September 12, 2008

 

Dear Shareholder:

 

We cordially invite you to attend the 2008 Annual Meeting of Shareholders of Post Properties, Inc. to be held on Thursday, October 16, 2008, at 2:00 p.m. local time at our offices, One Riverside, 4401 Northside Parkway, Suite 800, Atlanta, GA 30327.

 

The items of business are listed in the following Notice of Annual Meeting of Shareholders and are more fully addressed in the Proxy Statement.

 

Please sign, date and return your proxy card in the enclosed envelope or vote by telephone or over the Internet to assure that your shares will be represented and voted at the Annual Meeting even if you cannot attend.

 

On behalf of your board of directors, thank you for your continued support and interest in Post Properties, Inc.

 

Sincerely,

 

 

Robert C. Goddard, III
Chairman of the Board

 

POST PROPERTIES, INC.

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

TO BE HELD OCTOBER 16, 2008

 

 

NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Post Properties, Inc. will be held at the Company’s offices, One Riverside, 4401 Northside Parkway, Suite 800, Atlanta, GA 30327 on Thursday, October 16, 2008, at 2:00 p.m. local time, for the following purposes:

 

(1) to elect nine directors for a one-year term,

 

(2) to ratify the appointment of Deloitte & Touche LLP as our independent registered public accountants for 2008,

 

(3) to approve the Amended and Restated Post Properties, Inc. 2003 Incentive Stock Plan, and

 

(4) to transact such other business as may properly come before the Annual Meeting or any adjournment or postponement of the Annual Meeting.

 

Only the holders of record of common stock of Post Properties, Inc. at the close of business on September 8, 2008 are entitled to notice of and to vote at the Annual Meeting of Shareholders and any adjournment or postponement of the Annual Meeting. A list of shareholders as of the close of business on September 8, 2008 will be available at the Annual Meeting of Shareholders for examination by any shareholder, his agent or his attorney.

 

Your attention is directed to the Proxy Statement provided with this Notice.

 

By Order of the Board of Directors,

 

 

Sherry W. Cohen
Executive Vice President
and Corporate Secretary

 

Atlanta, Georgia

September 12, 2008

 

Your vote is important. Whether or not you expect to attend the Annual Meeting, please sign and date the enclosed proxy and return it promptly in the enclosed envelope, which does not require any postage if mailed in the United States. You also may vote your shares over the Internet or by telephone as described on your proxy card. If you are a shareholder of record and you attend the Annual Meeting, you may revoke the proxy and vote your shares in person. If you are a beneficial owner and you have a legal proxy to vote your shares, you may vote in person at the Annual Meeting.

 

TABLE OF CONTENTS

 

POST PROPERTIES, INC.
One Riverside
4401 Northside Parkway, Suite 800
Atlanta, Georgia 30327-3057

 

 

PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 16, 2008

 

The 2008 Annual Meeting of Shareholders (Annual Meeting) of Post Properties, Inc. (Post Properties or the Company) will be held on Thursday, October 16, 2008, at the Company’s offices, One Riverside, 4401 Northside Parkway, Suite 800, Atlanta, GA 30327, beginning promptly at 2:00 p.m. local time. The enclosed form of proxy is solicited by our board of directors. We anticipate that this Proxy Statement and the accompanying proxy card will first be mailed to holders of our common stock on or about September 12, 2008.

 

Why am I receiving this Proxy Statement and proxy card?

 

You are receiving a Proxy Statement and proxy card from us because you own shares of our common stock. This Proxy Statement describes issues on which we would like you, as a shareholder, to vote. It also gives you information on these issues so that you can make an informed decision.

 

When you sign the proxy card, you appoint David P. Stockert and Sherry W. Cohen as your representatives at the Annual Meeting. Mr. Stockert and Ms. Cohen will vote your shares at the Annual Meeting as you have instructed them on the proxy card. This way, your shares will be voted whether or not you attend the Annual Meeting. Even if you plan to attend the Annual Meeting, it is a good idea to sign, date and return your proxy card, vote by telephone or vote over the Internet in advance of the Annual Meeting just in case your plans change.

 

If an issue comes up for vote at the Annual Meeting that is not on the proxy card, Mr. Stockert and Ms. Cohen will vote your shares, under your proxy, at their discretion.

 

What is the record date?

 

The record date is set for September 8, 2008. Only holders of record of common stock as of the close of business on this date will be entitled notice of and to vote at the Annual Meeting.

 

How many shares are outstanding?

 

As of the record date, we had 44,125,777 shares of common stock outstanding in addition to 292,917 outstanding partnership units in Post Apartment Homes, L.P., which are exchangeable for shares of common stock on a one-for-one basis. Only shares of common stock outstanding as of the record date will be eligible to vote at the Annual Meeting. Each holder of common stock on the record date is entitled to one vote for each share of common stock held.

 

What am I voting on?

 

You are being asked to vote on the following:

 

 

 

No cumulative voting rights are authorized, and dissenters’ rights are not applicable to the matters being voted upon.

 

How do I vote?

 

If you are a registered shareholder, meaning that your shares are registered in your name, you have four voting options. You may vote:

 

 

Please follow the directions on your proxy card carefully.

 

Are voting procedures different if I hold my shares in the name of a broker, bank or other nominee?

 

If your shares are held in “street name” through a broker, bank or other nominee, please refer to the instructions they provide regarding how to vote your shares or to revoke your voting instructions. The availability of telephone and Internet voting depends on the voting processes of the broker, bank or other nominee. Street name holders may vote in person only if they have a legal proxy to vote their shares as described below.

 

What if I return my proxy card but do not provide voting instructions?

 

If you return a signed proxy card but do not provide voting instructions, your shares will be voted FOR the nine named director nominees, FOR the ratification of the appointment of the independent registered public accountants and FOR the approval of the Amended and Restated Post Properties, Inc. 2003 Incentive Stock Plan.

 

Can all shareholders vote in person at the Annual Meeting?

 

We will pass out written ballots to anyone who wants to vote at the Annual Meeting. If you hold your shares through a broker, bank or other nominee, you must bring with you a legal proxy from your broker, bank or other nominee authorizing you to vote such shares in order to vote in person at the Annual Meeting. Please note that if you request a legal proxy, any previously submitted proxy will be revoked and your shares will not be voted unless you attend the Annual Meeting and vote in person or appoint another proxy to vote on your behalf.

What does it mean if I receive more than one proxy card?

 

It means that you have multiple accounts with the transfer agent and/or with a broker, bank or other nominee. You will need to vote separately with respect to each proxy card. Please vote all of the shares you own.

 

What if I change my mind after I return my proxy card?

 

You may revoke your proxy and change your vote at any time before the polls close at the Annual Meeting. You may do this by:

 

 

Please note that street name holders cannot vote in person at the Annual Meeting unless they have a legal proxy.

 

How many votes do you need to hold the Annual Meeting?

 

In order for us to conduct the Annual Meeting, we must have a quorum, which means that a majority of our outstanding shares of common stock as of the record date must be present at the Annual Meeting. Your shares will be counted as present at the Annual Meeting if you:

 

 

Will my shares be voted if I do not sign and return my proxy card, vote over the Internet, vote by telephone or vote in person at the Annual Meeting?

 

If you are a registered shareholder, meaning that your shares are registered in your name, and you do not vote by using the Internet, by telephone, by signing and returning your proxy card or by voting in person at the Annual Meeting, then your shares will not be voted and will not count in deciding the matters presented for consideration in this Proxy Statement.

 

If your shares are held in street name and you do not vote your shares, your broker, bank or other nominee may vote your shares on your behalf under certain circumstances.

