UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

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UDR, INC.

(Name of Registrant as Specified in Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

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March 31, 2011

 

Dear Fellow Stockholders:

 

It is my pleasure to invite you to attend our Annual Meeting of Stockholders. The meeting will be held on May 12, 2011, at 11:00 a.m. local time at the J.W. Marriott Denver Cherry Creek, 150 Clayton Lane, Denver, Colorado.

 

We have elected to take advantage of the Securities and Exchange Commission rules that allow companies to furnish proxy materials to their stockholders on the Internet. We believe that these rules allow us to provide our stockholders with the information they need, while lowering the costs of delivery and reducing the environmental impact of our annual meeting.

 

The business to be conducted at the meeting is set forth in the formal notice of annual meeting of stockholders and proxy statement that accompany this letter. At the meeting we will also report on the company’s performance and respond to questions.

 

Your vote is important. Whether or not you plan to attend the meeting, we urge you to vote your shares electronically through the Internet, by telephone or, if you have requested and received a paper copy of the proxy statement, by completing, signing and returning the paper proxy card enclosed with the proxy statement. Voting through the Internet or by telephone will eliminate the need to return your proxy card.

 

Sincerely,
UDR, INC.

 

JAMES D. KLINGBEIL

Chairman of the Board of Directors

 

UDR, INC.

 

1745 Shea Center Drive, Suite 200, Highlands Ranch, Colorado 80129-1540
Tel: 720.283.6120 Fax: 720.283.2452

 

March 31, 2011

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

The Annual Meeting of Stockholders of UDR, Inc. will be held at the J.W. Marriott Denver Cherry Creek, 150 Clayton Lane, Denver, Colorado, on May 12, 2011, at 11:00 a.m. local time, for the following purposes:

 

1. To elect nine directors to serve for the ensuing year.

 

2. To ratify the appointment of Ernst & Young LLP to serve as independent registered public accounting firm for the year ending December 31, 2011.

 

3. To hold an advisory vote on executive compensation.

 

4. To hold an advisory vote on the frequency of holding an advisory vote on executive compensation.

 

5. To transact such other business as may properly come before the meeting or any adjournment of the meeting.

 

On or about March 31, 2011, we intend to mail to our stockholders of record as of the close of business on March 14, 2011 a notice containing instructions on how to access our 2011 proxy statement and our annual report for the year ended December 31, 2010, and how to vote online. The notice also provides instructions on how you can request a paper copy of these documents if you desire, and how you can enroll in e-delivery. If you received your annual materials via email, the email contains voting instructions and links to our annual report and proxy statement on the Internet.

 

By Order of the Board of Directors

 

WARREN L. TROUPE

Senior Executive Vice President

and Corporate Secretary

 

 

 

 

TABLE OF CONTENTS

 

 

PROXY STATEMENT

 

The enclosed proxy is solicited on behalf of the board of directors of UDR, Inc., a Maryland corporation, for use at our Annual Meeting of Stockholders to be held on May 12, 2011, at 11:00 a.m. local time at the J.W. Marriott Denver Cherry Creek, 150 Clayton Lane, Denver, Colorado, and at any adjournment, continuation or postponement of the meeting. These proxy materials are being provided to stockholders on or about March 31, 2011.

 

We use a number of abbreviations in this proxy statement. We refer to UDR, Inc. as “the company,” “we,” “us” or “our” and to our board of directors as “board” or “board of directors.” The term “proxy materials” includes this proxy statement, as well as the enclosed proxy card. References to “fiscal 2010” and “fiscal 2011” mean our 2010 fiscal year which began on January 1, 2010 and ended on December 31, 2010, and our 2011 fiscal year which began on January 1, 2011 and will end on December 31, 2011, respectively. Our 2011 Annual Meeting of Stockholders to be held on May 12, 2011 is simply referred to as the “meeting” or the “annual meeting.”

 

In accordance with rules and regulations adopted by the Securities and Exchange Commission (the “SEC”), instead of mailing a printed copy of our proxy materials to each stockholder of record, we may furnish proxy materials, including this proxy statement and our 2010 Annual Report, by providing access to such documents on the Internet. Most stockholders will not receive printed copies of the proxy materials unless they request them, in which case printed copies of the proxy materials will be provided at no charge.

 

Instead of mailing a printed copy of our proxy materials to each stockholder of record, a Notice of Internet Availability of Proxy Materials (the “Notice of Internet Availability”) was mailed to such stockholders on or about March 31, 2011 that instructs you as to how you may access and review all of the proxy materials on the Internet. The Notice of Internet Availability also instructs you as to how you may submit your proxy on the Internet or by telephone.

 

Any stockholder may request to receive proxy materials in printed form by mail or electronically by e-mail on an ongoing basis by following the instructions set forth in the Notice of Internet Availability. Choosing to receive future proxy materials by e-mail will save us the cost of printing and delivering documents to stockholders and will reduce the environmental impact of our annual meetings. A stockholder’s election to receive proxy materials by e-mail will remain in effect until the stockholder terminates the election.

 

We are providing this proxy statement and proxy card to you on the Internet or, upon your request, we are sending printed versions of this proxy statement and proxy card to you by mail, because you owned shares of our common stock and/or our Series E preferred stock or our Series F preferred stock at the close of business on March 14, 2011, which is the record date for the meeting. This proxy statement describes matters on which we would like you, as a stockholder, to vote. It also gives you information on these matters so that you can make an informed decision.

When you vote, you appoint James D. Klingbeil and Thomas W. Toomey, or either of them, as your representatives at the meeting. Messrs. Klingbeil and Toomey will vote your shares at the meeting as you instructed them when you voted. This way, your shares will be voted whether or not you attend the meeting. Even if you plan to attend the meeting, you should vote by telephone, through the Internet or, if you have requested and received a paper copy of the proxy statement, by completing, signing and returning the paper proxy card enclosed with this proxy statement in advance of the meeting, just in case your plans change.

 

At the meeting, stockholders entitled to vote will act upon the matters set forth in the accompanying notice of annual meeting of stockholders.

 

The holders of shares of our common stock and our Series E and Series F preferred stock outstanding at the close of business on the record date are entitled to receive notice of the meeting and are entitled to one vote for each share held on each proposal presented at the meeting. Cumulative voting is not permitted.

 

At the record date of March 14, 2011, we had 185,822,517 shares of common stock, 2,803,812 shares of Series E preferred stock and 2,534,846 shares of Series F preferred stock issued and outstanding.

 

The presence, in person or by proxy, of holders of at least a majority of the total number of shares of our outstanding common stock, Series E preferred stock and Series F preferred stock, taken together, as of the record date, constitutes a quorum that is required to hold the meeting and to conduct business. If a quorum is not present at the meeting, the meeting may be adjourned from time to time until a quorum is obtained. Your shares will be counted as being present at the meeting if you vote your shares in person at the meeting, if you vote your shares by telephone or through the Internet, or if you submit a properly executed proxy card. Votes against a particular proposal will be counted both to determine the presence of a quorum and to determine whether the requisite number of votes has been obtained to approve the proposal. Abstentions, broker non-votes, which are explained below, and shares as to which authority to vote on any proposal is withheld, are each included in the determination of the number of shares present at the meeting for purposes of obtaining a quorum. Each will be tabulated separately.

 

For Shares Directly Registered in Your Name

 

If you hold your shares in your own name as holder of record with Wells Fargo Shareowner Services, there are four different ways to vote:

 

 

All valid proxies received and not revoked prior to the meeting will be voted in accordance with each stockholder’s instructions.

For Shares Held in “Street Name”

 

If your shares are held by a brokerage firm, bank or other nominee (i.e., in “street name”), you will receive instructions from your nominee that you must follow in order to have your shares voted. “Street name” stockholders who wish to vote in person at the meeting will need to obtain a proxy form from the brokerage firm, bank or other nominee that holds their shares of record.

 

In addition, a number of brokers and banks are participating in a program provided through Broadridge Financial Solutions, Inc. (“Broadridge”) that offers telephone and Internet voting options. This program is different from the program provided by Wells Fargo Shareowner Services for shares registered directly in the name of the stockholder. If your shares are held in an account with a broker or a bank participating in the Broadridge program, you may vote those shares telephonically by calling the telephone number shown on the voting form received from your broker or bank, or via the Internet at the Broadridge voting website (www.proxyvote.com).

 

All shares represented by properly executed proxies received in time for the meeting will be voted at the meeting in accordance with the instructions marked thereon or otherwise as provided therein, unless such proxies have previously been revoked. Unless instructions to the contrary are marked, or if no instructions are specified, shares represented by proxies will be voted:

 

 

We have not received notice of any other matters that may properly be presented at the meeting. However, if a matter comes up for vote at the meeting that is not described in this proxy statement or listed on the proxy card, Messrs. Klingbeil and Toomey will vote your shares, under your proxy, in their discretion. It is the intention of Messrs. Klingbeil and Toomey to vote the shares they represent as directed by the board of directors.

 

Yes. If you are a record holder of your shares, you may revoke your proxy at any time prior to the date of the meeting by:

 

 

If you hold your shares in “street name,” you should follow the directions provided by your broker or other nominee regarding how to revoke your proxy.

 

 

 

Broadridge will tabulate votes cast by proxy by an automated system. Votes cast by proxy or in person at the meeting will be counted by the persons appointed by us to act as election inspectors for the meeting.

 

An “abstention” occurs when the beneficial owner of shares is present, in person or by proxy, and entitled to vote at the meeting (or when a nominee holding shares for a beneficial owner is present and entitled to vote at the meeting), but such person does not vote on the particular proposal. For purposes of Proposal Nos. 1, 2, 3 and 4, abstentions will not be counted as votes cast and will have no effect on the results of the vote with respect to such proposals, although abstentions will be considered present for the purpose of determining the presence of a quorum.

 

A “broker non-vote” occurs when a broker or other nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have the discretionary voting power with respect to that proposal and has not received instructions from the beneficial owner. Under applicable rules, brokers or other nominees have discretionary voting power with respect to matters that are considered routine, but not with respect to non-routine matters. Proposal No. 1 (the election of directors), Proposal No. 3 (advisory vote on executive compensation) and Proposal No. 4 (advisory vote on the frequency of an advisory vote on executive compensation) are considered non-routine matters, and Proposal No. 2 (ratification of independent registered public accounting firm) is considered a routine matter. A broker or other nominee cannot vote without instructions on non-routine matters such as Proposal Nos. 1, 3 and 4, and therefore there may be broker non-votes on these Proposals. For purposes of Proposal Nos. 1, 3 and 4, broker non-votes are not deemed to be votes cast for purposes of determining whether stockholder approval has been obtained. Therefore, broker non-votes will have no effect on the voting results for these Proposals, although they will be considered present for the purpose of determining the presence of a quorum.

 

This solicitation is being made on behalf of our board of directors, but may also be made without additional remuneration by our officers or employees by telephone, telegraph, facsimile transmission, e-mail or personal interview. We will bear the expense of the preparation, printing and delivery of the enclosed form of proxy, notice of annual meeting of stockholders and this proxy statement and any additional material relating to the meeting that may be furnished to our stockholders by our board subsequent to the furnishing of this proxy statement. We will reimburse banks and brokers who hold shares in their name or custody, or in the name of nominees for others, for their out-of-pocket expenses incurred in forwarding copies of the proxy materials to those persons for whom they hold such shares. To obtain the necessary representation of stockholders at the meeting, supplementary solicitations may be made by mail, telephone or interview by our officers or employees, without additional compensation.

