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Incentivizing Risk: Cash Severance Multiples among U.S. REITs

March 8, 2016

In addition to attracting talent and providing retention value, severance packages can incentivize executive risk-taking by providing a safety net in case certain decisions don’t turn out as planned. One study found that “CEOs with contractual protection are protected from short-term performance swings” (Chen) and are thus more flexible to take short-term risks that may lead to long-term rewards. Cash severance in particular, because its value is not affected by the stock market, guarantees a minimum level of compensation after a termination without cause or resignation for good reason scenario that may immediately follow a decline in company performance.

In a recent study of CEOs at 110 U.S. real estate investment trusts (REITs), Equilar found that 93 companies (84.5%) provided some form of cash severance. Cash severance was defined to be any cash payment that an executive would receive other than what is already owed to him or her. This does not include accrued salary, bonus payouts or vacation pay.

Out of the 93 companies, 91 expressed cash severance as a multiple of base salary. The remaining two companies provide cash severance in the form of a fixed dollar amount. Furthermore, of the 91 companies paying a salary multiple, 76 (83.5%) also provide a multiple of the executive’s annual bonus which is paid on top of the salary multiple.

As the data shows, CEO cash severance multiples among these REITs are typically in the range of 2x to 2.99x. Breaking it down even further, the majority of companies are at the low end of that range—37 of them pay base salary multiples of 2x, and 32 companies pay annual bonus multiples of 2x. Also interesting is that only one company out of the 74 comprising the annual bonus chart pays a bonus multiple that is different from the cash multiple. In that case, salary is 3x and bonus is 2x. Taking this into consideration, it is possible to compare these charts and see that companies at the high end of the spectrum are more likely to pay both a salary and bonus multiple. In fact, 26.8% of companies paying salary multiples below 2.5x do not pay bonus multiples. Comparatively, only 5.7% of companies paying salary multiples of 2.5x or higher do not pay bonus multiples.

* Only 74 companies appear because we excluded two companies that pay a bonus amount that is dependent on the length of the remaining term of the CEO’s employment agreement.


Chen, Xia and Cheng, Qiang and Lo, Alvis K. and Wang, Xin, CEO Contractual Protection and Managerial Short-Termism (November 1, 2014). The Accounting Review, September 2015, Forthcoming. Available at SSRN:

For more details on corporate transaction pay decisions and disclosure, or to learn more about custom research available through Equilar’s Research Services, please contact the Equilar research team at

For more information on Equilar’s research and data analysis, please contact Dan Marcec, Director of Content & Marketing Communications at Charlie Pontrelli, research project manager, contributed to this post.

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