EXECUTIVE COMPENSATION HIGHLIGHTS

Compensation Philosophy

The Compensation Committee believes that our executive compensation program should emphasize pay-for-performance and reflect the value created for our shareholders, while supporting our business strategies, operational goals and long-range plans. In addition, the Compensation Committee believes that such compensation should assist the Company in attracting and retaining key executives critical to our long-term success. Our compensation practices reflect this philosophy:

 

DO provide executive officers with the opportunity to earn market-competitive compensation through a mix of cash and equity compensation with a strong emphasis on performance-based incentive awards (our executives received only performance-based long-term incentive plan (“LTIP”) awards in 2021).   DO align pay and performance by linking a substantial portion of compensation to the achievement of pre-established performance metrics that drive shareholder value.   DO evaluate TSR when determining performance under LTIP performance share awards to enhance shareholder alignment.   DO cap payouts for awards under our annual bonus and LTIP plans.   DO require executive officers to own and retain shares of our common stock to further align interests with our shareholders.   DO enhance executive officer retention with annual LTIP equity awards, including multi-year performance periods for our performance-based incentive awards.   DO enable the Board to “claw back” incentive compensation in the event of a financial statement restatement pursuant to a recoupment policy.   DO maintain a Compensation Committee comprised solely of independent directors.   DO engage an independent compensation consultant to advise the Compensation Committee on executive compensation matters.		DO NOT base LTIP awards on a single performance metric, thereby discouraging unnecessary or excessive risk-taking.   DO NOT provide uncapped award opportunities.   DO NOT have employment agreements with executive officers that provide single-trigger change of control benefits.   DO NOT permit executive officers or directors to engage in derivative or other hedging transactions in our securities.   DO NOT provide executive officers with excessive perquisites or other personal benefits.   DO NOT permit executive officers or directors to hold our securities in margin accounts or pledge our securities to secure loans without pre-approval by the Audit and Compensation Committees (no executive officer or director pledged or held our securities in margin accounts at any time during 2021).   DO NOT provide for tax gross-up payments for compensation or benefits paid in connection with a change in control.

 

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Commitment to Pay-for-Performance

In 2021, consistent with our compensation philosophy that linking a substantial portion of compensation to variable at-risk pay elements creates appropriate alignment with our shareholders, the Compensation Committee determined that 100% of our Named Executive Officers’ annual LTIP equity awards should be tied to pre-established performance metrics and 0% tied to time-vesting equity awards. In 2020, this ratio was 60% performance-based awards and 40% time-vesting awards. The following graphs¹ show the emphasis we placed on variable at-risk pay elements, such as performance-based cash bonuses and equity awards, for all of our Named Executive Officers (defined herein) in 2021.

 

 

 

 

1	Performance Share awards were calculated for purposes of the above graphics using the grant date fair value calculated in accordance with ASC Topic 718.

 

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DRIVING SHAREHOLDER VALUE WITH OUR COMMITMENT TO ESG

At Spirit, we believe that doing the right thing for all of our stakeholders, including employees, our community and our tenants, will drive long term value for our shareholders. Our commitment is integrated throughout our organization and is ultimately overseen by our Board and committees thereof. Our Nominating and Corporate Governance Committee has key responsibility for ESG oversight and making ESG-related recommendations to the full Board. The Nominating and Corporate Governance Committee and Board receive ESG-related updates from the Executive Leadership Team at least quarterly and on an as-needed basis. In 2021, our Board or Board committees received updates or discussed environmental, human capital management or social matters affecting the Company on at least eleven occasions.

We have also formed several ESG-related committees which operate to facilitate frequent discussions around important ESG topics and assist our business in taking actionable ESG measures. These committees meet regularly and report to Spirit’s Executive Leadership Team, which then reports to the Board and committees thereof.

The flow chart below outlines our ESG reporting framework:

 

 

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Spirit continued to make great strides in its ESG efforts in 2021. Some of the key initiatives and goals accomplished include:

 

 

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SOCIAL AND HUMAN CAPITAL MANAGEMENT

At Spirit, we believe that by implementing sound community and human capital management practices throughout the operation of our business, we demonstrate our solid commitment to be responsible and conscientious in everything that we do as we strive to both increase long-term stakeholder value and make the communities in which we operate a better place to live and work.

All One Team Culture

Our Culture . . .

 

		Focuses on Teamwork – We are “All One Team” – we have successfully navigated the challenges presented over the last few years and reached our goal of becoming a simplified triple net lease REIT through effective interdepartmental communication and collaborative, multi-disciplinary teams delivering on critical objectives in a timely manner.
		Celebrates Diversity and Inclusion – approximately 52% of our employees are female, approximately 26% of our employees are racial or ethnic minorities, and 40% of our directors are female. In 2020, we established an employee driven Diversity, Equity & Inclusion Council to promote diversity and inclusivity within our Company and community. In 2021, we formalized our efforts in diversity and inclusion by creating our Diversity, Equity & Inclusion Policy. Together with the Women’s Leadership Council, these groups provide perspective to both our executives and our Board of Directors.
		Encourages Employee Development – in 2021, we continued investing in our employees through development and training on leadership, operations, finance and accounting, legal, employee relations and information technology.
		Is Dynamic – Our leadership keeps the lines of communication open with and among our employees, including monthly Town Hall meetings where our CEO and other senior leaders update employees on company matters and answer questions from employees.

Our Values…

 

 

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Our Community…

In 2021, we were able to make a meaningful impact on our community through significant corporate donations:

 

 

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Environmental Sustainability Highlights

Spirit recognizes that the ownership of commercial real estate can have a significant impact on the environment. As a result, we are committed to implementing environmentally sustainable practices at our headquarters and considering environmental factors and risks in our investment decisions. Our approach to these matters is set forth in our Environmental Management System (the “EMS”), which was approved and adopted by the Nominating and Corporate Governance Committee in 2021. Our commitment is further outlined in our inaugural ESG Report, which is aligned with the Task Force on Climate-related Financial Disclosures (TCFD) framework.

Our Headquarters

Our commitment to sustainability and reducing our environmental footprint is demonstrated by our approach to managing operations at our corporate headquarters. Some highlights include:

 

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Installation of automatic lighting control systems

 

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Use of ENERGY STAR certified computers, monitors, copiers, conference room displays and printers

 

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Active recycling of materials such as aluminum, paper, and plastic and use of recycled paper where possible

 

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Use of low VOC paint and “green” cleaning products

 

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Use of water machines to encourage employees to use reusable cups

In 2021, through the recycling initiatives at our headquarters we were able to save over 113 trees.

Our Portfolio and Investments

As a triple-net lease real estate investment trust, we primarily invest in single-tenant real estate under absolute net-leases. With this business structure, each tenant is generally responsible for maintaining the leased improvements, including controlling their energy usage and the implementation of environmentally sustainable practices at each location.

Although our tenants are ultimately responsible for reducing energy usage and being environmentally conscience in their operations at the leased premises, to further align and collaborate with our tenants on environmental sustainability matters, including reducing energy and water usage, we have integrated into our form lease certain “green lease” provisions and have implemented certain sustainability practices, as set forth in our EMS, which is available on our website at www.spiritrealty.com.

Our Community Impact

Our environmental sustainability initiatives extend to our community:

 

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Volunteering with local environmentally-focused non-profit organizations

 

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Donating funds to non-profits that share in our commitment to sustainability

 

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Employee communications regarding ways to be more “green”

 

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CORPORATE GOVERNANCE AND BOARD HIGHLIGHTS

Our Board is committed to sound governance practices designed to promote the long-term interests of shareholders and strengthen Board and management accountability. Our Board regularly evaluates our governance profile against best practices to identify areas for improvement. The Board also leverages our active shareholder engagement program to gather insights on key areas of shareholder interest and emerging trends to evaluate. Key elements of our governance program include:

 

Board of Directors		Governance Highlights
✓  Independent Chair   ✓  All directors, with the exception of our CEO, are independent   ✓  Annual election of directors   ✓  Board regularly meets in executive sessions, including without the presence of our CEO   ✓  Board seeks direct engagement with employees at all levels of the organization   ✓  Board oversight and engagement on environmental, social, governance, and human capital management matters   ✓  Diverse Board including gender, race/ethnicity, tenure, age, and experience		✓  Majority vote standard for director elections   ✓  Majority standard for shareholder right to call special meeting   ✓  Majority vote standard to amend/repeal Bylaw provisions, without subject matter restrictions   ✓  Minimum stock ownership policy for Board   ✓  Active shareholder engagement program   ✓  Regular Board review of CEO and senior management succession plans

 

Committees & Attendance		Shareholder Engagement
✓  Ongoing Board committee leadership rotation   ✓  Annual Board evaluations   ✓  Fully independent Board committees   ✓  Board Investment Committee responsible for assisting the Board in discharging its responsibilities as to the review and approval of certain real estate acquisitions   ✓  Nominating and Corporate Governance Committee is responsible for overseeing ESG-related issues   ✓  Audit Committee is responsible for overseeing risk assessment and mitigation   ✓  Dedicated Company Disclosure Committee to ensure timeliness and accuracy of all required disclosures		✓  In 2021, we continued our shareholder engagement program by reaching out to the holders of 53.17% of our outstanding shares as of September 30, 2021   ✓  Topics included our business strategy and 2021 performance, executive compensation, our business transformation, Board and governance practices, and ESG   ✓  Shareholder feedback informs Board decision-making

 

Our current Board is composed of directors who collectively have the right mix of skills, professional experience and expertise to effectively oversee management. Specifically, our directors have backgrounds in finance, M&A, real estate, risk oversight, and stakeholder value initiatives, among other skills relevant to Spirit’s strategic goals.