 

We will announce the preliminary voting results at the meeting and publish the final results in a Current Report on Form 8-K filed with the SEC within four business days following the meeting.

 

We believe that effective and transparent corporate governance is critical to our long-term success and our ability to create value for our stockholders. We frequently review our corporate governance policies, monitor emerging developments in corporate governance and enhance our policies and procedures when our board of directors determines that it would benefit our company and our stockholders to do so.

 

We maintain a corporate governance page on our website that includes key information about UDR’s corporate governance, including our Statement on Corporate Governance, Code of Business Conduct and Ethics, Code of Ethics for Senior Financial Officers, Related Person Transactions Policy and the charters for the Audit and Risk Management Committee (the “Audit Committee”), the Compensation and Management Development Committee (the “Compensation Committee”), and the Governance Committee (the “Governance Committee”) of the board of directors, all of which can be found at www.udr.com by clicking on “Investor Relations” then on “Corporate Governance.” The documents noted above will also be provided without charge to any stockholder who requests them. Any changes to these documents, and any waivers granted by us with respect to our Code of Business Conduct and Ethics and our Code of Ethics for Senior Financial Officers, will be posted on our website.

 

We also monitor our corporate governance policies and practices to maintain compliance with the provisions of the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, rules of the SEC and the corporate governance rules of the New York Stock Exchange (“NYSE”). Our policies and practices meet, and in many cases exceed, the listing requirements of the NYSE, applicable SEC rules and the corporate governance requirements of the Sarbanes-Oxley Act of 2002, including:

 

 

In addition to each director’s basic duties of care and loyalty, the board has separate and specific obligations under our Statement on Corporate Governance. Among other things, these obligations require directors to effectively monitor management’s capabilities, compensation, risk oversight, leadership and performance, without undermining management’s ability to successfully operate the business. In addition, the board and the board’s committees have the authority to retain outside legal, accounting or other advisors, as necessary, to carry out their responsibilities.

 

All directors are expected to be knowledgeable about the company and its industry and to understand their duties and responsibilities as directors. The company recognizes the importance of continuing education for directors and is committed to supporting continuing director education in order to enhance board and committee performance. We conduct periodic continuing education for directors and, at a director’s request, we will arrange for the director’s participation in cost-effective continuing education programs offered by third parties that are relevant to the director’s role as a board and committee member.

 

All of our independent directors are expected to participate in orientation programs upon the recommendation of our Governance Committee. In addition, orientation sessions are conducted by senior management to familiarize directors with the company’s strategic plans, significant financial, accounting and risk management issues, our compliance programs, our Code of Business Conduct and Ethics, and our principal officers, internal and external auditors.

 

The board, acting through the Governance Committee, annually evaluates the effectiveness of the board collectively and of board members individually, and the performance of each standing board committee. The Governance Committee determines the appropriate means for this evaluation.

 

The Governance Committee serves as our nominating committee. Our Governance Committee works closely with our Chief Executive Officer (“CEO”) and the Chairman of the Board (who currently serves as Chairman of the Governance Committee) in recommending to the board of directors criteria for open board positions, taking into account such factors as the Governance Committee deems important, including, among others, the current composition of the board, the range of talents, experiences, expertise and skills that would complement those already represented on the board and those that would help achieve the company’s goals. In evaluating a nominee, the board, acting through our Governance Committee, will consider, among other things, whether a potential director nominee has the time available, in light of other business and personal commitments, to perform the responsibilities required for effective service on the board. The Governance Committee considers candidates that are suggested by members of the board, as well as management, our stockholders and any director search firm retained by the board or the Governance Committee, using the same criteria to evaluate all candidates.

 

The board believes its effectiveness is enhanced by being comprised of individuals with diverse backgrounds, skills and experience that are relevant to the role of the board and the needs of our business. Accordingly, the board, through the Governance Committee and in consultation with our CEO, will regularly review the changing needs of the business and the skills and experience resident in its members, with the intention that the board will be periodically “renewed” as certain directors rotate off and new directors are recruited. The board’s commitment to diversity and renewal will be tempered by the need to balance change with continuity and experience. The board believes that its commitment in this regard has been effective in establishing a board that consists of members with diverse backgrounds, skills and experience that are relevant to the role of the board and the needs of the business, and the board will continue to monitor the effectiveness of these efforts as part of its periodic self-assessment process.

Once a potential director nominee has been identified, the Governance Committee, in consultation with the Chairman of the Board and our CEO, will evaluate the prospective nominee against the specific criteria that has been established, as well as the standards and qualifications contained in our Statement on Corporate Governance. If it is determined based upon a preliminary review that a candidate warrants further consideration, members of the board, as appropriate, will interview the prospective nominee. After completing this evaluation and interview process, the board makes the final determination as to whether to nominate or appoint the new director.

 

In addition to any other applicable requirements, Section 2.11 of our Amended and Restated Bylaws (as amended on May 14, 2010) sets forth the procedures and requirements relating to nominations of directors by stockholders. Any stockholder who wishes to recommend a prospective nominee for consideration at our 2012 annual meeting of stockholders must submit the following information no sooner than December 2, 2011 and no later than January 1, 2012:

 

 

Such information should be sent to the attention of our Corporate Secretary at 1745 Shea Center Drive, Suite 200, Highlands Ranch, Colorado 80129-1540.

 

Directors are elected annually for a term of one-year. The board does not impose arbitrary limits on the number of terms a director may serve. However, the Governance Committee will consider various criteria, including a director’s contribution to the board, in determining whether or not to recommend a director for re-election. Employee directors are required to resign as a director after ceasing to be an employee, unless the board asks them to continue to serve. The Chairman will refer the resignation to the Governance Committee for review. The board will decide, in light of the circumstances and the recommendation of the Governance Committee, the date at which the resignation will become effective. A vacancy created by a director’s retirement may be filled by a majority of the remaining directors in accordance with our bylaws. A director so appointed to fill the vacancy will stand for re-election at the first annual meeting of stockholders following that director’s appointment to the board if recommended for re-election by the Governance Committee. In addition, the company requires that directors tender their resignation when their present position changes, their job responsibility changes significantly or other circumstances change. The board then decides, in light of the circumstances and the recommendation of the Governance Committee, whether to accept such resignation.

 

The board’s policy is that a significant majority of its members should be independent directors (see our Statement on Corporate Governance, which is available on our website at www.udr.com). Each year the board affirmatively determines whether each director has any material relationship with the company (either directly or as a partner, stockholder or officer of an organization that has such a relationship with the company), as defined under the NYSE listing standards and the company’s director independence standards. The board has determined that all directors who served in 2010 and all directors who are standing for election at the meeting

are independent under both sets of standards, except Mr. Toomey, who is not independent because he is the company’s Chief Executive Officer and President. Additional information about each of the directors standing for election is set forth under Proposal No. 1 in this proxy statement. In making these independence determinations, the board considered information submitted by the directors in response to directors’ questionnaires and information obtained from the company’s internal records.

 

The Audit, Compensation and Governance Committees consist entirely of independent directors, as defined in the NYSE listing standards and the company’s director independence standards. Each member of the Audit Committee also satisfies the additional independence requirements set forth in rules under the Securities Exchange Act of 1934.

 

Each member of the Audit Committee is financially literate, and the board has determined that each member of the Audit Committee is an “audit committee financial expert” within the meaning of the SEC’s regulations.

 

Our independent directors hold regularly scheduled executive sessions at which our independent directors meet without the presence of management. These executive sessions generally occur around regularly scheduled meetings of the board of directors. The Chairman of the Board, or the Vice Chair in the Chairman’s absence, presides as chairman of these executive sessions. Both the Chairman of the Board and the Vice Chair are independent directors.

 

Our Statement on Corporate Governance provides that each director is expected to develop a meaningful equity stake in our company over time and that after the second anniversary of election to the board of directors, each director is required to own a minimum of 5,000 shares of our common stock. Each of our directors currently owns shares in an amount sufficient to comply with these guidelines.

 

The members of the Compensation Committee in fiscal 2010 were Katherine A. Cattanach (Chairperson), Eric J. Foss, Jon A. Grove and Lynne B. Sagalyn. None of the members of the Compensation Committee during fiscal 2010 or as of the date of this proxy statement is a former or current officer or employee of the company or has any interlocking relationships as set forth in applicable SEC rules. In addition, during 2010 and through the date of this proxy statement, none of our executive officers has served as a member of the board of directors or compensation committee of any other entity that has one or more executive officers serving as a member of our board of directors or Compensation Committee.

 

Our Compensation Committee is responsible for developing and administering compensation programs for (1) our directors, (2) our executive officers, including base salaries and short-term and long-term incentive compensation plans, and (3) long-term incentive compensation plans for all of our associates. The members of the Compensation Committee meet each year in executive session, without the CEO present, to evaluate the performance of our CEO. Our CEO makes recommendations to, and consults with, the Compensation Committee as to the amount of proposed base salaries for the executive officers who report directly to our CEO.

 

The Compensation Committee has the sole authority to retain and terminate any compensation consultants to be used to assist in establishing compensation for our directors, our CEO and our senior executives and to

approve such consultants’ fees and other retention terms. The Compensation Committee directly engaged Mercer (US) Inc., or “Mercer,” a nationally recognized consulting firm, to conduct a market pay analysis to assess the total compensation competitiveness of our executive officers for 2010. Mercer reports directly to the Compensation Committee and the Compensation Committee is free to replace Mercer or to hire additional consultants from time to time.

 

As part of its engagement, Mercer provided the Compensation Committee and our CEO with a market pay analysis of composite market values for base salary, total cash compensation (consisting of base salary plus annual incentives), long-term incentive compensation and total direct compensation for our executive officers and certain other officers. In addition, Mercer reviewed the competitiveness of the pay levels of our named executive officers (as defined below under “Executive Compensation”) against pay levels for a diversified public REIT peer group of comparably-sized REITs, a number of whom are direct competitors with the company. For our named executive officers other than the CEO, the Compensation Committee also considers recommendations from the CEO and from executive officers who report directly to the CEO.

 

Neither Mercer nor any of its affiliates provided any other services to UDR in 2010 except as described above.

 

Our board of directors provides a process for stockholders and all other interested parties to send communications to the board. Any stockholder and all other interested parties who wish to communicate with the board of directors or any specific director, including independent directors, the Chairman, or committee members, may write to:

 

UDR, INC.
Attn: Board of Directors
1745 Shea Center Drive,
Suite 200
Highlands Ranch, Colorado 80129-1540

 

Depending on the subject matter of the communication, management will:

 

 

Stockholders and all other interested parties may submit concerns regarding accounting matters via the company’s third-party anonymous reporting system at www.mysafeworkplace.com or by calling 1-800-461-9330. Instructions for making a report are published in the Corporate Governance subsection of the Investor Relations section of the company’s website at www.udr.com.

 

The board of directors held eight meetings during fiscal 2010, including four meetings that were held by teleconference. No director attended fewer than 75% of the aggregate of (1) the total number of meetings of the board of directors, and (2) the total number of meetings held by all committees of the board of directors on which he or she served during fiscal 2010. The board of directors has standing Audit, Compensation, Governance and Executive Committees to assist it in discharging its duties. Information regarding each committee is set forth below.

