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


Table of Contents

LOGO

April 3, 2020

Dear Fellow Stockholder:

On behalf of the Board of Directors, I am delighted to invite you to attend the 2020 Annual Meeting of Stockholders of Boston Properties, Inc., or BXP. The meeting will be held on Wednesday, May 20, 2020 at 9:00 a.m., Eastern Time, at Metropolitan Square, 655 15th Street, NW, 2nd Floor, Washington, DC 20005. However, as discussed in detail in the Notice of Meeting that follows this letter, depending on the status of the COVID-19 pandemic, we may decide to hold the meeting “virtually.”

As I write this letter, we are quickly approaching the 50th anniversary of the founding of Boston Properties, Inc. and our 23rd year as a public company listed on the NYSE. In light of these milestones, I want to share with you some notable achievements in 2019, as well as highlight some key policy changes that we believe will enhance transparency and improve your understanding of Boston Properties’ affairs.

Boston Properties is certainly much larger and more complex today than at any time in its history, as we now operate in five regions on both U.S. coastlines and are developing premier buildings on a scale that is greater than ever before. Despite that growth, your Board is pleased to report that under the leadership of our CEO, Owen Thomas, and President, Doug Linde, the vision and strategy of our founders, Mort Zuckerman and the late Ed Linde, remain the foundation of what we do. That strategy has proven successful. An investment in BXP common stock on the date of our IPO has appreciated by more than 1,346% as of December 31, 2019, far surpassing the 456% return on an equal investment in the S&P 500 Index.

2019 Business Highlights

2019 was an excellent year for Boston Properties, particularly considering that it followed a very strong 2018. Our success is demonstrated by our financial results and other key accomplishments. While the accompanying proxy statement details your management team’s significant accomplishments in 2019, I want to highlight some that stand out and provide context for the discussion of the compensation of our named executive officers, or “NEOs”:

 

 

26%

 

Total Stockholder Return

for 2019

  

11%

 

Y-o-Y Growth in

Diluted FFO per Share1

  

9%

 

Y-o-Y Increase in

Cash Dividend, 42% over Past Three Years

 

7.6 Million

 

Square Feet Leased

6.7%

 

Y-o-Y Growth in

Same Property NOI

(BXP’s Share)1

  

5.4%

 

Y-o-Y Growth in

Same Property NOI – Cash

(BXP’s Share)1

  

$3.1 Billion

 

BXP’s Share of Estimated Total Investment in Active Development Pipeline

 

76%

 

Pre-Leased Development Pipeline (excluding residential)

 

 

 

 

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Environmental, Social and Governance (ESG) Leadership

2019 was another strong year for BXP during which we made substantial progress and maintained our position as an industry leader on environmental, social and governance issues.

› Environmental. Our sustainability strategy is to conduct our business in a manner that contributes to positive economic, social and environmental outcomes for our customers, stockholders, employees and the communities we serve. Our experience demonstrates that through our activities, we can contribute to environmental solutions as a positive force while improving our financial performance and becoming a stronger, more purposeful organization in the process. We deliver efficient, healthy and productive workspaces while simultaneously mitigating operational costs and potential external impacts of energy, water, waste, and greenhouse gas emissions. We are also keenly focused on the climate resilience of our existing portfolio of assets, and we are preparing for long-term climate risks, such as extreme heat, severe storms and sea level rise, by considering climate change scenarios.

Your Board of Directors and CEO are committed to building a company culture in which the commitment to these tenets extends to every region in which we operate, every department and function, and every employee. As a result of these focused efforts, BXP won various industry and other awards in 2019, and we are recognized as a global industry leader in sustainability. Your Board is especially proud of these accomplishments because they are a direct result of our sustained commitment throughout the enterprise over several years. A list of these various awards is on page 5 of the accompanying proxy statement.

› Social. Boston Properties has an established reputation for excellence and integrity, and these core values are inherent in our culture; defining our strategy, achieving our business goals, and contributing to our overall success. Our teams are highly engaged with their local communities in determining how our projects can enhance neighborhoods, improve public amenities and provide high-quality space for working and living in order to positively impact the regions in which we operate. BXP and its employees also make a social impact through charitable giving and volunteerism.

Similarly, BXP is committed to providing an environment for its employees that fosters talent, energy and well-being. We seek an inclusive and diverse workforce that represents the communities we serve, and we design our programs to meet the needs of our workforce and support our employees and their families. The success of our efforts is demonstrated by the long tenure of our employees, nearly 40% of whom have worked at BXP for more than ten years.

› Governance. Your Board of Directors currently consists of eleven individuals with diverse backgrounds who are dedicated to serving the best interests of our stockholders. The accompanying proxy statement contains very detailed information on the composition of our Board and its responsibilities, including a snapshot of our policies on page 1 of the Proxy Summary.

Investor Outreach & Changes in Compensation Policies

At our 2019 annual meeting, our stockholders approved the “Say-on-Pay” resolution to ratify the compensation we paid to our named executive officers. Although the core philosophy and design of our compensation program remained materially consistent with prior years, Institutional Shareholder Services recommended that its clients vote against our 2019 Say-on-Pay resolution and the percentage of votes cast in favor of the Say-on-Pay resolution decreased from approximately 91% in 2018 to approximately 67% in 2019.

The results of the vote reflected approval of our executive compensation program as a whole, but the level of support was less than we expected and less than we desire. As a result, your independent directors, led by the Chair of the Compensation Committee and me, engaged directly with ten of our largest institutional investors representing ownership of more than 40% of the outstanding shares of BXP common stock to solicit feedback on our executive compensation program and our corporate governance policies generally and to better understand their individual concerns.

In addition to the feedback from investors, the Compensation Committee evaluated the advice received from its new independent consultant, Frederic W. Cook & Co., Inc. on the reasonableness of the Company’s executive compensation levels in comparison with those of other similarly situated companies and recommendations for the components and amounts of compensation paid to our top executive officers.

 

 

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The “Compensation Discussion and Analysis” section of the accompanying proxy statement includes a discussion of the feedback we received from investors, as well as the advice received from FW Cook. Each contributed to the Compensation Committee taking policy actions, and I want to highlight the following key changes:

› New Annual Cash Bonus Program – The Compensation Committee established a new 2020 Annual Incentive Plan. Under this plan, beginning in 2020, annual cash bonuses paid to our executive officers will be directly linked to their performance against goals in three, equally-weighted categories:

 

   

FFO per Share

 

   

Leasing

 

   

Business/Individual Goals

Some of our investors expressed a desire for more objectivity and structure in BXP’s annual cash bonus program, including specific weightings ascribed to each measure and transparent disclosure of goals and results. The new bonus plan addresses investors’ feedback on the discretionary nature of BXP’s traditional bonus program, reduces the number of performance goals and includes specific weightings for each measure.

› Target and Maximum Cash Bonus Opportunities – Beginning in 2020, all executive officers have target and maximum annual cash bonus opportunities. Amounts actually earned may range from zero (0) to 150% of target, depending on performance versus their pre-established goals in each category. The Compensation Committee incorporated the target and maximum bonus opportunities in the new bonus plan in response to investors expressing a preference for a clearly defined ranges of bonus opportunities.

› Allocation to Performance-based Equity Awards – The Compensation Committee increased the percentage of equity awards that are granted to our CEO in the form of performance-based equity awards from 50% to 55%, so the allocation between performance-based and time-based equity awards is now 55%-45%. (The allocation for all other NEOs remains 50%-50%.) In addition, the Compensation Committee increased the allocation of total compensation to long-term equity compensation and decreased the allocation to short-term cash compensation to increase alignment with stockholders and focus on long-term performance. As a result, performance-based equity awards for all NEOs represent a greater percentage of total direct compensation than they did in 2018.

We trust that you will view these changes as a demonstration of the commitment of Boston Properties’ Board to engage with you and to proactively respond to your concerns.

*****

The accompanying proxy statement contains a great deal of other important information about Boston Properties, and we hope you will take the time to read it. Whether or not you are able to attend the annual meeting, we welcome your participation in our affairs and thank you for your continued support.

Sincerely,

 

 

LOGO

Joel I. Klein

Chairman of the Board

 

 

 

1

For disclosures required by Regulation G, refer to (1) pages 95 through 97 of our 2019 Annual Report on Form 10-K for FFO and diluted FFO per share and (2) Appendix A to the accompanying proxy statement for BXP’s Share of Same Property NOI and NOI – Cash.

 

 

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LOGO

NOTICE OF 2020 ANNUAL

MEETING OF STOCKHOLDERS

 

DATE AND TIME

   Wednesday, May 20, 2020, at 9:00 a.m., Eastern Time

LOCATION

   *Metropolitan Square, 655 15th Street, NW, 2nd Floor, Washington, DC 20005

RECORD DATE

   March 25, 2020. Only stockholders of record at the close of business on the record date are entitled to receive notice of, and to vote at, the annual meeting.

 

 

*Depending on the status of health concerns about the coronavirus, or COVID-19, we may decide to hold the annual meeting by live audio webcast instead of holding the annual meeting in person at Metropolitan Square. The Company will publicly announce a decision to hold the annual meeting, at the same date and time, solely by audio webcast in a press release available at http://investors.bxp.com/press-releases as soon as practicable before the annual meeting. In the event the annual meeting is not held at Metropolitan Square, you or your proxyholder may participate, vote and examine our stockholder list by visiting www.virtualshareholdermeeting.com/BXP2020 and using your 16-digit control number.

Since becoming a public company in 1997, we have always held our annual meetings in person, and it remains our intention to do so under normal circumstances.

 

ITEMS OF BUSINESS

 

1.

To elect the eleven (11) 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 ratify the Audit Committee’s appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2020.

 

4.

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

Whether or not you 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.

By Order of the Board of Directors,

 

LOGO

Frank D. Burt, ESQ.

Secretary

April 3, 2020

Important Notice Regarding the Availability of Proxy Materials for the Stockholders Meeting to be Held on May 20, 2020. The proxy statement and our 2019 annual report to stockholders are available at www.proxyvote.com.

 

 

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Table of Contents

TABLE OF CONTENTS

 

 

                  Page
    Proxy Summary     1
  1       Proposal 1: Election of Directors     7
    Vote Required and Majority Voting Standard     7
    Nominees for Election     9
    Director Independence     21
    Consideration of Director Nominees     22
  2       Corporate Governance     25
    Board Leadership Structure     25
   

Board and Committee Meetings

    26
   

Board Refreshment and Evaluations

    26
   

Board Committees

    28
   

Board’s Role in Risk Oversight

    31
   

Other Governance Matters

    32
  3       Executive Officers     34
  4       Principal and Management Stockholders     37
  5       Compensation of Directors     40
    Components of Director Compensation     40
    Deferred Compensation Program     41
    Director Stock Ownership Guidelines     41
    Director Compensation Table     42
  6       Compensation Discussion and Analysis     43
    Executive Overview     43
    Say-on-Pay Results & Investor Outreach     46
    2019 Compensation Decisions     49
    Components of Executive Compensation     52
    Assessing Performance     55
    Determining Executive Compensation     60
    New 2020 Annual Incentive Plan     62
    Other Compensation Policies     63
  7       Compensation of Executive Officers     68
    Summary Compensation Table     68
    Grants of Plan-Based Awards in 2019     69
    Outstanding Equity Awards At Fiscal Year-End     70
    2019 Option Exercises and Stock Vested in 2019     72
    Nonqualified Deferred Compensation     72
    Employment Agreements     74
    Potential Payments Upon Termination or Change in Control     76
    Pay Ratio Disclosure     81
    Compensation Committee Report     82
 
8
 
 
  Proposal 2: Advisory Vote on Named Executive Officer Compensation     83
    Vote Required     83
                      Page  
 
9
 
   

 
  Proposal 3: Ratification of Appointment of Independent Registered Public Accounting Firm       84  
    Vote Required       84  
    Fees to Independent Registered Public Accounting Firm       85  
    Audit and Non-Audit Services Pre-Approval Policy       85  
    Audit Committee Report       86  
  10           Information about the Annual Meeting       87  
    Notice of Internet Availability of Proxy Materials       87  
    Purpose of the Annual Meeting       87  
    Presentation of Other Matters at the Annual Meeting       87  
    Stockholders Entitled to Vote       87  
    Attending the Annual Meeting       87  
    Quorum for the Annual Meeting       88  
    How to Vote       88  
    Revoking Proxy Instructions       89  
    Accessing Boston Properties’ Proxy Materials Electronically       89  
    Householding       89  
    Expenses of Solicitation       90  
  11           Other Matters       91  
    Certain Relationships and Related Person Transactions       91  
    Stockholder Nominations for Director and Proposals for the 2021 Annual Meeting of Stockholders       91  
  A           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 – Cash (excluding termination income)       A-2  
    Consolidated Joint Ventures       A-3  
    Unconsolidated Joint Ventures       A-5  
 

 

 

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Table of Contents
   PROXY SUMMARY

 

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.

2020 ANNUAL MEETING INFORMATION

 

Date and Time    Location    Record Date

Wednesday, May 20, 2020

9:00 a.m., Eastern Time

  

Metropolitan Square

655 15th Street, NW, 2nd Floor

Washington, DC 20005

   March 25, 2020

VOTING MATTERS AND RECOMMENDATIONS

 

Voting Matter         Board’s Voting
Recommendation
     Page Reference for
more Information

Proposal 1

  Election of Eleven (11) Directors     FOR each nominee      7

Proposal 2

  Non-binding, Advisory Vote on Named Executive     FOR      83
  Officer Compensation        

Proposal 3

  Ratification of Appointment of Independent     FOR      84
    Registered Public Accounting Firm            

GOVERNANCE AND COMPENSATION POLICIES AND KEY DATA

 

Board Leadership    Stockholder Rights

   Mr. Klein serves as our independent, non-executive Chairman of the Board

 

  

   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

Director Composition and Independence

   Eleven (11) directors

   Four directors are women and one director is African-American

   82% independent

 

Director Qualifications and Policies    Compensation

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

   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 in 2019

   Annual self-evaluation for the Board and each committee, and bi-annual interviews of individual directors by our Chairman of the Board; process overseen by our Nominating and Corporate Governance Committee

  

   Stock ownership requirements for executives (for CEO, 6x base salary)

   Stock ownership requirements for directors (5x annual retainer)

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

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

   Compensation Clawback Policy

   Policy against tax gross-up provisions

  

 

 

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   PROXY SUMMARY

 

BOARD NOMINEES

Following the recommendation of the Nominating and Corporate Governance (“NCG”) Committee, our Board of Directors has nominated the following eleven (11) candidates for election as directors at the 2020 annual meeting of stockholders.