 

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This diversity in skill set pairs with other sources of viewpoint diversity. We are proud that our director nominee slate is 44% female. We have also cultivated significant diversity in the length of service amongst our Board members, with tenures ranging from 13 years to a little over one year. Our Board believes that tenure diversity enables us to capture the value of both new perspectives and the deep institutional knowledge of longer-tenured directors to help the Board effectively oversee our business.

 

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Key Board Statistics

Of Our Director Nominees

 

Board Refreshment

We are focused on ensuring that directors’ skills and experiences continue to reflect the evolving needs of the business, and as such, our robust Board evaluation process is an important part of our Board refreshment and succession planning efforts. The Nominating and Corporate Governance Committee considers diversity to be a key priority in director recruitment. In 2021, the Committee adopted a “Rooney” style rule which requires it to use best efforts to include qualified female and/or ethnic or racial minority candidates in the initial search pool that the Committee further evaluates for recommendation to the Board. Over the past few years, our active refreshment process has led to the appointment of Diana Laing, Elizabeth Frank, Michelle Frymire, Kristian Gathright and Thomas Sullivan, each of whom offer different perspectives to the Board.

VOTING ITEMS

Proposals to be Voted on and Board Voting Recommendations

 

Proposal   No.		Description		Board’s     Recommendation		Page
1		The election of (9) nine directors nominated by our Board of Directors and named in the accompanying Proxy Statement to hold office until the next annual meeting of shareholders and until their respective successors have been duly elected and qualified		FOR each of the 9 nominees		75
2		Ratification of the appointment of the selection of Ernst & Young LLP as our independent registered public accounting firm for fiscal year 2022		FOR		87
3		The approval of the Second Amended and Restated Spirit Realty Capital, Inc. and Spirit Realty, L.P. 2012 Incentive Award Plan, including an increase to the number of shares of common stock reserved for issuance by 3,000,000 shares		FOR		88
4		A non-binding, advisory resolution to approve the compensation of our named executive officers as described in the accompanying Proxy Statement		FOR		95

 

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OUR NAMED EXECUTIVE OFFICERS

Set forth below is certain biographical information concerning our Named Executive Officers. Ages shown are as of the Record Date.

 

Name, Age, Position		Business Experience
Jackson Hsieh, Age 61 President and Chief Executive Officer (effective May 8, 2017)		Jackson Hsieh serves as President and Chief Executive Officer in addition to serving on the Board of Directors. In addition, Mr. Hsieh serves on the Company’s Investment Committee and Management Operating Committee that monitors business activities and defines company strategy. Prior to joining Spirit in September 2016, Mr. Hsieh served as Managing Director and Vice Chairman of Investment Banking at Morgan Stanley, Vice Chairman and Sole/Co-Global Head of UBS’s Real Estate Investment Banking Group, and in various other leadership roles which include a prior period at Morgan Stanley and tenures at Bankers Trust Company and Salomon Brothers, Inc. Mr. Hsieh is a graduate of the University of California at Berkeley and earned a master’s degree from Harvard University.
Michael Hughes, Age 47 Executive Vice President, Chief Financial Officer (effective April 1, 2018)		Michael Hughes serves as Executive Vice President and Chief Financial Officer. In addition, Mr. Hughes serves on the Company’s Investment Committee and Management Operating Committee that monitors business activities and defines company strategy. Prior to joining Spirit in April 2018, Mr. Hughes served as Executive Vice President and Chief Financial Officer at FelCor Lodging Trust from 2013 through the close of the company’s merger with RLJ Lodging Trust in 2017. Prior to that, he held various roles in corporate finance at FelCor from 2006 to 2013 and held multiple roles at Wyndham International, Inc. from 2002 to 2006, most recently serving as Vice President, Corporate Finance. Mr. Hughes earned a bachelor’s degree in business from Rhodes College and is a holder of the Chartered Financial Analyst® designation.
Ken Heimlich, Age 56 Executive Vice President, Chief Investment Officer (Executive Vice President effective April 3, 2018; Chief Investment Officer effective January 1, 2021)		Ken Heimlich joined Spirit in March 2017 and serves as Executive Vice President and Chief Investment Officer. In this role, he has oversight responsibility for acquisitions, asset management, dispositions, property management, underwriting, research, and construction. In addition, Mr. Heimlich serves on the Company’s Investment Committee and Management Operating Committee that monitors business activities and defines company strategy. Mr. Heimlich has extensive experience in the REIT industry having served as Managing Principal at Capital Formation, LLC, a net lease real estate advisory firm, as well as in several senior leadership roles at GE Capital, Franchise Finance. During his tenure at GE Capital, he successfully led the IPS and Surplus platforms for a 2,000+ property portfolio, built and directed a nationwide retail development platform, and managed a 500-property triple net lease portfolio. Mr. Heimlich earned a bachelor’s degree in finance from Eastern Illinois University.
Jay Young, Age 52 Executive Vice President, Chief Administrative Officer and Chief Legal Officer (effective January 20, 2022) (Formerly Executive Vice President, General Counsel and Secretary (effective April 25, 2016))		Jay Young serves as Executive Vice President, Chief Administrative Officer and Chief Legal Officer, effective January 20, 2022. In 2021, Mr. Young served as Executive Vice President, General Counsel and Secretary. In addition, Mr. Young serves on the Company’s Investment Committee and Management Operating Committee that monitors business activities and defines company strategy. Prior to joining Spirit in April 2016, Mr. Young served as Senior Vice President and General Counsel for Wingstop, Inc., Senior Vice President and General Counsel for CEC Entertainment, and in-house counsel for Wachovia Corporation and UBS. Mr. Young holds a bachelor’s degree in economics from Southern Methodist University, a Juris Doctor from the University of Oklahoma College of Law and a Master of Business Administration from the University of Oklahoma Price College of Business.

 

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COMPENSATION DISCUSSION AND ANALYSIS

COMPENSATION COMMITTEE REPORT

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

COMPENSATION COMMITTEE

Kevin M. Charlton, Chairperson

Richard I. Gilchrist

Nicholas P. Shepherd

Thomas J. Sullivan

This Compensation Discussion and Analysis describes our 2021 compensation program for our principal executive officer (Jackson Hsieh), our principal financial officer (Michael Hughes), and our two other executive officers during 2021 (Ken Heimlich and Jay Young) (collectively, our “Named Executive Officers” or “NEOs”).

In particular, this discussion and analysis provides an overview of our executive compensation philosophy, the overall objectives of our executive compensation program, how each element of our executive compensation program is designed to satisfy those objectives, and the policies underlying our 2021 executive compensation program and the compensation awarded to our Named Executive Officers for 2021. The following discussion and analysis of compensation arrangements of our Named Executive Officers should be read together with the compensation tables and related disclosures.

EXECUTIVE SUMMARY

Our Board and Compensation Committee place emphasis on ensuring our executive compensation program clearly links pay-to-performance. Additionally, our Compensation Committee and Board have made extensive changes to our executive compensation program based on direct feedback from our shareholders over the last few years.

In 2020, following an extensive shareholder outreach and engagement initiative, the Compensation Committee made a substantial number of changes to our executive compensation program, including a reduction in our CEO’s base salary and no increase in base salary for the other NEOs, a reduction in target annual cash bonus opportunity for our CEO, a reduction in target annual equity award value under our LTIP for our CEO, an increase to the portion of annual equity awards under our LTIP tied to performance from 50% to 60% for all NEOs and a reduction to the portion of the annual cash bonus tied to individual performance from 20% to 16% for all NEOs.

In 2021, to further demonstrate our commitment to pay-for-performance, the Compensation Committee increased the portion of our LTIP equity grants tied to performance for each NEO from 60% to 100%. In addition, the Compensation Committee added a new individual ESG-related performance metric to the 2021 cash bonus program emphasizing Spirit’s commitment to ESG.