 

 

 

 

The Chairman of the Board is an ex-officio member of the Audit and Compensation Committees. In the event that the Chair of the Governance Committee is not also the Chairman of the Board, the Chairman of the Board will be an ex-officio member of the Governance Committee.

 

We separate the roles of the Chairman of the Board and Chief Executive Officer in recognition of the differences between the two roles. The Chief Executive Officer is responsible for setting the strategic direction for the company and the day to day leadership and performance of the company, while the Chairman of the Board provides guidance to the Chief Executive Officer, sets the agenda for the board meetings and presides over meetings of the board. The board believes that the Chief Executive Officer offers the company-specific expertise and extensive industry knowledge that is necessary as we seek to strengthen our portfolio, continually improve operations and maintain access to low-cost capital, while our Chairman of the Board is able at the same time to lead the board’s efforts in oversight of the company and its management.

 

As stated in our Statement on Corporate Governance, the board will exercise its discretion in combining or separating the offices of Chairman of the Board and Chief Executive Officer. The determination will be based on the board’s judgment of the best interests of the company from time to time. If the offices of Chairman of the Board and Chief Executive Officer are combined or if the Chairman does not qualify as an independent director, the board will designate a Lead Independent Director, who will chair the executive sessions of the board and have such other duties as the board deems appropriate. The name of the Lead Independent Director will be disclosed in our annual proxy statement. The board’s administration of its risk oversight function has not affected the board’s leadership structure.

 

The board’s role in the company’s risk oversight process includes receiving regular reports from members of senior management on areas of material risk to the company, including operational, financial, legal, strategic and reputational risks.

 

The Audit Committee, established in accordance with the applicable provisions of the Securities Exchange Act of 1934, assists the board in fulfilling its oversight responsibility by performing the following: (1) reviewing with management the company’s major financial exposures, including risk exposure to floating rate debt and the steps management has taken to monitor and control such exposures, including the company’s risk assessment process and risk management policies, (2) reviewing and discussing with management, the internal auditors and the independent auditors, the company’s policies with respect to risk assessment and risk management, and (3) establishing procedures for the receipt, retention and treatment of complaints received by the company regarding accounting, internal accounting controls or auditing matters and the confidential, anonymous submission by company employees of concerns regarding questionable accounting or auditing matters. As set forth in the charter of the Audit Committee, no director may serve as a member of the Audit Committee if such director serves on the audit committee of more than two other public companies. No member of our Audit Committee serves on the audit committee of more than two other public companies.

 

The board has adopted the following policy on director attendance at meetings: Absent extenuating circumstances, directors are expected to attend in person our annual meeting of stockholders, all regularly scheduled board and committee meetings and to participate telephonically in regularly scheduled board and committee meetings when they are unable to attend in person. All of our directors attended our 2010 annual meeting of stockholders.

 

 

The following table provides information concerning the compensation of our directors for fiscal 2010.

 

 

 

 

 

 

 

 

Our compensation program for independent directors is designed to attract and retain highly qualified board members who can work with senior management to establish key strategic goals in support of long-term stockholder value creation. The program consisted of a combination of cash retainers for board and committee service and service-based restricted stock. Total compensation associated with cash retainers and restricted stock was targeted at the median level of the designated peer group of apartment REITs. Annual retainers for board and committee service were set at competitive levels in recognition of the time commitments and responsibility levels associated with serving on public company boards within the current environment.

 

We believe that the attraction and retention of quality board members has become more challenging as a result of global and domestic trends in corporate governance and regulation and competition for qualified, talented director candidates. As a result we expect to continue to review our independent director compensation annually to ensure that we are competitive and to allow us to recruit and retain qualified candidates to serve as directors of the company.

 

2010 Director Compensation Program

 

Retainer.  Director compensation for 2010 was unchanged from the compensation paid in 2009. In 2010, each non-employee director received an annual retainer fee of $50,000 ($100,000 for a non-employee Chairman of the Board). Non-employee directors, other than committee chairpersons, also received an annual retainer fee of $7,500 for each committee on which they served. The chairpersons of each of the Audit, Compensation and Governance Committees received an annual retainer fee of $15,000. Non-employee directors who were members of the Executive Committee, other than the Chairman of the Board, also received an annual retainer fee of $7,500 for their service on the Executive Committee and the Chairperson of the Executive Committee, other than the Chairman of the Board, received an annual retainer fee of $15,000. These fees were paid in January 2010.

 

Stock Grant.  On January 4, 2010, each non-employee director also received a grant of $90,000 in value of shares of restricted stock ($180,000 for a non-employee Chairman of the Board) priced at $16.21 per share, which was the closing sales price of our common stock on January 4, 2010, the date of grant. The 5,552 shares of restricted stock (11,104 shares for the non-employee Chairman of the Board) will vest on the anniversary of the date of grant. The non-employee directors receiving restricted stock are entitled to receive dividends during the vesting period; however, any unvested shares at the end of the one-year vesting period will be returned to us and cancelled.

 

Directors who are also employees of the company received no additional compensation for service as a director. All directors were reimbursed for expenses incurred in connection with attending a board meeting or committee meeting in accordance with our Director Expense Reimbursement Policy.

 

2011 Director Compensation Program

 

Retainer.  For 2011, each non-employee director will receive an annual retainer fee of $65,000 ($100,000 for a non-employee Chairman of the Board). The chairpersons of each of the Audit and

Compensation Committees will receive an annual retainer fee of $7,500. These fees were paid in January 2011.

 

Stock Grant.  On January 3, 2011, each non-employee director also received a grant of $90,000 in value of shares of restricted stock ($180,000 for a non-employee Chairman of the Board) priced at $23.87 per share, which was the closing sales price of our common stock for January 3, 2011, the date of grant. The 3,770 shares of restricted stock (7,541 shares for the non-employee Chairman of the Board) will vest on the anniversary of the date of grant. The non-employee directors receiving restricted stock are entitled to receive dividends during the vesting period; however, any unvested shares at the end of the one-year vesting period will be returned to us and cancelled.

 

Directors who are also employees of the company receive no additional compensation for service as a director. All directors are reimbursed for expenses incurred in connection with attending a board meeting or committee meeting in accordance with our Director Expense Reimbursement Policy.

 

Following Mr. Larson’s death on March 11, 2010, our board of directors consisted of ten members. Mr. Thomas R. Oliver, a member of our board of directors during fiscal year 2010, did not stand for reelection upon the expiration of his term at the 2010 annual meeting of stockholders. Upon the expiration of Mr. Oliver’s term at the 2010 annual meeting of stockholders, the size of our board of directors was fixed at nine members. The nine individuals listed below, each of whom is currently a member of the board, have been nominated for election to the board at the 2011 annual meeting of stockholders. If any of the nominees is unable or declines to serve as a director at the time of the meeting, the proxies will be voted for any nominee who is designated by the present board of directors to fill the vacancy. It is not expected that any nominee will be unable or will decline to serve as a director. The directors elected will hold their respective offices until the next annual meeting of stockholders or until their successors are elected and qualified.

 

 

There is no family relationship between any of our directors or executive officers.

 

Katherine A. Cattanach, Ph.D. was a General Partner of INVESCO Private Capital, Inc. (formerly Sovereign Financial Services, Inc.), a company specializing in private equity investments, from 1987 to 2005. From 2005 to March 2006, she served as a director and member of the audit and compensation committees of Collect America, Ltd. She is currently a member and Chair of the Denver Museum of Nature and Science Foundation Board and a member, former director and President of the Denver Society of Security Analysts. She is active in and serves as a member of numerous charitable organizations.

 

Eric J. Foss is Chief Executive Officer of Pepsi Beverages Company. From July 2006 until the merger of The Pepsi Bottling Group, Inc. with PepsiCo, Inc. in February 2010, Mr. Foss was the Chairman and Chief Executive Officer of The Pepsi Bottling Group, Inc. From September 2005 to July 2006, Mr. Foss served as the Chief Operating Officer of The Pepsi Bottling Group, Inc. Previously, Mr. Foss served as the President of

the North America division of Pepsi Bottling Group, Inc. from September 2001 to September 2005. Mr. Foss also served as Executive Vice President of the North America division of Pepsi Bottling Group, Inc., from August 2000 to September 2001, was Senior Vice President of Sales and Marketing for the North America division of Pepsi Bottling Group, Inc., from March 1999 to August 2000 and was General Manager of European Operations for PepsiCo from December 1996 to March 1999.

 

Robert P. Freeman has served as Senior Managing Director and Principal of Greyfields Investors LLC, a real estate private equity company, since 2007, and has also served as President of Landfall Capital LLC, a private real estate merchant bank, since 2001. Previously, Mr. Freeman was a Managing Director of Wells Hill Partners, Ltd., a real estate investment banking firm, from 1999-2001 and a Managing Director of Lazard Frères & Co. LLC, a private investment bank, and President of Lazard Frères Real Estate Investors, L.L.C., a real estate investment company, from 1992 to 1999. Each of the companies mentioned is based in New York, New York. He is active in and serves as a director of numerous private companies and charitable organizations.

 

Jon A. Grove was the Chairman, President and Chief Executive Officer of ASR Investments Corporation since its organization in 1987 until our acquisition of ASR in 1998. He currently serves as Chairman and director of American Southwest Holdings, LLC and SecurNet Mortgage Securities LLC, both located in Phoenix, Arizona.

 

James D. Klingbeil has been the Chairman of the Board of Directors since March 2010, having served as the Vice Chairman of the Board from October 2000 until March 2010. He also serves as Chairman and Chief Executive Officer of Klingbeil Multifamily Fund IV, Klingbeil Multifamily Fund V (f/k/a American Apartment Communities III), Klingbeil Multifamily Fund VI, Klingbeil Multifamily Fund VII and Klingbeil Multifamily Fund VIII. He was Chairman and Chief Executive Officer of American Apartment Communities II from 1995 until its merger with the company in December of 1998. He is also Chairman and Chief Executive Officer of Klingbeil Capital Management and The Klingbeil Company. He currently serves as a director of Broad Street Financial and numerous other private companies. He is also the past Chairman and a lifetime member of the Board of Trustees of the Urban Land Institute and Chairman of the ULI Foundation Board.

 

Lynne B. Sagalyn, Ph.D.  has been the Vice Chair of the board of directors since March 2010. She has been the Earle W. Kazis and Benjamin Schore Professor of Real Estate and Director of the Paul Milstein Center for Real Estate at Columbia Business School since July 2008, positions she also held from 1992 through 2003. From January 2004 to July 2008 she was a Professor of Real Estate Development and Planning at the University of Pennsylvania, with appointments in both the School of Design (City Planning) and the Wharton School (Real Estate). She was an Associate Professor of Planning and Real Estate Development at Massachusetts Institute of Technology. Dr. Sagalyn is a director and Chair of the audit committee of Capital Trust, Inc. (NYSE), a public real estate investment trust that specializes in real estate lending and a member of the Advisory Board of Goldman Family Enterprises. She also serves on the board of directors of the Regional Plan Association of New York, an independent not-for-profit regional planning organization. In addition, she has also served on the New York City Board of Education Chancellor’s Commission on the Capital Plan.