 

On certain “routine” matters, including the election of directors and the ratification of the appointment of the independent registered public accountants described in this Proxy Statement, brokerage firms have authority under New York Stock Exchange (or NYSE) rules to vote their customers’ shares if their customers do not provide voting instructions. When a brokerage firm votes its customers’ shares on a routine matter without receiving voting instructions, these shares are counted both for establishing a quorum to conduct business at the Annual Meeting and in determining the number of shares voted for or against the routine matter.

On “non-routine” matters, such as the approval of the Amended and Restated Post Properties, Inc. 2003 Incentive Stock Plan, if the brokerage firm has not received instructions from the shareholder, the brokerage firm cannot vote the shares on that proposal.

 

When a brokerage firm does not have the authority to vote its customer’s shares or does not exercise its authority, these are referred to as “broker non-votes.” Broker non-votes are only counted for establishing a quorum and will have no effect on the outcome of the vote.

 

We encourage you to provide instructions to your brokerage firm by voting your proxy. This action ensures your shares will be voted at the Annual Meeting.

 

How are votes counted?

 

For “Proposal 1 — Election of Directors,” you may vote for all nominees, withhold from all nominees or withhold from individual nominees. For “Proposal 2 — Ratification of the Appointment of the Independent Registered Public Accountants,” you may vote for, against or abstain from voting on the proposal. For “Proposal 3 — Approval of the Amended and Restated Post Properties, Inc. 2003 Incentive Stock Plan,” you may vote for, against or abstain from voting on the proposal.

 

What if I sign my proxy card but do not provide voting instructions?

 

If you just sign your proxy card with no further instructions, your shares will be counted as a vote FOR each director nominee, FOR the ratification of the appointment of the independent registered public accountants and FOR the approval of the Amended and Restated Post Properties, Inc. 2003 Incentive Stock Plan.

 

What if I abstain from voting?

 

Abstentions with respect to a proposal are counted for purposes of establishing a quorum. If a quorum is present, abstentions will have no effect on the outcome of the vote.

 

How many votes are needed to elect directors?

 

Directors are elected by a plurality vote. As a result, the nine director nominees receiving the highest number of for votes will be elected as directors.

 

In 2006, we adopted a Policy on Majority Voting. The policy sets forth our procedures if a nominee is elected but receives a majority of withheld votes. In an uncontested election, any nominee for director who receives a greater number of votes withheld from his or her election than votes for such election is required, within five days, to tender his or her resignation. Our Nominating and Corporate Governance Committee is required to make a recommendation to the board of directors with respect to the resignation. The board of directors is required to take action with respect to this recommendation and to disclose its decision-making process. The policy is more fully described under the caption “Corporate Governance — Policy on Majority Voting.”

 

How many votes are needed to approve the proposal to ratify the appointment of the independent registered public accountants?

 

Under Georgia law, for the proposal to pass, the for votes cast at the Annual Meeting must exceed the against votes cast at the Annual Meeting.

How many votes are needed to approve the Amended and Restated Post Properties, Inc. 2003 Incentive Stock Plan?

 

Under Georgia law, for the proposal to pass, the for votes cast at the Annual Meeting must exceed the against votes cast at the Annual Meeting.

 

What happens if a director nominee is unable to stand for election?

 

The board of directors may, by resolution, provide for a lesser number of directors or designate a substitute nominee. In the latter event, shares represented by proxies will be voted FOR the substitute nominee. Proxies cannot be voted for more than nine director nominees at the Annual Meeting.

 

Where can I find the voting results of the Annual Meeting?

 

We will announce preliminary voting results at the Annual Meeting. We will publish the final results in our Annual Report on Form 10-K for the year ending December 31, 2008. We will file that report with the Securities and Exchange Commission (or SEC), and you can get a copy from:

 

 

Who will pay for the costs of soliciting proxies?

 

We will bear the costs of soliciting proxies. In an effort to have as large a representation at the Annual Meeting as possible, one or more of our employees, in certain instances, may personally make special solicitations of proxies either by telephone or mail. We also will reimburse brokers, banks, nominees and other fiduciaries for postage and reasonable clerical expenses of forwarding the proxy materials to the beneficial owners of our common stock. In addition, we have retained Innisfree M&A Incorporated to assist in the solicitation of proxies with respect to shares of our common stock held of record by brokers, nominees and institutions and, in certain cases, by other holders. Such solicitation may be made through the use of mail, by telephone or by personal calls. The anticipated cost of the services of Innisfree M&A Incorporated is $12,000 plus expenses.

 

How can I obtain a copy of the 2007 annual report to shareholders and the Annual Report on Form 10-K for the year ended December 31, 2007?

 

Our annual report to shareholders for the year ended December 31, 2007, which includes our Annual Report on Form 10-K for the year ended December 31, 2007, accompanies this Proxy Statement. However, the annual report forms no part of the material for the solicitation of proxies.

This report may be accessed through our website at www.postproperties.com by clicking on the Investor Relations link, followed by the Financial Reports tab. In addition, our Annual Report on Form 10-K for the year ended December 31, 2007, including all amendments thereto, is available from the SEC’s website at www.sec.gov. At the written request of any shareholder who owns common stock as of the close of business on the record date, we will provide, without charge, additional copies of our Annual Report on Form 10-K, as amended, including the financial statements and financial statement schedule, as filed with the SEC, except exhibits thereto. If requested by eligible shareholders, we will provide copies of the exhibits for a reasonable fee. Requests for copies of our Annual Report on Form 10-K should be mailed to:

 

Post Properties, Inc.

One Riverside

4401 Northside Parkway, Suite 800

Atlanta, Georgia 30327-3057

Attention: Corporate Secretary

 

How do I obtain directions to attend the Annual Meeting and vote in person?

 

Directions to the Annual Meeting are located on our website at www.postproperties.com by clicking on the Investor Relations link followed by the 2008 Proxy Materials tab.

 

Important Notice regarding the Availability of Proxy Materials for the Annual Meeting to be held on October 16, 2008.

 

The Proxy Statement and Annual Report to security holders are available on our website at www.postproperties.com.

 

Our bylaws provide that at least three and no more than fifteen directors shall constitute the full board of directors. Currently, our board of directors consists of nine members. The term of each of Robert C. Goddard, III, Douglas Crocker II, David P. Stockert, Herschel M. Bloom, Walter M. Deriso, Jr., Russell R. French, Charles E. Rice, Stella F. Thayer and Ronald de Waal expires at the 2008 Annual Meeting and until their respective successor is elected and qualified.

 

Upon the recommendation of our independent Nominating and Corporate Governance Committee, the board of directors has nominated incumbent directors Robert C. Goddard, III, Douglas Crocker II, David P. Stockert, Herschel M. Bloom, Walter M. Deriso, Jr., Russell R. French, Stella F. Thayer and Ronald de Waal to stand for re-election at the Annual Meeting and to hold office until our 2009 Annual Meeting of Shareholders and until his or her successor is elected and qualified. Additionally, upon the recommendation of our independent Nominating and Corporate Governance Committee and pursuant to an agreement with a shareholder described below, the board of directors has nominated David R. Schwartz to stand for election at the Annual Meeting and to hold office until our 2009 Annual Meeting of Shareholders and until his successor is elected and qualified.

 

In accordance with our Corporate Governance Guidelines, Mr. Rice is not eligible to stand for re-election since he is 72 years of age.

 

The following list sets forth the names of the nominees for director and contains certain biographical information, including a brief description of principal occupation and business experience during at least the past five years, directorships of companies presently held, and certain other information. This information has been furnished by the respective individuals.

 

Robert C. Goddard, III has been a director of Post Properties since May 2002 and Chairman of the Board since February 2003. Since July 2000, Mr. Goddard has been Chairman and Chief Executive Officer of Goddard Investment Group, LLC, a commercial real estate investment firm focusing in the Atlanta, Dallas, Houston, Denver and Miami markets. From 1988 to December 2000, Mr. Goddard served as Chairman and Chief Executive Officer of the NAI/Brannen Goddard Company, a real estate firm. Mr. Goddard is 53 years old.