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

2021 Strategy, Performance and Financial Overview

Our executive compensation program is designed to emphasize pay-for-performance and reflect the value created for our shareholders, while supporting our business strategies, operational goals and long-range plans. In addition, our compensation program focuses on maintaining a strong link between our NEOs’ compensation and Company performance to assist the Company in attracting and retaining key executives critical to our long-term success. Coming off a turbulent 2020, we were able to shift from defense against COVID-19 and re-focus on our key business initiatives and goals- maximizing shareholder value by providing a growing stream of earnings and dividends generated by a high-quality, diversified commercial real estate portfolio.

Highlights for the year ended December 31, 2021 include:

 

Please see Annex A for a reconciliation of non-GAAP measures FFO and AFFO per share.

 

 

1

The MSCI US REIT Index (RMZ) is a free float-adjusted market capitalization weighted index that is comprised of equity Real Estate Investment Trusts (REITs). It represents about 99% of the US REIT universe and securities are classified under the Equity REITs Industry according to the Global Industry Classification Standard (GICS®), have core real estate exposure and carry REIT tax status

 

2

VEREIT, Inc. was acquired by Realty Income Corporation in November 2021, Retail Properties of America, Inc. was acquired by Kite Realty Group, L.P. in October 2021, and Washington Prime Group Inc. voluntarily delisted its shares of common stock from the NYSE in October 2021 and is now privately owned. As such, these peers have been excluded from this chart.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

2021 COMPENSATION PROGRAM HIGHLIGHTS

The table below details the changes discussed above, as well as other actions the Committee took in 2021 to address investors’ perspectives on our executive compensation program.

 

Increased the portion of our NEOs’ annual LTIP equity grants tied to performance from 60% to 100%, eliminating the portion attributable to time-vesting

Revised our proxy disclosure, providing additional and clear rationale with respect to how our pay is clearly linked to performance and detailing the vesting metrics of our performance share awards

Added an ESG-related goal for determining bonus attainment in connection with each NEO’s individual performance goals

Undertook a fresh evaluation of our peer group for 2021 compensation to ensure alignment of our 2021 programs with those of our peers

2021 Say-on-Pay Voting Results

The Compensation Committee values the perspectives and concerns of our shareholders regarding executive compensation, and our Board has determined that an advisory vote to approve our executive compensation program will be submitted to our shareholders on an annual basis. At our 2021 Annual Meeting of Shareholders, 84% of shares were represented at the meeting, and eligible to vote, cast votes FOR our executive compensation program.

2021 Shareholder Engagement Program

In 2021, we completed another successful Shareholder Engagement Program. Similar to our approach in 2020, we contacted each of our top ten shareholders as of September 30, 2021, representing 53.17% of outstanding shares at that time, and hosted calls with five of them. During these calls we addressed a handful of topics including our compensation program, ESG commitment, business strategy, and Board composition and refreshment efforts.

In connection with the insight gained from our Shareholder Engagement Program, in 2021 our Board revised our NEOs’ annual LTIP equity grants program to better align with our pay-for-performance philosophy by increasing the portion of such awards based on performance from 60% to 100% and eliminating the portion of such awards that vest solely based on the passage of time. In addition, the Compensation Committee included an ESG-related individual performance measure under the NEOs’ cash bonus program to strengthen our commitment to sound ESG practices. The Compensation Committee and the Board value the opinions of our shareholders and will continue to consider those opinions when making future executive compensation decisions that align compensation with the creation of value for our shareholders.

Compensation Philosophy and Objectives

The Compensation Committee believes that the executive compensation program should emphasize pay-for-performance and reflect the value created for our shareholders, while supporting our business strategies, operational goals and long-range plans. In addition, the Compensation Committee believes that such compensation should assist the Company in attracting and retaining key executives critical to our long-term success.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Pay for Performance

We emphasize pay-for-performance by designing the executive compensation program to align Company-wide financial and operational achievements through the use of annual cash bonuses and performance-based long-term equity awards granted to our Named Executive Officers.

Attract and Retain Talent

Our executive compensation philosophy also recognizes that, given that the market for experienced management is highly competitive in our industry, the core of our success is our ability to attract and retain the most highly-qualified executives to manage each of our business functions.

Fundamentally, we believe executive officer compensation should be structured to provide competitive base salaries and benefits, which attract and retain superior executives. Additionally, we use annual performance-based cash compensation to motivate executive officers to attain (and reward them for attaining) financial, operational, individual and other goals that are consistent with increasing shareholder value.

Balanced Mix of Compensation, Weighted Towards Variable Pay Elements

The Compensation Committee believes that a balanced mix of compensation elements, significantly weighted towards variable at-risk pay elements, provides the intended alignment of executive compensation with the Company’s performance and shareholder interests. The structure also provides the necessary fixed and knowable minimum and short and long-term incentive opportunities necessary to attract, motivate and retain talented and experienced executive officers. In 2021, the Compensation Committee determined to grant each of our Named Executive Officers 100% performance share awards and 0% time-based restricted awards, increasing the weight towards at-risk pay as shown below and enhancing alignment with shareholder interests.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

The following graphs¹ show the emphasis we placed on variable at-risk pay elements, such as performance-based cash bonuses and LTIP equity awards, for all of our Named Executive Officers in 2021:

 

 

 

1	Performance Share awards were calculated for purposes of the above graphics using the grant date fair value of such awards calculated in accordance with ASC Topic 718.

Commitment to Compensation Best Practices

We view the components of our executive compensation program as related but distinct, and we regularly reassess the total compensation of our Named Executive Officers to ensure that our overall compensation objectives are met. Our Compensation Committee meets frequently to address compensation matters and regularly reviews our executive compensation program to ensure that it provides competitive pay opportunities to help attract and retain highly-qualified and dedicated executive talent that is critical to our business.

In 2021, as part of its commitment to strong corporate governance and best practices, our Compensation Committee continued its engagement of Ferguson Partners Consulting (“FP”), an independent third-party compensation consultant, which provided advice on the compensation program. FP provided no other services to us in 2021 other than those provided directly to or on behalf of the Compensation Committee.

Each of the primary elements of our executive compensation program is discussed in more detail below. While we have identified particular compensation objectives that each element of executive compensation serves, our compensation program is designed to be flexible and complementary, and to collectively serve all of the executive compensation objectives described

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

above. Accordingly, whether or not specifically mentioned below, we believe that as a part of our overall executive compensation policy, each individual element, to a greater or lesser extent, serves each of our compensation objectives and that collectively, they are effective in achieving our overall objectives.

Compensation Practices at a Glance

 

DO provide executive officers with the opportunity to earn market-competitive compensation through a mix of cash and equity compensation, with a strong emphasis on performance-based LTIP awards (our executives received only performance-based LTIP awards in 2021).   DO align pay and performance by linking a substantial portion of compensation to the achievement of pre-established performance metrics that drive shareholder value.   DO evaluate TSR when determining performance under LTIP performance share awards to enhance shareholder alignment.   DO cap payouts for awards under our annual bonus plan and LTIP plan.   DO require executive officers to own and retain shares of our common stock to further align interests with our shareholders.   DO enhance executive officer retention with multi-year performance periods for performance-based LTIP equity awards.   DO enable the Board to “claw back” incentive compensation in the event of a financial statement restatement pursuant to a recoupment policy.   DO maintain a Compensation Committee comprised solely of independent directors.   DO engage an independent compensation consultant to advise the Compensation Committee on executive compensation matters.		DO NOT base LTIP awards on a single performance metric, thereby discouraging unnecessary or excessive risk-taking.   DO NOT provide uncapped award opportunities.   DO NOT have employment agreements with executive officers that provide single-trigger change of control benefits.   DO NOT permit executive officers or directors to engage in derivative or other hedging transactions in our securities.   DO NOT provide executive officers with excessive perquisites or other personal benefits.   DO NOT permit executive officers or directors to hold our securities in margin accounts or pledge our securities to secure loans without pre-approval by the Audit and Compensation Committees (no executive officer or director pledged or held our securities in margin accounts at any time during 2021).   DO NOT provide for tax gross-up payments for compensation or benefits paid in connection with a change in control.

COMPENSATION DETERMINATION

Roles of our Compensation Committee and Chief Executive Officer in Compensation Decisions: The Compensation Committee oversees our compensation program for all Named Executive Officers, subject, in the case of our Chief Executive Officer, to the Board’s approval.

Our Chief Executive Officer evaluates the individual performance and contributions of each other Named Executive Officer and reports to the Compensation Committee his recommendations regarding their compensation. Our Chief Executive Officer does not participate in any formal discussion with the Compensation Committee or the Board regarding decisions on his own compensation and recuses himself from meetings when his compensation is discussed. The Board or the Compensation Committee, as applicable, approves compensation for each of the Named Executive Officers.