 

Mark J. Sandler was a Senior Managing Director of Bear, Stearns & Co., Inc., an investment banking firm, in charge of its real estate operations until his retirement in October 1988. From 1968 through 1980 he was a Partner with Donaldson Lufkin & Jenrette, an investment banking firm. Since that time, Mr. Sandler has managed his personal and family investments. He served as a Trustee of Amherst College and of Northfield Mt. Hermon School and was also a founder of New Jersey SEEDS, which provides private school education for gifted, motivated but financially disadvantaged children.

 

Thomas W. Toomey has been our Chief Executive Officer and President since February 2001. Prior to joining us, Mr. Toomey was with Apartment Investment and Management Company, or AIMCO (NYSE), a publicly traded real estate investment trust, where he served as Chief Operating Officer for two years and Chief Financial Officer for four years. During his tenure at AIMCO, Mr. Toomey was instrumental in the growth of AIMCO from 34,000 apartment homes to 360,000 homes. He has also served as a Senior Vice President at Lincoln Property Company, a national real estate development, property management and real estate consulting company, from 1990 to 1995. He currently serves as a member of the board of the National

Association of Real Estate Investment Trusts, the National MultiHousing Council, a member of the Real Estate Roundtable, a member of the Pension Real Estate Association (PREA), an Urban Land Institute Governor and a trustee of the Oregon State University Foundation.

 

Thomas C. Wajnert currently serves as a Senior Managing Director of the Alta Group, LLC, a global consultancy to the financial services industry. He was Senior Advisor to Irving Place Capital Partners from 2006 to 2009. Mr. Wajnert had been Managing Director of Fairview Advisors, LLC, a merchant bank, from January 2002 to July 2006. He was Chairman and Chief Executive Officer of SEISMIQ, Inc, a provider of advanced technology to the commercial finance and leasing industry, from its founding in April 2000 until December 2001. Mr. Wajnert also was the Chairman of EPIX Holdings, Inc., a professional employer organization, from March 1998 until November 2003, where he also served as Chief Executive Officer from March 1998 to April 1999. Previously, Mr. Wajnert was Chairman of the Board of Directors from January 1992 until December 1997, and Chief Executive Officer from November 1984 until December 1997, of AT&T Capital Corporation (NYSE), a commercial finance and leasing company. He was self-employed from December 1997 to March 1998. Mr. Wajnert serves on the board of directors of Reynolds American, Inc. (NYSE) as non-executive chairman, and he served on the board of directors of NYFIX, Inc. (NASDAQ) until it was acquired by NYSE Euronext in November 2009.

 

Each nominee brings a strong and unique background and set of skills to our board of directors, giving the board as a whole competence and experience in a wide variety of areas, including corporate governance and board service, executive management, corporate finance and financial markets, real estate investment and the real estate industry, and civic leadership. For each of our director nominees, set forth below are the specific experience, qualifications, attributes or skills that led the board to conclude that the person should serve as a director for the company.

 

Dr. Cattanach has a strong background in both business and academia, and her expertise in investments and finance is recognized nationally and internationally. She has a Ph.D. in Finance and she has served on the faculty of the College of Business at the University of Denver and as an Associate Professor of Finance at the University of Denver’s Graduate School of Business. She has served as a member of several corporate boards and board committees and on several partnership advisory boards. She has executive management experience, having served as Founder and Chief Executive Officer of Sovereign Financial Services, Inc. and as Executive Vice President of Captiva Corporation. Her civic leadership is also extensive, including the Colorado Commission on Higher Education, the Governing Board for the Colorado State University System, the Foundation for Metropolitan State College, and the Board of Trustees for the Colorado Chapter of the Nature Conservancy.

 

Mr. Foss has a background and expertise in managing all aspects of an operationally intensive, organizationally innovative and consumer-focused company, which brings invaluable experience and perspective to the deliberations of our board of directors. Having served as the Chairman and Chief Executive Officer of a large, NYSE-listed public company, his level of board experience, executive management skills and business leadership capabilities are valuable to our board of directors and to our company as a whole.

 

Mr. Freeman has been active in real estate related investment, management and development since the 1970’s. Currently he is a principal of a real estate private equity company that invests in, restructures and redevelops inefficient real estate and provides turnaround services and capital markets advice, and he founded a privately held real estate merchant bank that sources, structures and invests in real estate assets and securities. He has also served as President and Chief Executive Officer of two publicly traded real estate companies with national portfolios. His extensive experience in these various aspects of the real estate industry are a valuable asset to our board of directors and our business.

 

Mr. Grove brings extensive experience, skills and knowledge in running a business like ours. From 1987 to 1998, he served as the Chairman, President and Chief Executive Officer of a publicly traded real estate investment trust that owned and operated apartment communities. We acquired that company in 1998, and Mr. Grove has served on our board of directors since the acquisition.

Mr. Klingbeil has been active in nearly every aspect of real estate investment, development and management for almost 50 years, with a special focus on building, acquiring, managing and/or selling multifamily communities. He was Chairman and Chief Executive Officer of American Apartment Communities II, which had a value of $800 million when we acquired it in December 1998, and he has demonstrated exceptional leadership abilities as a member of our board of directors since that acquisition. He has managed numerous institutional investment programs that invest in apartment communities. He also serves on the board of numerous private companies.

 

Dr. Sagalyn has a strong background in business and academia. She is a specialist in real estate finance and urban development and is widely known as an expert in real estate equity securities and public development finance. Her research and writings on real estate investment, securitization, urban development and public policy have been published in both academic and professional journals. In addition to being a professor of real estate and real estate development and planning at Columbia Business School, University of Pennsylvania and MIT, she serves on the board of directors, and the audit committee of the board of directors, of another NYSE-listed real estate investment trust.

 

Mr. Sandler brings 20 years of investment banking experience, having served as a Senior Managing Director in charge of real estate operations at a major investment banking firm prior to his retirement in 1988. He has also shown leadership abilities through his civic activities, which include the founding of New Jersey SEEDS, an academic enrichment and leadership development program for high-achieving, low-income youth.

 

Mr. Toomey spearheads the vision and strategic direction of our company and has demonstrated strong business and leadership skills as our Chief Executive Officer. He had extensive experience in our industry prior to joining us, having served in executive positions at both AIMCO and Lincoln Property Company. He is also involved in other aspects of our industry, including service as a member of the board of NAREIT and an Urban Land Institute Governor. Mr. Toomey’s leadership and strategic vision in the multi-family industry are evidenced by his selection as one of the 10 Most Influential Executives for the Past Decade by Multifamily Executive Magazine.

 

Mr. Wajnert has strong executive management experience, having served as Chief Executive Officer of numerous companies during the course of his career, including an NYSE-listed public company. He has also served on the board of directors of a number of private and public companies, including service as Chairman of the Board of an NYSE-listed company. He has also served as managing director of a merchant bank and has a strong knowledge of financial markets.

 

The affirmative vote of a plurality of the votes cast is required for the election of a director, which means that the nine nominees receiving the highest number of affirmative votes cast at the meeting shall be elected as directors.

 

Our board of directors recommends that the stockholders vote “FOR” the director nominees listed above.

 

The following table sets forth the shares of our common stock beneficially owned by (1) each of our directors, (2) the named executive officers, (3) all of our directors and executive officers as a group, and (4) all persons known by us to beneficially own more than 5% of our outstanding voting stock. We have determined the beneficial ownership shown on this table in accordance with the rules of the SEC. Under those rules, shares are considered beneficially owned if held by the person indicated, or if such person, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise has or shares the power to vote, to direct the voting of and/or to dispose of or to direct the disposition of such security. Except as otherwise indicated in the accompanying footnotes, beneficial ownership is shown as of March 1, 2011.

 

 

 

 

Compensation Discussion and Analysis

 

This section describes our compensation programs and policies:

 

 

— Base Salary for 2010

 

— Short-term Incentive Compensation for 2010

 

— Long-Term Incentive Award

 

 

Executive Summary

 

Our compensation programs are designed to align the interests of our named executive officers with the interests of our stockholders by providing market competitive compensation that is closely tied to short-term and long-term performance goals set by our Compensation and Management Development Committee, which we refer to herein as the “Compensation Committee.” The compensation of our named executive officers is comprised of a mix of base salary, short term incentive compensation and long-term incentive awards, with the objective that such total direct compensation should be targeted between the 50th percentile and the 75th percentile of similarly-sized relevant peer group companies when target performance objectives are met.

 

Despite a challenging economic and financial environment, we achieved strong operating results in 2010, as noted in the metrics described below. For a more detailed description of our 2010 performance, please see our consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K.

 

 

 

 

Our 2010 performance, including our 2010 performance relative to our peers, along with the individual performance of our executive officers, served as key factors in determining compensation for 2010. In determining the compensation of our named executive officers in 2010, the Compensation Committee’s considerations included the following:

 

 

 

In November 2010, we acquired The Hanover Company’s partnership interests in the Hanover/MetLife Master Limited Partnership (the “UDR/MetLife Partnership”). The UDR/MetLife Partnership owns a $2.4 billion portfolio consisting of 26 operating communities containing 5,748 homes and 11 land parcels with the potential to develop approximately 2,300 additional homes. Under the terms of the UDR/MetLife Partnership, we will act as the general partner and earn fees for property and asset management and financing transactions. This transaction was viewed by the Compensation Committee as a potentially transformative strategic acquisition for the company, and the Compensation Committee factored the successful completion of this transaction into compensation decisions for the named executive officers in 2010.

 

In 2010, we changed our compensation policies and programs in ways that further align the interests of our named executive officers with the interests of the company and our stockholders, including:

 

 

The changes that we made to our compensation policies and programs during 2010 build upon the strong foundation of our relevant corporate governance framework and our compensation philosophy, including:

 

 

Our named executive officers for 2010 are:

 

 

 

As described in more detail below, on October 7, 2010 Mr. Wallis informed the company of his decision to retire from the company effective December 31, 2010. The 2010 compensation decisions for Mr. Wallis are described under the heading “Retirement of Mr. Wallis.”

 

Compensation Design and Philosophy

 

Our compensation programs are designed to further our strategic plan and our goal of increasing stockholder value by providing equitable economic motivation to our executive officers and other key employees. The compensation of each of our executive officers is influenced significantly by the executive officer’s performance as well as the compensation levels of appropriate peer group companies. More specifically, our compensation program seeks to:

 

 

Our Compensation Committee is composed of independent directors and is responsible for developing and administering compensation programs for (1) executive officers, including base salaries and short-term and long-term incentive compensation plans, and (2) long-term incentive compensation plans for all of our associates. The members of the Compensation Committee meet each year in executive session, without the CEO present, to evaluate the performance of our CEO. Our CEO makes recommendations to, and consults with, the Compensation Committee as to the amount of proposed base salaries for the executive officers who report directly to our CEO. After such consultation, the Compensation Committee sets the base salaries for the year for these executive officers and approves salary ranges for other executive officers, typically through competitive “benchmarking” based primarily on salaries paid for similar positions within the real estate and REIT industry (with an emphasis on the multi-family sector of the industry) as published in industry statistical surveys and the proposed base salary relative to that of the other executive officers.

 

Our compensation philosophy is that total direct compensation, or “TDC,” which consists of base salary, short-term incentive compensation and target long-term incentive compensation, should be targeted between the 50th percentile and the 75th percentile of similarly-sized relevant peer group companies when target performance objectives are met. This targeted range has been selected because we believe it results in compensation that is competitive among these compensation peer group companies and fair to our executives, which furthers our goal of attracting, retaining and rewarding experienced and highly-motivated executives who will make long-term career contributions to UDR and will have less economic incentive to leave UDR.