 

  Name

  Principal Occupation   Age(1)   

Director

Since

   Independent    Current Committee
Memberships

Joel I. Klein

Chairman of the Board

  Chief Policy and Strategy Officer of Oscar Health Corporation   73    2013    Yes    (2)

Kelly A. Ayotte

  Former United States Senator for the State of New Hampshire   51    2018    Yes    Compensation; NCG

Bruce W. Duncan(3)

  Chairman and former Chief Executive Officer of First Industrial Realty Trust, Inc.   68    2016    Yes    Compensation (Chair); NCG

Karen E. Dykstra(3)

  Former Chief Financial and Administrative Officer of AOL, Inc.   61    2016    Yes    Audit

Carol B. Einiger

  President of Post Rock Advisors, LLC   70    2004    Yes    Compensation

Diane J. Hoskins

  Chair and Co-Chief Executive Officer of M. Arthur Gensler Jr. & Associates, Inc.   62    2019    Yes    NCG

Douglas T. Linde

  President of Boston Properties, Inc.   56    2010    No     

Matthew J. Lustig

  Chairman of North America Investment Banking and Head of Real Estate & Lodging at Lazard Fréres & Co.   59    2011    Yes    NCG (Chair)

Owen D. Thomas

  Chief Executive Officer of Boston Properties, Inc.   58    2013    No     

David A. Twardock(3)

  Former President of Prudential Mortgage Capital Company, LLC   63    2003    Yes    Audit (Chair); Compensation

William H. Walton, III

  Managing Member & Co-Founder of Rockpoint Group, LLC   68    2019    Yes    Audit

 

(1)

Age as of May 20, 2020, the date of the annual meeting.

 

(2)

Mr. Klein serves as our independent, non-executive Chairman of the Board and as an ex officio member of each of the Audit, Compensation and NCG Committees.

 

(3)

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 Securities and Exchange Commission. Our Board of Directors has also determined that Mr. Duncan qualifies as an audit committee financial expert if he is appointed to serve on the Audit Committee in the future.

 

 

 

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   PROXY SUMMARY

 

SNAPSHOT OF 2020 BOARD NOMINEES

Presented below is a snapshot of the expected composition of our Board of Directors immediately following the 2020 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 qualifications, 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 2019.

 

 

LOGO      LOGO LOGO

The following summarizes the qualifications and experience of the eleven (11) nominees for election as directors. For additional information, see “Proposal 1: Election of Directors – Nominees for Election” beginning on page 9 of the proxy statement.

 

LOGO

 

 

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   PROXY SUMMARY

 

SUSTAINABILITY

The BXP sustainability strategy is to conduct our business — the development and operation of new and existing buildings — in a manner that contributes to positive economic, social and environmental outcomes for our customers, shareholders, employees and the communities we serve. Our investment philosophy is shaped by our core strategy of long-term ownership and our commitment to our communities and the centers of commerce and civic life that make them thrive. We are focused on developing and maintaining healthy, high-performance buildings, while simultaneously mitigating operational costs and the potential external impacts of energy, water, waste, greenhouse gas emissions and climate change. To that end, we have publicly adopted long-term energy, emissions, water and waste goals that establish aggressive reduction targets and have been aligned with the United Nations Sustainable Development Goals. BXP is a corporate member of the U.S. Green Building Council® (“USGBC”) and has a long history of owning, developing and operating properties that are certified under USGBC’s Leadership in Energy and Environmental Design (“LEED®”) rating system. In addition, we have been an active participant in the green bond market since 2018, which provides access to sustainability-focused investors interested in the positive environmental externalities of our business activities. BXP and its employees also make a social impact through charitable giving, volunteerism, public-realm investments and diversity and inclusion. Through these efforts, we demonstrate that operating and developing commercial real estate can be conducted with a conscious regard for the environment and society while mutually benefiting our stakeholders.

   INDUSTRY LEADERSHIP

We are recognized as an industry leader in sustainability as demonstrated by the following awards and achievements.

Achievements

 

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   PROXY SUMMARY

 

Awards and Ratings

 

 

LOGO

  GREEN FINANCE

In 2018 and 2019, BXP marketed and issued an aggregate of $1.85 billion of green bonds in two separate bond offerings and subsequently provided impact reporting for the first offering in 2019. Green bonds restrict the use of proceeds to eligible green projects. Eligible Green Projects are defined as: (1) building developments or redevelopments; (2) renovations in existing buildings; and (3) tenant improvement projects, in each case, that have received, or are expected to receive, in the three years prior to the issuance of the notes or during the term of the notes, a LEED Silver, Gold or Platinum certification (or environmentally equivalent successor standards). The definition of Eligible Green Projects includes the Salesforce Tower development project, which has received LEED Platinum certification, and was the project associated with BXP’s inaugural green bond offering.

 

 

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   PROXY SUMMARY

 

   CLIMATE RESILIENCE

We are focused on climate preparedness and resiliency in advancement of our sustainability strategy. As a long-term owner and active manager of real estate assets in operation and under development, we strive to obtain adaptive capacity by continuing to proactively implement measures and planning and decision-making processes to protect our investments by improving resilience. We are preparing for long-term climate risk by considering climate change scenarios and will continue to assess climate change vulnerabilities resulting from potential future climate scenarios and sea level rise. Event-driven (acute) and longer-term (chronic) physical risks that may result from climate change could have a material adverse effect on our properties, operations and business. Management’s role in assessing and managing these climate-related risks and initiatives is spread across multiple teams across our organization, including our executive leadership and our Sustainability, Risk Management, Development, Construction and Property Management departments. Climate resilience measures include training and implementation of emergency response plans and the engagement of our executives and our Board of Directors on climate change and other environmental, social and governance (“ESG”) aspects.

  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 2019 calendar year energy and water data assured by a third party is not yet available. 2018 is the most recent year for which complete energy and water data is available and assured by a third party.

We are committed to transparent reporting of 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.bxp.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.

 

 

 

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1    PROPOSAL 1: ELECTION OF DIRECTORS

 

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 3, 2020 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 2020 annual meeting of stockholders to be held on Wednesday, May 20, 2020 at 9:00 a.m., Eastern Time, at Metropolitan Square, 655 15th Street, NW, 2nd Floor, Washington, DC 20005, and any adjournments or postponements thereof.

Depending on the status of health concerns about the coronavirus, or COVID-19, we may decide to hold the annual meeting by live audio webcast instead of holding the meeting in person at Metropolitan Square. The Company will publicly announce a decision to hold the annual meeting, at the same date and time, solely by audio webcast in a press release available at http://investors.bxp.com/press-releases as soon as practicable before the annual meeting. In the event the annual meeting is not held at Metropolitan Square, you or your proxyholder may participate, vote and examine our stockholder list by visiting www.virtualshareholdermeeting.com/BXP2020 and using your 16-digit control number.

Since becoming a public company in 1997, we have always held our annual meeting in person, and it remains our intention to do so under normal circumstances.

PROPOSAL 1:

ELECTION 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, Diane J. Hoskins, Joel I. Klein, Douglas T. Linde, Matthew J. Lustig, Owen D. Thomas, David A. Twardock and William H. Walton, III. At the 2020 annual meeting of stockholders, directors will be elected to hold office for a one-year term expiring at the 2021 annual meeting of stockholders. Directors shall hold office until their successors are duly elected and qualified, or until their 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.

Following the recommendation of the NCG Committee, our Board of Directors nominated all directors currently serving for re-election. 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 AND MAJORITY VOTING STANDARD

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.

 

 

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The majority voting standard will apply to the election of directors at the 2020 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 then 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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NOMINEES FOR ELECTION

The following biographical descriptions set forth certain information with respect to the nominees for election as directors at the annual meeting, based on information furnished to Boston Properties by each nominee, including 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.

 

JOEL I. KLEIN

 

Chief Policy and Strategy Officer of Oscar Health Corporation

 

  

Qualifications:

 

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 and financial matters.

 

Professional Background:

 

  Chief Policy and Strategy Officer of Oscar Health Corporation, a health insurance company

 

  Director of News Corporation since January 2011

 

  Executive Vice President, Office of the Chairman of News Corporation from June 2003 to December 2015 and Chief Executive Officer of Amplify, the education division of News Corporation, from January 2011 to December 2015

 

  Chancellor of the New York City Department of Education from 2002 through 2010, where Mr. Klein oversaw a system of over 1,600 schools with 1.1 million students, 136,000 employees and a $22 billion budget

 

  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

 

  Various roles with the Clinton administration, including Assistant U.S. Attorney General in charge of the Antitrust Division of the U.S. Department of Justice from 1997 to 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

   

Other Leadership Experience, Community

Involvement and Education:

 

  Member of the Boards of The Foundation for Excellence in Education (ExcelinEd) and StudentsFirstNY

 

  Member of the Advisory Boards of the Zuckerman Mind Brain Behavior Institute and Columbia College

 

  Received a BA magna cum laude from Columbia University and a JD magna cum laude from Harvard Law School. Mr. Klein has also received honorary degrees from ten colleges and universities

LOGO

 

Director since:

January 2013

 

Age: 73

 

Independent

 

Chairman of the Board

 

Board Committees:

  ex officio member of all committees

 

Other Public Company Boards:

  Current: News Corporation

  Former (past 5 years): None

 

 

 

 

 

 

 

 

 

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SENATOR

KELLY A. AYOTTE

 

Former U.S. Senator for the State of New Hampshire

 

  

Qualifications:

 

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

 

Professional Business Experience:

 

  Represented New Hampshire in the United States Senate from 2011 to 2016; chaired

the Armed Services Subcommittee on Readiness and the Commerce Subcommittee on Aviation Operations; and served on the Budget, Homeland Security and Governmental Affairs, Small Business and Entrepreneurship, and Aging Committees

 

  New Hampshire’s first female Attorney General from 2004 to 2009 appointed by Republican Governor Craig Benson and reappointed twice by Democratic Governor John Lynch

 

  Previously Deputy Attorney General, Chief of the Homicide Prosecution Unit and Legal Counsel to Governor Craig Benson

 

  Former associate at the McLane Middleton law firm and law clerk to the New Hampshire Supreme Court

 

  Director of The Blackstone Group, Inc., Caterpillar Inc. and News Corporation

 

  Director of Blink Health LLC and BAE Systems, Inc., each a private company

 

  Former director of Bloom Energy Corporation from 2017 to 2019

 

  Member of advisory boards of Microsoft Corporation, Chubb Insurance and Cirtronics Corporation

   

Other Leadership Experience, Community

Involvement and Education:

 

  Senior Advisor for Citizens for Responsible Energy Solutions

 

  Member of non-profit boards of the One Campaign, the International Republican Institute, the McCain Institute, Swim with a Mission, Winning for Women and Veterans Count of New Hampshire

 

  Member of the Aspen Institute’s Economic Strategy

 

  Member of Board of Advisors for the Center on Military and Political Power at the Foundation for Defense of Democracies

 

  Co-chair of the Center for Strategic and International Study’s Commission on Health Security

 

  Co-chair of the Center for a New American Security’s Digital Freedom Forum

 

  Graduated with honors from the Pennsylvania State University and received a JD from the Villanova University School of Law

 

LOGO

 

Director since: May 2018

 

Age: 51

 

Independent

 

Board Committees:

  Compensation

  NCG

 

Other Public Company Boards:

  Current: The Blackstone Group, Inc., Caterpillar Inc., News Corporation

  Former (past 5 years): Bloom Energy Corporation

 

 

 

 

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BRUCE W.

DUNCAN

 

Chairman of the Board of Directors of First Industrial Realty Trust, Inc.

 

  

Qualifications:

 

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.

 

Professional Business Experience:

 

  Chairman of the Board of Directors of First Industrial Realty Trust, Inc. (“First Industrial”), an industrial real estate investment trust (“REIT”), since January 2016, and a director of First Industrial since January 2009; 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

 

  Senior advisor to Kohlberg Kravis Roberts & Co. (“KKR”), a global investment firm, since November 2018; previously senior advisor to KKR from July 2008 to January 2009

 

  Former 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; director of Starwood from 1999 to September 2016; interim Chief Executive Officer of Starwood from April 2007 to September 2007

 

  Trustee of Starwood Hotels & Resorts, a REIT and former subsidiary of Starwood, from 1995 to 2006

 

  Director of Marriott International, Inc., the world’s largest hotel company, since September 2016, and T. Rowe Price Mutual Funds since September 2013

 

  Private investor from January 2006 to January 2009

 

  Various positions at Equity Residential, one of the largest publicly traded apartment REITs in the United States, from March 2002 to December 2005, including Chief Executive Officer and Trustee from May 2005 to December 2005, President, Chief Executive Officer and Trustee from January 2003 to May 2005, and President and Trustee from March 2002 to December 2002

 

  Former director of The Rouse Company, a diversified commercial real estate firm

 

  Chairman, President and Chief Executive Officer of Cadillac Fairview Corporation, one of North America’s largest owners and developers of retail and office properties, from December 1995 to March 2000

   

Other Leadership Experience, Community

Involvement and Education:

 

  Life Trustee of Rush University Medical Center in Chicago

 

  Former member of the Advisory Board of Governors of the National Association of Real Estate Investment Trusts (“Nareit”) and the Executive Committees of the Board of the Canadian Institute for Public Real Estate Companies (CIPREC) and the National Multi-Housing Council (NMHC)

 

  Former trustee of the International Council of Shopping Centers (ICSC)

 

  Received a BA in Economics from Kenyon College and an MBA in Finance from the University of Chicago

 

LOGO

 

Director since: May 2016

 

Age: 68

 

Independent

 

Board Committees:

  Compensation (Chair)

  NCG

 

Other Public Company Boards:

  Current: First Industrial Realty Trust, Inc., Marriott International, Inc.

  Former (past 5 years): Starwood Hotels & Resorts Worldwide, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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KAREN E.

DYKSTRA

 

Former Chief Financial and Administrative Officer of AOL, Inc.

 

  

Qualifications:

 

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

 

Professional Business Experience:

 

  Chief Financial and Administrative Officer of AOL, Inc., a global media technology company, from November 2013 to July 2015; Chief Financial Officer of AOL, Inc. from September 2012 to November 2013

 

  Partner of Plainfield Asset Management LLC (“Plainfield”) from January 2007 to December 2010

 

  Chief Operating Officer and Chief Financial Officer of Plainfield Direct Inc., Plainfield’s business development company, from May 2006 to 2010 and a director from 2007 to 2010

 

  Various positions with Automatic Data Processing, Inc. for over 25 years, including serving most recently as Chief Financial Officer from January 2003 to May 2006, and as Vice President – Finance, Corporate Controller

 

  Director of Sirius Computer Solutions, a private company

 

  Director of Gartner, Inc. since 2007 and VMware, Inc. since March 2016

 

  Former director of Crane Co. from 2004 to 2012 and AOL, Inc. from 2009 to 2012

   

Education:

 

  Received a BA in Accounting from Rider University and an MBA from Fairleigh Dickinson University

 

LOGO

 

Director since: May 2016

 

Age: 61

 

Independent

 

Board Committees:

  Audit

 

Other Public Company Boards:

  Current: Gartner, Inc., VMware, Inc.

  Former (past 5 years): None

 

 

 

 

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CAROL B.

EINIGER

 

President of Post Rock Advisors, LLC

 

  

Qualifications:

 

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.