We do not solely rely on formulaic guidelines to determine the mix or levels of cash and equity-based compensation, but rather maintain a flexible compensation program that allows us to adapt components and levels of compensation to motivate, reward and retain individual Named Executive Officers within the context of our desire to attain financial and operational objectives consistent with our strategic goals and shareholder interests. Subjective factors considered in compensation determinations include the Named Executive Officer’s responsibilities, leadership abilities, skills, contributions as a member of the executive management team and to our overall performance, and whether the total compensation potential and structure is sufficient to ensure the retention of a Named Executive Officer when considering the compensation potential that may be available elsewhere.

Engagement of Compensation Consultants: For 2021, the Compensation Committee continued utilizing the services of FP to provide assistance to the Compensation Committee in reviewing market data on compensation, understanding industry executive compensation trends, determining and managing risks associated with elements of our executive compensation program, and assisting with the Company’s incorporation of responses we received from our shareholders in connection with our shareholder engagement efforts.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Peer Group

In 2021, using the below methodology and best practices, the Compensation Committee, with input from FP, analyzed the existing peer group as part of its annual review of executive and director compensation. After performing this analysis, the Compensation Committee determined no changes were needed from the 2020 peer group and that this group was appropriately situated for the Compensation Committee to assess 2021 compensation.

 

 

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Consider size to identify peers that fall within the generally accepted size parameters of 0.5x to 2.0x our total capitalization

 

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Consider operational activity and asset class to select other retail, net lease and/or asset management intensive REITs

 

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Consider other characteristics such as geographic location and company performance

 

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Consider other key questions such as:

       —Who are our direct competitors?

       —Who might analysts compare Spirit to?

       —Who do we compete with for recruiting talent or where might our employees find employment elsewhere?

       —Who cites Spirit as a peer?

The peers in the compensation peer group were selected primarily on the basis of appropriate size (as defined by total capitalization), although operational activity (net lease and/or asset management intensive REITs) and the additional characteristics listed above were also considered. Additionally, the Compensation Committee also considered asset class and geography when selecting the peers. At the time compensation was being determined for 2021, Spirit ranked in the 66th percentile by total market capitalization as of January 31, 2021 as compared to the 2021 Compensation Peer Group.

The peer group established in 2021 for setting 2021 compensation consists of the following 18 public REITs (the “2021 Compensation Peer Group”):

 

Peer		Industry
Medical Properties Trust, Inc.		Health Care
VEREIT, Inc.*		Other Retail
Federal Realty Investment Trust		Shopping Center
STORE Capital Corporation		Diversified
National Retail Properties, Inc.		Other Retail
Healthcare Trust of America, Inc.		Health Care
Macerich Company		Regional Mall
EPR Properties		Diversified
Paramount Group, Inc.		Office
Sabra Health Care REIT, Inc.		Health Care
Pebblebrook Hotel Trust		Hotel
Acadia Realty Trust		Shopping Center
Retail Properties of America, Inc.*		Shopping Center
LXP Industrial Trust		Diversified
Washington Prime Group Inc.*		Regional Mall
Urban Edge Properties		Shopping Center
Seritage Growth Properties		Other Retail
RPT Realty		Shopping Center

 

*

VEREIT, Inc. was acquired by Realty Income Corporation in November 2021. Retail Properties of America, Inc. was acquired by Kite Realty Group, L.P. in October 2021. Washington Prime Group Inc. voluntarily delisted its shares of common stock in October 2021 and is now privately owned. These peers were still utilized by the Company for setting 2021 compensation due to the fact that compensation was set prior to the forgoing events.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

The total capitalization as of January 31, 2021 of the 2021 Compensation Peer Group was as follows:

 

 

Also, beginning in 2020, the Board, in consultation with FP, selected a new performance peer group for purposes of assessing relative TSR performance under our LTIP performance share awards, which peer group remained unchanged for 2021, other than the addition of Four Corners Property Trust, Inc. as described further below. This allows performance-based equity compensation to be measured against a more focused net-lease peer group that is more closely aligned to the Company’s business. For 2021, this performance peer group (the “Performance Peer Group”) consisted of:

 

Agree Realty Corporation		Realty Income Corporation
EPR Properties		STORE Capital Corporation
Essential Properties Realty Trust, Inc.		VEREIT, Inc.*
LXP Industrial Trust		W.P. Carey, Inc.
National Retail Properties, Inc.		Four Corners Property Trust, Inc.

 

*	VEREIT, Inc. was acquired by Realty Income Corporation in November 2021 and is no longer part of the 2021 peer group. The Compensation Committee determined to add Four Corners Property Trust, Inc. to the peer group for the 2021 awards.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Compensation Program Components

Each of the following elements of our compensation program taken separately, and as a whole, are necessary to support the Company’s overall compensation objectives. The following table sets forth the key elements of our Named Executive Officers’ compensation, along with the primary objective associated with each element of compensation:

 

Pay Element		2020 Program		Changes under 2021 Program		Objectives
Base Salary		•  Reduction in Base Salary for our CEO and no Base Salary increases for our other Named Executive Officers based on shareholder feedback		•  Reviewed annually and adjusted based on individual skill set, time in role, and pay relative to peers. Adjustments in 2021 were minimal		•  Compensate ongoing performance of job responsibilities and provide a fixed and knowable minimum income level as a necessary tool in attracting and retaining executives
Annual Cash Bonus		•  84% tied to corporate objectives •  16% tied to individual performance goals		•  85% tied to corporate objectives •  15% tied to individual performance goals, including an analysis of ESG-related accomplishments for each Named Executive Officer		•  Incentivize and reward the attainment of short-term corporate objectives and individual contributions to the achievement of those objectives •  Performance metrics selected drive shareholder value creation
Time-Based Restricted Stock Awards		•  40% of LTIP equity awards are time-based and vest ratably over three years		•  None of our executives’ LTIP equity awards are solely time-based		•  To retain and motivate our executives and build stock ownership positions, aligning interests of our executives with shareholder interests and encouraging the maximization of shareholder value
Performance- Based Awards		•  60% of our executives’ LTIP equity awards eligible to vest based on relative TSR performance measured over a three-year period		•  100% of our executives’ LTIP equity awards eligible to vest based on relative TSR performance measured over a three-year period		•  To emphasize long-term performance objectives, providing a pay-for-performance structure and rewarding executives for TSR objectives, aligning executive interests with shareholders

Base Salary — Providing Knowable Income Commensurate with Responsibilities and Experience:

We provide our Named Executive Officers with a base salary to compensate them for services rendered to our Company during the fiscal year. The base salary payable to each Named Executive Officer is intended to provide a fixed component of compensation reflecting the executive’s skill set, experience, role and responsibilities. Generally, factors considered for initial base salary amounts include, but are not limited to, the scope of the Named Executive Officer’s responsibilities, years of service, and general knowledge of our Compensation Committee or Chief Executive Officer of the competitive market based on, among other things, experience with other companies and our industry. The base salaries of our Named Executive Officers are reviewed periodically by our Compensation Committee or Chief Executive Officer, and merit salary increases have been made as deemed appropriate based on such factors including the scope of an executive officer’s responsibilities, individual contribution, prior experience and sustained performance.

Cash Bonus Program — Linking Short-Term Financial Performance and Strategic Initiatives to Compensation:

Annual cash bonuses are focused primarily on short-term Company financial performance, as well as individual performance metrics linked to important strategic initiatives. They are earned based upon achievement of Company-wide performance goals and the Compensation Committee’s assessment of individual performance for the applicable year.

Long Term Incentive Plan—Aligning Executive Compensation with Value Creation:

Our LTIP provides for restricted stock grants and performance share awards which vest over time to motivate and/or reward long-term, multi-year performance and facilitate retention of our executives. However, in 2021, in order to emphasize pay-for-performance, our Named Executive Officers received only performance share awards and no time-based restricted stock grants.

Time-based awards, which generally vest over a three-year period, create a balanced focus on the achievement of short-term and long-term financial and operational goals and stock price performance.

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Performance share awards are “unit” awards and are earned based on performance over a three-year performance cycle. In 2021, pursuant to the performance share awards, each participant was eligible to vest in and receive shares of the Company’s common stock based on an initial target number of shares granted multiplied by a percentage ranging between 0% and 250% depending on the Company’s TSR relative to the TSR achieved by the Performance Peer Group during the performance period, which for the awards made in 2021, is from January 4, 2021 through December 31, 2023. The minimum, target and maximum TSR goals are the achievement of a TSR during the performance period that places the Company in the 25th, 55th or 80th percentile, respectively, of the TSRs achieved during the performance period by the companies in the Performance Peer Group. In the event that the Company’s TSR during the performance period is less than the minimum relative TSR goal, no performance shares will vest and all will be forfeited. The number of 2021 performance shares that vest will be further adjusted by a multiple that is based on the Company’s absolute TSR (150% if the Company’s TSR is equal to or greater than 14.7%, between 120%-150% based on straight line interpolation if the Company’s TSR is equal to or greater than 10% but less than 14.7%, between 80%-120% based on straight line interpolation if the Company’s TSR is greater than 0% but less than 10%, and 80% if the Company’s TSR is equal to or less than 0%). In no event, however, shall the maximum number of performance shares that vest exceed 375% of the target number of performance shares granted. For each performance share that ultimately vests, its holder is entitled to a cash payment equal to the aggregate dividends that would have been paid on the total number of performance shares as if such shares had been outstanding on each dividend record date over the period from the grant date through the issuance of the shares. In the event of a non-qualifying termination of a participant prior to the performance period end date, all of the rights to performance shares will be automatically forfeited along with the participant’s rights to the cash payment of any dividend equivalent.