 

In evaluating TDC, Mercer has analyzed the value of target long-term incentives under our 2010-2012 Long-Term Incentive Program. By contrast, for the purposes of the Summary Compensation Table below, the Securities and Exchange Commission requires that we report the entire aggregate grant date fair value of the shares of restricted stock granted under the 2010-2012 Long-Term Incentive Program in the year of the grant,

even though vesting of the restricted shares is based on the company meeting specified performance targets during a three-year performance period ending December 31, 2012.

 

For 2010, the compensation peer group, which we refer to herein as the “diversified public REIT peer group,” included the companies listed in the table below. The companies listed below consist of eight apartment REITs and nine comparably-sized REITs in other property sectors, recognizing that UDR competes with all REITs for executive talent and capital.

 

 

 

 

The Compensation Committee reviews and approves the compensation peer group annually. Each year management and the Compensation Committee’s consultants provide data on the peer group companies to the Compensation Committee. Members of the peer group must be a publicly traded REIT based in the United States and of a size and equity market capitalization that are comparable to UDR.

 

Compensation Consultants

 

The Compensation Committee has the sole authority to retain and terminate any compensation consultants to be used to assist in establishing compensation for our senior executives and to approve such consultants’ fees and other retention terms. The Compensation Committee engaged Mercer (US) Inc., or “Mercer,” to assess the total compensation competitiveness of our executive officers for 2010 by conducting a market pay analysis to develop market values from peer group pay data and published surveys. Mercer reports directly to the Compensation Committee and the Compensation Committee is free to replace Mercer or to hire additional consultants from time to time. Mercer did not provide any other services to UDR in 2010, and we do not anticipate that Mercer will provide any other services to the company in the foreseeable future.

 

As part of their engagement, Mercer provided the Compensation Committee and our CEO with a market pay analysis of composite market values for base salary, total cash compensation (consisting of base salary

plus annual incentives), long-term incentive compensation and total direct compensation. In addition, Mercer reviewed the competitiveness of the pay levels of our named executive officers and certain other officers against pay levels for a diversified public REIT peer group of comparably-sized REITs, a number of whom are direct competitors with the company. For 2010, the diversified public REIT peer group included the companies listed above under “Compensation Design and Philosophy.” For our named executive officers other than the CEO, the Compensation Committee also considers recommendations from the CEO and from executive officers who report directly to the CEO.

 

Components of Compensation

 

Once the TDC target has been established as described above, the three components of each executive officer’s TDC (the base salary, short-term incentive compensation, and long-term incentive, or “LTI,” compensation) are established so that the three components, taken together, will achieve the target that has been set. The mix, level and structure of the components of TDC generally reflect real estate industry practices as well as the executive’s role and relative impact on business results consistent with our variable pay-for-performance philosophy. Our average compensation mix for the CEO and the Senior Executive Vice President positions places relatively greater emphasis on at-risk incentive compensation, as compared with the market median compensation mix. As an executive officer’s level of responsibility increases consistent with his or her relative ability to impact the long-term performance of the company as a whole, a greater portion of the executive officer’s TDC is based on performance-based incentive compensation and less on base salary, thereby creating the potential for greater variability in the individual’s compensation level from year to year. Performance-based compensation for our executive officers can significantly exceed median levels for superior results and fall well below median levels when performance objectives are not achieved.

 

An analysis by Mercer using information from 2010 reflects that the average market median compensation mix for the overall compensation of the top five named executive officer positions was as follows:

 

 

Under our compensation structure, the target mix of base salary, short-term incentive compensation and LTI compensation generally is as follows:

 

 

The key components of TDC, base salary, short-term incentive compensation, and long-term incentive compensation, are described in more detail in the following table.

 

 

Base Salary.  The base salaries for our named executive officers are generally targeted at the 50th percentile of the diversified public REIT peer group companies discussed above in order to compete effectively within our industry for qualified and experienced executives, as we consider salaries within a range of 90% to 110% of the market median to be competitive. In some cases, base compensation may vary from that of the market median or from that of executive officers with comparable levels of responsibility because of our greater emphasis on at-risk incentive compensation for our more senior executive officers, because of current recruiting or retention markets for a particular position, or because of the tenure of a particular officer in his or her position. In setting base salaries for named executive officers, the Compensation Committee considers the individual executive officer’s qualifications, experience level, performance against specific goals and the competitive market for qualified executives.

 

Short-Term Incentive Compensation.  Short-term incentive compensation awards for our Mr. Toomey and Mr. Troupe are based on pre-determined weighting between company performance and individual performance. For 2010, company performance was weighted at 50% to 60% and individual performance was weighted at 40% to 50%, depending on the executive officer. Company performance was weighted equal to or more heavily than individual performance for Messrs. Toomey and Troupe because they have greater responsibility for, and influence over, the performance of the company as a whole and the Compensation Committee wanted to provide a strong incentive for these named executive officers to maximize the company’s performance. For each of these named executive officers, company performance was measured by certain annual performance metrics that are discussed in more detail below under the heading “How We Determined Compensation for 2010 — Short-Term Incentive Compensation.” For our Senior Vice President — Property Operations, short-term incentive compensation awards are based on a pre-determined weighting of 70% for company performance and 30% based on individual performance. Given the focus of the Senior Vice President — Property Operations on ongoing operations that impact the company’s overall financial performance, the Compensation Committee determined to provide incentives more heavily weighted toward maximizing the company’s performance. Short-term incentive compensation for our CFO is not based on company performance, but instead is focused on the executive’s performance of job responsibilities, behavior factors and critical success factors, as discussed in more detail below. The annual performance metrics utilized for determining short-term incentive compensation are determined by the Compensation Committee in consultation with our CEO.

Long-Term Incentive Compensation.  The Compensation Committee established the 2010-2012 Long-Term Incentive Compensation Program (the “2010-2012 LTI Program”) for the company’s senior executive officers, including Messrs. Toomey, Messenger, Troupe, Wallis and Davis. Under the 2010-2012 LTI Program, our named executive officers were awarded a grant of restricted shares of our common stock, which will vest if the company meets certain performance targets during the three-year performance period, as discussed in more detail under the heading “How We Determined Compensation for 2010 — LTI Compensation.” Vesting of the awards of the restricted shares of common stock is based on the company meeting these performance targets during the three-year performance period ending December 31, 2012. The shares will vest any time the performance targets are met during the three-year performance period. If the performance targets are not met during the three-year period, the performance period will be extended an additional year to December 31, 2013; however, if the performance period is extended an additional year under such circumstances, the cash flow target and the dividends declared target will each be increased by one-third, as described in more detail under the heading “How We Determined Compensation for 2010 — LTI Compensation.” The Compensation Committee retains discretion to adjust the 2010-2012 LTI Program if there is a material change in the company’s business strategy or if there is a change in accounting regulations applicable to the company. The Compensation Committee also retains the discretion to reduce the restricted stock grant awards by up to 20% if it determines that such a reduction is in the best interests of the company’s stockholders. Compared to our peer group, we place greater emphasis on performance-contingent grants of equity awards, given our shift in 2010 to performance-contingent grants for all executive officers.

 

Retirement Plans.  We have a Profit Sharing Plan (the “401(k) Plan”), which is a defined contribution plan covering all eligible full-time employees. Under the 401(k) Plan, the company makes discretionary profit sharing and matching contributions to the plan as determined by the Compensation Committee. Details regarding matching contributions for our named executive officers are set forth below under the Summary Compensation Table. UDR does not have a pension plan, a SERP or any similar arrangements.

 

Perquisites and Other Benefits.  The primary perquisites that we offer to our named executive officers are company-paid health insurance (including dental), life insurance, long-term disability insurance and accidental death and disability insurance. Our named executive officers participate in these benefit plans on the same terms as other employees. In addition to the group medical plans that we provide, we reimburse up to a maximum of $5,000 in expenses for annual physical exams for our senior executives, including our named executive officers. To help us attract and retain qualified personnel, we also offer relocation benefits, but these benefits are individually negotiated when they occur.

 

We review our policies with respect to perquisites on a regular basis to consider whether the perquisites should be maintained and whether, or to what extent, it may be appropriate for us to discontinue particular perquisites or to require repayment of the cost of perquisites. During 2010, we did not change our policies with respect to perquisites that we offer to our CEO and other named executive officers.

 

How We Determined Compensation for 2010

 

Base Salaries

 

The base salaries for 2010 for our named executive officers were determined through competitive “benchmarking” based primarily on detailed analysis of the diversified public REIT peer group listed above under the heading “Compensation Design and Philosophy.” Base salaries for our named executive officers are generally at the median level of the base salary of companies in this peer group.

 

The base salaries for our named executive officers in 2010 did not increase from their respective 2009 base salaries. The Compensation Committee determined not to increase the base salaries of the named executive officers in light of the economic environment, which is consistent with the executive pay practices among many of the peer group companies and broader market companies during the economic downturn.

 

The base salaries of Messrs. Toomey and Troupe will not increase for 2011. To meet competitive conditions, we have elected to increase the base salaries of Messrs. Messenger and Davis from $275,000 and $260,000, respectively, to $300,000 in 2011.

Short-Term Incentive Compensation

 

The annual performance metrics that were used for determining the 2010 short-term incentive compensation for Mr. Toomey were: (1) a minimum FFO of $1.00 per share, with a target FFO of $1.08 per share and a maximum FFO of $1.24 per share, (2) a minimum same store net operating income, or “SSNOI,” percentile in the top 50% of the selected peer group companies (listed below), with a target of a top third ranking among the selected peer group companies and a maximum of a top ranking among the selected peer group companies, and (3) balance sheet liquidity (achieving cash availability) based on targeted coverage of debt maturities for 2010, 2011 and 2012 by available resources and lines of credit, with a minimum of $(982) million in net financial capabilities, a target of $(757) million in net financial capabilities, and a maximum of $(307) million in net financial capabilities.

 

The annual performance metrics that were used for determining the 2010 short-term incentive compensation for Mr. Troupe were: (1) a minimum FFO of $1.00 per share, with a target FFO of $1.08 per share and a maximum FFO of $1.24 per share, and (2) balance sheet liquidity (achieving cash availability) based on targeted coverage of debt maturities for 2010, 2011 and 2012 by available resources and lines of credit, with a minimum of $(982) million in net financial capabilities, a target of $(757) million in net financial capabilities, and a maximum of $(307) million in net financial capabilities.

 

The annual performance metrics that were used for determining the 2010 short-term incentive compensation for Mr. Davis were: (1) a minimum FFO of $1.00 per share, with a target FFO of $1.08 per share and a maximum FFO of $1.24 per share, (2) a minimum same store net operating income, or “SSNOI,” percentile in the top 50% of the selected peer group companies (listed below), with a target of a top third ranking among the selected peer group companies and a maximum of a top ranking among the selected peer group companies, and (3) a minimum development/redevelopment and commercial FFO of $22.9 million, with a target development/redevelopment and commercial FFO of $25.4 million and a maximum development/redevelopment and commercial FFO of $30.5 million.