 

Professional Background:

 

  President of Post Rock Advisors, LLC, a private investment firm, since July 2018; founder and President of Post Rock Advisors, LLC from 2005 to 2016

 

  Senior Advisor of Roundtable Investment Partners LLC, a registered investment advisory firm, from January 2017 to June 2018

 

  Chief Investment Officer of The Rockefeller University, where Ms. Einiger was responsible for the management of the University’s endowment, from 1996 to 2005

 

  Chief Financial Officer and then Acting President of the Edna McConnell Clark Foundation from 1992 to 1996

 

  Managing Director at Wasserstein Perella & Co. from 1989 to 1992

 

  Visiting Professor and Executive-in-Residence at Columbia Business School from 1988 to 1989

 

  Various positions at The First Boston Corporation from 1973 to 1988, becoming Managing Director and Head of the Capital Markets Department

 

  Various positions at Goldman, Sachs & Co. from 1971 to 1972

   

Other Leadership Experience, Community

Involvement and Education:

 

  Director, member and former Chair of the Investment Committee of UJA-Federation of New York

 

  Member of the Investment Committee of the JPB Foundation and the Board of Overseers of Columbia Business School

 

  Former member of the Boards of Trustees and Investment Committees of the University of Pennsylvania, the Lasker Foundation, the Horace Mann School

 

  Former member of the Advisory Board of Blackstone Alternative Asset Management

 

  Former Vice Chair of the Investment Committee of The Museum of Modern Art

 

  Former Director of Credit Suisse First Boston (USA) and The New York Stem Cell Foundation

 

  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

 

  Received a BA from the University of Pennsylvania and an MBA with honors from Columbia Business School

 

LOGO

 

Director since: May 2004

 

Age: 70

 

Independent

 

Board Committees:

  Compensation

 

Other Public Company Boards:

  Current: None

  Former (past 5 years): None

 

 

 

 

 

 

 

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DIANE J. HOSKINS

 

Co-CEO and Chair of M. Arthur Gensler Jr. & Associates, Inc.

 

  

Qualifications:

 

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, including their current and future space needs and insight into how companies envision their work spaces of the future.

 

Professional Background:

 

  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, where Ms. Hoskins 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

 

  Various positions at Gensler since 1995, including Southeast Regional Managing Principal and Managing Director of the Washington, DC office

 

  Founded the Gensler Research Institute to generate new knowledge and develop a deeper understanding of the connection between design, business, and the human experience

 

  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

 

  Architect at Skidmore Owings & Merrill from 1980 to 1983

   

Other Leadership Experience, Community

Involvement and Education:

 

  Member of the World Economic Forum’s Global Future Council on Cities & Urbanization and the CEO Initiative by Fortune and Time

 

  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

 

  Serves on the Visiting Committee of the School of Architecture at the Massachusetts Institute of Technology (MIT) and the Board of Advisors of the University of California, Los Angeles (UCLA) Anderson School of Management

 

  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

 

  Inducted into the Washington Business Hall of Fame in 2016, 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

 

  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; was a featured panelist at the UN Climate Summit in the fall of 2019

 

  Graduated from MIT and holds an MBA from the Anderson Graduate School of Management at UCLA

 

LOGO

 

Director since:

May 2019

 

Age: 62

 

Independent

 

Board Committees:

  NCG

 

Other Public Company Boards:

  Current: None

  Former (past 5 years): None

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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DOUGLAS T.

LINDE

 

President of Boston Properties, Inc.

 

  

Qualifications:

 

Mr. Linde has more than 30 years of experience in the real estate industry, including as our President and former Chief Financial Officer, during which time he gained extensive knowledge of the real estate industry, capital markets and real estate finance, as well as substantial experience in transactional, operational and accounting matters.

 

Professional Background:

 

  President of Boston Properties, Inc. since May 2007

 

  Mr. Linde 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 served as Senior Vice President for Financial and Capital Markets from October 1998 to January 2005, Chief Financial Officer and Treasurer from September 2000 to November 2007, and Executive Vice President from January 2005 to May 2007

 

  President of Capstone Investments, a Boston real estate investment company, from 1993 to 1997

 

  Project Manager and Assistant to the Chief Financial Officer of Wright Runstad and Company, a private real estate developer in Seattle, WA, from 1989 to 1993

 

  Began his career in the real estate industry with Salomon Brothers’ Real Estate Finance Group

   

Other Leadership Experience, Community

Involvement and Education:

 

  Trustee of the Beth Israel Lahey Health Board of Trustees

 

  Director Emeritus of the Board of Directors of Beth Israel Deaconess Medical Center (“BIDMC”) and co-chair of the BIDMC capital campaign

 

  Member of the Real Estate Roundtable

 

  Director of the Boston Municipal Research Bureau and Jobs for Massachusetts

 

  Member of the Urban Studies and Planning Visiting Committee at MIT and the Wesleyan University Board of Trustees

 

  Received a BA from Wesleyan University and an MBA from Harvard Business School

LOGO

 

Director since: January 2010

 

Age: 56

 

Other Public Company Boards:

  Current: None

  Former (past 5 years): None

 

 

 

 

 

 

 

 

 

 

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MATTHEW J.

LUSTIG

 

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

 

  

Qualifications:

 

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 including leading real estate companies, and investing in real estate companies and assets as a principal.

 

Professional Background:

 

  Chairman of North America Investment Banking at Lazard Frères & Co. (“Lazard”), the investment bank, since 2019 (previously Head of North America Investment Banking, from 2012 to 2019), with responsibility for the management of a range of Financial Advisory/Investment Banking businesses

 

  Head of Real Estate & Lodging at Lazard, a position he has held for more than 20 years, serving clients and running its Real Estate and Lodging industry group. In recent years, Mr. Lustig 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

 

  Former Chief Executive Officer of the real estate investment business of Lazard and its successors, where he oversaw multiple funds with over $2.5 billion of equity capital invested in REITs and real estate operating companies

 

  Director of Ventas, Inc., a REIT with a portfolio of senior housing, research and innovation, and healthcare properties, since May 2011

 

  Former Chairman of Atria Senior Living Group, Inc., which was acquired by Ventas in May 2011

 

  Former director of several other public and private fund portfolio REITs and companies

   

Other Leadership Experience, Community

Involvement and Education:

 

  Member of the Real Estate Roundtable, the Urban Land Institute, the Pension Real Estate Association (former Board and Executive Committee member) and the Council on Foreign Relations

 

  Member of the Real Estate centers at the business schools of Wharton/UPenn (Chairman of the Advisory Board) and Columbia University

 

  Member of the Board of Advisors at the School of Foreign Service at Georgetown University

 

  Received a BSFS from Georgetown University

LOGO

 

Director since: January 2011

 

Age: 59

 

Independent

 

Board Committees:

  NCG (Chair)

 

Other Public Company Boards:

  Current: Ventas, Inc.

  Former (past 5 years): None

 

 

 

 

 

 

 

 

 

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OWEN D. THOMAS

 

Chief Executive Officer of Boston Properties, Inc.

 

  

Qualifications:

 

Mr. Thomas is a recognized leader in the real estate industry with more than 33 years of executive leadership, strategic planning and management experience, as well as substantial experience in financial and capital markets.

 

Professional Background:

 

  Chief Executive Officer of Boston Properties, Inc. since April 2013

 

  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

 

  Various positions at Morgan Stanley from 1987 to 2011, including Chief Executive Officer of Morgan Stanley Asia Ltd., President of Morgan Stanley Investment Management, Head of Morgan Stanley Real Estate and Managing Director

 

  Member of Morgan Stanley’s Management Committee from 2005 to 2011

   

Other Leadership Experience, Community

Involvement and Education:

 

  Global Chairman of the Urban Land Institute

 

  Director of the Real Estate Roundtable

 

  Member of the Executive Board of Nareit

 

  Received a BS in Mechanical Engineering from the University of Virginia and an MBA from Harvard Business School

LOGO

 

Director since: April 2013

 

Age: 58

 

Other Public Company Boards:

  Current: None

  Former (past 5 years): None

 

 

 

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DAVID A.

TWARDOCK

 

Former President of Prudential Mortgage Capital Company, LLC

 

  

Qualifications:

 

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.

 

Professional Background:

 

  Former President of Prudential Mortgage Capital Company, LLC, the real estate finance affiliate of Prudential Financial, Inc., from December 1998 to March 2013, 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

 

  Various positions with Prudential relating to real estate equity and debt from 1982 to December 1998, including as Senior Managing Director of Prudential Realty Group from 1996 to November 1998

 

  Member of the advisory boards of Blue Vista Capital Management and LBA Realty

 

  Director of Morgan Stanley Bank, N.A. from 2015 through 2018

   

Other Leadership Experience, Community

Involvement and Education:

 

  Member of the Urban Land Institute and the Economics Club of Chicago

 

  Former director of the Real Estate Roundtable and former Chairman of the Real Estate Roundtable Capital Markets Committee

 

  Received a BS in Civil Engineering from the University of Illinois and an MBA in Finance and Behavioral Science from the University of Chicago

LOGO

 

Director since: May 2003

 

Age: 63

 

Board Committees:

  Audit (Chair)

  Compensation

 

Other Public Company Boards:

  Current: None

  Former (past 5 years): None

 

 

 

 

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WILLIAM H.

WALTON, III

 

Co-Founder and Managing Member of Rockpoint Group, LLC

 

  

Qualifications:

 

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.

 

Professional Background:

 

  Co-founder and managing member of Rockpoint Group, LLC (“Rockpoint”), a global real estate investment management firm, where 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; since 1994, the Rockpoint founding managing members have invested in approximately $60 billion of real estate

 

  Co-founder of Westbrook Real Estate Partners, LLC (“Westbrook”), a real estate investment management firm

 

  Managing director in the real estate group of Morgan Stanley & Co., Inc. prior to co-founding Westbrook

 

  Director of Crow Holdings, a privately owned real estate and investment firm, and FRP Holdings, Inc., a company engaged in the real estate business

 

  Former trustee of Corporate Office Properties Trust and former director of Florida Rock Industries and The St. Joe Company

   

Other Leadership Experience, Community

Involvement and Education:

 

  Involved with several real estate industry organizations

 

  Director or trustee of several non-profit organizations, with a particular interest in educational and policy 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

 

  Former member of the boards of Communities in Schools, the Episcopal School of Jacksonville, Princeton University and Princeton University Investment Company

 

  Received an AB from Princeton University and an MBA from Harvard Business School

LOGO

 

Director since: May 2019

 

Age: 68

 

Board Committees:

  Audit

 

Other Public Company Boards:

  Current: FRP Holdings, Inc.

  Former (past 5 years): None

 

 

 

 

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  SUMMARY OF BOARD NOMINEE QUALIFICATIONS, EXPERIENCE AND DIVERSITY

In addition to the minimum qualifications that our Board of Directors believes are necessary for all directors, the following chart highlights certain qualifications 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 biographical descriptions above.

 

 

NOMINEE QUALIFICATIONS AND EXPERIENCE

                       
  Qualification/Experience   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

  🌑   🌑   🌑   🌑   🌑   🌑   🌑   🌑   🌑   🌑   🌑

 

 

BOARD COMPOSITION

9 of 11    7.2 years    63.2 years    4    1

Independent Directors

  

Average Tenure of all Nominees

  

Average Age of all Nominees

  

Women

  

Ethnic Minority

 

 

 

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DIRECTOR INDEPENDENCE

Under the rules of the New York Stock Exchange (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.

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”); and

 

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.

  2020 INDEPENDENCE DETERMINATIONS

The Board of Directors concluded that the following directors 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.

 

Kelly A. Ayotte

 

Bruce W. Duncan

 

Karen E. Dykstra

 

Carol B. Einiger

 

Diane J. Hoskins

 

Joel I. Klein

 

Matthew J. Lustig

 

David A. Twardock

 

William H. Walton, III

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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 and 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 2020 annual meeting in compliance with the procedures set forth below. All securityholder recommendations for director candidates for election at the 2021 annual meeting of stockholders must be submitted to our Secretary on or before December 4, 2020 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;

 

 

 

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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;

 

   

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 Securities and Exchange Commission (“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 candidate 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.

  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.

 

 

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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.

 

 

 

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CORPORATE GOVERNANCE

Boston Properties is committed to strong corporate governance policies, practices, and procedures designed to make the Board effective in exercising its oversight role. Our Board of Directors oversees management performance on behalf of our stockholders to ensure that the long-term interests of our stockholders are being served, to monitor adherence to Boston Properties standards’ and policies, and to promote the exercise of responsible corporate citizenship. Our Board values and considers the feedback we receive from our stockholders, and we have taken a number of actions over the last several years to increase stockholder rights, enhance the Board’s structure, and augment our commitment to sustainability and corporate responsibility taking into account those perspectives.

BOARD 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 CEO 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 CEO 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.

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 an 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, 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.

The independent directors selected Mr. Klein to serve as lead independent director in May 2016, a position he held until May 2019. Our Board of Directors appointed Mr. Klein as independent, non-executive Chairman of the Board, effective immediately following the 2019 annual meeting of stockholders. In addition to responsibilities that may be assigned from time to time by the full Board, Mr. Klein’s responsibilities as Chairman include:

 

 

  Approving information sent to the Board

 

  Approving Board meeting agendas and schedules to ensure that sufficient time for all agenda items

 

  Coordinating the work of each committee with the activities of the full Board

 

  Calling meetings of the independent directors

 

  Presiding at all meetings of the Board, including executive sessions of independent directors

 

  Attending meetings of Board committees regularly

 

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

 

  Serving as liaison between the CEO and the independent directors

 

  

 

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

 

  Ensuring that he is available, if requested by major stockholders, for direct consultation and communication

 

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

 

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

 

  Independently reviewing with the CEO the Company’s succession plan for executive officers

 

Our Board believes that Mr. Klein’s appointment as Chairman enhances our independent directors’ oversight of our business and affairs. Our Board of Directors encourages strong communication among all of its independent directors and the CEO, and the Board believes that it has been able to effectively provide independent oversight of our business and affairs, including risks facing the

 

 

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Company, through our Chairman of the Board, the independent committees of our Board of Directors, the overall composition of our Board of Directors and contributions from all of our independent directors and other corporate governance processes in place.

BOARD AND COMMITTEE MEETINGS

Number of Meetings and Attendance. Our Board of Directors met eight times during 2019. Each incumbent director attended at least 75% of the aggregate of (1) the total number of meetings of our Board of Directors in 2019 held during the period for which he or she was a director and (2) the total number of meetings in 2019 of all committees of our Board of Directors on which the director served during the periods that he or she served. As a whole, during 2019, our directors attended more than 98% of the aggregate number of Board meetings and meetings of committees on which they served.

Annual Meeting Attendance. 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, along with two first-time nominees, attended the 2019 annual meeting of stockholders. Two directors then serving did not attend the 2019 annual meeting of stockholders because they were not standing for re-election.

Meetings of Non-Management Directors. Directors who qualify as “non-management” within the meaning of the rules of the 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 independent, non-executive Chairman of the Board. Each director has the right to call an executive session. Currently, all of our non-management directors are independent.

BOARD REFRESHMENT AND EVALUATIONS

  DIRECTOR SUCCESSION PLANNING

Led by our Chairman of the Board and our 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 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 geography, gender and ethnicity); and

 

   

considers the results of our Board and committee self-evaluations, as well as feedback received from this bi-annual oral interviews of each director by our Chairman of the Board (see “– Board and Committee Evaluations” below).

