EY survey: Strategic incentives drive real estate talent retention

The 2024 EY Real Estate Compensation Survey examines practices shaping the industry, including long-term incentives and succession planning.

In brief:

• Competitive annual salaries and long-term incentive benchmarking help attract and retain top talent in a competitive market.
• High-level benefits and wellbeing plans enhance employee satisfaction and loyalty in the real estate industry.
• Fifty-nine percent of organizations have defined succession plans to ensure leadership continuity and stability.

One of the standout findings from the Ernst & Young LLP 2024 Real Estate Board of Director and Executive Compensation Survey Results is the strategic emphasis on incentive structures. There is a clear delineation between short-term and long-term incentives (STIs and LTIs). While lower and middle management primarily receive compensation through base salaries and STIs, senior management and top executives see a significant portion of their remuneration tied to LTIs, underscoring a focus on long-term performance and organizational goals.

Long-term incentives, on the other hand, are designed to align employees’ interests with the long-term success of the organization. These incentives, which include stock options, restricted stock, restricted stock units (RSUs) and other equity-based awards, are prevalent among 82% of the surveyed organizations. LTIs are particularly significant for senior management and executives, with a substantial portion of their compensation tied to long-term performance metrics.

The structure of LTI programs often combines time-based and performance-based vesting, with 64% of organizations adopting this balanced approach. This dual focus enables employees to be rewarded for both their tenure and their contributions to the company’s strategic goals. The majority of LTI programs have a vesting period of three to four years, emphasizing sustained performance and loyalty.

The survey also highlights regional variations in compensation, with CEO salaries peaking in the West and Midwest regions at $900,000, compared to $860,000 in the South and Northeast. These differences may be attributed to factors such as cost-of-living variations and state tax policies.

Incentive design in the real estate sector is evolving to balance immediate operational results with long-term strategic objectives. The emphasis on both STIs and LTIs, along with the integration of ESG criteria, demonstrates a sophisticated approach to compensation that aims to attract, retain and motivate top talent while aligning their efforts with the company’s overarching goals. As organizations continue to refine their incentive structures, these trends will likely shape the future landscape of real estate compensation.

High-level benefits and compensation in the public arena

High-level benefits play a crucial role in the overall compensation package, serving as a key differentiator in a competitive job market. The survey reveals that organizations are increasingly adopting holistic retention strategies that go beyond traditional compensation. These strategies include comprehensive learning and development programs, wellbeing plans and opportunities for career advancement. Such benefits are designed to enhance employee satisfaction and loyalty, thereby reducing turnover and fostering a more engaged workforce.

Wellbeing plans, in particular, have gained prominence, with 53% of organizations investing in their employees’ health and satisfaction. This strategic focus on wellbeing underscores the importance of maintaining a healthy and motivated workforce, which is essential for long-term organizational success.

The survey also provides detailed insights into compensation trends within publicly traded organizations, highlighting the competitive nature of executive pay. The median CEO salary in the real estate sector is $889,000, closely matching the general market’s $880,000. This parity indicates that real estate companies are aligning their executive compensation with broader market trends to remain competitive.

For CFOs, the median salary in the real estate sector is $510,000, compared to $445,000 in the general market. This higher compensation reflects the critical role that financial leadership plays in the real estate industry, where strategic financial management is key to navigating market fluctuations and driving growth.

Board compensation is another area of focus, with the survey revealing that board chairs receive roughly double the compensation of board members. While board chairs receive a median annual retainer of $150,000, the median retainer for a board member is $80,000. This differential highlights the significant responsibilities and leadership expectations placed on board chairs. Additionally, the emergence of new committees focusing on corporate social responsibility (CSR) and ESG issues reflects the evolving priorities of organizations in the public arena.

Equity compensation constitutes a significant component of director remuneration, with 85% of organizations offering equity through vehicles such as stock options and RSUs. The median pay mix for directors is around 40% cash and 60% equity, aligning their interests with the long-term success of the company.

High-level benefits and compensation in the public arena are critical components of the overall compensation strategy in the real estate sector. By offering comprehensive benefits and aligning executive pay with market trends, organizations can attract and retain top talent. The emphasis on equity compensation and the integration of CSR and ESG considerations into governance practices further demonstrate a commitment to long-term success and ethical business practices.

Salary and incentive data benchmarking

Salary and incentive data benchmarking is a critical practice for organizations aiming to maintain competitive compensation packages and attract top talent. The survey reveals that 76% of organizations employ formal benchmarking processes to keep salaries aligned with market standards. This practice is particularly important in a sector where the median CEO salary in real estate closely matches the general market, indicating a need for parity to remain competitive.

Benchmarking involves comparing an organization’s compensation data with industry peers and broader market trends. This process helps organizations identify gaps in their pay structures and make informed decisions about salary adjustments and incentive targets. The survey highlights that most organizations aim for the median of the market, offering competitive salaries without overextending their compensation budgets.

The use of market survey data for benchmarking supports organizations in attracting and retaining key employees. By aligning their compensation programs with industry standards, organizations can position themselves as attractive employers in a competitive job market. This practice also helps mitigate the risk of turnover by allowing employees to feel fairly compensated for their contributions.

Succession planning

Succession planning is a strategic process that helps organizations identify and develop potential future leaders, which is crucial for maintaining organizational stability and creating a steady flow of capable leaders.

Effective succession planning involves documenting roles and responsibilities for successors, with 81% of organizations having mostly or partially recorded this information. This documentation aids in swift onboarding and reduces operational disruptions when leadership changes occur. However, only 11% of organizations feel fully equipped for unforeseen leadership shifts, highlighting an area for improvement.

Transparency in succession planning is essential for maintaining stakeholder trust. The survey indicates that only 5% of organizations practice full transparency, while 95% maintain limited disclosures. This lack of transparency could potentially undermine trust and engagement among stakeholders.

Regular review and updating of succession plans are also important, with 38% of organizations regularly reviewing their plans. This proactive approach helps succession plans to remain relevant and aligned with the organization’s strategic goals. Mentoring future leaders is another critical aspect, with 21% of organizations investing considerably in developing successors.

In conclusion, salary, annual incentives, long-term incentives and succession planning are key components of a comprehensive compensation strategy. By focusing on these areas, organizations can attract, retain and develop top talent, promoting long-term success and stability in the competitive real estate market.

For questions about the EY 2024 Real Estate Compensation Survey and results, click on the author profile links.

Bill Murphy also contributed to this article.