In setting LTIP award levels, our Compensation Committee considers resulting total compensation to our executives, including all elements of compensation described above, our Company’s performance and the market for compensation of executives of competitors and other comparable market participants.

2021 EXECUTIVE COMPENSATION

The following describes the primary components of our 2021 executive compensation program for each of our Named Executive Officers, the rationale for each component and how compensation amounts were determined. As mentioned above, our Named Executive Officers for 2021 are our principal executive officer (Mr. Jackson Hsieh), our principal financial officer (Mr. Michael Hughes) and our other executive officers during 2021, our Executive Vice President and Chief Investment Officer (Mr. Ken Heimlich) and our Executive Vice President, Chief Administrative Officer and Chief Legal Officer (Mr. Jay Young). In 2021, Mr. Young’s title was Executive Vice President, General Counsel and Secretary. In January 2022, Mr. Young’s title became Executive Vice President, Chief Administrative Officer and Chief Legal Officer.

Base Salary

In its review of base salaries for 2021, the Compensation Committee considered the Company’s operating results and the positioning of the Company’s salaries for the Named Executive Officers as compared to similarly situated executives in the Company’s 2021 Compensation Peer Group.

The 2020 and 2021 base salaries for each Named Executive Officer are set forth in the table below.

 

Named Executive Officer		2020 Base Salary ($)				2021 Base Salary ($)				Change in Salary (%)
Jackson Hsieh			875,000	(1)			901,250				3
Michael Hughes			463,500				477,405				3
Ken Heimlich			388,722				400,384				3
Jay Young			365,650				376,620				3

 

(1)

Annualized base salary pursuant to and effective as of Mr. Hsieh’s Second Amended and Restated Employment Agreement dated February 27, 2020. This amount differs from the base salary reflected for Mr. Hsieh for fiscal year 2020 in the Summary Compensation Table herein due to the timing of Mr. Hsieh’s base annual salary decrease from $900,000 to $875,000, effective February 27, 2020.

Annual Performance Based Cash Incentive Compensation

We use cash bonuses to motivate our Named Executive Officers to achieve our short-term financial and strategic objectives, while making progress towards our longer-term growth and other goals. In February 2021, our Compensation Committee recommended, and our Board approved, the 2021 Cash Bonus Program (defined below), which ties our executives’ annual cash incentive awards closely to our financial performance, thereby aligning the interests of management with the interests of our shareholders. All of our Named Executive Officers were eligible to participate in the 2021 Cash Bonus Program.

 

		Spirit Realty Capital | 2022 Proxy Statement			27

COMPENSATION DISCUSSION AND ANALYSIS

 

Under the 2021 cash bonus program (“2021 Cash Bonus Program”), 85% of each executive officer’s cash bonus was based on the Company’s achievement of the following quantitative performance goals (i) Adjusted Debt to Annualized Adjusted EBITDAre (referred to herein as “Debt to EBITDA Leverage”); (ii) capital deployment (includes revenue producing capital expenditures and acquisitions made in accordance with the Company’s Investment Guidelines), and (iii) AFFO per share (collectively, the “2021 Key Performance Measures”) (the “2021 Cash Bonus”). This was an increase from 84% in 2020, 80% in 2019 and 75% in 2018. Accordingly, the portion of each executive officer’s cash bonus based on individual performance under the 2021 Cash Bonus Program was 15%, which was decreased from 16% in 2020, 20% in 2019 and 25% in 2018. Each executive’s individual performance is evaluated based on the Compensation Committee’s assessment of individual performance against pre-determined performance goals and includes an analysis of ESG-related accomplishments, with input from our Chief Executive Officer with respect to the other Named Executive Officers and from the Board with respect to our Chief Executive Officer (the “2021 Individual Bonus”).

Our Compensation Committee approved threshold, target and maximum bonus opportunities for each executive under the 2021 Cash Bonus Program, taking into consideration the degree of difficulty to achieve the targets, which are set forth below expressed as a percentage of each executive’s annual base salary:

 

Named Executive Officer		Threshold Bonus				Target Bonus				Maximum Bonus
Jackson Hsieh			87.5	%			150	%			350	%
Michael Hughes			62.5	%			125	%			200	%
Ken Heimlich			62.5	%			125	%			200	%
Jay Young			62.5	%			125	%			200	%

The Company’s performance goals and actual results under the 2021 Cash Bonus Program as to the 2021 Key Performance Measures were as follows:

 

2021 Key Performance Measures		Threshold		Target		Maximum		Actual
Debt to EBITDA Leverage (1)		5.7		5.5		5.3		5.1
Capital Deployment (2)		$700MM		$800MM		$900MM		$1,257MM
AFFO per Share (3)		$3.00		$3.05		$3.10		$3.31

 

(1)	Per the 2021 Cash Bonus Program, Debt to EBITDA Leverage assumes full settlement of forward contracts under the Company’s At-the-Market Program (refer to Annex A for further detail).

 

(2)

Per the 2021 Cash Bonus Program, capital deployment includes acquisitions and revenue producing capital expenditures made in accordance with the Company’s Investment Guidelines and stock repurchases made in accordance with the Company’s Stock Repurchase Program. In 2021, there were no stock repurchases made by the Company, and accordingly, the above “Actual Number” for this metric is comprised entirely of real estate acquisitions and revenue producing capital expenditures.

 

(3)	Refer to Annex A for our definition of AFFO per Share and a reconciliation of AFFO to net income.

Metric Selection

Details regarding the rationale for and results for each 2021 Key Performance Measure for the 2021 Company Performance Bonus are detailed below.

Debt to EBITDA Leverage

Weighting: 25%

Goals:

 

Threshold			5.7
Target			5.5
Maximum			5.3

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Why does this measure matter? Debt to EBITDA Leverage is a common measure used by REIT analysts and investors to assess and compare balance sheet health, access to the capital markets, cost of capital, ability to service debt and credit worthiness. The Compensation Committee believed these goals were appropriately challenging due to the necessity to continue accessing capital markets in 2021 in order to achieve attractive cost of capital and ensure appropriate levels of liquidity.

Result: Exceeded Maximum Performance Goal. Our 2021 Debt to EBITDA Leverage was 5.1, exceeding the maximum goal. The result was due to the prudent actions of our Named Executive Officers which led to funding approximately $1.2 billion in acquisitions with approximately $533.6 million net proceeds in equity. This result assumed full settlement of forward contracts under the Company’s At-the-Market Program. The Company also received a credit upgrade by Moody’s to Baa2, which gave Spirit a BBB equivalent rating across all three rating agencies.

Capital Deployment

Weighting: 30%

Goals:

 

Threshold		$	700 million
Target		$	800 million
Maximum		$	900 million

Why does this measure matter? Effective capital deployment is essential to the operational and financial performance of REITs. Disciplined capital allocation through accretive acquisitions, complemented by equity and debt issuances at attractive cost of capital levels, reflect a REIT that has access to capital at an attractive cost relative to the returns generated by new acquisitions and the existing portfolio. Capital can also be deployed through the accretive repurchase of stock.

Result: Exceeded Maximum Performance Goal. Our 2021 Capital Deployment was approximately $1.257 billion, all of which were real estate acquisitions and revenue producing capital expenditures (there were no stock repurchases made by the Company in 2021), exceeding the maximum. This exceptional result was largely due to actions led by our Named Executive Officers, principally developing our sourcing effort from both acquisition and asset management teams and integrating processes of credit underwriting, real estate underwriting, research, lease administration, and property management teams; and efficient execution by the closing department.

AFFO Per Share

Weighting: 30%

Goals:

 

Threshold		$	3.00
Target		$	3.05
Maximum		$	3.10

Why does this measure matter? AFFO per share is a common measure used by REIT analysts and investors to assess the operating performance of the Company. AFFO is a non-GAAP number which is reconciled to net income. The goals were consistent with our public guidance, and the Compensation Committee believed these goals were appropriately challenging due to the necessity to continue accessing capital markets in 2021 and to close accretive acquisitions in a highly competitive market.