 

Douglas Crocker II has been a director of Post Properties since May 2004 and Vice Chairman of the Board since August 2008. Mr. Crocker is a partner of DC Partners, LLC, a position he has held for more than the past five years. Mr. Crocker has been a partner of Transwestern Multifamily Partners since 2006. From 1993 until 2002, Mr. Crocker served as Trustee, President and Chief Executive Officer of Equity Residential Properties Trust, a real estate investment trust focusing on apartment communities. He served as Vice Chairman of the Board of Trustees of Equity Residential from January 2003 through May 2003. In addition to serving on a number of nonprofit boards, Mr. Crocker also is a director of REIS, Inc., Ventas, Inc. and Acadia Realty Trust. Mr. Crocker is 68 years old.

 

David P. Stockert has been a director of Post Properties since May 2002. Since July 2002, Mr. Stockert has been President and Chief Executive Officer of Post Properties. From January 2001 to June 2002, Mr. Stockert served as Post Properties’ President and Chief Operating Officer. From July 1999 to October 2000, Mr. Stockert was Executive Vice President of Duke Realty Corporation, a publicly traded real estate company. From June 1995 to July 1999, Mr. Stockert was Senior Vice President and Chief Financial Officer of Weeks Corporation, also a publicly traded real estate company that was a predecessor by merger to Duke Realty Corporation. Mr. Stockert is 46 years old.

Herschel M. Bloom has been a director of Post Properties since May 1994. Since April 2008 Mr. Bloom has been Senior Counsel in the law firm of King & Spalding LLP. Prior to April 2008, Mr. Bloom was a partner with King & Spalding LLP, a position he held for more than the past five years. Mr. Bloom is 65 years old.

 

Walter M. Deriso, Jr. has been a director of Post Properties since May 2004. Mr. Deriso currently serves as Chairman of the Board of Atlantic Capital Bancshares, Inc. and of its subsidiary, Atlantic Capital Bank, a commercial banking and financial services company. From 1997 to February 2005, Mr. Deriso served as Vice Chairman of Synovus Financial Corp., a diversified financial services company. Mr. Deriso also served as Chairman of the Board of Security Bank and Trust Company of Albany, a subsidiary of Synovus, through July 2006. Mr. Deriso is 62 years old.

 

Russell R. French has been a director of Post Properties since July 1993. Mr. French is currently a special limited partner of Moseley & Co. VI, LLC and has held this position since 2007. Mr. French was previously a member of Moseley & Co. III and a partner of Moseley & Co. II, positions he had held for more than the past five years. In addition, Mr. French has been a member of MKFJ-IV, LLC since 1998 and a member of Moseley & Co. V, LLC since 2000. Each of Moseley & Co. III, MKFJ-IV, LLC and Moseley & Co. V, LLC is the general partner of a venture capital fund. Mr. French is 63 years old.

 

David R. Schwartz is the Co-Founder and Managing Member of Waterton Associates L.L.C, a private equity real estate investment firm. Prior to forming Waterton in 1995, Mr. Schwartz was a Vice President of Acquisitions for Equity Residential Properties Trust. Mr. Schwartz is a member of the Executive Committee and Board of Directors of the National Multi Housing Council, NAHB Multifamily Leadership Board, and is a member of The Economic Club and The Urban Land Institute. Mr. Schwartz is Immediate Past President of the University of Chicago Children’s Hospital Pediatric AIDS auxiliary and is a member of the Visiting Committee of the Department of Biological Sciences at the University of Chicago and a Central Board Member of the Jewish Community Centers of Chicago and a member of the Young Presidents Organization Chicago Chapter. Mr. Schwartz is 44 years old.

 

Stella F. Thayer has been a director of Post Properties since September 2005. Ms. Thayer is currently, and has been for more than the past five years, an attorney and shareholder of the law firm of Macfarlane Ferguson & McMullen. She is also the President, Treasurer and a director of Tampa Bay Downs, Inc., a member of the Florida Council of 100, on the Board of Trustees of the University of South Florida Foundation and on the Board of Advisors of Columbia Law School. Ms. Thayer is 67 years old.

 

Ronald de Waal has been a director of Post Properties since May 2000. Mr. de Waal is Chairman of the Board of WE International b.v., a Netherlands corporation, which operates fashion specialty stores in Belgium, the Netherlands, Switzerland, Germany and France, and has held this position since 1983. Mr. de Waal is also Chairman of Ronus Inc., an Atlanta-based real estate company which develops and manages mixed-use real estate properties. Mr. de Waal is also a director of Saks Incorporated. Mr. de Waal is 56 years old.

 

 

On August 4, 2008, the Company entered into an agreement (Agreement) with Pentwater Capital Management LP and Pentwater Growth Fund Ltd., on behalf of themselves and certain affiliates (collectively, Pentwater), pursuant to which Pentwater agreed to irrevocably withdraw its previous notice of nomination of candidates for election as directors at the Annual Meeting. Pursuant to the Agreement, the Company and Pentwater agreed that David R. Schwartz will stand for election as a nominee of the board of directors at the Annual Meeting and that, in addition, all of the incumbent directors, other than Mr. Rice who has reached the mandatory retirement age, will stand for re-election to the board of directors at the Annual Meeting. The Company and Pentwater also agreed that as promptly as practicable

after the date of the Agreement, they will seek to identify a new “independent” director (New Director and together with Mr. Schwartz, the Designees) to be appointed or elected to the board of directors. The individual identified by Pentwater to serve as the New Director was not selected and, therefore, pursuant to the Agreement, the Company will identify, as promptly as is reasonably practicable, a qualified individual to serve as the New Director, which New Director shall be reasonably acceptable to Pentwater. The Company and Pentwater have agreed to use their reasonable efforts to identify the New Director prior to October 31, 2008. As of the date of this Proxy Statement, the New Director has not been identified.

 

Pentwater, by written notice furnished to the Company no later than February 15, 2009 (2009 Nomination Notice), may require that either or both of the Designees be nominated by the board of directors to stand for re-election as directors at the Company’s 2009 Annual Meeting of Shareholders (2009 Annual Meeting), in which event the Company shall include such nominee(s) on the board of director’s slate of nominees at such meeting.

 

Pentwater has agreed to publicly support and recommend that the Company’s shareholders vote for the election of the agreed upon slate of nominees at the Annual Meeting and to vote all of its shares in favor of the election of each of the nominees for director at the Annual Meeting. In addition, Pentwater agreed not to engage in any solicitation of proxies or consents, or advise, encourage or influence any person with respect to the voting of any shares of the Company’s common stock prior to or at the Annual Meeting. Pentwater has also agreed that it will not solicit the Company’s shareholders for the approval of any shareholder proposals or encourage any person to initiate any such shareholder proposal in connection with the Annual Meeting. If Pentwater furnishes the Company with a 2009 Nomination Notice, Pentwater’s obligations as set forth in this paragraph also will apply with respect to the 2009 Annual Meeting.

 

The Agreement further provides that Mr. Crocker will continue to serve as the Vice Chairman of the Board and will continue to be the Chairman of the Strategic Planning and Investment Committee of the board of directors. Mr. Crocker will continue to serve in such positions until at least the 2009 Annual Meeting so long as he remains on the board of directors.

 

The Agreement also provides that if both Designees are serving as members of the board of directors, each Designee shall be offered membership on at least two of the following committees of the board of directors: the Strategic Planning and Investment Committee, the Audit Committee, the Executive Compensation and Management Development Committee and the Nominating and Corporate Governance Committee and at least one of the Designees shall be offered membership on the Strategic Planning and Investment Committee. If only one Designee is serving on the board of directors, such Designee shall be offered membership on the Strategic Planning and Investment Committee and one of the other three committees identified above.