 

Our Board of Directors recognizes the importance of continuity and that refreshment should not be effectuated all at once. Consistent with this approach, between 2016-2019, our Board nominated, and our stockholders elected, five new directors (Mses. Ayotte, Dykstra and Hoskins and Messrs. Duncan and Walton).    LOGO

Board Committee Rotation. The NCG Committee also considers the periodic rotation of committee members and committee chairs to introduce fresh perspectives and to broaden and diversify the views and experience represented on committees.

Director Tenure and Mandatory Retirement Age. To ensure that our Board has an appropriate balance of experience, continuity and fresh perspective, our Board considers the length of tenure and age when nominating candidates for election. Our Board does not have formal limits on director tenure, but has a policy that provides no person shall be nominated by the Board for election as a non-employee director following his or her 75th birthday.

 

 

 

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  BOARD AND COMMITTEE EVALUATIONS

The feedback received from each member of our Board during the Board and committee evaluation process plays a critical role in ensuring that our Board and its committees function effectively. To this end, the NCG Committee is responsible for establishing the process used and the criteria for the evaluations.

 

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Topics considered during the Board and committee evaluations include:

 

Board and Committee Operations

 

 

 
   

 

  Board and committee membership, including independence, director skills, background, expertise and diversity

 

  Committee structure

 

   

  Process for director nominations

 

   

  Number and conduct of meetings, including time allocated for, and encouragement of, candid dialogue

 

   

  Materials and information, including quality, quantity and timeliness of information received from management, and suggestions for educational sessions

 

   

  Culture

 

   

 

Board Performance

 

 

   

 

  Strategy oversight

 

  Identification of topics that should receive more attention and discussion

 

  Management succession

 

  Financial, cyber and other risk oversight

 

   

 

Committee Performance

 

 

   

 

  Performance of committee duties under its charter

 

  Effectiveness of outside advisors

 

   
   
   

 

 

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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.bxp.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 2019, are described below.

  AUDIT COMMITTEE

 

   

Members:

David A. Twardock (Chair)*

Karen E. Dykstra*

William H. Walton, III

 

Number of Meetings in

2019: 9

 

*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.

 

Mr. Walton was appointed to the Audit Committee on May 21, 2019.

  

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 reviewing 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 SEC and the NYSE.

 

For additional disclosures regarding the Audit Committee, including the Audit Committee Report, see “Proposal 3: Ratification of Appointment of Independent Registered Public Accounting Firm” beginning on page 84.

 

 

 

 

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  COMPENSATION COMMITTEE

 

   

Members:

Bruce W. Duncan (Chair)

Kelly A. Ayotte

Carol B. Einiger

David A. Twardock

 

Number of Meetings in

2019: 7

  

The Compensation Committee’s responsibilities include:

 

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

 

  evaluating the performance of the CEO and designated senior executive officers in light of such goals and objectives and determining and approving 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. The Compensation Committee reviews and approves all equity awards for all employees and delegated limited authority to the CEO to make equity grants to employees who are not executive officers.

 

In 2019, the Compensation Committee engaged Frederic W. Cook & Co., Inc. (“FW Cook”) to serve as its new independent, third-party advisor to provide a fresh perspective on our overall executive compensation program, advise on the reasonableness of executive compensation levels in comparison with those of other similarly situated companies and consult on the structure of our executive compensation program to optimally support our business objectives. FW Cook also advised on executive compensation trends among REITs and the broader market. Information concerning the nature and scope of FW Cook’s assignments and related disclosures is included under “Compensation Discussion and Analysis” beginning on page 43.

 

The Compensation Committee Report is included in this proxy statement on page 82.

 

 

 

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  NOMINATING AND CORPORATE GOVERNANCE COMMITTEE

 

   

Members:

Matthew J. Lustig (Chair)

Kelly A. Ayotte

Bruce W. Duncan

Diane J. Hoskins*

 

Number of Meetings in

2019: 3

 

*Ms. Hoskins was appointed to the NCG Committee on May 21, 2019.

  

The NCG Committee is responsible for, among other functions:

 

  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://investors.bxp.com/governance-guidelines.

 

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

 

 

 

 

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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:

 

 

market conditions;

 

 

tenant concentrations and credit worthiness;

 

 

leasing activity and expirations;

 

 

the status of current and anticipated development projects;

 

 

compliance with debt covenants;

 

 

management of debt maturities;

 

 

access to debt and equity capital markets;

 

 

existing and potential legal claims against Boston Properties;

 

 

climate change and sustainability;

 

 

potential cyber attacks and intrusions;

 

 

public health crises, pandemics and epidemics; and

 

 

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:

 

 

acquisitions and dispositions of properties;

 

 

development projects;

 

 

new borrowings; and

 

 

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 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 “– Other Governance Matters – Communications with the Board” below).

 

 

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2    CORPORATE GOVERNANCE

 

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 Structure” above for a discussion of why our Board of Directors has determined that its current leadership structure is appropriate.

OTHER GOVERNANCE MATTERS

  CODE OF BUSINESS CONDUCT AND ETHICS AND OTHER POLICIES

Our Board of Directors adopted the following policies, copies of which are available on our website:

 

   

Code of Business Conduct and Ethics (the “Code of Ethics”) available on our website at http://investors.bxp.com/code-conduct-and-ethics

The Code of Ethics governs business decisions made and actions taken by our directors, officers and employees. 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 available on our website at http://investors.bxp.com/governance-guidelines

 

   

Policy on Company Political Spending available on our website at http://investors.bxp.com/policy-political-spend

  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” 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.

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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2    CORPORATE GOVERNANCE

 

  COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The current members of the Compensation Committee are Mses. Ayotte and Einiger and Messrs. Duncan and Twardock. None of these persons has served as an officer or employee of Boston Properties. None of these persons had any relationships with Boston Properties requiring disclosure under Item 404 of Regulation S-K. None of Boston Properties’ executive officers served as a director or a member of a compensation committee (or other committee serving a similar function) of any other entity, an executive officer of which served as a director of Boston Properties or a member of the Compensation Committee during 2019.

  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:

 

   

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, Boston Properties Limited Partnership (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 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.

 

 

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3    EXECUTIVE OFFICERS

 

EXECUTIVE OFFICERS

Biographies of our executive officers, other than Messrs. Thomas and Linde, are presented below, based on information furnished to Boston Properties by each 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. Information for Messrs. Thomas and Linde is included above under “Proposal I: Election of Directors – Nominees for Election” beginning on page 9.

 

 

Raymond A. Ritchey

Senior Executive
Vice President

Age 69

 

 

  Senior Executive Vice President of Boston Properties since January 2016, with responsibility for all business development, leasing and marketing, as well as new opportunity origination in the Washington, DC area and directly oversees similar activities on a national basis

 

 

  Various positions at Boston Properties since 1980, including Executive Vice President, Head of our Washington, DC Office and National Director of Acquisitions and Development and Senior Vice President and Co-Manager of our Washington, DC office

 

 

  Joined Boston Properties in 1980, leading our expansion to become one of the dominant real estate firms in the Washington, DC metropolitan area

 

 

  A leading commercial real estate broker in the Washington, DC area with Coldwell Banker from 1976 to 1980

 

 

  President of the Board of Spanish Education Development (SED) Center

 

 

  Member of the Federal City Council and 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

 

 

  Active volunteer with numerous civic, charitable, and real estate industry organizations

 

 

  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

   

 

  Graduate of the U.S. Naval Academy and U.S. Naval Post Graduate School in Monterey, California

 

 

 

Michael E. LaBelle

Executive Vice
President, Chief
Financial Officer and
Treasurer

Age 56

 

 

  Executive Vice President, Chief Financial Officer and Treasurer of Boston Properties since January 2016, with responsibility for overseeing the finance, accounting, tax, internal audit and investor relations departments and also for capital raising, treasury management, credit underwriting, financial strategy and planning

 

 

  Various positions at Boston Properties since March 2000, including Senior Vice President, Chief Financial Officer and Treasurer from November 2007 to January 2016 and Senior Vice President, Finance from February 2005 to November 2007

 

 

  Former Vice President & Relationship Manager with Fleet National Bank from 1991 to 2000, with the responsibility of financing large-scale commercial real estate developments

 

 

  Former 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

 

 

  Member of the National Advisory Board for the University of Colorado Real Estate Center

   

 

  Received a BS in Economics from the University of Colorado

 

 

 

 

 

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3    EXECUTIVE OFFICERS

 

 

Peter D. Johnston

Executive Vice
President,
Washington, DC
Region

Age 61

 

 

  Executive Vice President, Washington, DC Region of Boston Properties since January 2016, with responsibility for all operations, including project development, leasing, construction, property management and administrative activities for our Washington, DC office, with a staff of approximately 181 people

 

 

  Various positions at Boston Properties since 1987, including Senior Vice President and Regional Manager and Head of Development of our Washington, DC office; has been responsible for more than eight million square feet of new development and renovation projects

 

 

  Former director of the Northern Virginia Chapter of NAIOP

 

 

  Received a BA in Business Administration from Roanoke College, an MA from Hollins College and an MBA from the University of Virginia

 

 

 

Bryan J. Koop

Executive Vice
President, Boston
Region

Age 61

 

 

  Executive Vice President, Boston Region of Boston Properties since January 2016, with responsibility for overseeing the operation of our existing regional portfolio in the Boston area, which includes the Prudential Center and Kendall Center and developing new business opportunities in the area

 

 

  Senior Vice President and Regional Manager of our Boston office from 1999 to 2016

 

 

  Various positions 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, including Managing Director and Regional Leader for Trammell Crow Company’s New England region, with responsibility for all commercial office and shopping center operations.

 

 

  Director of the Massachusetts Chapter of NAIOP, the Boston Green Ribbon Commission and the Kendall Square Association

 

 

  Former chairman of the Back Bay Association

 

 

  Received a BBA and an MBA from Texas Christian University

 

 

 

Robert E. Pester

Executive Vice
President, San
Francisco Region

Age 63

 

 

  Executive Vice President, San Francisco Region of Boston Properties since January 2016, with responsibility 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

 

 

  Senior Vice President and Regional Manager of our San Francisco office from 1998 to 2016

 

 

  Executive Vice President and Chief Investment Officer of Bedford Property Investors, a REIT in Lafayette, California, where he led the acquisitions and development program from 1994 to 1998

 

 

  President of Bedford Property Development, a private West Coast development concern that held more than $2 billion in real estate assets from 1989 to 1998

 

 

  A leading commercial real estate broker with Cushman & Wakefield in northern California, from 1980 to 1989, where he last served as Vice President

 

 

  Received a BA in Economics and Political Science from the University of California at Santa Barbara

 

 

 

 

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3    EXECUTIVE OFFICERS

 

 

John F. Powers

Executive Vice
President, New York
Region

Age 73

 

 

  Executive Vice President, New York Region of Boston Properties since January 2016, with responsibility for overseeing all aspects of our New York and Princeton, New Jersey activities, including development, acquisitions, leasing and building operations

 

 

  Senior Vice President and Regional Manager of our New York office from January 2014 to January 2016

 

 

  Chairman of CBRE, Inc. for the New York Tri-State Region, from 2004 to 2016 overseeing the strategic direction of CBRE’s Tri-State operations

 

 

  Joined the Edward S. Gordon Company, which was subsequently merged into CBRE, in 1986, where 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; 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

 

 

  Spent eight years at Swiss Bank Corp (now UBS)

 

 

  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

 

 

  Chairman of Right to Dream, Inc.

 

 

  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

 

 

  Studied international economics at the Graduate Institute of International Studies, Geneva

 

 

 

Frank D. Burt

Senior Vice
President, Chief
Legal Officer and
Secretary

Age 61

 

 

  Senior Vice President, Chief Legal Officer and Secretary of Boston Properties since 2003, with responsibility for overseeing the legal and risk management departments

 

 

  Various positions at Boston Properties since 1986; represented Boston Properties 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

 

 

  Former attorney in the real estate department at Nutter, McClennen & Fish in Boston

 

 

  Member of the American College of Real Estate Lawyers and the Boston Bar Association

 

 

  Speaker for the American College of Real Estate Lawyers, the Association of Corporate Counsel, Massachusetts Continuing Legal Education, NAIOP and Nareit

 

 

  Received a BA, magna cum laude, from Brown University and a JD, cum laude, from the University of Pennsylvania Law School

 

 

 

Michael R. Walsh

Senior Vice
President, Chief
Accounting Officer

Age 53

 

 

  Senior Vice President, Chief Accounting Officer of Boston Properties since May 2016, with responsibility for overseeing financial reporting, property accounting and tax compliance and providing transactional support on capital markets activity

 

 

  Executive Vice President, Chief Financial Officer and Treasurer of Paramount Group, Inc., a REIT focused on Class A office properties in New York City, Washington, DC and San Francisco, from March 2015 to March 2016

 

 

  Various positions at Boston Properties from 1986 to 2015, including Senior Vice President, Finance and Capital Markets with responsibility for overseeing its accounting, financial reporting, financial analysis and tax functions and participated extensively in investor relations matters

 

 

  Member of Nareit’s Best Financial Practices Council

 

 

  Received a BS, magna cum laude, from Eastern Nazarene College

 

 

 

 

 

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4    PRINCIPAL AND MANAGEMENT STOCKHOLDERS

 

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 15, 2020 by:

 

 

each director;

 

 

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

 

 

all directors 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 15, 2020, there were:

 

 

154,904,043 shares of our common stock outstanding;

 

 

16,791,848 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);

 

 

1,368,429 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 2018 Multi-Year Long-Term Incentive Program (“MYLTIP”) awards, 2019 MYLTIP awards and 2020 MYLTIP awards, each of which, upon the satisfaction of certain conditions, is convertible into one common unit; and

 

 

61,090 deferred stock units outstanding.

All references in this proxy statement to LTIP units exclude LTIP units issued pursuant to 2018 MYLTIP awards, 2019 MYLTIP awards and 2020 MYLTIP awards because the three-year performance periods of these awards had not ended by February 15, 2020. LTIP units issued pursuant to 2018 MYLTIP awards, 2019 MYLTIP awards and 2020 MYLTIP awards are collectively referred to herein as “Unearned Performance Awards.” None of our directors or NEOs beneficially owns preferred units or shares of our preferred stock.