Result: Exceeded Maximum Performance Goal. Our 2021 AFFO per share was $3.31, which exceeded the maximum goal. This exceptional result was largely due to actions led by our Named Executive Officers, principally our accretive acquisitions and revenue producing capital expenditures; approximately $1.3 billion in equity and an unsecured bond issuance where the favorable timing of the issuance reduced overall interest expense; improved portfolio metrics including over 99.5% occupancy; and improved tenant performance resulting in rent recoveries and improved net operating margin.

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

2021 Individual Bonus

Individual performance under management

objectives established for each Named Executive Officer

Weighting: 15%

Goals:

When determining the amounts paid pursuant to the 2021 Individual Bonus, the Compensation Committee considered performance of each executive as it relates to: (i) the specific goals set forth below for each individual Named Executive Officer, (ii) actions taken that enhanced the Company’s environmental, social and governance initiatives, (iii) leadership, (iv) development and execution of overall business strategy, (v) risk management, and (vi) effective communications with the Board. The 2021 Individual Bonus is weighted as 15% of the 2021 Cash Bonus Program with 10% attributed to the achievement of the individual goals and performance and 5% attributed to the setting and attainment of the company’s ESG related goals.

Below are the specific goals that were set for each Named Executive Officer as to determination of the 2021 Individual Bonus. Individual objectives relate to areas of special emphasis within the executive’s particular responsibilities and duties, such as achieving certain departmental and Company strategic, financial and operating goals, making other extraordinary or unusual contributions, and appropriately managing the Company’s risk.

Jackson Hsieh, President and Chief Executive Officer

Mr. Hsieh’s individual goals and results for 2021 were generally as follows:

 

Goal
1.		Oversee the acquisitions efforts of the Company to ensure a sustainable and steady acquisitions program, including the transition of the Company’s acquisition process to the Chief Investment Officer, a newly created role in 2021
2.		Focus on continuing to build upon the ESG efforts of the Company
Overall Rating – Maximum Result

Michael Hughes, EVP and Chief Financial Officer

Mr. Hughes’ individual goals and results for 2021 were generally as follows:

 

Goal
1.		Work collaboratively across all departments to ensure timely information flow and communication, proper controls over financial reporting including no restatements or material weaknesses, reasonableness of earnings, and “no surprises”
2.		Continue to provide effective investor communications through targeted outreach, professional earnings and presentation materials, and strategic messaging
Overall Rating – Maximum Result

Ken Heimlich, EVP, Chief Investment Officer

Mr. Heimlich’s individual goals and results for 2021 were generally as follows:

 

Goal
1.		Reach a certain range of Annualized Base Rent by year-end 2021
2.		Rebuild the acquisitions platform and complete the integration of the Company’s asset management and acquisitions teams
Overall Rating – Maximum Result

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Jay Young, EVP, Chief Administrative Officer and Chief Legal Officer

Mr. Young’s individual goals and results for 2021 were generally as follows:

 

Goal
1.		Continue to develop more senior members of the legal department through increased exposure to and responsibilities related to a variety of legal and HR matters
2.		Continue leading the Company’s commitment to ESG including improving the Company’s ESG ratings provided by third-party rating agencies; ensuring meaningful impact from the Diversity, Equity and Inclusion Council, Women’s Leadership Council and Think Green Committee; and sustaining employee engagement and positive culture in a remote working environment
Overall Rating – Maximum Result

As discussed above, the setting and attainment of ESG related achievements for the Company was an additional goal for each Named Executive Officer, counting for 5% of the 2021 Individual Bonus.

Why does this measure matter? A review of each Named Executive Officer’s individual accomplishments and ESG efforts enables our Compensation Committee to evaluate the specific contributions of the Named Executive Officer to our success and more closely link pay to performance.

Overall Individual Bonus Result: Each of our Named Executive Officers demonstrated solid performance this year with respect to his tailored individual objectives. Further, each of our Named Executive Officers contributed meaningfully to the Company’s ESG efforts and achievements in 2021 as set forth on page 10 herein, including the release of the Company’s first ESG Report. All Named Executive Officers received a payout for the 2021 Individual Bonus portion of the total 2021 Cash Bonus that is between target and maximum. Payment of a bonus based on individual performance metrics that is between target and maximum in a year of strong individual performance is consistent with the Board’s philosophy. Each Named Executive Officer exceeded most of their respective goals and performed at the highest level.

Total Bonus Under the 2021 Cash Bonus Program: The table below shows the total target cash bonus, the actual bonus received, and the actual cash bonus compared to the target cash bonus, expressed as a percentage, for each Named Executive Officer under the 2021 Cash Bonus Program:

 

Named Executive Officer		2021 Target Cash Bonus (% of Base Salary)		2021 Target Cash Bonus ($)				Total 2021 Cash Bonus Actually Received ($)				Total 2021 Cash Bonus Actually Received (% of Base Salary)
Jackson Hsieh		150%			1,351,875				3,109,313			345%
Michael Hughes		125%			596,756				945,859			198%
Ken Heimlich		125%			500,480				793,260			198%
Jay Young		125%			470,775				746,178			198%

LTIP Equity Based-Incentives

The goals corresponding to our LTIP equity-based awards are intended to reward and encourage long-term corporate performance based on the value of our stock and, thereby, align our Named Executive Officers’ interests with those of our shareholders.

In 2021, we granted 100% performance share awards to our Named Executive Officers. Historically, we have provided a mix of time-based and performance share awards, but in an effort to emphasize pay-for-performance the Compensation Committee and Board determined only performance awards should be granted in 2021.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

The table below reflects target annual LTIP equity opportunities, and actual allocation of awards (based on grant date value), granted to our Named Executive Officers in 2021.

 

Named Executive Officer		Target LTIP Value (% of Base Salary)				Actual LTIP Value (% of Base Salary)				% of Actual LTIP Value Awarded in Restricted Stock				% of Actual LTIP Value Awarded in Performance Shares
Jackson Hsieh			500	%			500	%			0	%			100	%
Michael Hughes			200	%			200	%			0	%			100	%
Ken Heimlich			200	%			200	%			0	%			100	%
Jay Young			200	%			200	%			0	%			100	%

Time-Based Restricted Stock Awards: In 2021, we did not make grants of restricted stock to our Named Executive Officers.

These awards are typically granted to incentivize and retain our Named Executive Officers and to further incentivize the executives to achieve performance expectations that we believe will correlate to increases in long-term shareholder value, which further aligns our Named Executive Officers’ interests with those of our shareholders. Our Named Executive Officers are entitled to receive dividends on unvested shares of time-based stock subject to these awards. The time-based stock awards generally are subject to vesting over a period of three years from the grant date and are subject to the executive’s continued employment with us. Historically, we have granted our Named Executive Officers a mix of time-based stock and performance share awards, but to emphasize pay-for-performance and alignment with shareholder interests, the Compensation Committee and Board determined only performance awards should be granted in 2021.

Performance Share Awards: In 2021, our Compensation Committee approved the grant of performance share awards in tandem with dividend equivalent rights to our Named Executive Officers. The vesting of performance shares is subject to our TSR achieved during the performance period relative to the TSR achieved by the specified Performance Peer Group as described below, as well as the Named Executive Officer’s continued employment.

With the assistance of our independent compensation consultant, our Compensation Committee deemed the following companies as those in our “Performance Peer Group” for 2021, which remain unchanged from 2020, other than the addition of Four Corners Property Trust, Inc., as described below:

 

Performance Peer Group for 2021

Agree Realty Corporation     EPR Properties     Essential Properties Realty Trust, Inc.     LXP Industrial Trust     National Retail Properties, Inc.     Realty Income Corporation     STORE Capital Corporation     VEREIT, Inc.*     W.P. Carey, Inc.     Four Corners Property Trust, Inc.

 

*	VEREIT, Inc. was acquired by Realty Income Corporation in November 2021 and is no longer part of the 2021 peer group. The Compensation Committee determined to add Four Corners Property Trust, Inc. to the peer group for the 2021 awards.

For 2021, the target performance shares granted to each Named Executive Officer are below:

 

Named Executive Officer		Target Number of Performance Shares Granted
Jackson Hsieh			109,401
Michael Hughes			23,180
Ken Heimlich			19,440
Jay Young			18,286

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

These awards were granted to incentivize and retain our participating Named Executive Officers while imposing performance expectations intended to reward increases in long-term shareholder value, which further aligns our Named Executive Officers’ interests with those of our shareholders.

The number of 2021 performance shares that vest is dependent on our TSR achieved during the performance period relative to the TSR achieved by the specified Performance Peer Group. Between 0% and 250% of the target performance shares will be eligible to vest based on the achievement of minimum, target and maximum TSR goals relative to the TSR achieved by the Performance Peer Group. The minimum, target and maximum TSR goals are the achievement of a TSR during the performance period that places the Company in the 25th, 55th or 80th percentile, respectively, of the TSRs achieved during the performance period by the companies in the Performance Peer Group. In the event that the Company’s TSR during the performance period is less than the minimum TSR goal, the 2021 performance shares will be forfeited, and no shares will vest.