 

The Company agreed to reimburse Pentwater for its reasonable and documented out-of-pocket expenses incurred in connection with its nomination of directors to the board of directors and the negotiation of the Agreement, in an aggregate amount not to exceed $100,000. Pentwater subsequently informed the Company that the aggregate amount of such expenses was $84,918.90, and the Company has reimbursed Pentwater for such expenses.

 

The board of directors recommends a vote FOR the nine director nominees.

 

Audit Committee.  The Audit Committee currently consists of Messrs. Deriso, French and Rice and Ms. Thayer. The board of directors has determined that Mr. French, the current committee chairman, qualifies as an “audit committee financial expert” within the meaning of SEC rules and regulations. All committee members are independent as defined in applicable SEC and NYSE rules and under the director independence standards specified in our Corporate Governance Guidelines. During 2007, the committee held seven meetings. The committee chairman also held other meetings with management and/or our independent registered public accounting firm during the year.

 

The Audit Committee is responsible for, among other things:

 

 

Executive Compensation and Management Development Committee.  The Executive Compensation and Management Development Committee currently consists of Messrs. Deriso, French and Rice and Ms. Thayer. Mr. Rice currently serves as chairman. All committee members are independent as defined in applicable SEC and NYSE rules and under the director independence standards specified in our Corporate Governance Guidelines. During 2007, the committee held six meetings.

 

The Executive Compensation and Management Development Committee is responsible for, among other things:

 

 

See Compensation Discussion and Analysis for a description of the processes and procedures of the Executive Compensation and Management Development Committee and for additional information regarding the Executive Compensation and Management Development Committee’s role and management’s role in determining compensation for executive officers and directors.

 

Nominating and Corporate Governance Committee.  The Nominating and Corporate Governance Committee currently consists of Messrs. Crocker, Deriso, Goddard, and Rice. Mr. Deriso currently serves as chairman. All committee members are independent as defined in applicable SEC and NYSE rules and under the director independence standards specified in our Corporate Governance Guidelines. During 2007, the committee held three meetings. The committee chairman also held other meetings with management and/or our outside advisors during the year.

 

The Nominating and Corporate Governance Committee is responsible for, among other things:

 

 

Strategic Planning and Investment Committee.  The Strategic Planning and Investment Committee currently consists of Messrs. Bloom, Crocker, Goddard and de Waal. Mr. Crocker currently serves as chairman. During 2007, the committee held seven meetings.

 

The Strategic Planning and Investment Committee is responsible for, among other things:

 

 

The charters of each of the Audit Committee, the Executive Compensation and Management Development Committee, the Nominating and Corporate Governance Committee and the Strategic Planning and Investment Committee and our Corporate Governance Guidelines may be accessed on our website at www.postproperties.com by clicking on the Investor Relations link, followed by the Corporate Governance tab, and are available in print upon request from our Corporate Secretary.

 

We have a Code of Business Conduct, which is applicable to all directors and employees, including our executive and financial officers. There is a separate Code of Ethics for Senior Executive and Financial Officers that applies to our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and persons performing similar functions. The Code of Business Conduct and the Code of Ethics are available on our website at www.postproperties.com by clicking on the Investor Relations link followed by the Corporate Governance tab. Any amendments to, or waivers of, the Code of Ethics will be disclosed on our website promptly following the date of such amendment or waiver.

 

General Criteria and Process

 

In identifying and evaluating director candidates, the Nominating and Corporate Governance Committee does not set specific criteria for directors. Under its charter, the committee is responsible for determining desired board skills and attributes and must consider personal and professional integrity, ability, judgment and other factors deemed appropriate. As expressed in our Corporate Governance Guidelines, we generally believe that candidates should show evidence of leadership in their particular field, have broad experience and the ability to exercise sound business judgment, possess the highest personal and professional ethics, integrity and values, and be committed to representing the long-term interests of the shareholders. Directors also must be willing to devote sufficient time to carrying out their duties and responsibilities effectively and should be committed to serve on the board of directors for an extended period of time. The committee may retain a third-party search firm to identify director candidates and has sole authority to select the search firm and approve the terms and fees of any director search engagement.

 

Shareholder Nominations

 

We have not adopted a specific policy regarding consideration of director nominees from shareholders. Shareholders who wish to recommend nominees for consideration by the Nominating and Corporate Governance Committee may submit their nominations in writing to our Corporate Secretary at the address provided in this Proxy Statement. The committee may consider such shareholder recommendations when it evaluates and recommends nominees to the board of directors for submission to the shareholders at each annual meeting.

 

In addition, shareholders may nominate directors for election without consideration by the Nominating and Corporate Governance Committee by complying with the eligibility, advance notice and other provisions of our bylaws. Under our bylaws, a shareholder is eligible to submit a shareholder nomination if the shareholder is (1) of record based on the record date for determining shareholders entitled to vote at the Annual Meeting and (2) of record on the date the shareholder gives notice of the nomination to us. The shareholder also must provide timely notice of the nomination to us. To be timely, the shareholder must provide advance notice not less than 90 nor more than 120 days prior to the anniversary date of the preceding year’s annual meeting, regardless of any postponements, deferrals or adjournments of that annual meeting to a later date, provided however, if and only if the annual meeting is not scheduled to be held within a period that commences 25 days before such anniversary date and ends 25 days after such anniversary date, such shareholder’s notice must be delivered by the tenth day following the day on which the date of the annual meeting is publicly disclosed or notice of the date of the annual meeting was mailed, whichever occurs first. Pursuant to the Agreement, we have agreed with Pentwater that the 2009 Annual Meeting will be held not later than June 30, 2009. As a result, the 2009 Annual Meeting will not be held within a period that commences 25 days before the anniversary date of this Annual Meeting and ends 25 days after such anniversary date.

 

 

In 2006, we adopted a policy on majority voting in the election of directors. Pursuant to this policy, in an uncontested election of directors, any nominee who receives a greater number of votes withheld from his or her election than votes for his or her election will, within five days following the certification of the shareholder vote, tender his or her written resignation to the chairman of the board for consideration by the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee will consider the resignation and, within 45 days following the date of the shareholders’ meeting at which the election occurred, will make a recommendation to the board of directors concerning the acceptance or rejection of the resignation.

In determining its recommendation to the board of directors, the Nominating and Corporate Governance Committee will consider all factors deemed relevant, including:

 

 

The Nominating and Corporate Governance Committee also will consider a range of possible alternatives concerning the director’s tendered resignation as the members of the Nominating and Corporate Governance Committee deem appropriate, including:

 

 

Under the policy, the board of directors will take formal action on the recommendation no later than 75 days following the date of the shareholders’ meeting. In considering the recommendation, the board of directors will consider the information, factors and alternatives considered by the Nominating and Corporate Governance Committee and any additional information, factors and alternatives as the board of directors deems relevant. We will publicly disclose, in a Form 8-K filed with the SEC, the board of directors’ decision within four business days after the decision is made. The board of directors will also provide a full explanation of the process by which the decision was made and, if applicable, the board of directors’ reason or reasons for rejecting the tendered resignation.

 

As part of our Corporate Governance Guidelines, we have established director independence standards which are set forth on Appendix A. Our director independence standards meet or exceed the requirements of SEC rules and regulations and the NYSE listing standards.

 

As required by the Corporate Governance Guidelines, the board of directors reviewed and analyzed the independence of each director and director nominee. The purpose of the review was to determine whether any particular relationships or transactions involving directors or their affiliates or immediate family members were inconsistent with a determination that the director is independent for purposes of serving on the board of directors and its committees. During this review, the board of directors examined whether there were any transactions and/or relationships between directors or their affiliates or immediate family members and the Company and the substance of any such transactions or relationships.

