted in 2017, determined in accordance with ASC Topic 718, disregarding for this purpose the estimate of forfeitures related to service-based vesting conditions.

 

(5)

Represents the grant date fair value of restricted common stock and LTIP unit awards and 2016 MYLTIP awards granted in 2016, determined in accordance with ASC Topic 718, disregarding for this purpose the estimate of forfeitures related to service-based vesting conditions.

 

 

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COMPENSATION OF EXECUTIVE OFFICERS

 

(6)

The table below shows the components of “All Other Compensation” for 2018, which include the life insurance premiums paid by us for group term life insurance, our match for each individual who made 401(k) contributions, the car allowances provided to Messrs. Linde, Ritchey and Koop and the costs to the Company of providing parking spaces to Messrs. Linde, Ritchey, LaBelle and Koop. The amounts shown for car allowances in the table below reflect the aggregate cost to the Company without deducting costs attributable to business use. The components of “All Other Compensation” for 2016 and 2017 for each of the NEOs, were reported in our 2017 and 2018 proxy statements, respectively.

 

Name   

Life

Insurance

($)

    

401(k)

Company

Match ($)

    

Car

Allowance

($)

    

Parking

($)

    

Total

($)

 

Mr. Thomas

  

 

660

 

  

 

16,500

 

  

 

 

  

 

 

  

 

17,160

 

Mr. Linde

  

 

660

 

  

 

16,500

 

  

 

9,000

 

  

 

8,220

 

  

 

34,380

 

Mr. Ritchey

  

 

660

 

  

 

16,500

 

  

 

9,000

 

  

 

7,416

 

  

 

33,576

 

Mr. LaBelle

  

 

660

 

  

 

16,500

 

  

 

 

  

 

8,220

 

  

 

25,380

 

Mr. Koop

  

 

660

 

  

 

16,500

 

  

 

9,000

 

  

 

8,220

 

  

 

34,380

 

 

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COMPENSATION OF EXECUTIVE OFFICERS

 

2018 GRANTS OF PLAN-BASED AWARDS

The following table provides information about the awards granted to our NEOs during the year ended December 31, 2018.

 

Name   Grant Date    

Date of

Compensation

Committee

Approval(1)

   

Estimated Future Payouts

Under Equity

Incentive Plan Awards

    All Other
Stock Awards:
Number of
Shares of
Stock or
Units
(#)(3)
    Grant Date
Fair Value of
Stock and
Option
Awards
($)(4)
 
 

Threshold

($)(2)

   

Target

($)(2)

   

Maximum

($)(2)

 

 

Owen D. Thomas

 

 

2/2/2018

 

 

 

1/22/2018

 

 

 

 

 

 

 

 

 

 

 

 

32,260

 

 

 

3,588,786

 

 

 

2/6/2018

 

 

 

1/22/2018

 

 

 

0

 

 

 

5,291,463

 

 

 

10,582,927

 

 

 

 

 

 

4,339,000

 

 

Douglas T. Linde

 

 

2/2/2018

 

 

 

1/22/2018

 

 

 

 

 

 

 

 

 

 

 

 

20,697

 

 

 

2,302,416

 

 

 

2/6/2018

 

 

 

1/22/2018

 

 

 

0

 

 

 

3,489,024

 

 

 

6,978,049

 

 

 

 

 

 

2,861,000

 

 

Raymond A. Ritchey

 

 

2/2/2018

 

 

 

1/22/2018

 

 

 

 

 

 

 

 

 

 

 

 

17,596

 

 

 

1,889,982

 

 

 

2/6/2018

 

 

 

1/22/2018

 

 

 

0

 

 

 

2,560,976

 

 

 

5,121,951

 

 

 

 

 

 

2,100,000

 

 

 

2/6/2018

 

 

 

2/6/2018

 

 

 

 

 

 

 

 

 

 

 

 

2,679

 

 

 

288,484

 

 

Michael E. LaBelle

 

 

2/2/2018

 

 

 

1/22/2018

 

 

 

 

 

 

 

 

 

 

 

 

7,646

 

 

 

850,589

 

 

 

2/6/2018

 

 

 

1/22/2018

 

 

 

0

 

 

 

1,112,805

 

 

 

2,225,610

 