The number of 2021 performance shares that vest based on our relative TSR performance will be further adjusted based on the Company’s absolute TSR. If our absolute TSR is equal to 0% or negative, the number of shares will be reduced by 20%, if our absolute TSR is above 0% but less than 10% on a compounded, annual growth rate or CAGR basis, the award will be adjusted based on straight line linear interpolation from a reduction of 20% to an increase of 20%, if our absolute TSR is above 10% but less than 14.7% CAGR, the awards will be adjusted based on straight line linear interpolation from an increase of 20% to an increase of 50% and if our TSR exceeds a 14.7% CAGR (which equates to a 50% cumulative TSR), the number of shares will be increased by 50%. The maximum number of 2021 performance shares that may vest is 375%.

If any of our Named Executive Officers voluntarily terminate their employment with the Company without “good reason” or the Company terminates their employment for “cause” prior to the vesting of any performance share, all unvested performance shares (including any dividend equivalents) will be forfeited in their entirety.

If an executive experiences a termination of employment by the Company without “cause” or due to a non-extension of the executive’s employment agreement or by the executive for “good reason” during the performance period, then the greater of the target performance shares and actual performance based on achievement of the performance goals as of the termination date will vest immediately prior to such termination.

Each performance share award also entitles its holder to a cash payment equal to the aggregate dividends that would have been paid on the total number of performance shares that vest, had such shares been outstanding on the record date(s) that occur over the period from the applicable grant date through the issuance of the shares, if any.

For additional information regarding the vesting terms and conditions applicable to all outstanding performance share awards held by our Named Executive Officers, refer to “Potential Payments Upon Termination or Change of Control” below.

Performance Share Awards Earned Based on Performance through 2021

In 2019, we granted certain of our Named Executive Officers performance share awards that were eligible to vest at the end of 2021 based on our TSR performance relative to the TSR achieved by two set performance peer groups during the 2019—2021 performance period. For those performance shares vesting on December 31, 2021:

 

(1)

Mr. Hsieh earned 161,762 shares, 250% of the total shares granted in 2019, which represents the maximum performance level

 

(2)

Mr. Hughes earned 30,292 shares, 250% of the total shares granted in 2019, which represents the maximum performance level

 

(3)

Mr. Heimlich earned 25,405 shares, 250% of the total shares granted in 2019, which represents the maximum performance level

 

(4)

Mr. Young earned 23,897 shares, 250% of the total shares granted in 2019, which represents the maximum performance level

Additionally, in 2018 we granted a performance share award to Mr. Hughes in connection with his appointment as Chief Financial Officer of the Company that was eligible to vest in 2021 based on our TSR performance relative to that of specified peer groups of companies during the performance period (April 1, 2018 - April 1, 2021). In 2021, Mr. Hughes earned 26,678 shares, 155.3% of the total shares granted in 2018.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Performance Share Awards – Target versus Summary Compensation Table Grant Date Fair Value

In response to investor feedback received during our shareholder engagement efforts, we have decreased the target value of our CEO’s total compensation greatly since 2018.

 

In tandem with decreasing target pay, we have increased the risk-profile of our CEO’s compensation by increasing the percentage of the LTIP equity tied to performance, which was increased from 60% in 2020 to 100% in 2021. The performance share awards are tied to rigorous TSR goals, which require the Company to outperform TSR of certain peers to achieve target and failure to achieve threshold TSR results in complete forfeiture of shares. Although we feel the increase to 100% performance-based awards demonstrates our commitment to pay-for-performance, accounting standards require that the grant date fair value of performance-based awards is calculated using the “Monte Carlo” simulation for certain compensation tables, including the Summary Compensation Table, which requires that the grant date fair value be adjusted to reflect any increase or reduction in value that is appropriate for the probability that the market condition might or might not be met. As a result of this requirement, as well as a higher than typical volatility (one of the main components of the simulation), and the increase to 100% performance-based awards, the grant date fair value for the 2021 LTIP, as reflected in the Summary Compensation Table (“SCT”), is higher than the target value. In fact, the reported equity values reported in the SCT for 2021 are 188% of target value, despite target long-term incentive awards increasing only marginally (3% increase) on a target value basis and target compensation overall decreasing 9% since 2018.

 

Jackson Hsieh Target Compensation(1)		2018				2019				2020				2021
Base Salary ($)			900,000				900,000				875,000				901,250
Target Cash Bonus (% of Base Salary)			175%				175%				150%				150%
Target Cash Bonus ($)			1,575,000				1,575,000				1,312,500				1,351,875
Target LTIP (2) ($)			4,950,000				4,950,000				4,375,000				4,506,250
Time-Based LTIP as a % of Total LTIP			50%				50%				40%				0%
Performance-Based LTIP as a % of Total LTIP			50%				50%				60%				100%
Target Total Compensation ($)			7,425,000				7,425,000				6,562,500				6,759,375

 

Summary Compensation Table Disclosed LTIP(3)		2018				2019				2020				2021
Performance-Based LTIP ($)			3,304,218				3,296,720				3,793,432				8,486,236
Total LTIP ($)			5,779,217				5,771,686				5,543,393				8,486,236
Summary Compensation Table LTIP vs Target LTIP			117%				117%				127%				188%

 

(1)	Performance share award values within this table are based on target compensation and therefore differ from values reflected in the Summary Compensation Table which are based on the grant date fair value calculated in accordance with ASC Topic 718.

 

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(2)	Value excludes Mr. Hsieh’s one-time promotion performance share award, as well as incremental shares awarded in connection with a spin-off transaction, as these amounts were not part of our annual LTIP program.

 

(3)	Values within this table are based on grant date fair value calculated in accordance with ASC Topic 718 and therefore differ from target compensation values reflected in the table above.

STOCK OWNERSHIP AND RETENTION GUIDELINES

The Company has adopted stock ownership guidelines for our Named Executive Officers. We believe that linking a significant portion of an officer’s current and potential future net worth to the Company’s success, as reflected in our stock price, helps to ensure that officers have a stake similar to that of our shareholders. Stock ownership guidelines also encourage long-term management of the Company for the benefit of its shareholders. The guidelines require the Named Executive Officers to own a minimum number of shares of stock valued as a set percentage of base salary. Each officer is expected to satisfy the applicable ownership requirement within five years after first becoming subject to the guidelines. The table below reflects the current stock ownership guidelines:

 

Position		Percentage of Base Salary
Chief Executive Officer		500%
Chief Financial Officer		300%
Executive Vice President		200%

The types of ownership arrangements counted towards the guidelines are: common stock, whether held individually, jointly, or in trust with or for the benefit of an immediate family member, and unvested restricted stock. Unearned performance shares are not included.

All of the Named Executive Officers are in compliance with the stock ownership guidelines.

RETIREMENT SAVINGS

We have established a 401(k) retirement savings plan for our employees, including our Named Executive Officers, who satisfy certain eligibility requirements. Our Named Executive Officers are eligible to participate in the 401(k) plan on the same terms as other employees. The Internal Revenue Code of 1986, as amended (the “Code”) allows eligible employees to defer a portion of their compensation, within prescribed limits, on a pre-tax basis through contributions to the 401(k) plan. Currently, we provide a safe harbor matching contribution equal to 100% of elective deferrals up to 4% of the employee’s compensation. These matching contributions are 100% vested as of the date on which the contribution is made. We believe that providing a vehicle for tax-deferred retirement savings through our 401(k) plan, and making fully vested matching contributions, adds to the overall desirability of our executive compensation package and further incents our employees, including our Named Executive Officers, in accordance with our compensation policies. The plan also allows employees to contribute on an after-tax basis through Roth 401(k) contributions.

EMPLOYEE BENEFITS AND PERQUISITES

All of our full-time employees, including our Named Executive Officers, are eligible to participate in our health and welfare plans, including:

 

•

Medical and dental benefits, as well as vision discounts;

 

•

Health care flexible spending accounts;

 

•

Health savings accounts;

 

•

Short-term and long-term disability insurance;

 

•

Accidental death and dismemberment insurance;

 

•

Life insurance;

 

•

Supplemental health insurance plan discounts

We design our employee benefits programs to be affordable and competitive in relation to the market, and we modify our employee benefits programs as needed based upon regular monitoring of applicable laws and practices in the competitive market.