 

As a result of this review, the board of directors affirmatively determined that the following directors and nominee are independent for purposes of serving on the board of directors and meet the requirements set forth in our director independence standards: Messrs. Goddard, Crocker, Bloom, Deriso, French, Rice, Schwartz and de Waal and Ms. Thayer. The board of directors further determined that all members of the Audit Committee, Executive Compensation and Management Development Committee and Nominating and Corporate Governance Committee are independent. Mr. Stockert is not considered independent because he is an executive officer of the Company. Herschel M. Bloom, one of our directors, was a partner in the law firm

of King & Spalding LLP during 2007. King & Spalding LLP provided legal services to us during fiscal 2007. Fees for these legal services represented less than 2% of King & Spalding LLP’s revenues during the last three fiscal years. The amounts did not exceed the limits set forth in our director independence standards or in the NYSE’s corporate governance rules. In concluding that Mr. Bloom is independent, the board of directors considered these factors and determined that Mr. Bloom’s relationship with the Company was immaterial and would not influence Mr. Bloom’s exercise of independent judgment as a director.

 

During 2007, our board of directors held nine meetings. All directors attended 75% of the aggregate of all board of directors and committee meetings on which he or she served in 2007. Directors are encouraged, but not required, to attend the annual shareholders meeting. All directors who were directors at the time of the 2007 annual shareholders meeting attended the meeting.

 

Pursuant to the Corporate Governance Guidelines, Robert C. Goddard, III, our non-executive chairman of the board, presides at regularly scheduled executive sessions of our non-management directors.

 

We pay our non-employee directors fees for their services as directors. Prior to February 13, 2007, our non-employee directors were entitled to receive:

 

 

In lieu of the foregoing, the non-executive chairman was entitled to an annual retainer of $100,000 and consideration for target annual grants of options to purchase 50,000 shares of common stock at an exercise price equal to 100% of the closing price of the common stock on the NYSE on the grant date and shares of restricted stock with a grant-date present value of $200,000. The stock options and restricted stock vest one-third each year over a three-year period beginning on the grant date.

 

In February 2007, based upon the recommendations of the Executive Compensation and Management Development Committee, the board of directors made the following changes to the compensation structure for non-employee directors, effective as of February 13, 2007:

 

 

The other aspects of the compensation structure (annual cash retainer, meeting fees, and annual cash retainer and targeted restricted stock award for our non-executive chairman of the board) were maintained.

 

In general, equity awards to non-employee directors vest in connection with a change of control or upon reaching mandatory retirement age.

 

The total amount paid to each non-employee director is set forth in the 2007 Director Compensation Table beginning on page 46.

 

In accordance with our Corporate Governance Guidelines, no director may stand for election or re-election after the director’s 72nd birthday.

 

The board of directors has adopted a policy and process to facilitate communications with our directors as a group and our non-management directors as a group. Shareholders and interested parties who wish to communicate directly with the board of directors may do so by writing to Post Properties, Inc., One Riverside, 4401 Northside Parkway, Suite 800, Atlanta, Georgia 30327-3057, Attn: Corporate Secretary, or by sending electronic mail to directors@postproperties.com. The Corporate Secretary will forward all such communications to directors.

 

The following table sets forth the beneficial ownership of shares of common stock as of August 31, 2008 for:

 

 

The table below also sets forth the beneficial ownership of shares of common stock for each shareholder that holds more than a 5% interest in our outstanding common stock.

 

Unless otherwise indicated in the footnotes, all of such interests are owned directly and the indicated person or entity has sole voting and dispositive power.

 

 

 

 

 

The voting or dispositive power for each beneficial owner is as follows:

 

 

 

Executive Compensation Philosophy

 

Our mission is to deliver superior satisfaction and value to our residents, associates and investors. Our vision is to be the first choice in quality multi-family living. Our core values include: performance and accountability, honesty and integrity, innovation, quality, service and teamwork. To achieve our business strategies, it is critical that we are able to attract, retain, and motivate highly talented individuals at all levels who are committed to our mission, vision and values.

 

Our compensation programs, for executives and non-executives alike, are designed with our mission, vision and values in mind. Through our compensation programs, we strive to achieve the following objectives:

 

 

Total compensation for our executives is oriented more toward incentive pay components rather than base salary, as we believe that the majority of our executives’ total compensation should be “at risk.” Target compensation opportunities are generally established at the market median of comparable Real Estate Investment Trusts, or REITs. In general, we believe that median levels of competitive pay are warranted when we achieve our internal targets, and when we perform at the median relative to our peers. Actual compensation may be above or below the targeted level, based on our actual performance against a combination of corporate and business unit/leadership measures. We have not guaranteed our executives any minimum cash incentive or equity incentive payments, and in the event of poor performance, executives could receive no incentive compensation for the year.

 

Named Executive Officers for 2007

 

Our Named Executive Officers include our Chief Executive Officer, our Chief Financial Officer, and the three other most highly compensated executive officers ranked by their total compensation. For 2007, our NEOs include Mr. David P. Stockert, President and Chief Executive Officer; Mr. Christopher J. Papa, Executive Vice President and Chief Financial Officer; Mr. Thomas D. Senkbeil, Executive Vice President and Chief Investment Officer; Mr. Thomas L. Wilkes, Executive Vice President and President, Post Apartment Management; and Ms. Sherry W. Cohen, Executive Vice President and Corporate Secretary.

 

Executive Compensation and Management Development Committee Procedures

 

The Executive Compensation and Management Development Committee (the Committee) of the board of directors is responsible for:

 

 

 

Compensation Consultant

 

Since 2006, the Committee has engaged Frederic W. Cook & Co. (Cook) as its independent compensation consultant to advise the Committee with respect to compensation program design, the components of our executive compensation programs, and amounts to be paid to our NEOs. Cook also advises the Committee with respect to the design of our compensation program for non-employee directors, and provides the Committee with information on executive compensation trends and best practices. In addition, Cook assisted in preparing the executive compensation sections of this Proxy Statement, including this Compensation Discussion and Analysis. All of Cook’s work is done at the direction of or on behalf of the Committee. Although the Committee considers the advice of its independent consultant, the Committee has the final decision-making authority with respect to all elements of compensation.

 

Role of Executive Officers in the Compensation Process

 

Our Chief Executive Officer provides his assessment of the individual performance achievement of the executives who report to him. This individual performance assessment determines a portion of annual incentive compensation for each executive, and impacts decisions on long-term incentive grants. In addition, our Chief Executive Officer provides input on salary increases and increases to incentive compensation opportunities for executives, with the close involvement of the Senior Vice President, Human Resources. The Committee considers these recommendations when determining salary increases, awarding incentive compensation and setting incentive opportunities for the coming year. In addition, our Chief Financial Officer analyzes the financial implications of various executive compensation plan designs.

 

Annual Review of Executive Compensation

 

In the fall of 2006, the Committee engaged Cook to conduct a comprehensive review of our executive compensation program design and structure. As part of this review, Cook provided a competitive analysis of the impact of our equity compensation programs on earnings and shareholder dilution. The results of the review along with Cook’s preliminary recommendations were presented and discussed with the Committee in November 2006.

 

With regard to competitive compensation benchmarking, it is our practice to conduct a competitive compensation benchmarking analysis of our Section 16 officers every year and to conduct a competitive compensation analysis for the broader group of executives (approximately 25-30 individuals) every other year. Pursuant to this practice:

 

 

 

For our NEOs, we focus on the public REIT data, as we believe these companies have the most comparable positions. The REIT peer groups used in the 2006 and 2007 studies included the following REITs:

 

 

Based on the results of the 2007 study, the data indicated the following:

 

 

Each year, management compiles the peer group data for the Committee and prepares compensation tally sheets for each member of the Management Committee. The tally sheets summarize, by individual executive, a two-year history of compensation paid, proposed compensation for the current year, and proposed target compensation for the upcoming year. For comparison purposes, competitive median compensation levels from both peer groups, where available, are either included in the tally sheets or reviewed with the Committee by Cook. The tally sheets also detail each executive’s long-term incentive awards since 2001 and the applicable vesting dates. In 2007, the tally sheets also included a sensitivity analysis of the aggregate value of these awards at various stock prices.