 

 

 

 

 

912,500

 

 

 

2/6/2018

 

 

 

2/6/2018

 

                         

 

1,951

 

 

 

210,061

 

 

Bryan J. Koop

 

 

2/2/2018

 

 

 

1/22/2018

 

 

 

 

 

 

 

 

 

 

 

 

4,692

 

 

 

522,005

 

 

 

2/6/2018

 

 

 

1/22/2018

 

 

 

0

 

 

 

682,927

 

 

 

1,365,854

 

 

 

 

 

 

560,000

 

 

 

2/6/2018

 

 

 

2/6/2018

 

 

 

 

 

 

 

 

 

 

 

 

1,630

 

 

 

175,518

 

 

(1)

For a discussion of the Company’s policy with respect to the effective grant dates for annual equity-based awards, see “Compensation Discussion and Analysis – IX. Other Compensation Policies – Equity Award Grant Policy” beginning on page 68.

 

(2)

Represents 2018 MYLTIP awards for each NEO. Performance-based vesting of 2018 MYLTIP awards will be measured on the basis of our annualized, compounded TSR over a three-year measurement period ending February 5, 2021 relative to the annualized, compounded total return of (i) the C&S Index (50% weight) and (ii) the Nareit Office Index adjusted to include Vornado Realty Trust (50% weight). Amounts ultimately earned under the 2018 MYLTIP awards may range from zero to the maximum amount set forth in the table depending on our TSR relative to the two indices. Levels of payout opportunity range from zero (for relative TSR performance that is 1,000 basis points or more below the index) to a maximum of 200% of target value (for relative TSR performance that is 1,000 basis points or more greater than the index), with linear interpolation between -1,000 and +1,000 basis points. Earned awards measured on the basis of relative TSR performance are subject to absolute TSR modifiers that (a) reduce the level of earned awards by 20% if our annualized TSR is less than 0%, and (b) cause awards to be earned at “threshold” (50% of target value) if our annualized TSR is greater than 12%, even if based on relative TSR alone no awards would be earned. Any 2018 MYLTIP awards ultimately earned based on performance will vest 50% on February 5, 2021 and 50% on February 5, 2022, subject to exceptions discussed under “– Potential Payments Upon Termination or Change in Control” beginning on page 80. Distributions payable on 2018 MYLTIP awards equal one-tenth (1/10th) of the regular quarterly distributions on common units of our Operating Partnership (and no amounts are payable on special distributions) prior to being earned.

 

(3)

Stock awards were made in the form of shares of restricted common stock and/or LTIP units at the election of each NEO. Each NEO elected to receive all LTIP units. LTIP units were awarded under the Boston Properties, Inc. 2012 Stock Option and Incentive Plan (the “2012 Plan”) by the Compensation Committee. Dividends are payable on restricted common stock and distributions are payable on the LTIP units to the same extent and on the same date that dividends and distributions are paid on Boston Properties common stock and common units of our Operating Partnership, respectively. Grantees of restricted common stock pay $0.01 per share and grantees of LTIP units pay $0.25 per unit. The awards generally vest over a four-year period with 25% vesting on January 15 of each year beginning January 15, 2019, subject to acceleration under certain circumstances. When an employee attains age 65 or attains age 62 with 20 years of service with

 

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COMPENSATION OF EXECUTIVE OFFICERS

 

 

us, the employee becomes fully vested in all time-based LTI equity awards granted on February 2, 2018. Awards granted on February 6, 2018 to employees at age 65 or age 62 with 20 years of service as of February 6, 2018 vest over a two-year period with 50% vesting on January 15 of each year beginning January 15, 2019. Accordingly, in the case of Mr. Ritchey, because he previously attained the age of 65, all of his awards granted on February 2, 2018 were fully vested upon grant and his awards granted on February 6, 2018 vest over a two-year period.

 

(4)

The amounts included in this column represent the full grant date fair value of the restricted common stock, LTIP unit awards and 2018 MYLTIP awards computed in accordance with ASC Topic 718, disregarding for this purpose the estimate of forfeitures related to service-based vesting conditions. A discussion of the assumptions used in calculating these values can be found in Note 16 to our 2018 audited financial statements beginning on page 175 of our annual report on Form 10-K for the year ended December 31, 2018 included in the annual report that accompanied this proxy statement.