 

The range for Mr. Toomey’s 2010 short-term incentive compensation as established by the Compensation Committee was $0 to $2 million, with a minimum target of $1 million and a maximum target of $2 million and based 50% on a combination of three annual performance metrics as follows: (1) 35% based on targeted FFO, (2) 40% based on SSNOI compared to a peer group of apartment REITs and (3) 25% based on targeted coverage of debt maturities for 2010, 2011 and 2012 by available resources and lines of credit, with the remaining 50% based on his individual performance. The short-term incentive compensation would be at a 50% level ($1 million) for achieving a threshold result, and at the 100% level ($2 million) for exceeding targets. The Compensation Committee determined that these amounts were consistent with the target short-term incentive compensation as a percentage of overall compensation for the CEO position and that they provide overall TDC potential within the TDC target for the CEO, as described above under “Compensation Design and Philosophy” and “Components of Compensation.” The Compensation Committee also made a subjective determination that these amounts were appropriate to motivate Mr. Toomey to achieve short-term company and individual goals and to help ensure Mr. Toomey’s continued service with the company.

 

The Compensation Committee established the range for Mr. Troupe’s 2010 short-term incentive compensation at $0 to $1.4 million, with a target at $700,000, based 60% on company performance as measured by (1) 50% on achieving targeted FFO and (2) 50% on achieving targeted coverage of debt maturities for 2010, 2011 and 2012 by available resources and lines of credit, with the remaining 40% based on his individual performance.

 

The range for the 2010 short-term incentive compensation for Mr. Davis was set at $0 to $500,000 with a target of $200,000, based 70% on company performance as measured by (1) 20% on achieving targeted FFO, (2) 60% on SSNOI compared to the peer group of apartment REITs, and (3) 20% on development/redevelopment and commercial FFO targets.

 

For Mr. Troupe and Mr. Davis, the Compensation Committee determined that these amounts were consistent with the target short-term incentive compensation as a percentage of overall compensation for the respective positions of these two named executive officers and that it provides overall TDC potential within

the TDC target for these officers. The Compensation Committee also made a subjective determination that these amounts were an appropriate amount to motivate these two officers to achieve short-term company and individual goals and to help ensure their continued service with the company.

 

For 2010, the company generated FFO of $1.09 per share, compared to the minimum target FFO of $1.02 per share. The company achieved development/redevelopment and commercial FFO of $26.4 million, relative to the minimum development/redevelopment and commercial FFO targets of $22.9 million. The company achieved above-target SSNOI results with the company’s operating performance ranking in the 67th percentile among the relevant peer group companies. The company exceeded the target in balance sheet liquidity by achieving a net deficit of $(246.0) million in net financial capabilities.

 

The range for the 2010 short-term incentive compensation for Mr. Messenger was set at $0 to $550,000. The 2010 short-term incentive compensation for Mr. Messenger was not determined by company performance metrics, but instead was focused on the executive’s performance of his respective job responsibilities, behavior factors, critical success factors and personal development. The Compensation Committee based our CFO’s short-term compensation on individual performance instead of company performance because the Compensation Committee believes it is important to the company and its stockholders to avoid creating the possibility of any inappropriate risk taking by our CFO.

 

The relevant peer group companies used for the analysis of the company’s performance for purposes of determining the 2010 short-term incentive compensation as described above consisted of the following publicly traded multi-family REITs:

 

 

These companies were selected for analysis based on their industry and size relative to UDR.

 

Mr. Toomey’s individual goals for 2010 were as follows: (1) capital management, (2) communications and responding to a changing market, and (3) team management. In evaluating Mr. Toomey’s 2010 compensation, the Compensation Committee considered Mr. Toomey’s accomplishment of his specific goals that included: (1) capital sourcing (including presenting alternatives, securing board agreement and pursuing capital), preserving a strong liquidity position and strengthening the company’s balance sheet, (2) identifying, defining and capitalizing on future growth opportunities, identifying risks created by a changing market and proposing and implementing mitigation, and evaluating the communications strategy, and (3) selecting qualified management and establishing an effective organizational structure, hiring and retaining senior management, providing for management succession and reducing annual turnover of senior management. The Compensation Committee also factored in Mr. Toomey’s performance in connection with the UDR/MetLife Partnership transaction when determining the amount of short-term incentive compensation for Mr. Toomey in 2010.

 

Mr. Troupe’s individual goals for 2010, and the weight accorded to each goal, were as follows: (1) team/talent management, weighted at 15%, (2) capital management, weighted at 60%, and (3) personal professional performance, weighted at 25%. After reviewing the CEO’s assessment of Mr. Troupe’s performance, the

Compensation Committee rated the majority of Mr. Troupe’s individual performance at the 75th percentile based on the accomplishment of his specific goals that included: (1) managing the balance sheet by maintaining the company’s credit rating, (2) managing our debt maturity ladder, (3) increasing FNMA collateral pool utilization, (4) managing our 2011 convertible debt maturity by effecting the repurchase of outstanding bonds, (5) ensuring staffing with quality associates to meet business plan goals, (6) participating in NAREIT and other investor meetings, and (7) providing leadership on critical issues, including with respect to significant joint venture and other transactions. The Compensation Committee also factored in Mr. Troupe’s performance in connection with the UDR/MetLife Partnership transaction and key financings when determining the amount of short-term incentive compensation for Mr. Troupe in 2010.

 

For Mr. Messenger, the weight accorded to each element of his individual performance was as follows: (1) 65% for job responsibilities, (2) 15% for personal professional performance, and (3) 20% for critical success factors. The Compensation Committee, in consultation with our CEO, rated Mr. Messenger’s individual performance at the 70th percentile based on the accomplishment of his specific goals that included: (1) his management of financial functions, (2) his continued contributions to equity, debt and joint venture transactions, (3) improving relationships with the analyst community and helping to build the company’s internal investor relations function, (4) producing an accurate work product within established standards, and (5) carefully analyzing facts and making sound business decisions. The Compensation Committee also factored in Mr. Messenger’s performance in connection with the UDR/MetLife Partnership transaction and key financings when determining the amount of short-term incentive compensation for Mr. Messenger in 2010.

 

For Mr. Davis, the weight accorded to each element of his individual performance was as follows: (1) 65% for job responsibilities, (2) 15% for personal professional performance and (3) 20% for critical success factors. The Compensation Committee, in consultation with our CEO, rated Mr. Davis’s performance at the 75th percentile based on the accomplishment of his specific goals that included: (1) consistency on existing responsibilities and the addition of technology to existing responsibilities, (2) creating an industry-leading UDR way of operating assets which combines people and technology, (3) increasing exposure to investors and (4) setting a role model, becoming a greater mentor and increasing skills in growing and assessing talent. The Compensation Committee also factored in Mr. Davis’s performance in connection with the UDR/MetLife Partnership transaction when determining the amount of short-term incentive compensation for Mr. Davis in 2010.

 

The Compensation Committee established a range for Mr. Toomey’s 2011 short-term incentive of $1.0 million for meeting targets and a range of up to $2.5 million for exceeding targets, based 50% on meeting on a combination of three annual performance metrics as follows: (1) 50% based on targeted FFO, (2) 30% based on SSNOI compared to a peer group of apartment REITs and (3) 20% based on targeted coverage of debt maturities for 2011-2013 by available resources and lines of credit, with the remaining 50% based on his individual performance.

 

The Compensation Committee established Mr. Troupe’s 2011 short-term incentive compensation with a target at $700,000 and a range of up to $1.4 million for exceeding targets, based 60% on company performance as measured by (1) 70% on achieving targeted FFO, and (2) 30% on achieving targeted coverage of debt maturities for 2011-2013 by available resources and lines of credit, with the remaining 40% based on his individual performance. The range for Mr. Davis’s 2011 short-term incentive compensation has been set by the Compensation Committee at $400,000 to $800,000, based 70% on company performance as measured (1) 20% on achieving targeted FFO, (2) 60% on SSNOI compared to the peer group of apartment REITs, and (3) 20% on development/redevelopment and commercial FFO targets, with the remaining 30% based on his individual performance.

 

The 2011 short-term incentive compensation for Mr. Messenger will not be determined by company performance metrics, but instead will be focused on the executive’s performance of his respective job responsibilities, personal professional performance, critical success factors and personal development.

LTI Compensation

 

Under the 2010-2012 LTI Program, Messrs. Toomey, Troupe, Messenger and Davis were awarded a grant of restricted shares of our common stock as set forth below, which will vest if the company meets certain performance targets during the three-year performance period.

 

 

The restricted shares listed above were awarded to the named executive officers on February 26, 2010 at a price of $15.75 per share, based on the trailing 20-day volume weighted average price of our common stock on the date of the grant. During the three-year performance period, dividends on the restricted shares will be reinvested into additional restricted shares of common stock, and such additional shares will be subject to the same performance requirements as the original shares granted.

 

The three performance targets that the company must achieve during the three-year performance period under the 2010-2012 LTI Program are as follows:

 

(1) cumulative 2010-2012 cash flows of $2.59 per common stock equivalent or $431.3 million (based on funds from operations less capital expenditures, including, $1,000 per stabilized home of recurring capital expenditures and the non-cash accounting charge associated with the company’s convertible debt);

 

(2) cumulative 2010 — 2012 dividends declared of $2.33 per share of common stock; and

 

(3) maintaining a balance sheet fixed charge ratio of 1.90x.

 

Vesting of the awards of the restricted shares of common stock is based on the company meeting these performance targets during the three-year performance period ending December 31, 2012. The shares will vest any time the performance targets are met during the three-year performance period. If the performance targets are not met during the three-year period, the performance period will be extended an additional year to December 31, 2013; however, if the performance period is extended an additional year under such circumstances, the cash flow target and the dividends declared target will each be increased by one-third, so that the cash flow target will increase from $2.59 per common stock equivalent or $431.3 million to $3.46 per common stock equivalent or $575.1 million, and the dividends per share declared target will increase from $2.33 per share of common stock to $3.11 per share of common stock.

 

The Compensation Committee retains discretion to adjust the 2010-2012 LTI Program if there is a material change in the company’s business strategy or if there is a change in accounting regulations applicable to the company. The Compensation Committee also retains the discretion to reduce the restricted stock grant awards by up to 20% if it determines that such a reduction is in the best interests of the company’s stockholders.

 

Total Direct Compensation (“TDC”)

 

For purposes of calculating TDC for the named executive officers we have included a pro-rata portion of the target award amount of the restricted stock grants under the 2010-2012 LTI Program even though the restricted shares will only vest if the company meets certain performance targets during the three-year performance period.

 

Compensation of CEO (Mr. Toomey)

 

Base Salary.  For 2010, Mr. Toomey received a base salary of $500,000, which is the same base salary that he received for 2009. Mr. Toomey’s salary is below the 25th percentile of CEO’s of the diversified public

REIT peer group companies, which reflects our greater emphasis on at-risk incentive compensation for our more senior executive officers.

 

Short-Term Incentive Compensation.  In February 2011, the Compensation Committee awarded Mr. Toomey short-term incentive compensation in the amount of $2.136 million for fiscal 2010, based on the company’s performance against the three annual performance metrics, and his individual performance, all as described above under “How We Determined Compensation for 2010 — Short-Term Incentive Compensation.” Of the total amount, $625,000 was attributable to the company’s performance against the three annual performance metrics and the remainder was attributable to Mr. Toomey’s individual performance, including the Compensation Committee’s evaluation of Mr. Toomey’s contributions to the successful completion of the Hanover/MetLife Partnership transaction and several key financings in 2010.