 

The proposed 2007 compensation amounts included on the tally sheets are initially determined based on the target compensation opportunities set forth at the beginning of the year and an assessment of Company and individual performance for each executive. The CEO proposes the compensation amounts for the current year for executives other than himself, and the Committee sets forth a proposed

compensation amount for the CEO as a starting point for discussion. The proposed compensation targets for 2008 are initially determined with reference to the competitive market data (we target the competitive median), as well as historical adjustments to each executive’s earnings opportunity, the relationship between executives (internal pay equity), and a subjective assessment of individual performance and future potential. At the request of the Committee, Cook reviews the information compiled by management and provides competitive data and guidance with respect to interpretation of the competitive data and emerging market trends that may impact the initially proposed amounts.

 

The tally sheets and management’s proposals were presented and discussed at the January 25, 2008 Committee meeting. No decisions were made at this meeting; rather, the purpose of this meeting was to allow the Committee to develop an understanding of the information presented and the rationale for each recommendation, and to engage in meaningful dialogue. One significant area of discussion among management, the Committee, and Cook was the way in which long-term incentive compensation values earned for 2007 performance should be delivered, in light of our initiation of a formal process to pursue a possible business combination.

 

During the week of January 28, 2008, the Committee chair discussed the proposals with other members of the Committee and with Cook. At the January 31, 2008 meeting, the Committee approved incentive compensation awards with respect to 2007 performance, base salaries for 2008, and incentive compensation targets for 2008. Base salaries and other compensation awards for 2007 and 2008 targets are discussed in more detail below.

 

Compensation Elements

 

Our executive compensation program has the following elements:

 

 

Base Salary

 

Our base salary program is designed to provide a secure amount of cash compensation that is competitive with salaries of executives at the peer group REITs outlined above. Our base salaries are generally targeted at market median, but may be higher or lower than market median based on considerations including individual performance over time, experience level and each individual’s role and responsibilities in the organization. In some cases, base salaries are also set by employment agreements negotiated in connection with recruiting or retaining a senior executive.

 

Base salaries are not subject to any automatic annual cost of living or similar adjustments, and are increased only at the Committee’s discretion. In making its decisions about annual salary increases, the Committee takes into account the executive’s performance, our overall financial performance and changes in the competitive marketplace. The Committee considers a number of factors when evaluating individual performance, including the executive’s contribution to:

 

 

Despite the fact that Mr. Stockert’s base salary was below the market median, the Committee decided that his salary increase percentage should be in the same range as percentage increases for other employees of the Company (1-3% for 2007 and 3-4% for 2008). The competitive review indicated that base salaries for the other Named Executive Officers were generally in the median range. The Committee decided to provide adjustments between 0.8% and 2.9% for 2007 and between 3.5% and 3.7% for 2008 for these executives. These increases were the result of the process described above.

 

The table below summarizes the 2006, 2007 and 2008 base salaries for each NEO.

 

 

 

 

Annual Cash Incentives

 

The purpose of the annual cash incentive plan is to provide at-risk cash compensation contingent upon achieving annual corporate and individual objectives. The plan is structured to foster teamwork among the executive officers, to focus efforts on corporate results that directly impact shareholders and to link individual performance to our strategic plan.

 

Our annual incentive plan promotes our pay-for-performance philosophy through the use of our “Partners in Performance” framework. Through this framework we communicate to our senior management specific annual corporate and business unit/leadership performance goals based on our strategic plan, and reward them if they achieve those goals.

 

 

 

 

¹ We use the National Association of Real Estate Investment Trusts (NAREIT) definition of FFO. FFO is defined by NAREIT as net income available to common shareholders determined in accordance with GAAP, excluding gains (or losses) from extraordinary items and sales of depreciable property, plus depreciation of real estate assets, and after adjustment for unconsolidated partnerships and joint ventures all determined on a consistent basis in accordance with GAAP. FFO is a supplemental non-GAAP financial measure. For a further discussion of FFO and a reconciliation of net income available to common shareholders to FFO, refer to pages 48 through 49 of our Form 10-K filed on February 29, 2008.

 

The Committee intends to continue to use FFO per share as the primary corporate performance measure for 2008, with the target expected to correspond to our internal budget, because it believes that this measure is the most reflective of our short-term operating performance. It is also the metric that potential and current investors use to measure our profitability against other REITs and to make decisions about investments in our common stock. As announced on January 23, 2008, the board of directors authorized management to initiate a formal process to pursue a business combination or other sale transaction and to seek proposals from potentially interested parties that ultimately concluded without a sale in June 2008. As a result, the Committee has yet to set the target FFO per share goal for 2008.

 

 

 

Cash incentive payments for 2007 were paid at the target level as approved at the Committee’s January 31, 2008 meeting. Upon recommendation of Cook, the Committee made the decision to increase target bonuses for 2008 based on the peer group analysis described above, as well as each executive’s continued strong performance and development.

The table below illustrates 2007 target and actual cash incentive awards, along with 2008 cash incentive opportunities for each NEO.

 

 

Long-Term Cash and Equity Incentive Compensation

 

Objectives of our Long-Term Incentive Program

 

The objectives of our long-term incentive plan are to align executive compensation more closely with shareholder interests, such as long-term corporate performance and stock price appreciation, and to retain our key executives. Prior to the 2007 awards (granted in January 2008), our long-term incentive awards used a combination of stock options with stock appreciation rights, restricted stock, and our Shareholder Value Plan (each of which are described in detail below). The Committee believed this mix of incentives enabled us to effectively achieve our long-term incentive compensation objectives.

 

Total Long-Term Incentive Award Values and Grant Type Mix

 

Each year, the Committee determines aggregate long-term incentive grant values for each executive based on multiple factors including competitive levels of compensation among comparable REITs, corporate and individual performance, the executive’s level of responsibility and the level of compensation provided to comparable positions within our organization (internal equity). It is primarily our Company’s future performance, however, that impacts the value of long-term incentive grants. That is, the ultimate value earned by the employee depends on the Company’s performance from the date of grant to the vesting date or end of the performance period.

 

With respect to 2006 awards (granted in 2007), the long-term incentive grant values to NEOs were to be allocated among each component (by grant-date present value) as follows: 40% for restricted stock, 40% for stock options and 20% for the Shareholder Value Plan (valued at target). These grants were made on February 2, 2007 and are reflected in the 2007 Grants of Plan-Based Awards table.

 

For 2007 awards (granted in 2008), the Committee had originally determined that long-term incentive values would be divided equally among the three components for the NEOs, to provide more balance and increase the weighting of the Shareholder Value Plan. In the past, we have granted stock options to motivate executives to create long-term shareholder value, which in turn should increase our share price. Our stock options are granted with a ten-year contractual term, and they are valued using a five-year expected term. In other words, the intended value of an option grant is based on the assumption that option holders have several years to contribute to long-term shareholder value creation and therefore realize the full value potential of their options. Because we initiated a formal process to pursue a possible business combination or other sale transaction in January 2008 prior to making long-term incentive grants with respect to 2007 performance, there was a possibility that our Company would be sold within the year and our common stock would no longer be traded on the open market. If such a sale had occurred, the vesting of long-term incentive compensation awards would have accelerated and all awards would have been redeemed for cash. If we had granted options in January 2008, and a sale occurred within one year such that the options were cashed-out, there would not have been enough time for option holders to realize the full potential of the stock options, and therefore there would have been a disconnect between

what we intended to grant (and the expense associated with that grant), and what we were able to deliver that had nothing to do with our Company’s and our executives’ actual performance.