 

 

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4    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 and Named Executive Officers

 

Kelly A. Ayotte(4)

     80        *      2,267        *

Bruce W. Duncan(5)

            *      4,250        *

Karen E. Dykstra(6)

     5,689        *      6,214        *

Carol B. Einiger(7)

     19,207        *      26,467        *

Diane J. Hoskins(8)

     1,140        *      1,140        *

Joel I. Klein(9)

     6,642        *      12,992        *

Douglas T. Linde(10)

     259,860        *      513,574        *

Matthew J. Lustig(11)

     7,173        *      16,381        *

Owen D. Thomas(12)

     63,488        *      340,708        *

David A. Twardock(13)

     5,999        *      5,999        *

William H. Walton, III(14)

     465        *      1,605        *

Raymond A. Ritchey(15)

            *      338,725        *

Michael E. LaBelle(16)

     28,479        *      136,817        *

Bryan J. Koop(17)

     15,919        *      73,182        *

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

     470,507        *      1,687,979        *

5% Holders

                                   

The Vanguard Group(19)

     20,235,548        13.06      20,235,548        11.69

BlackRock, Inc.(20)

     15,053,881        9.72      15,053,881        8.70

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

     13,037,554        8.42      13,037,554        7.53

State Street Corporation(22)

     9,721,252        6.28      9,721,252        5.62

 

*

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 15, 2020 and (b) the number of shares of common stock issuable to directors upon settlement of deferred stock units on or within 60 days after February 15, 2020. 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 2020 annual meeting.

 

(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 15, 2020 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 15, 2020 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.

 

 

 

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(4)

Represents 80 deferred stock units. Also includes, only under the “Number of Shares and Units Beneficially Owned” column, 2,187 LTIP units (of which 1,140 are subject to vesting). Excludes 724 deferred stock units, the receipt of which has been deferred to a date later than 60 days after February 15, 2020, pursuant to a specific deferral election (see “Compensation of Directors – Deferred Compensation Program” on page 41).

 

(5)

Represents, only under the “Number of Shares and Units Beneficially Owned” column, 4,250 LTIP units (of which 1,140 LTIP units are subject to vesting). Excludes 1,066 deferred stock units, the receipt of which has been deferred to a date later than 60 days after February 15, 2020, pursuant to a specific deferral election (see “Compensation of Directors – Deferred Compensation Program” on page 41).

 

(6)

Includes 5,225 shares of common stock held directly (of which 1,140 shares are subject to vesting) and 464 deferred stock units. Also includes, only under the “Number of Shares and Units Beneficially Owned” column, 525 LTIP units.

 

(7)

Represents 19,207 deferred stock units. Also includes, only under the “Number of Shares and Units Beneficially Owned” column, 7,260 LTIP units (of which 1,140 LTIP units are subject to vesting).

 

(8)

Represents 1,140 shares of common stock (all of which are subject to vesting).

 

(9)

Represents 6,642 deferred stock units. Also includes, only under the “Number of Shares and Units Beneficially Owned” column, 6,350 LTIP units (of which 1,140 LTIP units are subject to vesting).

 

(10)

Includes 181,492 shares of common stock held directly (of which 2,284 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 75,568 shares of common stock underlying exercisable stock options. Also includes, only under the “Number of Shares and Units Beneficially Owned” column, 253,714 LTIP units (of which 58,216 LTIP units are subject to vesting). Excludes Unearned Performance Awards. Mr. Linde has shared voting and dispositive power with respect to 700 shares of common stock.

 

(11)

Represents 7,173 deferred stock units. Also includes, only under the “Number of Shares and Units Beneficially Owned” column, 9,208 LTIP units (of which 1,140 LTIP units are subject to vesting).

 

(12)

Includes 9,206 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, 277,220 LTIP units (of which 91,118 LTIP units are subject to vesting). Excludes Unearned Performance Awards.

 

(13)

Includes 5,901 shares of common stock held directly (of which 1,140 shares are subject to vesting) and 98 deferred stock units. Excludes 25,171 deferred stock units, the receipt of which has been deferred to a date later than 60 days after February 15, 2020, pursuant to a specific deferral election (see “Compensation of Directors – Deferred Compensation Program” on page 41).

 

(14)

Includes 465 deferred stock units. Also includes, only under the “Number of Shares and Units Beneficially Owned” column, 1,140 LTIP units (all of which are subject to vesting).

 

(15)

Includes, only under the “Number of Shares and Units Beneficially Owned” column, 99,305 common units held directly, 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 208,155 LTIP units (of which 9,749 LTIP units are subject to vesting). Excludes Unearned Performance Awards.

 

(16)

Includes 12,142 shares of common stock held directly (of which 4,394 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, 108,338 LTIP units (of which 18,842 LTIP units are subject to vesting). Excludes Unearned Performance Awards.

 

(17)

Includes 585 shares of common stock held directly and 15,334 shares of common stock underlying exercisable stock options. Also includes, only under the “Number of Shares and Units Beneficially Owned” column, 57,263 LTIP units (of which 15,385 LTIP units are subject to vesting). Excludes Unearned Performance Awards.

 

(18)

Includes an aggregate of 274,857 shares of common stock, 161,521 shares of common stock underlying exercisable stock options and 34,129 deferred stock units. Also includes, only under the “Number of Shares and Units Beneficially Owned” column, 149,344 common units and 1,068,128 LTIP units. See also Notes (4) – (17) above. Excludes 26,961 deferred stock units, the receipt of which has been deferred to a date later than 60 days after February 15, 2020, pursuant to a specific deferral election (see “Compensation of Directors – Deferred Compensation Program” on page 41). Excludes Unearned 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, 2020. Vanguard’s address is 100 Vanguard Blvd., Malvern, PA 19355. The Schedule 13G/A indicates that Vanguard has sole voting power with respect to 383,360 shares of common stock, shared voting power with respect to 193,756 shares of common stock, sole dispositive power with respect to 19,838,917 shares of common stock and shared dispositive power with respect to 396,631 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 February 5, 2020. 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 13,580,239 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 February 11, 2020. 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, 2020. 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 8,047,537 shares of common stock and shared dispositive power with respect to 9,720,354 shares of common stock.

 

 

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5    COMPENSATION OF DIRECTORS

 

COMPENSATION OF DIRECTORS

Our non-employee director compensation is intended to attract, retain and appropriately compensate highly qualified individuals to serve on our Board of Directors. At our 2019 annual meeting of stockholders, our stockholders approved the Boston Properties, Inc. Non-Employee Director Compensation Plan (the “Director Compensation Plan”), effective January 1, 2019. The Director Compensation Plan sets forth the cash and equity compensation that is to be paid to our non-employee directors in a specific, formulaic manner.

Our directors who are also employees receive no additional compensation for their services as directors.

COMPONENTS OF DIRECTOR COMPENSATION

  CASH COMPENSATION

During 2019, we paid our non-employee directors the following cash compensation pursuant to the Director Compensation Plan:

 

  Role    Annual Cash
Retainer($)(1)
 

All Non-Employee Directors for Board Services

       85,000  

Chairman of the Board(2)

     100,000  

Chair of the Audit Committee(2)

       20,000  

Members of the Audit Committee

       15,000  

Chairs of other standing committees(2)(3)

       15,000  

Members of other standing committees(3)

       10,000  

 

(1)

The sum of all cash retainers are payable in quarterly installments in arrears, subject to proration for periods of service less than a full quarter in length.

 

(2)

The retainer payable to the Chairman is in addition to all other retainers to which the Chairman may be entitled and the retainer to each committee chair is in addition to the retainer payable to all members of the committee.

 

(3)

The term “other standing committees” includes the Compensation and NCG Committees, as well as other committees that may be constituted from time to time.

Under the Director Compensation Plan, non-employee directors do not receive meeting attendance fees for any meeting of our Board of Directors or a committee thereof that he or she attends. Non-employee directors also are reimbursed for reasonable expenses incurred to attend Board of Directors and committee meetings.

  EQUITY COMPENSATION

The Director Compensation Plan provides for grants of equity to non-employee directors as follows:

 

   

Annual Grant. Each continuing non-employee director is entitled to receive, on the fifth business day after the annual meeting of stockholders, an annual equity award with an aggregate value of $150,000.

 

   

Initial Grant. Any new non-employee director that is appointed to our Board of Directors other than at an annual meeting of stockholders would be entitled to receive, on the fifth business day after the appointment, an initial equity award with an aggregate value of $150,000 (prorated based on the number of months from the date the director is first appointed to our Board of Directors to the first anniversary of the Company’s most recently held annual meeting of stockholders).

 

   

Annual and initial equity awards are made in the form of shares of restricted common stock, or, if offered by the Board of Directors and elected by such director, LTIP units (or a combination of both).

 

 

 

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5    COMPENSATION OF DIRECTORS

 

   

The actual number of shares of restricted common stock or LTIP units that we grant is determined by dividing the fixed value of the grant by the closing market price of our common stock on the NYSE on the grant date.

 

   

Annual and initial grants of LTIP units and restricted common stock will vest 100% on the earlier of (1) the first anniversary of the grant date and (2) the date of the next annual meeting of stockholders.

Accordingly, on May 29, 2019, Mses. Ayotte, Einiger, Dykstra and Hoskins and Messrs. Duncan, Klein, Lustig, Twardock and Walton each received 1,140 LTIP units or shares of restricted common stock.

DEFERRED COMPENSATION PROGRAM

Non-employee directors may elect, in accordance with the Boston Properties, Inc. 2012 Stock Option and Incentive Plan (the “2012 Plan”) and our Amended and Restated Rules and Conditions for Directors’ Deferred Compensation Program (the “Directors’ Deferred Compensation Program”), to defer all cash retainers payable to such director and to receive his or her deferred cash compensation in the form of our common stock or in cash following the director’s retirement from our Board of Directors. Each director is credited with the number of deferred stock units determined by dividing the amount of the cash compensation deferred during each calendar quarter by the closing market price of our common stock on the NYSE on the last trading day of the quarter. Hypothetical dividends on the deferred stock units are “reinvested” in additional deferred stock units based on the closing market price of the common stock on the cash dividend payment date. Payment of a director’s account may be made in either a lump sum of shares of our common stock equal to the number of deferred stock units in a director’s account or in ten annual installments following the director’s retirement from our Board of Directors. In addition, non-employee directors who elect a deferred payout following their retirement from the Board may elect to change their notional investment from our common stock to a deemed investment in one or more measurement funds. This election to convert may only be made after the director’s service on the Board ends, the conversion date must be at least 180 days after the latest issuance date of deferred stock units credited to the director’s account, the election is irrevocable and the director must convert 100% of his or her deferred stock account if any is converted. Payment of a director’s account that has been converted to measurement funds will be in cash instead of shares of our common stock. The measurement funds available to directors are the same as those available to our executives under our Nonqualified Deferred Compensation Plan. See “Compensation of Executive Officers – Nonqualified Deferred Compensation” on page 72.

DIRECTOR STOCK OWNERSHIP GUIDELINES

Our Board believes it is important to align the interests of the directors with those of the stockholders and for directors to hold equity ownership positions in Boston Properties. Accordingly, each non-employee director is expected to retain an aggregate number of shares of common stock of the Company, deferred stock units (and related dividend equivalent rights) in the Company, and LTIP units, and common units in the Operating Partnership, whether vested or not, equal to at least five (5) times the value of the then current annual cash retainer paid to non-employee directors for their service on the Board, without respect to service on committees of the Board or as lead independent director or Chairman. Each non-employee director, until such director complies with the ownership guidelines set forth above, is expected to retain all equity awards granted by the Company or the Operating Partnership (less amounts sufficient to fund any taxes owed relating to such equity awards). The deferred stock units (and related dividend equivalent rights) in the Company and LTIP units and common units in the Operating Partnership shall be valued by reference to the market price of the number of shares of common stock of the Company issuable upon the settlement or exchange of such units assuming that all conditions necessary for such settlement or exchange have been met. For shares of common stock of the Company or equity valued by reference to common stock of the Company for purposes of these ownership guidelines, the market price of the common stock of the Company used to value such equity shall be the greater of (1) the market price on the date of purchase or grant of such equity or (2) the market price as of the date compliance with these ownership guidelines is measured.

 

 

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5    COMPENSATION OF DIRECTORS

 

DIRECTOR COMPENSATION TABLE

The following table summarizes the compensation earned by our non-employee directors during the year ended December 31, 2019.

 

  Name   

Fees Earned

or Paid in

Cash ($)(1)

    

Stock

Awards ($)(2)

     Total($)  

Kelly A. Ayotte

     105,000        135,000        240,000  

Bruce W. Duncan

     139,190        135,000        274,190  

Karen E. Dykstra

     110,000        150,000        260,000  

Carol B. Einiger

     100,852        135,000        235,852  

Dr. Jacob A. Frenkel(3)

     37,060               37,060  

Diane J. Hoskins

     58,200        150,000        208,200  

Joel I. Klein

     185,000        135,000        320,000  

Matthew J. Lustig

     120,000        135,000        255,000  

Martin Turchin(3)

     39,011               39,011  

David A. Twardock

     130,000        150,000        280,000  

William H. Walton, III

     61,264        135,000        196,264  

 

(1)

Mses. Ayotte and Einiger and Messrs. Duncan, Klein, Lustig, Turchin, Twardock and Walton deferred their cash fees earned during 2019 and received in lieu thereof deferred stock units. The following table summarizes the deferred stock units credited to the director accounts during 2019.

 

  Name    Deferred Stock
Units Earned
During 2019 (#)
 

Kelly A. Ayotte

     790.07  

Bruce W. Duncan

     1,048.22  

Carol B. Einiger

     758.94  

Joel I. Klein

     1,394.75  

Matthew J. Lustig

     928.49  

Martin Turchin(3)

     292.38  

David A. Twardock

     981.00  

William H. Walton, III

     459.26  

 

(2)

Represents the total fair value of common stock and LTIP unit awards granted to non-employee directors in 2019, determined in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification 718 “Compensation – Stock Compensation” (“ASC 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 2019 audited financial statements beginning on page 174 of our Annual Report on Form 10-K for the year ended December 31, 2019 included in the annual report that accompanied this proxy statement. Our non-employee directors had the following unvested equity awards outstanding as of December 31, 2019: Ms. Ayotte – 1,140 LTIP units; Mr. Duncan – 1,140 LTIP units; Ms. Dykstra – 1,140 shares of restricted common stock; Ms. Einiger – 1,140 LTIP units; Ms. Hoskins – 1,140 shares of restricted common stock; Mr. Klein – 1,140 LTIP units; Mr. Lustig – 1,140 LTIP units; Mr. Twardock – 1,140 shares of restricted common stock; and Mr. Walton – 1,140 LTIP units.

 

(3)

Messrs. Frenkel and Turchin retired from the Board of Directors as of May 21, 2019. On May 21, 2019, the Company issued 17,949 shares of common stock to Mr. Turchin in partial settlement of his deferred stock award account.

 

 

 

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6    COMPENSATION DISCUSSION AND ANALYSIS
   I.  EXECUTIVE OVERVIEW

 

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 2019 were:

 

Owen D. Thomas   Douglas T. Linde   Raymond A. Ritchey   Michael E. LaBelle   Bryan J. Koop
       
Chief Executive Officer   President   Senior Executive Vice President   Executive Vice President, Chief Financial Officer and Treasurer   Executive Vice President, Boston Region

I. EXECUTIVE OVERVIEW

  POLICY CHANGES TO COMPENSATION PROGRAM

During 2019, based on feedback received from investors following the voting results on our 2019 Say-on-Pay resolution and in connection with the onboarding of, and advice received from, Frederic W. Cook & Co., Inc. (“FW Cook”), the Committee’s new compensation consultant, the Committee made significant changes to the design and structure of our executive compensation program.