 

Long-Term Incentive Compensation.  Under the 2010-2012 LTI Program, Mr. Toomey was awarded 380,952 target award restricted shares of our common stock with a three- year target award amount of $6 million. The restricted shares will vest if the company meets certain performance targets described above during the three-year performance period.

 

Mr. Toomey’s overall TDC of $4.636 million places his 2010 compensation above the 75th percentile of the diversified public REIT peer group companies for the CEO position based upon information available on the date when the compensation decisions were made, which is within our targeted range for TDC and consistent with our compensation design and philosophy, as described above under “Compensation Design and Philosophy.”

 

Compensation of Senior Executive Vice President (Mr. Troupe)

 

Base Salary.  For 2010, Mr. Troupe received an annual base salary of $450,000, which is the same base salary that was received in 2009. The base salary is at approximately the 50th percentile for an executive officer performing similar functions at the diversified public REIT peer group companies.

 

Short-Term Incentive Compensation.  In February 2011, the Compensation Committee awarded Mr. Troupe short-term incentive compensation in the total amount of $1.650 million for fiscal 2010, based on the company’s performance against the annual performance metrics, and his individual performance, all as described above under “How We Determined Compensation for 2010 — Short-Term Incentive Compensation.” Of the total amount, $643,000 was attributable to the company’s performance against the annual performance metrics and the remainder was attributable to Mr. Troupe’s individual performance, including the Compensation Committee’s evaluation of Mr. Troupe’s contributions to the successful completion of the Hanover/MetLife Partnership transaction and several key financings in 2010.

 

Long-Term Incentive Compensation.  Under the 2010-2012 LTI Program, Mr. Troupe was awarded 247,619 target award restricted shares of our common stock with a three-year target award amount of $3.9 million. The restricted shares will vest if the company meets certain performance targets described above during the three-year performance period.

 

Mr. Troupe’s overall TDC of $3.4 million places his 2010 compensation above the 75th percentile of the diversified public REIT peer group companies for his position based upon information available on the date when the compensation decisions were made, which is within our targeted range for TDC and is consistent with our compensation design and philosophy.

 

Compensation of CFO (Mr. Messenger)

 

Base Salary.  For 2010, Mr. Messenger received an annual base salary of $275,000, which is the same base salary that he received for 2009. Mr. Messenger’s base salary is at approximately the 25th percentile of CFOs of the diversified public REIT peer group companies performing similar duties as Mr. Messenger.

 

Short-Term Incentive Compensation.  Upon reviewing Mr. Messenger’s individual performance and his performance rating for 2010, and considering the scope of his responsibilities within the company and in relation to comparable officers at companies within the diversified public REIT peer group, in February 2011,

the Compensation Committee awarded Mr. Messenger short-term incentive compensation in the amount of $425,000 for fiscal 2010. The Compensation Committee determined that this amount was consistent with the target short-term incentive compensation as a percentage of overall compensation for the CFO position and that in light of his base salary and LTI compensation for 2010, it provides overall TDC potential within the TDC target for the CFO position. The Compensation Committee considered Mr. Messenger’s contributions to the successful completion of the Hanover/MetLife Partnership transaction and several key financings in 2010. The Compensation Committee also made a subjective determination that this amount was an appropriate amount to motivate Mr. Messenger and to help ensure his continued service with the company.

 

Long-Term Incentive Compensation.  Under the 2010-2012 LTI Program, Mr. Messenger was awarded 76,190 target award restricted shares of our common stock with a three-year target award amount of $1.2 million. The restricted shares will vest if the company meets certain performance targets described above during the three-year performance period.

 

Mr. Messenger’s overall TDC of $1.1 million places his 2010 compensation at approximately the 50th percentile of the diversified public REIT peer group companies for the CFO position based upon information available on the date when the compensation decisions were made, which is consistent with our compensation design and philosophy.

 

Compensation of Senior Vice President — Property Operations (Mr. Davis)

 

Base Salary.  For 2010, Mr. Davis received a base salary of $260,000, which is the same base salary that he received in 2009. Mr. Davis’s base salary is at approximately the 50th percentile for executive officers performing similar functions at the diversified public REIT peer group companies.

 

Short-Term Incentive Compensation.  In February 2011, the Compensation Committee awarded Mr. Davis short-term incentive compensation in the total amount of $650,000 for fiscal 2010, based on the company’s performance against the annual performance metrics, and his individual performance, all as described above under “How We Determined Compensation for 2010 — Short-Term Incentive Compensation.” Of the total amount, $255,000 was attributable to the company’s performance against the annual performance metrics and the remainder was attributable to Mr. Davis’s individual performance, including the Compensation Committee’s evaluation of Mr. Davis’s contributions to the successful completion of the Hanover/MetLife Partnership transaction in 2010.

 

Long-Term Incentive Compensation.  Under the 2010-2012 LTI Program, Mr. Davis was awarded 76,190 target award restricted shares of our common stock with a three-year target award amount of $1.2 million. The restricted shares will vest if the company meets certain performance targets described above during the three-year performance period.

 

Mr. Davis’s overall TDC of $1.3 million places his 2010 compensation above the 75th percentile of the diversified public REIT peer group companies for his position based upon information available on the date when the compensation decisions were made, which is within our targeted range for TDC and is consistent with our compensation design and philosophy.

 

Severance and Change of Control Arrangements

 

Benefits in the Event of a Change of Control.  Under the provisions of our 1999 Long-Term Incentive Plan, all outstanding options, stock appreciation rights and other awards that may be exercised generally become fully exercisable and all restrictions on outstanding awards will lapse upon the occurrence of a change of control unless otherwise provided in the award agreement. “Change of control” is defined in the Plan as (1) a merger or consolidation in which we are not the surviving entity, except for a transaction the principal purpose of which is to change the state in which we are incorporated; (2) the transfer or sale of all or substantially all of our assets other than to an affiliate or subsidiary of ours; (3) the liquidation of our company; or (4) the acquisition by any person, or by a group of persons acting in concert, of more than 50% of our outstanding voting securities, which results in the resignation or addition of 50% or more independent members of our board of directors.

Under the terms of our agreement with Mr. Troupe, in the event of a change of control, as defined in the 1999 Long-Term Incentive Plan, all of Mr. Troupe’s outstanding options, restricted stock, and any other awards in the nature of rights that may be exercised shall become fully vested and immediately exercisable; all restrictions on any outstanding other awards held by Mr. Troupe (such as awards of restricted stock) shall lapse; and the balance in any deferred compensation plan or shareholder value plan shall become fully vested and immediately payable. These terms were based on individual negotiations with Mr. Troupe in February 2008 in connection with his employment as our new Senior Executive Vice President and General Counsel.

 

Severance Benefits.  We believe that, in order to attract and retain the best management talent, companies should provide reasonable severance benefits to employees. We believe these severance benefits should reflect the fact that it may be difficult for employees to find comparable employment within a short period of time. They also should disentangle the company from the former employee as soon as practicable. With respect to our senior management, severance benefits are individually negotiated and are subject to approval by the Compensation Committee.

 

Other than the agreements discussed above, we currently do not have any other contractual severance or change of control arrangements with our named executive officers.

 

Retirement of Mr. Wallis

 

On October 7, 2010, Mr. Wallis informed us of his decision to retire from the company, effective December 31, 2010. During his employment with the company, Mr. Wallis helped establish what the company believes to be an exceptionally strong management team that is well prepared to carry out the company’s vision of providing high quality apartment homes and creating long-term shareholder value in the process. Mr. Wallis’s leadership and service have been instrumental to the company’s growth and expansion. Throughout his 10 years of employment with the company, Mr. Wallis managed over $10 billion in real estate transactions, including $4.7 billion in acquisitions, $4.1 billion in dispositions, $998 million in capital improvements, $982 million in development and $186 million in redevelopment.

 

In connection with Mr. Wallis’s decision to retire, Mr. Wallis entered into a letter agreement with the company, pursuant to which: (i) 44,121 shares of restricted common stock previously granted to Mr. Wallis fully vested on December 31, 2010; (ii) options to purchase 182,073 shares of the company’s common stock at an exercise price of $10.06 per share and scheduled to vest on February 12, 2012, were forfeited, while options to purchase 182,073 shares of the company’s common stock at an exercise price of $10.06 per share and scheduled to vest on February 12, 2011 continue to vest and remain outstanding for their remaining term in accordance with the terms of the incentive stock option agreement pursuant to which such options were granted; (iii) Mr. Wallis received a cash payment of $1.4 million, representing a bonus for fiscal year 2010, upon the achievement of certain financial targets and based upon our CEO’s evaluation of Mr. Wallis’s individual performance; (iv) Mr. Wallis received a cash payment of $2.6 million in consideration for the forfeiture of stock options (described above), and the forfeiture by Mr. Wallis of the long-term incentive compensation grant described below, Mr. Wallis’s agreement to certain non-competition and non-solicitation provisions in the letter agreement and in recognition of Mr. Wallis’s past contributions to the company; and (v) Mr. Wallis has agreed to serve as a consultant to the company through December 31, 2011, for which he will be entitled to receive mutually-agreed upon compensation at market rates.

 

The annual performance metrics that were used for determining the bonus for fiscal year 2010 for Mr. Wallis were: (1) a minimum FFO of $1.00 per share, with a target FFO of $1.08 per share and a maximum FFO of $1.24 per share, (2) balance sheet liquidity (achieving cash availability) based on targeted coverage of debt maturities for 2010, 2011 and 2012 by available resources and lines of credit, with a minimum of $(982) million in net financial capabilities, a target of $(757) million in net financial capabilities, and a maximum of $(307) million in net financial capabilities, (3) a minimum development/redevelopment and commercial FFO of $22.9 million, with a target development/redevelopment and commercial FFO of $25.4 million and a maximum development/redevelopment and commercial FFO of $30.5 million, and (4) a minimum SSNOI percentile in the top 50% of the selected peer group companies (listed above), with a target

of a top third ranking among the selected peer group companies and a maximum of a top ranking among the selected peer group companies.

 

Under the 2010 — 2012 LTI Program, in 2010 Mr. Wallis was awarded 247,619 target award restricted shares of our common stock with a three-year target award amount of $3.9 million. The restricted shares would have vested if the company met certain performance targets described above during the three-year performance period. This award was forfeited in connection with Mr. Wallis’s retirement.

 

Stock Ownership Guidelines

 

To align the interests of our executive officers with the interests of our stockholders, each of our executive officers is required to comply with our Executive Stock Ownership Guidelines. These guidelines require our executive officers to own a specified number of shares of the company’s common stock as determined by the executive officer’s position within four years of the date of the executive officer’s employment or appointment with the company. The individual guidelines are as follows:

 

 

All of our named executive officers have met the Executive Stock Ownership Guideline applicable to their position. The Governance Committee may, from time to time, re-evaluate and revise these guidelines to give effect to changes in the price of our common stock or our capitalization.

 

Stock that counts towards satisfaction of the ownership guidelines include:

 

 

A copy of our Executive Stock Ownership Guidelines may be found on our corporate governance page on our website at www.udr.com. To access the guidelines on our website, click on “Investor Relations” and then click on “Corporate Governance.”

 

Accounting and Tax Effects

 

The impact of accounting treatment is considered in developing and implementing our compensation programs generally, including the accounting treatment as it applies to amounts awarded or paid to our executives. The impact of federal tax laws on our compensation programs is also considered, including the deductibility of compensation paid to our named executive officers, as regulated by Section 162(m) of the Code.