 

Therefore, the Committee decided that long-term incentive grant values with respect to 2007 performance for each NEO would be allocated two-thirds in restricted stock value and one-third in Shareholder Value Plan (valued at target). The following table illustrates the long-term incentives provided to each NEO on January 31, 2008, granted with respect to performance in 2007.

 

 

 

 

When converting dollar values to shares of restricted stock, the number of shares of restricted stock was rounded up to the nearest whole share. Because these awards were granted in 2008, they are not reflected in the 2007 Summary Compensation Table nor are they disclosed in the 2007 Grants of Plan-Based Awards table. The awards reported in the 2007 Grants of Plan-Based Awards table are awards made in February of 2007 with respect to performance in 2006.

 

Grants of equity compensation are made under our shareholder-approved 2003 Incentive Stock Plan (the Incentive Stock Plan), which allows the Committee to grant stock options with stock appreciation rights and make restricted stock grants to our key employees and outside directors. Shareholder Value Plan awards are provided through a separate, shareholder-approved plan.

 

Stock Options

 

Stock options reward our executives for increases in the value of our common stock. They are “pay-for-performance” because they have no value unless the share price appreciates. We recognize that options have high share price “leverage” and, as a result, tend to be a high-risk, high-reward long-term incentive vehicle. However, we believe they provide a good balance between the other two components of our long-term incentive program. The multi-year vesting of our stock options also serves as a retention incentive for our executives.

 

Options are granted with exercise prices equal to the fair market value (closing price) of our common stock on the date of grant. Subsequent to the year ended December 31, 2005, option grants include a stock-settled stock appreciation right, or SAR, feature that allows the option holder to receive the net appreciation of the underlying option in shares of our common stock. In this way, fewer shares are consumed from our Incentive Stock Plan than through a traditional cashless option exercise through a broker. Annual option grants have ten-year terms and generally vest in three equal annual installments. From time to time, special grants of options have been made to executives for retention purposes. These special option grants generally vest in five equal annual installments. Vesting accelerates upon death, disability, approved retirement, or upon a change of control, as defined in our Incentive Stock Plan. Upon termination for any other reason, unvested options are forfeited, unless specified differently in employment and change of control agreements. For all options granted subsequent to the year ended

December 31, 2005, upon termination for any reason other than cause, options remain outstanding for one year (or the remaining term, if shorter); upon termination for cause, all options are immediately forfeited, in each case, unless specified differently in employment or change of control agreements.

 

As discussed above, the Committee decided not to grant stock options in 2008 for 2007 performance.

 

Restricted Stock

 

We grant restricted stock because we believe it aligns the interests of our executives with those of shareholders by creating a strong incentive to create and preserve long-term shareholder value. Through restricted stock, our executives, like our shareholders, share both the risks and rewards of stock ownership. In addition, restricted stock rewards total shareholder return, whether delivered through share price appreciation or dividends. We believe this is appropriate since, as a REIT, our high dividend distribution requirements lead to a significant portion of our total shareholder return delivered through our dividends. Through multi-year vesting, the restricted stock grants also serve as a retention device.

 

The above-described annual restricted stock grants made in 2008 vest in three equal annual installments beginning on December 31, 2008, and the restricted stock grants made in 2007 vest in three equal annual installments beginning on December 31, 2007. From time to time, special grants of restricted stock have been made to executives for retention purposes. These shares vest ratably over longer periods (either five or eight years). Dividends are paid in cash on unvested shares. For restricted stock grants made on or after February 2, 2007, vesting accelerates upon death, disability, approved retirement, or upon a change of control, as defined in the Incentive Stock Plan, to be consistent with the treatment of stock options upon the same termination scenarios. For grants made prior to February 2, 2007, unvested restricted stock is forfeited upon termination resulting from death, disability or retirement. Upon termination for other reasons, unvested restricted stock is forfeited, unless specified differently in employment or change of control agreements.

 

Shareholder Value Plan

 

The Shareholder Value Plan is designed to reward relative total shareholder return performance as compared to other equity REITs, against which we compete for executive talent and investment dollars. This provides a balance between rewards for absolute share price and total shareholder return performance that are provided by the other long-term incentive compensation components. Under the Shareholder Value Plan, participants are each given a target incentive award, expressed as a dollar value. Each participant has the opportunity to earn between 0% and 300% of the target award based on our total shareholder return (TSR) relative to the total shareholder return of the equity REITs in the NAREIT Total Return Index over a three-year period. A new three-year performance period begins each year. Equity real estate investment trusts are defined as those which derive more than 75% of their income from equity investments in real estate assets. The NAREIT equity index includes all tax qualified real estate investment trusts listed on the New York Stock Exchange, the American Stock Exchange or the NASDAQ Stock Market.

 

Payouts as percentages of target are based on our total shareholder return percentile ranking for the three-year period. As part of the 2006 compensation review, the Committee found that the payout matrix under the Shareholder Value Plan was not delivering compensation awards commensurate with our level of performance and desired competitive position (market median compensation for target or median level performance), as evidenced by payouts below 100% of target, despite above-median performance during the past two performance periods. At Cook’s recommendation, the Committee revised the payout matrix for the 2007-2009 performance period to provide a payout of 100% of target for performance at the

50th percentile, with above-target payouts for above-median performance, as illustrated in the table below. Maximum payouts remain at 300% of target for 90th percentile performance or above.

 

 

The payout matrix for performance periods beginning prior to January 1, 2007 is illustrated in the table below with interpolation between points.

 

 

The program was implemented in 2002, and payouts for performance periods completed since the program’s inception are as follows:

 

 

Special Restricted Stock Grant to Chief Financial Officer

 

At the February 2, 2007 meeting, the Committee granted Mr. Papa a special restricted stock award, equal in value to $400,000 at the date of grant, to reward his performance, recognize his importance to the organization and ensure his continued employment. Mr. Papa’s special restricted stock award of 8,334 shares of restricted stock vests in five equal annual installments beginning on December 31, 2007.

Timing of Awards/Equity Award Granting Policy

 

The Committee approves all grants of stock options and shares of restricted stock to employees and directors. The Committee determines grants to the CEO and reviews recommendations for and approves equity compensation grants to other executives on the Management Committee. The Committee also approves grants to other executives and associates, but generally approves an aggregate pool of grants, the allocation of which is recommended by management.

 

Annual grants are made at a scheduled Committee meeting in the first quarter of the fiscal year, generally in January or February. For grants with respect to 2007 performance, the Committee approved grant values and made the grants at the meeting on January 31, 2008. These values were converted to restricted stock based on $42.27, the closing price of our common stock on the meeting date. For other equity awards (e.g., new hire grants, promotional grants, or other special grants), the grant date is the approval date or the hire or promotion date. The grant price is the closing price on the date of grant.

 

Loans to Executive Officers

 

We made loans to certain executive officers in 1999 and 2001. The purpose of these loans was generally to facilitate the executive’s purchase of our common stock. Some of these loans included forgiveness provisions where the principal amount would be forgiven in annual installments over five or ten years. In this way, these loans were economically similar to a restricted stock grant with annual installment vesting. All of the loans bear interest at 6.32%. Interest is payable quarterly and the loans are due in full on the earlier of (1) the tenth anniversary of the date of the note or (2) 30 days after the employee ceases for any reason to be an employee of the Company. The loans were made prior to July 30, 2002, the effective date of the Sarbanes-Oxley Act of 2002. Pursuant to the Sarbanes-Oxley Act, we may not extend further loans or change the payment terms of existing loans, but we may allow these loans to remain in place under their original terms. During 2007, Mr. Stockert had two outstanding loans, and we forgave $100,000 of the outstanding balance under one of the loans. For further details regarding this loan, see “Certain Relationships and Related Person Transactions — Loans to Executive Officers.”

