Corporate boards of REITs often will consider large corporations and other sectors when developing C-suite compensation packages, and the result is often exorbitant pay for CEOs, Land and Buildings Investment Management LLC founder Jonathan Litt said.

“A CEO of a company and their compensation committee will say, ‘We want to pay this guy a lot of money, so let’s create a peer group of other CEOs who also get paid a lot of money,'” Litt explained on the Activist Investing Today podcast. “You could have a relatively small company that is using large companies [as peers to set up pay packages] where CEOs are making a lot of money or companies in industries that are doing very well or are very different.”

Litt also discussed a white paper he produced pointing out that 15 of 59 REITs examined consistently underperformed while compensation was rarely adjusted.

“They chose [the peers] for one specific reason, and that is so they can pay CEOs a lot,” Litt said. “If you are looking at an apartment REIT, you shouldn’t necessarily be comparing it to a data center REIT or a warehouse REIT or senior housing REIT for the purpose of identifying pay packages. There are very different fundamentals in these different sectors.”

Litt included the names of compensation committee members at the 15 REITs he cited in his report and said investors could vote against them next year if pay packages aren’t improved.

In the podcast, Litt also discussed his expectations for National Health Investors Inc. (NHI) as it signs a new lease with National Healthcare Corp. (NHC) after a Land & Buildings proxy contest in which one targeted director narrowly retained his seat by about 1%.

Check out the podcast with Jonathan Litt here:

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