 

 

LOGO

Engaged FW Cook as New Consultant(April 2019)Annual Meeting Say-on-Pay Results(May 2019)Investor Outreach(July Oct. 2019)Evaluated Feedback & Advice;Modified & Improved Policies2019Pensation"Increased performance-based equity allocation"Decreased cash compensation2020 CompensationEstablished new 2020 Annual Incentive Plan

At our 2019 annual meeting, our stockholders voted on a non-binding, advisory resolution to ratify the compensation paid to our NEOs (the “Say-on-Pay resolution”). Although the core philosophy and design of our compensation program remained materially consistent with prior years, Institutional Shareholder Services (“ISS”), a proxy advisory firm, recommended that its clients vote against our 2019 Say-on-Pay resolution and the percentage of votes cast in favor of the Say-on-Pay resolution decreased from approximately 91% at our 2018 annual meeting to approximately 67% at our 2019 annual meeting. The outcome of the vote in 2019 was sufficient to approve the resolution, but the level of support was less than we expected, less than we received on our Say-on-Pay resolution in any of the last five years and less than we desire.

In light of the voting results, our Board, led by the Chairman of the Board and the Chair of our Compensation Committee, directly engaged with our larger institutional investors, some of whom voted against the Say-on-Pay resolution, to solicit feedback on our overall executive compensation program and corporate governance and to better understand their individual concerns. After evaluating the feedback received from our investors and the advice of FW Cook, the Committee made policy changes that impacted compensation paid with respect to 2019 and will impact 2020 compensation decisions, including the establishment of the new 2020 Annual Incentive Plan (see “II. Say-on-Pay Results & Investor Outreach” and “VII. New 2020 Annual Incentive Plan”).

As discussed in this CD&A, for 2019, total compensation paid to our CEO did not change from 2018 and, for our NEOs as a group, total compensation was essentially flat compared to 2018 (a decrease of (0.7%)).

 

 

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6    COMPENSATION DISCUSSION AND ANALYSIS
   I.  EXECUTIVE OVERVIEW

 

  2019 PERFORMANCE HIGHLIGHTS

The Committee determined that the NEO’s performance in 2019 was strong, particularly given that it followed very strong performance in 2018. Overall, management met or exceeded the primary corporate goals for 2019 that were established at the beginning of the year. These goals and our NEOs’ performance against each are detailed in “V. Assessing Performance 2019 Corporate Goals” below. We believe our NEOs’ overall strong performance in 2019 is reflected in the following highlights:

 

 

2019 Performance Highlights

11%

   7.6 Million    9%    26%

Y-o-Y Growth in Diluted

FFO per Share*

   Square Feet Leased   

Y-o-Y Increase in

Cash Dividend

   Total Stockholder Return (“TSR”) for 2019

6.7%

   5.4%    8th    5th

Y-o-Y Growth in Same Property NOI (BXP’s Share)**

   Y-o-Y Growth in Same Property NOI – Cash (BXP’s Share)**    Consecutive Green Star Recognition from GRESB    Nareit “Leader in the Light Award” since 2014

 

*

Refer to pages 95 through 97 of our Annual Report on Form 10-K for the year ended December 31, 2019 for information relating to and the reconciliations of diluted FFO per share to net income attributable to Boston Properties, Inc. common shareholders.

 

**

Refer to Appendix A to this proxy statement for reconciliations and other information regarding our share of Same Property NOI and our share of Same Property NOI – Cash for the fiscal years ended December 31, 2019 and 2018.

  HIGHLIGHTS OF 2019 COMPENSATION DECISIONS

Based on the Committee’s assessment of 2019 performance, the Committee awarded total compensation that was unchanged from 2018 for our CEO and was essentially flat for all NEOs as a group. In addition, the Committee (1) reallocated a portion of total compensation from cash compensation to long-term incentive (LTI) equity compensation and (2) increased the amount of performance-based LTI equity compensation as a percentage of total compensation. The following are highlights of 2019 compensation:

 

 

2019 Compensation Highlights

 

CEO:

No Change

  93%   72%   (11.3)%   55%

in total compensation from 2018

  of pay that is
variable and not
guaranteed
 

paid in equity*

with remaining 28%
paid in cash

  decrease in cash bonus from 2018   of total equity
awarded as TSR-based
performance equity (increase from 50% for 2018*)

 

All NEOs (as a group):

(0.7)%

  90%   64%   (9.9)%   52%

decrease in total compensation
from 2018

  of pay that is
variable and not
guaranteed
  paid in equity*
with remaining 36%
paid in cash
  decrease in cash bonus from 2018   of total equity
awarded as TSR-based
performance equity

 

*

Equity incentives for 2019 performance were granted in 2020, and equity incentives for 2018 performance were granted in 2019.

 

 

 

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6    COMPENSATION DISCUSSION AND ANALYSIS
   I.  EXECUTIVE OVERVIEW

 

  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 table highlights key features of our executive compensation program that demonstrate the Company’s ongoing commitment to promoting stockholder interests through sound compensation governance practices.

 

WHAT WE DO
  The vast majority of total compensation is variable pay (i.e., not guaranteed) and salaries comprise a small portion of each NEO’s total compensation opportunity.
  Starting in 2020, annual cash bonuses for each NEO are linked to performance against goals in three categories, and each NEO has target and maximum bonus opportunities.
  We align our NEOs with our long-term investors by awarding a significant percentage of total compensation in the form of equity and awarding a significant percentage of total equity in the form of multi-year, performance-based equity awards that use relative TSR as the metric.
  We have a clawback policy that allows for the recovery of previously paid incentive compensation in the event of a financial restatement.
  We have robust stock ownership guidelines for our executives (for our CEO, 6.0x base salary).
  We engage an independent compensation consultant to advise the Committee.
WHAT WE DON’T DO
×   We do not provide any new executive with tax gross-ups with respect to payments made in connection with a change of control.
×   We do not allow hedging or pledging of Company securities.
×   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.
×   We do not allow for repricing of stock options.
 

 

 

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6    COMPENSATION DISCUSSION AND ANALYSIS
    II.  SAY-ON-PAY RESULTS & INVESTOR OUTREACH

 

II. SAY-ON-PAY RESULTS & INVESTOR OUTREACH

The following timeline highlights the key events that factored into the Committee’s compensation decisions for 2019 and other policy changes, including the establishment of the new 2020 Annual Incentive Plan:

 

LOGO

 

 

April 2019

 

Filed Proxy Statement & Retained New Compensation Consultant

    

 

  2019 Proxy Statement filed

 

  Committee retained FW Cook to serve as its new consultant and provide fresh perspective on our overall executive compensation program

 

 

 

May 2019

 

2019 Annual Meeting of Stockholders

    

 

  Management conducted pre-meeting investor outreach efforts

 

  ISS recommended that its clients vote against our Say-on-Pay resolution

 

  Received 67% support on Say-on-Pay resolution

 

 

 

July – Oct 2019

 

Engaged Investors & Evaluated Feedback

    

 

  Our independent directors directly engaged larger institutional investors to solicit feedback and better understand individual concerns

 

  Received benchmarking analyses, trend information and advice on the overall executive compensation program from FW Cook

 

 

 

Nov 2019 – Jan 2020

 

Implemented Policy Changes

 

 

    

 

  Made policy changes that impacted 2019 compensation decisions

 

  Established new 2020 Annual Incentive Plan

 

 

 

  Historical Say-on-Pay Results

At the 2019 annual meeting of stockholders, our stockholders voted on the Say-on-Pay resolution to ratify the compensation paid to our NEOs. Although the core philosophy and design of our compensation program remained materially consistent with prior years, ISS recommended that its clients vote against our 2019 Say-on-Pay resolution and the percentage of votes cast in favor of the Say-on-Pay resolution decreased from approximately 91% at our 2018 annual meeting to approximately 67% at our 2019 annual meeting.

 

 

SAY-ON-PAY RESULTS

2019

   2018    2017    2016    2015

67%

   91%    92%    90%    86%

The outcome of the vote in 2019 was sufficient to approve the resolution, but the level of support was less than we expected, less than we received on our Say-on-Pay resolution in any of the last five years and less than we desire.

  Investor Outreach

Stockholder Engagement Process

In light of the voting results on the Say-on-Pay resolution, our Board directly engaged with our larger institutional investors, some of whom voted against the resolution, to solicit feedback and better understand their individual concerns on our overall executive compensation program and corporate governance. Between July and October 2019, one or more of the Chair of our Compensation Committee (Bruce W. Duncan), the Chairman of the Board (Joel I. Klein), a member of the Compensation

 

 

 

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6    COMPENSATION DISCUSSION AND ANALYSIS
    II.  SAY-ON-PAY RESULTS & INVESTOR OUTREACH

 

Committee (Sen. Kelly A. Ayotte) and the Chair of the NCG Committee (Matthew J. Lustig) met in person with ten (10) of our largest institutional investors representing ownership of more than 40% of the outstanding shares of BXP common stock.

 

   

Mr. Duncan attended nine of the ten meetings

 

   

Messrs. Duncan and Klein also participated in a teleconference with representatives of ISS to better understand the methodology and key policies underlying its negative voting recommendation, and to discuss potential changes to the overall program

 

   

Neither our CEO, nor any other NEO, participated in any of these meetings with investors or ISS

Although our Board sought specific feedback on the topics identified as issues of concern in ISS’ 2019 proxy report on the Company, we did not limit the agenda, and the meetings generally allowed for free-flowing discussions. In addition to executive compensation, these discussions included topics such as:

 

   

our strategy and growth drivers,

 

   

overall business trends,

 

   

Board composition, director tenure, director succession and recruitment, and the process used to conduct Board and committee self-evaluations,

 

   

diversity and human capital strategy,

 

   

ESG and sustainability, and

 

   

corporate governance policies, generally.

All of the feedback received was shared with the full Board of Directors.

Feedback from Stockholders

The general feedback our Board received included support for our strategy, confidence in the strength of our management team and Board, and our demonstrated leadership among REITs in ESG and sustainability. Investors also openly shared their policies and perspectives with respect to our compensation program. Overall, they conveyed that our CEO’s pay and performance were reasonably aligned in 2018 and that our benchmarking peer group included appropriate and high-quality REITs. While acknowledging the limitations inherent in using relative TSR as the performance metric for our MYLTIP program (which is the performance-based component of LTI equity awards) and being open to the use of one or more operational metrics, investors generally support the MYLTIP program as currently designed.

 

 

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    II.  SAY-ON-PAY RESULTS & INVESTOR OUTREACH

 

While the general consensus was positive, our investors also offered some specific suggestions to improve our program. The Committee evaluated the feedback received and responded as summarized below.

 

WHAT WE HEARD       HOW WE RESPONDED

Desire for more objectivity and structure in annual incentive program.

 

Our investors did not insist that we have a formulaic bonus plan that eliminates the application of any discretion by the Committee, but they expressed a preference for more objectivity, including specific weightings ascribed to each measure and transparent disclosure of goals and results.

 

High number of goals used in assessing performance.

 

Due to the high number of performance goals used in assessing performance, investors expressed a desire to better understand which goals were most important and how much the Committee factored them into the compensation decisions.

   

Adopted new annual incentive plan.

 

The Committee established a new annual incentive plan, effective in 2020, under which our NEOs’ bonuses will be directly linked to performance against goals in three, independent categories. Consistent with feedback from investors, the categories include:

 

  FFO per Share

 

  Leasing

 

  Business/Individual goals

 

For all NEOs except our CFO, each category is equally weighted. See “—VII. New 2020 Annual Incentive Plan.”

Preference for pre-established target and maximum bonus opportunities.

 

Our investors prefer that each NEO have a defined range of bonus opportunities, with a specific target and maximum.

   

Established target and maximum bonus opportunities.

 

Under the new 2020 Annual Incentive Plan, all NEOs have target and maximum annual cash bonus opportunities, and the performance categories are weighted. See “—VII. New 2020 Annual Incentive Plan.”

Weighting of performance-based awards in annual equity grant mix.

 

Our investors generally accept a 50%-50% allocation between performance-based and time-based equity. However, some expressed a preference for a greater allocation to performance-based equity in certain circumstances.

   

Increased CEO’s performance-based equity allocation to 55%.

 

Considering the overall feedback received from investors, the Committee increased the allocation to performance-based equity from 50% to 55% for equity awards granted to our CEO in 2020 (for 2019 performance). In addition, by reallocating a portion of total compensation from cash compensation to equity, the Committee increased the amount of performance-based LTI as a percentage of total compensation for all NEOs.

 

 

 

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6    COMPENSATION DISCUSSION AND ANALYSIS
    III.  2019 COMPENSATION DECISIONS

 

III. 2019 COMPENSATION DECISIONS

Based on the Committee’s assessment of 2019 performance, investor feedback and the advice of FW Cook, the Committee awarded total compensation that was unchanged from 2018 for our CEO and essentially flat for all NEOs as a group. In addition, the Committee (1) reallocated a portion of total compensation from cash compensation to LTI equity compensation and (2) increased the amount of performance-based LTI equity compensation as a percentage of total compensation. When determining specific individual compensation amounts, the Committee considered the following factors:

 

   

performance against pre-established operational, capital and management goals (see “—V. Assessing Performance”),

 

   

individual contributions to overall results and development opportunities,

 

   

results of a compensation benchmarking analysis among peers with respect to 2018 compensation, and

 

   

anticipated market compensation increases and trends.

The following table presents the total direct compensation of our NEOs, inclusive of salary, bonus and LTI equity awards, for 2019 compared to 2018. LTI equity includes MYLTIP awards whose ultimate value will be determined over a three-year period from the grant date based on our relative TSR. To link annual awards of long-term equity incentive compensation to annual performance, the Committee 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) require that they be presented as compensation for the year in which the awards were actually granted, and therefore equity awards shown in the Summary Compensation Table presented under “Compensation of Executive Officers” on page 68 lag one year (i.e., awards made in January 2020 to reward performance in 2019 are not reflected in this year’s Summary Compensation Table).

 

     Salary(1)      Cash Bonus  
  Executive    2019      2018      % Change      2019      2018      % Change  

Owen D. Thomas

   $ 900,000      $ 875,000        2.9%       $ 2,550,000      $ 2,875,000        (11.3)%  

Douglas T. Linde

   $ 750,000      $ 725,000        3.4%       $ 2,095,000      $ 2,180,000        (3.9)%  

Raymond A. Ritchey

   $ 740,000      $ 720,000        2.8%       $ 1,820,000      $ 2,080,000        (12.5)%  

Michael E. LaBelle

   $ 510,000      $ 500,000        2.0%       $ 1,295,000      $ 1,450,000        (10.7)%  

Bryan J. Koop

   $ 410,000      $ 400,000        2.5%       $ 1,370,000      $ 1,550,000        (11.6)%  

Total

   $ 3,310,000      $ 3,220,000        2.8%       $ 9,130,000      $ 10,135,000        (9.9)%  
     LTI Equity Awards      Total Compensation  
  Executive    2019      2018      % Change      2019      2018      % Change  

Owen D. Thomas

   $ 9,050,000      $ 8,750,000        3.4%       $ 12,500,000      $ 12,500,000        0%   

Douglas T. Linde

   $ 5,655,000      $ 5,395,000        4.8%       $ 8,500,000      $ 8,300,000        2.4%   

Raymond A. Ritchey

   $ 4,240,000      $ 4,200,000        1.0%       $ 6,800,000      $ 7,000,000        (2.9)%  

Michael E. LaBelle

   $ 1,945,000      $ 1,950,000        (0.3)%      $ 3,750,000      $ 3,900,000        (3.8)%  

Bryan J. Koop

   $ 1,370,000      $ 1,300,000        5.4%       $ 3,150,000      $ 3,250,000        (3.1)%  

Total

   $ 22,260,000      $ 21,595,000        3.1%       $ 34,700,000      $ 34,950,000        (0.7)%  

 

(1)

For 2020 compensation, the Committee did not increase the base salary of any of the NEOs.