 

Employee Stock Purchase Plan

 

To encourage ownership of our stock among employees, we maintain a non-qualified employee stock purchase plan (ESPP) which allows eligible participants to purchase our common stock through payroll deductions or contributions of cash. Eligible participants include employees and non-employee directors. The purchase price is 85% of the lesser of the closing price per share on the first trading day of the purchase period or the closing price per share on the last trading day of the purchase period. There are two six-month purchase periods each year, and the maximum purchase amount is $100,000 per year. Because our ESPP includes a purchase price “look-back” and our purchase discount is higher than 5%, our ESPP is deemed compensatory. Compensation cost is calculated under SFAS 123R and accrued over the purchase period. Because this stock purchase discount is generally available to all salaried employees, no disclosure of the cost attributable to purchases by our NEOs is required in the 2007 Summary Compensation Table.

 

Deferred Compensation Plan

 

We maintain a board-approved Deferred Compensation Plan for directors and eligible employees, to provide them the opportunity to defer compensation and the associated income taxes, and to allow for investment growth on the deferred amounts on a pre-tax basis. Employee participants may voluntarily defer all or a portion of base salary and/or bonus into the plan’s “benchmark investment alternatives” similar to those provided in our 401(k) plan. Non-employee director participants may defer cash fees into

our common stock. The plan does not permit us to make Company contributions to employee and director accounts. For further details about the Deferred Compensation Plan, see the 2007 Nonqualified Deferred Compensation table and related narrative disclosure.

 

Benefits and Perquisites

 

The NEOs participate in the same benefits programs as all of our employees, including health, dental and vision insurance, group term life and accidental death and dismemberment insurance, short-term and long-term disability coverage, and participation in our tax-qualified 401(k) plan (our match for 2007 was 50% of each employee’s contributions up to 6% of earnings).

 

We provide limited executive perquisites.

 

 

The cost of these perquisites did not exceed $31,500 in the aggregate for all of our NEOs in 2007.

 

Stock Ownership Guidelines

 

We implemented stock ownership guidelines in 2007, which require our NEOs and non-employee directors to own and hold our common stock equal in value to a multiple of base salary or annual cash retainer, as follows:

 

 

NEOs and non-employee directors must achieve the required stock ownership within five years from the implementation of the guideline. Newly elected officers and non-employee directors must achieve the guidelines within five years from the date of their initial election. Shares counted toward the ownership requirement include all shares beneficially owned by an officer or director, as such term is defined under Rule 13d-3 under the Securities Exchange Act of 1934, as amended (Exchange Act), excluding shares that would be deemed to be beneficially owned as a result of the ownership of stock options.

 

To facilitate compliance with the guidelines, 50% of the net after-tax profit shares acquired by the executive or director through equity compensation programs (e.g., stock option exercises, earned performance shares and vested restricted stock) must be held until the executive or director satisfies the ownership guidelines. Net after-tax profit shares are the shares remaining after payment of any exercise price and taxes owed at the exercise of any option or stock appreciation right, vesting of restricted stock or earn out of performance shares. If an executive or director fails to comply with the guidelines within five years, 100% of the executive’s or director’s net after-tax profit shares acquired through equity compensation programs must be held until the executive or director meets the guideline.

As of March 31, 2008, each of our NEOs and non-employee directors beneficially owned shares in excess of the minimum ownership requirement.

 

Employment Agreements

 

We have employment agreements with each of our NEOs. We entered into these agreements to recruit and/or retain each executive. These agreements provide each NEO with a competitive level of financial security in the event of certain involuntary terminations. In particular, these agreements provide for severance in the event of an involuntary termination without cause related to a change of control (as defined below), which allows each executive to remain neutral and encourages each executive to maximize shareholder value in the face of a transaction that could eliminate his or her job. Change of control severance for the NEOs would be provided if the executive is involuntarily terminated without cause, resigns for good reason within a certain period of time following the change of control, or resigns for any reason within the 90-day period commencing on the one-year anniversary of a change of control (commonly referred to as a “modified double trigger”). In return for severance benefits, these agreements protect the Company through certain restrictive covenants (e.g., non-competition, non-solicitation, etc.) for a period of time post-termination. See the discussion under “Employment Agreements” for more detail regarding these agreements.

 

Effect of Regulatory Requirements on Executive Compensation

 

Code Section 162(m)

 

Under Section 162(m) of the Internal Revenue Code (Code), certain limits are placed on the tax deductibility of compensation paid to our Chief Executive Officer and our four other most highly compensated executives unless the compensation meets the requirement for “performance-based compensation” as set forth in the tax law and the related regulations. In designing our compensation programs and practices, we have taken the possible effect of Section 162(m) into account, but we recognize the need to maintain flexibility in establishing compensation plans and arrangements for our executive officers in order to achieve our business objectives. As long as we qualify as a REIT, we do not pay taxes at the corporate level. As such, we believe any loss of deductibility of compensation does not have a significant adverse impact on us. In 2007, all compensation paid to these executives was deductible under Section 162(m). To the extent that any part of our compensation expense does not qualify for deduction under Section 162(m), a larger portion of stockholder distributions may be subject to federal income tax as ordinary income rather than return of capital, and any such compensation allocated to our taxable REIT subsidiaries whose income is subject to federal income tax would result in an increase in income taxes due to the inability to deduct such compensation. The Committee will continue to use its best judgment when adopting any plan or compensation arrangement by taking into account all factors, including the materiality of any deductions that might be lost as well as the broader interests to be served by paying competitive compensation.

 

Code Section 409A

 

Code Section 409A generally changes the tax rules that affect most forms of deferred compensation that were not earned and vested prior to 2005. The Committee takes Code Section 409A into account in determining the form and timing of compensation paid to our executives. Our Company intends to operate and administer its compensation arrangements in accordance with the new rules. See the 2007 Nonqualified Deferred Compensation table and associated narrative for a more detailed discussion of our nonqualified deferred compensation arrangements.

 

The Executive Compensation and Management Development Committee of the board of directors consists of the four directors named below, each of whom is independent as defined in applicable SEC and NYSE rules and under the director independence standards specified in our Corporate Governance Guidelines.

 

We have the authority to engage an independent compensation consultant or other advisors. We currently use Cook as our independent compensation consultant. Cook does no work for management unless requested by our Committee chairman, receives no compensation from the Company other than for its work in advising the Committee and maintains no other economic relationships with the Company.

 

We held six meetings during 2007. The meetings were designed, among other things, to facilitate and encourage free and frank discussion between Committee members and our consultant as well as extensive communication among Committee members, executive management, and other Company personnel involved in executive compensation matters.

 

We reviewed and discussed with management the Compensation Discussion and Analysis that appears in this Proxy Statement. Based on our review and these discussions with management and our compensation consultant, we recommended to the board of directors that the Compensation Discussion and Analysis be included in this Proxy Statement for filing with the SEC.

 

Submitted by the Executive Compensation and Management Development Committee:

 

Charles E. Rice, Chairman

Walter M. Deriso, Jr.

Russell R. French

Stella F. Thayer

 

The following table sets forth information concerning total compensation for the Named Executive Officers during 2007. The Named Executive Officers are our Chief Executive Officer, Chief Financial Officer and the three other most highly compensated executive officers ranked by their total compensation in the table below.

 

 

 

 

 

 

The following table sets forth information with respect to grants of non-equity incentive plan awards, equity incentive plan awards, all other stock awards and all other stock option awards to each of the Named Executive Officers during 2007.

 

 

 

 

The following table sets forth information with respect to all outstanding option and stock awards for each of the Named Executive Officers as of December 31, 2007.