These benefits are provided to our Named Executive Officers on the same general terms as they are provided to all of our full-time employees, with the exception of certain additional supplemental long-term disability insurance and life insurance, which

 

		Spirit Realty Capital | 2022 Proxy Statement			35

COMPENSATION DISCUSSION AND ANALYSIS

 

covers participating executives (including our Named Executive Officers). We may also reimburse certain of our Named Executive Officers for reasonable legal fees and expenses incurred in connection with the negotiation of an employment agreement, individual life insurance policies, annual physical exams, and/or for costs associated with relocating and/or temporary living expenses. We believe that providing these benefits is a relatively inexpensive way to enhance the competitiveness of the executives’ compensation packages.

We may provide perquisites or other personal benefits in limited circumstances, where we believe it is appropriate to assist an individual Named Executive Officer in the performance of his duties, to make our Named Executive Officers more efficient and effective, and for recruitment, motivation and/or retention purposes. Future practices with respect to perquisites or other personal benefits for our Named Executive Officers will be approved and subject to periodic review by our Compensation Committee. We do not expect these perquisites to be a material component of our compensation program.

SEVERANCE AND CHANGE OF CONTROL-BASED COMPENSATION

As more fully described below under the caption “Potential Payments Upon Termination or Change of Control,” the employment agreements with our Named Executive Officers that were in effect during 2021 provided for certain payments and/or benefits upon a qualifying termination of employment or in connection with a change of control. We believe that job security and terminations of employment, both within and outside of the change of control context, are causes of significant concern and uncertainty for senior executives and that providing protections to our Named Executive Officers in these contexts is therefore appropriate in order to alleviate these concerns and allow the executives to remain focused on their duties and responsibilities to our Company in all situations. These are described and quantified below under “Potential Payments Upon Termination or Change in Control.”

TAX AND ACCOUNTING CONSIDERATIONS

Code Section 409A: Section 409A (“Section 409A”) of the Internal Revenue Code of 1986, as amended from time to time (the “Code”), requires that “nonqualified deferred compensation” be deferred and paid under plans or arrangements that satisfy the requirements of the statute with respect to the timing of deferral elections, timing of payments and certain other matters. Failure to satisfy these requirements can expose employees and other service providers to accelerated income tax liabilities, penalty taxes and interest on their vested compensation under such plans. Accordingly, as a general matter, it is our intention to design and administer our compensation and benefits plans and arrangements for all of our employees and other service providers, including our Named Executive Officers, so that they are either exempt from, or satisfy the requirements of, Section 409A.

Code Section 280G: Section 280G of the Code, or Section 280G, disallows a tax deduction with respect to excess parachute payments to certain executives of companies which undergo a change of control. In addition, Section 4999 of the Code imposes a 20% excise tax on the individual with respect to the excess parachute payment. Parachute payments are compensation linked to or triggered by a change of control and may include, but are not limited to, bonus payments, severance payments, certain fringe benefits, and payments and acceleration of vesting from long-term incentive plans including stock options, restricted stock and other equity-based compensation. Excess parachute payments are parachute payments that exceed a threshold determined under Section 280G based on the executive’s prior compensation. In approving the compensation arrangements for our Named Executive Officers, our Compensation Committee considers all elements of the cost to the Company of providing such compensation, including the potential impact of Section 280G. However, the Compensation Committee may, in its judgment, authorize compensation arrangements that could give rise to loss of deductibility under Section 280G and the imposition of excise taxes under Section 4999 when it believes that such arrangements are appropriate to attract and retain executive talent. The Board has adopted a policy that the Company will not enter into any plan, program, policy, agreement or arrangement that provides for the payment or the reimbursement of any excise tax imposed under Section 4999 of the Code by operation of Section 280G of the Code.

Accounting for Stock-Based Compensation: We follow the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, or ASC Topic 718, for our stock-based compensation awards. ASC Topic 718 requires companies to calculate the grant date “fair value” of their stock-based awards using a variety of assumptions. ASC Topic 718 also requires companies to recognize the compensation cost of their stock-based awards in their income statements over the period that an employee is required to render service in exchange for the award. Grants of stock options, restricted stock, performance share awards and other equity-based awards, as applicable, under our equity incentive award plans are accounted for under ASC Topic 718. Our Compensation Committee will regularly consider the accounting implications of significant compensation decisions, especially in connection with decisions that relate to our equity incentive award plans and programs. As accounting standards change, we may revise certain programs to appropriately align accounting expenses of our equity awards with our overall executive compensation philosophy and objectives.

 

36		Spirit Realty Capital | 2022 Proxy Statement

 

 

COMPENSATION TABLES

Summary Compensation Table

The following table sets forth information concerning the compensation of our Named Executive Officers for the years ended December 31, 2021, 2020 and 2019:

 

Name and Principal Position		Year				Salary ($)				Stock Awards ($)(1)				Non-Equity Incentive Plan Compensation ($)(2)				All Other Compensation ($)				Total ($)
Jackson Hsieh President and Chief Executive Officer			2021				901,250				8,486,236				3,109,313				53,179	(3)			12,549,978
			2020				879,170	(4)			5,543,393				1,766,864				54,020				8,243,447
			2019				900,000				5,771,686				2,992,500				55,313				9,719,499
Michael Hughes Executive Vice President and Chief Financial Officer			2021				477,405				1,798,073				945,859				21,940	(3)			3,243,277
			2020				463,500				1,174,554				608,217				19,740				2,266,011
			2019				463,500				1,080,836				892,238				11,839				2,448,413
Ken Heimlich Executive Vice President and Chief Investment Officer			2021				400,384				1,507,961				793,260				24,434	(3)			2,726,039
			2020				388,722				985,025				510,092				25,049				1,908,888
			2019				388,722				906,450				748,290				26,983				2,070,445
Jay Young Executive Vice President, Chief Administrative Officer, and Chief Legal Officer			2021				376,620				1,418,445				746,178				20,959	(3)			2,562,202
			2020				365,650				926,539				479,816				19,064				1,791,069
			2019				365,650				852,663				703,876				26,067				1,948,256

 

(1)

Amounts for 2021 represent the grant date fair value of performance share awards calculated in accordance with ASC Topic 718. Grants remain subject to vesting and/or forfeiture pursuant to their terms. For a discussion of the assumptions used to calculate the value of performance share awards made to Named Executive Officers, refer to Note 9 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021. See “Compensation Discussion and Analysis—2021 Executive Compensation—Performance Share Awards—Target versus Summary Compensation Table Grant Date Fair Value” for discussion of the value resulting from the grant date fair value calculation in accordance with ASC Topic 718 versus target values. As market condition awards, the grant date fair value of the performance share awards is the full grant date fair value, as adjusted to reflect any increase or reduction in value that is appropriate for the probability that the market condition might or might not be met. Information with respect to vesting of the 2021 awards is disclosed in the Grants of Plan-Based Awards table and the accompanying notes.

 

(2)

This column reflects the performance-based amounts paid under our cash bonus programs. The 2021 Cash Bonus Program consists of two separate measurements/categories. The 2021 Individual Bonus opportunity is weighted at 15% of the total and is based on individual performance assessed against pre-determined goals and 85% of the total bonus opportunity is based on the achievement of the 2021 Key Performance Measures. See “Compensation Discussion and Analysis—2021 Executive Compensation—Annual Performance-Based Cash Incentive Compensation” for a detailed discussion of the 2021 Cash Bonus Program.

 

(3)	Includes compensation and perquisites paid to, or on behalf of, our Named Executive Officers during 2021 as described under “All Other Compensation” below.

 

(4)

Represents salary actually earned in 2020. Pursuant to Mr. Hsieh’s Second Amended and Restated Employment Agreement, effective as of February 27, 2020, Mr. Hsieh’s annual base salary was reduced from $900,000 to $875,000. The base salary amount reflected above differs slightly due to the timing of Mr. Hsieh’s base annual salary decrease from $900,000 to $875,000, which occurred as of February 27, 2020 on a going-forward basis.

All Other Compensation

 

Name		401(k) Plan Company Contributions ($)(1)				Life Insurance ($)(2)				Supplemental Long-Term Disability  ($)(3)				Physical Exam ($)(4)				Total ($)
Jackson Hsieh			11,408				35,000				4,771				2,000				53,179
Michael Hughes			11,600				1,907				6,433				2,000				21,940
Ken Heimlich			11,600				—				12,834				—				24,434
Jay Young			9,423				1,803				8,233				1,500				20,959

 

(1)	Amounts represent Company safe harbor matching contributions to the accounts of our Named Executive Officers in the Company’s 401(k) plan.

 

(2)	Amounts represent life insurance premiums paid by the Company for policies on behalf of our Named Executive Officers.

 

(3)	Amounts represent premium payments by the Company for supplemental long-term disability insurance policies for our Named Executive Officers.

 

(4)	Amounts reported represent amounts incurred by the Company in 2021 for executive physical expenses for Named Executive Officers.

 

		Spirit Realty Capital | 2022 Proxy Statement			37