 

 

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    III.  2019 COMPENSATION DECISIONS

 

  2019 PAY MIX

For each NEO, the Committee approved 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 (see “VI. Determining Executive Compensation – Benchmarking Peer Group & Compensation Advisor’s Role”). Variable pay, consisting of annual cash bonuses and LTI equity awards, constitutes the vast majority of our executive compensation. For our CEO and NEOs as a group, variable pay for 2019 was 93% and 90%, respectively. This emphasis on variable pay allows the Committee to reward good performance and penalize poor performance.

The following present the allocations of total pay for 2019 among each component of compensation for (1) our CEO and (2) all NEOs as a group:

 

 

2019 Pay Mix

 

 

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  ALLOCATION OF LTI AWARDS

The Committee approved LTI equity awards to NEOs for 2019 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 February 4, 2020, the date of initial grant. After evaluating the feedback received from investors, the Committee increased the amount of performance-based equity as a percentage of total LTI equity for our CEO so that his allocation was 55% performance-based and 45% time-based. For the other NEOs, the Committee maintained the allocation at 50% performance-based and 50% time-based, which is generally accepted by our investors. In total for 2019, performance-based equity awards for all NEOs represent a greater percentage of total direct compensation than they did for 2018, and the total amount of LTI equity as a percentage of total compensation for all NEOs as a group also increased to 64%.

 

 

 

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    III.  2019 COMPENSATION DECISIONS

 

The following table sets forth the dollar values of the performance-based and time-based equity awards granted to NEOs in 2020 for performance in 2019:

 

  Executive  

Total LTI Equity

Awards

    Total LTI
Equity Awards
as % of Total
Compensation
   

Performance-
Based LTI

Equity

Awards

    % of Total
Equity
Awards
    Time-Based LTI
Equity Awards
    % of
Total
Equity
Awards
 

Owen D. Thomas

    $  9,050,000       72%       $  4,977,500       55%       $  4,072,500       45%  

Douglas T. Linde

    $  5,655,000       67%       $  2,827,500       50%       $  2,827,500       50%  

Raymond A. Ritchey

    $  4,240,000       62%       $  2,120,000       50%       $  2,120,000       50%  

Michael E. LaBelle

    $  1,945,000       52%       $     972,500       50%       $     972,500       50%  

Bryan J. Koop

    $  1,370,000       43%       $     685,000       50%       $     685,000       50%  

Total

    $22,260,000       64%       $11,582,500               $10,677,500          

The performance-based portion of LTI equity awards for 2019 performance was granted in the form of 2020 MYLTIP awards, which have a three-year performance period (February 4, 2020 to February 3, 2023), 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 equals 200% of the target number of units, and it is the maximum number of units that may be earned. 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 the number of units initially awarded exceeds the number of units ultimately earned, then the excess will be forfeited. Therefore, while the award of 2020 MYLTIP units is in recognition for performance in 2019, award recipients must continue to perform over the three-year term of the 2020 MYLTIP program in order to earn and vest in any of the MYLTIP units and must generally remain employed for the four years to earn the full amount. The aggregate target number of units for NEOs is approximately 85,663 LTIP units and an aggregate payout opportunity ranging from zero to a maximum of 171,326 LTIP units. The baseline share price for 2020 MYLTIP awards was $143.52 (the average closing price per share of our common stock on the NYSE for the five trading days prior to and including February 4, 2020).

The 2020 MYLTIP awards are generally amortized into earnings over the four-year plan period under the graded vesting method, unless accelerated in certain circumstances such as a “Qualified Retirement” as defined under “– Potential Payments Upon Termination or Change in Control – Retirement Eligibility Provisions for LTI Equity Awards.” Under the Financial Accounting Standards Board’s Accounting Standards Codification 718 “Compensation – Stock Compensation” (“ASC Topic 718”), we expect that 2020 MYLTIP awards to NEOs will have an aggregate value of approximately $11.6 million.

The time-based LTI equity awards granted to the NEOs for 2019 performance consisted of LTIP units or restricted shares of our common stock that generally vest ratably over a four-year period (25% per year), subject to acceleration in certain circumstances including attaining retirement eligibility. See “– Potential Payments Upon Termination or Change in Control – Retirement Eligibility Provisions for LTI Equity Awards.” Pursuant to our Equity Award Grant Policy discussed below, time-based LTI equity awards were issued as of the close of business on January 31, 2020 based on the closing price per share of our common stock on the NYSE on that date of $143.35.

 

 

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    IV.  COMPONENTS OF EXECUTIVE COMPENSATION

 

IV. COMPONENTS OF EXECUTIVE COMPENSATION

  OUR EXECUTIVE COMPENSATION PROGRAM

 

  COMPONENT    WHY WE PAY IT

Base Salary

  

Provide a fixed, competitive level of cash compensation that reflects the NEO’s leadership role and the relative market rate for the executive’s experience and responsibilities

 

Annual Cash Incentive

  

Reward NEOs for achievement of annual financial and strategic goals that drive stockholder value, thereby aligning our NEOs’ interests with those of our stockholders

 

A significant portion of the annual compensation for each NEO should be “at risk” and contingent upon the performance of the Company and the NEO versus their goals

 

  Starting in 2020, annual cash bonuses for each NEO are linked to performance against goals in three weighted categories and each NEO has target and maximum bonus opportunities. (See “VII. New 2020 Annual Incentive Plan”)

 

Performance-Based Equity (MYLTIP)

  

Align the interests of our NEOs with those of our stockholders

 

Motivate, retain and reward NEOs to achieve multi-year strategic business objectives that drive relative TSR out-performance

 

  Create a direct link between executive pay and long-term relative TSR performance

 

Time-Based Equity

  

Align the interests of our NEOs with those of our stockholders

 

Motivate, retain and reward NEOs to achieve multi-year strategic business objectives that drive absolute TSR out-performance

 

  Enhance executive officer retention with time-based, multi-year vesting schedules for equity incentive awards

 

 

  CASH COMPENSATION

Base Salary

The base salary for each NEO is determined by the Committee and is intended to provide a fixed level of compensation that reflects the NEO’s leadership role and the relative market rate for similarly-situated executives in the NEO’s position. The Committee determines whether to adjust base salaries based on a range of factors, including benchmark versus peers and changes in individual duties and responsibilities. Any increases to base salaries are generally determined in January of the compensation year and become effective in February of the compensation year.

The 2019 base salaries represented an increase of 2.8% over 2018 for all NEOs as a group. For the 2020 compensation year, the Committee did not increase base salaries for the NEOs.

Annual Incentive Program

The annual incentive program is designed to provide NEOs with the opportunity to earn cash bonuses based on the achievement of pre-established corporate and individual goals. For 2019 and prior years, rather than rely on a strict formulaic framework, the Committee combined a quantitative and a qualitative assessment against the goals 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 “—V. Assessing Performance – Focus on Long-Term Value Creation”);

 

 

 

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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.

For 2020, the Committee established a new annual cash incentive plan under which annual cash bonuses payable to our executive officers will have a direct link to the achievement of specific, pre-established goals. (See “—VII. New 2020 Annual Incentive Plan”)

  LTI EQUITY COMPENSATION

The Committee’s assessment of management’s performance against operational, capital and management goals is a material factor in determining the annual compensation awards. What our NEOs actually earn is driven to a significant extent by our TSR through LTI equity awards consisting of a mix of time-based and performance-based LTIP unit awards.

Time-Based Equity Awards

Time-based LTI equity awards generally vest ratably over a four-year period (25% per year), subject to acceleration in certain circumstances (e.g., death, disability or retirement), and are intended to align the interests of management with those of stockholders because the ultimate value of the award is directly tied to the value of our stock over the vesting period.

Performance-Based Equity Awards – Multi-Year Long-Term Incentive Program (MYLTIP)

The performance-based portion of LTI equity awards are granted under our Multi-Year Long-Term Incentive Program, or “MYLTIP.” The value of these awards is linked by formula to our relative TSR over three-year, overlapping measurement periods.

Consistent with the 2019 MYLTIP, under the 2020 MYLTIP:

 

   

the Company’s relative TSR performance is 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 publicly-traded office REITs that we consider our most directly comparable peers (the “Office Peers”) despite being categorized as a diversified REIT by FTSE Nareit);

 

   

the awards are denominated in LTIP units; and

 

   

relative TSR is the sole determinant of how many LTIP units are earned and eligible to vest; there are no upside or downside absolute TSR modifiers.

For 2020 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 200% of the target number of LTIP units issued, on a straight-line basis depending on relative TSR performance compared to the Nareit Office Index (as adjusted) as follows:

 

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    IV.  COMPONENTS OF EXECUTIVE COMPENSATION

 

Reported Pay vs. Realized Pay

The Committee recognizes that a perfect correlation does not exist between the successful execution of our long-term strategy, as demonstrated over time 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.

The following graph shows for our CEO (1) the reported value of the MYLTIP awards as of the respective grant dates, (2) the actual realized pay for the 2015-2017 MYLTIP awards for which the measurement periods have ended and (3) the interim valuations as of December 31, 2019 for the 2018 and 2019 MYLTIP awards:

 

LOGO

 

  (1)

Interim Valuation amounts and Payout as % of Reported Pay percentages shown for the 2018 and 2019 MYLTIP are estimates as of December 31, 2019 based on interim valuations performed by our valuation expert (which could change materially up or down over the remainder of the respective measurement periods). All percentages are rounded.

 

 

 

 

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    V.  ASSESSING PERFORMANCE

 

V. ASSESSING PERFORMANCE

  COMPANY STRATEGY

The key tenets 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;

 

   

invest in the highest quality buildings (primarily office) with unique amenities and desirable locations that are able to maintain high occupancy rates and achieve premium rental rates through economic cycles;

 

   

maintain scale and a full-service real estate capability (leasing, development, construction and property management) in our markets 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 acquisitions, dispositions, repositioning and development, throughout the real estate investment cycle, (3) provide superior service to our tenants and (4) develop and manage our assets in the most sustainable manner possible;

 

   

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

 

   

ensure a strong balance sheet to maintain consistent access to capital and the resultant ability to make new investments at opportune points in time; and

 

   

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

  FOCUS ON LONG-TERM VALUE CREATION

We are a fully integrated real estate company, organized as a real estate investment trust (“REIT”), that develops, manages, operates, acquires and owns a diverse portfolio of primarily Class A office space. We are well-known for our development expertise, in-house building management and responsiveness to tenants’ needs, and we hold a superior track record of developing and operating premium Central Business District office buildings, successful mixed-use complexes and build-to-suit projects for a diverse array of creditworthy tenants. The real estate business is long-term in nature, and our success requires that we make business decisions with a focus on our long-term objectives. As a result, our Committee strives to make compensation decisions that provide management with appropriate incentives to execute our strategy and promote the best interests of the Company and its stockholders over the long term.

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.

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 of 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 appropriately compensate, incentivize and retain our executives.

  PERFORMANCE METRICS

We focus on key drivers of value creation such as growth in diluted FFO per share, leasing, development starts, deliveries and economics, and new investments. While the Committee is aware that different companies may calculate relevant performance

 

 

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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 set 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 OFFICE 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 approximate total capitalizations as of December 31, 2019 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. ($13.6 billion)

 

   

JBG Smith Properties ($7.6 billion)

 

   

Kilroy Realty Corporation ($12.9 billion)

 

   

Paramount Group, Inc. ($7.8 billion)

 

   

SL Green Realty Corp. ($14.2 billion)

 

   

Vornado Realty Trust ($22.9 billion)

Boston Properties’ total capitalization as of the same date was approximately $38.0 billion (see “VI. Determining Executive Compensation Benchmarking Peer Group & Compensation Advisor’s Role”).

  2019 CORPORATE GOALS

In early 2019, 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, while not creating a strictly formulaic framework. 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, without the ability to exercise judgment to evaluate the quality of the results, may have unintended results.

During our outreach efforts, our investors told us that we use a relatively high number of performance goals when assessing performance, and they expressed a desire to better understand which goals were most important and how much the

 

 

 

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Committee factored them into the compensation decisions. 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 and, for 2019, categorized all goals as “primary” or “secondary” goals. The table below lists the primary operational and capital goals for 2019 and the Committee’s overall assessment of management’s performance with respect to each denoting whether a goal was “exceeded,” “met” or “not met.” Although no specific formulaic weightings were attributed to the goals, the Committee’s assessment of performance against the primary goals was the most material factor in their determination of 2019 compensation.

  PRIMARY GOALS

 

  2019 Primary Goals    Overall Assessment

Growth in Diluted FFO per Share

   Exceeded

Leasing

   Exceeded

Key Individual Leasing

   Met

Development Deliveries & Economics

   Met

Development Starts

   Met

New Investments

   Not Met

 

Growth in Diluted FFO per Share

  

Overall Assessment: Exceeded

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:    2019 Performance:    Office Peer Comparison:

$6.75 - $6.92 per diluted share, or 7.1% - 9.8% growth

 

(subject to adjustments for acquisitions, dispositions, financings and similar transactions approved by the Board)

  

$7.01 per diluted share*, representing year-over-year growth of 11.3%; excluding acquisitions, dispositions and financings, FFO per diluted share would have been $7.17 per share, or 13.8% year-over-year growth**

  

Greater year-over-year growth than five of the six Office Peers; excluding the impact of acquisitions, dispositions and financings, our growth would have exceeded all six Office Peers

 

*

Refer to pages 95 through 97 of our Annual Report on Form 10-K for year ended December 31, 2019 for information relating to and the reconciliations of FFO and diluted FFO per share to net income attributable to Boston Properties, Inc. common shareholders.

 

**

2019 diluted FFO per share of $7.01 included the unbudgeted loss on extinguishment of debt of $0.16 per share resulting from the early redemption in September 2019 of $700 million of 5.625% unsecured senior notes that were scheduled to mature in November 2020. Excluding this loss, our diluted FFO per share would have been $7.17, or growth of 13.8% over 2018.