 

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COMPENSATION OF EXECUTIVE OFFICERS

 

OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2018

The following table sets forth information regarding outstanding equity awards held by our NEOs as of December 31, 2018 pursuant to Item 402(f) of Regulation S-K.

 

    Option Awards(1)     Stock Awards(1)        
Name  

Number of

Securities

Underlying

Unexercised

Options (#)

Exercisable

   

Number of

Securities

Underlying

Unexercised

Options (#)

Unexercisable

   

Option

Exercise

Price ($)

   

Option

Expiration

Date

   

Number of

Shares

or Units

of Stock

That Have

Not

Vested (#)

   

Market

Value of

Shares or

Units of

Stock

That Have

Not

Vested

($)(2)

   

Equity

Incentive

Plan

Awards:

Number of

Unearned

Shares,

Units or

Other Rights

That Have

Not Vested

(#)

   

Equity

Incentive

Plan Awards:

Market or

Payout Value

of Unearned

Shares,

Units or

Other Rights

That Have

Not Vested

($)(2)

   

  

 
Owen D. Thomas     54,282             95.69       4/2/2023            
            2,436 (3)       274,172        
            3,895 (4)       438,382        
            7,498 (5)       843,900        
            9,849 (6)       1,108,505        
            32,260 (7)       3,630,863        
                47,985 (9)       5,400,712 (9)    
                52,402 (10)       5,897,845 (10)    
                                                      89,377 (11)       10,059,381 (11)          
Douglas T. Linde     27,455             86.86       1/28/2021            
    34,476             100.77       2/3/2022            
    41,092             98.46       2/1/2023            
            1,948 (3)       219,247        
            3,114 (4)       350,481        
            5,264 (5)       592,463        
            6,852 (6)       771,193        
            20,697 (7)       2,329,447        
                33,686 (9)       3,791,359 (9)    
                36,459 (10)       4,103,460 (10)    
                                                      58,933 (11)       6,632,909 (11)          
Raymond A. Ritchey(12)     24,739             86.86       1/28/2021            
    32,120             100.77       2/3/2022            
    39,943             98.46       2/1/2023            
            2,461 (4)       276,986        
            2,679 (8)       301,521        
                25,545 (9)       2,875,090 (9)    
                27,944 (10)       3,145,097 (10)    
                                                      43,257 (11)       4,868,575 (11)          
Michael E. LaBelle     7,749             100.77       2/3/2022            
    8,588             98.46       2/1/2023            
            1,358 (3)       152,843        
            723 (4)       81,374        
            3,563 (5)       401,016        
            4,819 (6)       542,378        
            7,646 (7)       860,557        
            1,951 (8)       219,585        
                11,401 (9)       1,283,183 (9)    
                12,821 (10)       1,443,004 (10)    
                                                      18,796 (11)       2,115,490 (11)          

 

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COMPENSATION OF EXECUTIVE OFFICERS

 

    Option Awards(1)     Stock Awards(1)        
Name  

Number of

Securities

Underlying

Unexercised

Options (#)

Exercisable

   

Number of

Securities

Underlying

Unexercised

Options (#)

Unexercisable

   

Option

Exercise

Price ($)

   

Option

Expiration

Date

   

Number of

Shares

or Units

of Stock

That Have

Not

Vested (#)

   

Market

Value of

Shares or

Units of

Stock

That Have

Not

Vested

($)(2)

   

Equity

Incentive

Plan

Awards:

Number of

Unearned

Shares,

Units or

Other Rights

That Have

Not Vested

(#)

   

Equity

Incentive

Plan Awards:

Market or

Payout Value

of Unearned

Shares,

Units or

Other Rights

That Have

Not Vested

($)(2)

   

  

 
Bryan J. Koop     5,616             86.86       1/28/2021            
    7,067             100.77       2/3/2022            
    8,267             98.46       2/1/2023            
            1,140 (3)      128,307        
            607 (4)      68,318        
            3,011 (5)      338,888        
            3,916 (6)      440,746        
            4,692 (7)      528,085        
            1,630 (8)      183,457        
                6,424 (9)      723,021 (9)   
                6,945 (10)      781,660 (10)   
        <