 

Under Section 162(m) of the Code, we may not receive a federal income tax deduction for compensation paid to our CEO or any of the three other most highly compensated executive officers (other than the CFO) employed on the last day of the fiscal year to the extent that any of such persons receive more than $1,000,000 in compensation in the fiscal year. However, if we pay compensation that is “performance-based” under Section 162(m), we can receive a federal income tax deduction for the compensation paid even if such compensation exceeds $1,000,000 in a single year.

 

Our 1999 Long-Term Incentive Plan has been designed to permit awards under the plan to qualify as “performance-based” and, therefore, compensation realized in connection with options and grants of restricted stock that qualify as performance-based are fully tax deductible on our federal income tax return. To maintain flexibility in compensating executive officers in a manner designed to promote varying corporate goals, the

Compensation Committee has not adopted a policy that all compensation must be deductible on our federal income tax returns.

 

The foregoing policy is subject to change as the Compensation Committee deems necessary from time to time to respond to economic conditions, meet competitive standards and to serve our objectives and our stockholders.

 

The impact of Section 409A of the Code is also taken into account. The 1999 Long-Term Incentive Plan has been designed to comply with the requirements of Section 409A of the Code so as to avoid possible adverse tax consequences that may result from noncompliance.

 

Equity Granting Process

 

Grants of stock options, restricted stock and other equity awards to our executive officers and other employees are approved by the Compensation Committee at regularly scheduled meetings, or occasionally by unanimous written consent. If approval is made at a meeting, the grant date of the award is the date of the meeting; if approval is by unanimous written consent, the grant date of the award is the day the last Compensation Committee member signs the written consent.

 

We have no practice of timing grants of stock options, restricted stock and other equity awards to coordinate with the release of material non-public information, nor have we timed the release of material non-public information for the purpose of affecting the value of any named executive officer compensation.

 

Consideration of Risk and Recoupment Policy

 

The Compensation Committee is aware of the current economic conditions and the consequences to companies that have not appropriately balanced risk and reward in executive compensation. The Compensation Committee believes that the emphasis on long-term performance in the 1999 Long-Term Incentive Plan results in an overall compensation program that does not reward excessive risk-taking for the company. The company’s compensation strategy is intended to mitigate risk by emphasizing long-term compensation and financial performance measures correlated with growing stockholder value rather than rewarding shorter performance and payout periods. Typically 50% or less of our key executive officers’ total compensation is base salary and short-term incentive compensation, while the remaining 50% is tied to company and individual performance.

 

Our Compensation Committee believes that our executive incentive compensation arrangements do not encourage our executives to take unnecessary or excessive risks that could threaten the value of our company. While performance-based compensation constitutes a significant percentage of our executives’ overall total compensation and thereby the Compensation Committee believes motivates our executives to help fulfill our corporate mission and vision, including specific and focused company performance objectives, the non-performance based compensation, for most executives for most years, is also a sufficiently high percentage of overall total compensation that the Compensation Committee does not believe that unnecessary or excessive risk taking is encouraged by the performance-based compensation. In addition, a significant portion of executive’s performance-based compensation is in the form of long-term equity incentives, which do not encourage unnecessary or excessive risk because they generally vest over a three to four year period of time thereby focusing the executives on our company’s long-term interests. Further, to align the interests of our executive officers with the interests of our stockholders, each of our executive officers is required to comply with our Executive Stock Ownership Guidelines.

 

Nonetheless, our Compensation Committee determined that it was prudent to review and adopt certain compensation practices that discourage unnecessary or excessive risk taking, such as a recoupment or “clawback” policy. In February 2010, our board of directors approved the company’s Policy on Recoupment of Performance-Based Incentives, which applies to our executive officers, including our named executive officers, and their performance-based incentive compensation beginning with their compensation for the 2010 fiscal year. This policy provides that if the board of directors determines that the company’s financial statements are required to be restated as a result of fraud committed by an executive officer, the board may seek to recoup

any portion of the performance-based awards that the executive officer would not have received if the company’s financial results had been reported properly. The board of directors administers the policy and determines, in its sole discretion, the amount of the performance-based award to be recouped.

 

The Compensation Committee has reviewed and discussed with our management the Compensation Discussion and Analysis beginning on page 21 of this proxy statement. Based on such review and discussions, the Compensation Committee recommended to the board of directors that the Compensation Discussion and Analysis be included in this proxy statement.

 

COMPENSATION AND MANAGEMENT
DEVELOPMENT COMMITTEE
Katherine A. Cattanach, Chair
Eric J. Foss
Jon A. Grove
Lynne B. Sagalyn

 

The above report will not be incorporated by reference into any of our filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that we specifically incorporate the same by reference.

 

The executive officers named in the table below are referred to in this proxy statement as the “named executive officers.” The table below summarizes for each of the named executive officers the compensation amounts paid or earned for the fiscal years ended December 31, 2008, December 31, 2009 and December 31, 2010 (except in the case of Mr. Davis, who was not a named executive officer in 2008 or 2009).

 

Summary Compensation Table

 

 

 

 

Grants of Plan-Based Awards Table

 

The following table provides information concerning each grant of a plan-based award made to a named executive officer in the 2010 fiscal year.

 

 

 

 

Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table

 

LTI Plan

 

The Compensation Committee established the 2010-2012 LTI Program for the company’s senior executive officers, including Messrs. Toomey, Messenger, Troupe, Wallis and Davis. Under the 2010-2012 LTI Program, the named executive officers were awarded a grant of restricted shares of our common stock as set forth below, which will vest if the company meets certain performance targets during the three-year performance period. Mr. Wallis forfeited his award as a result of his retirement from the company.

 

 

The restricted shares listed above were awarded to the named executive officers on February 26, 2010 at a price of $15.75 per share, based on the trailing 20-day volume weighted average price of our common stock on the date of the grant. During the three-year performance period, dividends on the restricted shares will be reinvested into additional restricted shares of common stock, and such additional shares will be subject to the same performance requirements as the original shares granted.

 

The three performance targets that the company must achieve during the three-year performance period under the 2010-2012 LTI Program are as follows:

 

(1) cumulative 2010-2012 cash flows of $2.59 per common stock equivalent or $431.3 million (based on funds from operations less capital expenditures, including, $1,000 per stabilized home of recurring capital expenditures and the non-cash accounting charge associated with the company’s convertible debt);

(2) cumulative 2010 — 2012 dividends declared of $2.33 per share of common stock; and

 

(3) maintaining a balance sheet fixed charge ratio of 1.90x.

 

Vesting of the awards of the restricted shares of common stock is based on the company meeting these performance targets during the three-year performance period ending December 31, 2012. The shares will vest any time the performance targets are met during the three-year performance period. If the performance targets are not met during the three-year period, the performance period will be extended an additional year to December 31, 2013; however, if the performance period is extended an additional year under such circumstances, the cash flow target and the dividends declared target will each be increased by one-third, so that the cash flow target will increase from $2.59 per common stock equivalent or $431.3 million to $3.46 per common stock equivalent or $575.1 million, and the dividends per share declared target will increase from $2.33 per share of common stock to $3.11 per share of common stock.

 

The Compensation Committee retains discretion to adjust the 2010-2012 LTI Program if there is a material change in the company’s business strategy or if there is a change in accounting regulations applicable to the company. The Compensation Committee also retains the discretion to reduce the restricted stock grant awards by up to 20% if it determines that such a reduction is in the best interests of the company’s stockholders.

 

Under the 2009 LTI plan for Messrs. Toomey, Troupe and Wallis, the target, initial and actual award levels granted to Messrs. Toomey, Troupe and Wallis were as follows:

 

 

 

 

Participants are paid dividends on the target award shares during the performance period. Subject to the participant’s continued employment with us, the actual award shares vest pro rata over three years from the date of grant in three annual installments.

 

The 2008 LTI plan for Messrs. Toomey, Troupe and Wallis was based on FFO and NAV growth, with the targeted award levels, the initial number of shares and the actual number of shares granted to Messrs. Toomey, Troupe and Wallis as follows:

 

 

 

 

PARS Program

 

A part of our LTI compensation plan is Performance Accelerated Restricted Stock Awards, or “PARS,” under our 1999 Long-Term Incentive Plan. However, none of our Chief Executive Officer or any of the named executive officers is eligible to participate in future PARS Program awards, nor did the Chief Executive Officer or any of the named executive officers participate in the PARS Program in 2010. Under our PARS

Program, an executive may be awarded a number of shares of restricted common stock with a target grant date value equal to a percentage of the participating executive’s base salary. The shares of restricted common stock may be adjusted, upward or downward, based on the company’s FFO and incremental growth in FFO compared to selected peer companies in the REIT industry and our FFO targets during the performance period. The target award level is set by the Compensation Committee, in consultation with our CEO, each year and compares our performance to the relative performance of the selected peer companies during the performance period, which ends at the end of the fiscal year. Participants are paid dividends on the target award shares during the performance period.

 

In December 2008, the Compensation Committee approved the 2009 PARS Program, which commenced as of January 1, 2009 with a possible maximum pay-out of $2,326,411 if the company’s performance is at 100% of FFO targeted levels. The number of PARS granted to the participants in the 2009 PARS Program was based on the trailing 20-day average closing price of our common stock as of December 31, 2008, the date of grant, which price was $13.92. The Compensation Committee retained discretion to decrease or increase the 2009 PARS Program payouts by 20%. Under the 2009 PARS Program, payout was based on a sliding scale dependant upon achievement of core FFO against the company’s business plan. The FFO target was $1.38 per share, or a core FFO of $1.32 per share. Core FFO is defined as FFO excluding amounts for debt repurchase gains, debt tender premiums, tax benefits and joint venture adjustment. The company achieved a core FFO of $1.24 per share for 2009, or 94% of the target core FFO of $1.32 per share. Therefore, the actual achieved payout was 69% (94% of the 74% target payout). The Compensation Committee increased the payout from 69% to 75% in light of the difficult economic issues the company faced in 2009.

 

The earned shares under the 2009 PARS program vest over three years. There were 58 participants in the 2009 PARS Program. Among our named executive officers, only Messrs. Messenger and Davis participated in the 2009 PARS Program. Messrs. Toomey, Troupe and Wallis participated in the 2009 LTI plan, and as stated above, none of the CEO nor any of the named executive officers is eligible to participate in future PARS Program awards, nor did the CEO or any of the named executive officers participate in the PARS Program in 2010.

 

The target award levels expressed as a percentage of the 2009 base salary, the initial number of shares and the actual number of shares granted to our participating named executive officers under the 2009 PARS Program were are as follows:

 

 

Matching 401(k) Contributions

 

In 2010, Messrs. Troupe, Messenger and Davis, received a non-discretionary 401(k) matching contribution made by us under our Profit Sharing Plan in the amount of $5,294, $4,571 an $5,294, respectively. In 2009, Mr. Messenger received a non-discretionary 401(k) matching contribution made by us under our Profit Sharing Plan in the amount of $6,121. In 2008, Mr. Messenger received a non-discretionary 401(k) matching contribution made by us under our Profit Sharing Plan in the amount of $6,750. These amounts are reflected in the Summary Compensation Table under “All Other Compensation.”

Outstanding Equity Awards at 2010 Fiscal Year-End

 

The following table provides information concerning unexercised options, stock that has not vested and equity incentive plan awards for each named executive officer outstanding as of the end of the 2010 fiscal year.