 

Leasing

  

Overall Assessment: Exceeded

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,

 

 

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    V.  ASSESSING PERFORMANCE

 

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:*    2019 Performance:*    Office Peer Comparison:

  6.0 million square feet (MSF) of total leasing at our in-service portfolio

 

  92.0% year-end occupancy for our in-service portfolio

  

  7.6 MSF of total leasing, or 16.9% of our in-service portfolio

 

  93.0% year-end occupancy for our in-service portfolio

  

  Greater leasing volume than all six Office Peers, and leased a greater percentage of our in-service portfolio* than four of the six Office Peers

 

  Greater occupancy percentage than one of the six Office Peers

 

*

Excludes hotel and residential properties

 

Key Individual Leasing

  

Overall Assessment: Met

Why it is important: In addition to overall leasing volume, we established individual leasing goals for specific properties that are intended to motivate our executives to (1) anticipate and proactively manage rollover and lease terminations at our in-service properties and (2) lease and stabilize our development properties. The specific leases and properties that comprise the goal are important components of our annual business plan.

 

Goal:    2019 Performance:

2.9 MSF of leasing across seven in-service properties and one development property

  

Completed 2.9 MSF of leasing across eight properties

 

Development Deliveries & Economics

  

Overall Assessment: Met

Why it is important: Development deliveries measure our ability to execute our development pipeline on time and within budget. In addition, the success of our development projects and realization of our plans for growth depend on the stabilized unleveraged cash yields we generate.

 

Goal:    2019 Performance:    Office Peer Comparison:

  Deliver three office development projects aggregating 1.1M SF at a total budgeted cost of approximately $667M.

 

  Achieve approved economics (% leased at delivery or year-end, as applicable, and cash-on-cash (“CoC”) return) for five office and residential development projects representing an aggregate weighted-average lease percentage of 91% and aggregate weighted-average CoC return of 7.3%.

  

  BXP delivered two of the three office projects representing an aggregate of approximately 865K SF with our share of total costs of approximately $488M, representing 2.3% of gross book value (“GBV”).

 

  BXP achieved a weighted-average of 91% leased and weighted-average CoC return of 8.1% for four of the five projects. Although BXP delivered space to the tenant for the fifth project (i.e., 159 E 53rd Street), revenue recognition has been delayed due to accounting policies.

  

Deliveries represent a greater percentage of GBV than four of the six Office Peers

 

Development Starts

  

Overall Assessment: Met

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.

 

 

 

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Goal:    2019 Performance:    Office Peer Comparison:

Commence two development projects totaling approximately 908K SF and approximately $850M of budgeted costs

  

Commenced development at 325 Main Street in Cambridge, MA, and 2100 Pennsylvania Avenue in Washington, DC. In addition, BXP commenced redevelopment of 200 West Street in Waltham, MA. In total, BXP commenced more than 1.0M SF of development with aggregate total budgeted costs of $822M, representing GBV of 3.1%.

  

Greater GBV than four of the six Office Peers

 

New Investments

  

Overall Assessment: Not Met

Why it is important: New investments help sustain 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:    2019 Performance:    Office Peer Comparison:

Consisted of seven transactions to either pursue or complete in 2019

  

Completed or pursued four of the seven targeted transactions. Although not completed until January 2020, BXP pursued to near completion in 2019 the joint venture for our Gateway properties. In addition, although not included in the goal, we acquired 880 and 890 Winter Street in Waltham, MA. In total, BXP’s new investments in 2019 represented, in the aggregate, 1.4% of GBV.

  

Greater GBV than two of the six Office Peers

  SECONDARY GOALS

In addition to the primary goals, the Committee established the goals listed below for our executive officers for 2019. Although the Committee considered these secondary goals as part of the overall assessment of the NEOs’ performance for the year, no single goal was a material factor in awarding compensation for 2019.

 

  2019 Secondary Goals    Overall Assessment

Environmental, Social and Governance

   Exceeded

Same Property Performance NOI & NOI – Cash

   Exceeded

Dispositions

   Met

Financings

   Met

General & Administrative Expense

   Met

Capital Expenditures & Repositioning

   Met

New Development Milestones

   Not Met

Redevelopment Milestones

   Met

Entitlements

   Met

 

 

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    VI.  DETERMINING EXECUTIVE COMPENSATION

 

VI. DETERMINING EXECUTIVE COMPENSATION

  PROCESS FOR DETERMINING EXECUTIVE COMPENSATION

Our Committee followed the same general process when setting executive compensation for 2019 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;

 

   

considering an analysis prepared by FW Cook 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 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 FW Cook; 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 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).

  BENCHMARKING PEER GROUP & 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.

In 2019, the Committee retained FW Cook to serve as its new independent, third-party compensation consultant. FW Cook reports directly to the Committee and does not provide services to management that are not under the Committee’s purview. A representative of FW Cook attends meetings of the Committee, as requested, and communicates with the Committee Chair between meetings. Consistent with its charter and as required by SEC rules and NYSE listing standards, prior to retaining FW Cook as its consultant, the Committee considered all factors relevant to FW Cook’s independence from management.

The Committee engaged FW Cook to provide a fresh perspective on our overall executive compensation program, advise the Committee on the reasonableness of executive compensation levels in comparison with those of other similarly situated companies and consult on the structure of our executive compensation program to optimally support our business objectives. It also advised the Committee on executive compensation trends among REITs and the broader market, noting specifically that, in aggregate, total direct compensation levels for the NEOs were competitive and reasonably aligned with relative performance, but the pay mix was more heavily weighted to cash and less to equity than the peer group overall. As a result, the Committee initiated its plan to gradually reduce cash compensation and shift the pay mix toward LTI equity awards for all NEOs. Accordingly, the Committee awarded aggregate cash bonuses to the NEOs that were (9.9)% less than awarded to the same NEOs for 2018, and the performance-based equity awards for all NEOs in 2019 represent a greater percentage of total direct compensation than they did in 2018. FW Cook also recommended changes to the 2020 compensation program design and structure. The Committee relied on this advice, and the feedback received from the investor outreach process, in deciding to establish the 2020 Annual Incentive Plan (see “—VII. New 2020 Annual Incentive Plan”).

 

 

 

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6    COMPENSATION DISCUSSION AND ANALYSIS
    VI.  DETERMINING EXECUTIVE COMPENSATION

 

Benchmarking Peer Group

The Committee selected the same peer group for benchmarking 2019 executive compensation that it used for 2018. That peer group consists of sixteen publicly traded real estate companies that are of comparable size to the Company in terms of total capitalization and assets, irrespective of property focus. FW Cook (i) advised the Committee that size, as measured by total capitalization, best depicts the scale, complexity and breadth of the Company’s operations, as well as the amount of capital and assets managed, and therefore is the most appropriate scope measure for peer company selection and (ii) reviewed the peer group for 2018 and recommended that the Committee maintain the same peer group for 2019. Notably, fourteen out of the sixteen members of this Benchmarking Peer Group also list us as a peer company in their 2019 proxy statements.

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        439      $ 19,519      $ 27,869

American Tower Corporation

       Specialty        Boston, MA        5,454      $ 101,785      $ 134,377

AvalonBay Communities, Inc.

       Multifamily        Arlington, VA        3,122      $ 29,495      $ 36,932

Digital Realty Trust, Inc.

       Specialty        San Francisco, CA        1,550      $ 26,073      $ 38,544

Equity Residential

       Multifamily        Chicago, IL        2,700      $ 31,187      $ 40,593

Essex Property Trust, Inc.

       Multifamily        San Mateo, CA        1,822      $ 20,577      $ 26,683

Host Hotels & Resorts, Inc.

       Hotel        Bethesda, MD        175      $ 13,375      $ 17,781

Prologis, Inc.

       Industrial        San Francisco, CA        1,712      $ 57,998      $ 73,220

Public Storage

       Self-Storage        Glendale, CA        5,900      $ 37,194      $ 43,178

Regency Centers Corporation

       Shopping Center        Jacksonville, FL        450      $ 10,619      $ 14,802

Simon Property Group, Inc.

       Regional Mall        Indianapolis, IN        3,750      $ 52,674      $ 77,619

SL Green Realty Corp.

       Office        New York, NY        1,033      $ 7,663      $ 14,186

UDR, Inc.

       Multifamily        Highlands Ranch, CO        1,341      $ 14,776      $ 19,841

Ventas, Inc.

       Health Care        Chicago, IL        516      $ 21,697      $ 34,309

Vornado Realty Trust

       Diversified        New York, NY        4,008      $ 13,509      $ 22,917

Welltower Inc.

       Health Care        Toledo, OH        443      $ 33,551      $ 50,382

Median

                             1,631      $ 23,885      $ 35,621

Average

                             2,151      $ 30,731      $ 42,077

Boston Properties, Inc.

                             760      $ 23,808      $ 37,981

Relative Percentile Rank

                             30%-ile          50%-ile          58%-ile  

Source: Market Intelligence, a Division of S&P Global. Data as of December 31, 2019.

 

(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.

The benchmarking review was based, in part, on information disclosed in the peer companies’ proxy statements filed in 2019 (the latest year for which comprehensive data were publicly available), supplemented by data from the 2019 Nareit Compensation Survey.

  ROLE OF MANAGEMENT IN COMPENSATION DECISIONS

Our CEO and President make recommendations to the Committee on the compensation of the other executive officers, and our CEO makes recommendations to the Committee on the compensation of our President, in each case, based on their assessment of performance versus corporate and individual goals and a variety of other factors (e.g., compensation history, tenure, responsibilities, market data for competitive positions and retention concerns). All executive compensation decisions are made by the Committee.

 

 

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    VII.  NEW 2020 ANNUAL INCENTIVE PLAN

 

VII. NEW 2020 ANNUAL INCENTIVE PLAN

Based on feedback received from our investors and advice received from FW Cook, the Committee established a new annual cash incentive plan for 2020 under which annual cash bonuses payable to our executive officers will have a direct link to the achievement of specific, pre-established goals.

Beginning in 2020 (the first fiscal year following the 2019 Say-on-Pay vote), individual target bonus opportunities will be expressed in fixed dollar amounts. Actual earned amounts may range from zero (0) to 150% of target, depending on performance versus pre-established annual goals in each category.

 

Performance Level for Each Category   Payout (% of Target)
>= Maximum   150%
Target   100%
Threshold   50%
<Threshold   0

Annual bonuses will be based on performance in three categories: FFO per share, leasing and business/individual goals.

 

   

FFO per Share. FFO per share was selected as a key financial metric for the 2020 Annual Incentive Plan because it is the earnings metric most commonly used by investors and analysts to evaluate our performance on an absolute basis and relative to other REITs. The FFO per share goal is subject to adjustment for acquisitions, dispositions, financings, lease terminations and similar transactions and circumstances.

 

   

Leasing. For the 2020 Annual Incentive Plan, the Committee established specific corporate and regional leasing goals. Leasing will be evaluated in terms of short-term leasing and total leasing to encourage the executives to focus on current addressable vacancies and near-term roll-over, and to avoid scenarios in which leasing goals are met solely due to unexpected early renewals.

 

   

Business/Individual Goals. Business goals include milestone-oriented objectives related to acquisitions, dispositions, joint ventures, securing entitlements, and/or launching new developments. Business goals are based on regional priorities for the regional EVPs. For the CEO and President, business goals include a relevant subset of those regional goals, as well as goals related to executive management of the Company. For the CFO, business goals relate to balance sheet management, capital raising, and other finance department priorities. Individual goals include leadership and professional development goals, diversity initiatives, succession planning and other ESG priorities for each executive. Assessment of performance against the goals in this category will be determined based on an analysis of performance versus the pre-established goals, as well as other relevant factors (including, e.g., degree of difficulty, importance to BXP, headwinds and tailwinds during the year and other similar factors).

The following table summarizes the performance measurement categories and weightings under the new 2020 Annual Incentive Plan.

 

     Weightings  
  Annual Incentive Performance Measures    Thomas     Linde     LaBelle     Ritchey     Koop  
  FFO per Share      33.3     33.3     33.3     33.3     33.3
  Leasing (Short-Term and Total)           

Overall BXP

     33.3     33.3     16.7    

LA Region + DC Region

           33.3  

Boston Region

                                     33.3
  Business & Individual Goals           

Overall BXP

     33.3     33.3      

Finance – Capital Raising

         25.0    

Finance – Other

         25.0    

LA Region + DC Region

           33.3  

Boston Region

                                     33.3
  Total      100.0     100.0     100.0     100.0     100.0

The Committee approved the foregoing categories and specific goal targets in January 2020, prior to the COVID-19 outbreak becoming a global pandemic that has had a material adverse effect on the global economy. In light of the changing business environment, the Committee may re-evaluate the categories and targets, as appropriate.

 

 

 

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6    COMPENSATION DISCUSSION AND ANALYSIS
    VIII.  OTHER COMPENSATION POLICIES

 

VIII. OTHER COMPENSATION POLICIES

  DOUBLE-TRIGGER ACCELERATION OF VESTING OF EQUITY AWARDS UPON A CHANGE OF CONTROL

All time-based equity awards made after 2014 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 CEO, 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’ interests are aligned with stockholders to maximize stockholder value.

 

   

Minimizing conflicts of interest: Double-trigger vesting in the context of a potential change of control (1) reduces distraction and the risk that executives leave the Company before a transaction is completed and (2) prevents executives from receiving a windfall because executives’ time-based equity vests 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 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 senior executives since 2013, including our original and current employment agreements with our CEO, Mr. Thomas, do not provide for tax gross-up payments. Accordingly, this policy formalized the Committee’s then-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 will not be entitled to any tax gross-up payments under the plans.

  POLICY CONCERNING HEDGING AND PLEDGING TRANSACTIONS

We prohibit all employees, including our 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,

 

 

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    VIII.  OTHER COMPENSATION POLICIES

 

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 employee or director is aware of material, non-public information or otherwise is not permitted to trade in Company securities. Our Board has never been asked to grant a waiver, nor has it ever granted such a waiver, of this policy.

  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 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 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

 

 

 

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    VIII.  OTHER COMPENSATION POLICIES

 

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 – Employment Agreements”) 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 NEO 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 believe that these agreements are fair to the NEOs 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 after 2014. 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”) 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. The Committee believes that agreeing in advance to provide severance benefits in the event of an involuntary termination or constructive termination of employment following a change in control helps 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 helps 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.

 

 

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    VIII.  OTHER COMPENSATION POLICIES

 

  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 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.

  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 ($280,000 in 2019)). 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.” 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. However, in December 2019, the Internal Revenue Service proposed new regulations that may cause the limits on deductibility under Section 162(m) to apply to such compensation. 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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6    COMPENSATION DISCUSSION AND ANALYSIS
    VIII.  OTHER COMPENSATION POLICIES

 

  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 factors, 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;

 

  beginning with bonuses for 2020 (paid in 2021), annual cash bonuses for executives will be linked to performance against goals in three categories with specific weightings and each executive has target and maximum bonus opportunities;

 

  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 – Retirement Eligibility Provisions for LTI Equity Awards”);

 

  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 late January or early February of 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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7    COMPENSATION OF EXECUTIVE OFFICERS

 

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

($)(7)

 

Owen D. Thomas

Chief Executive Officer

     2019        898,077        2,550,000        8,452,063 (3)    17,460      11,917,600  
     2018        875,000        2,875,000        7,927,786 (4)    17,160      11,694,946  
     2017        875,000        2,425,000