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Dear Stockholder:

You are cordially invited to attend the 2015 Annual Meeting of Stockholders (the “Annual Meeting”) of Realty Income Corporation, a Maryland corporation, to be held at 9:00 AM, local time, on May 12, 2015 at the San Diego Marriott Del Mar, 11966 El Camino Real, San Diego, California 92130.

At the Annual Meeting, you will be asked to consider and vote upon:

(1) The election of the eight directors named in the accompanying Proxy Statement to serve until the 2016 annual meeting of stockholders and until their respective successors are duly elected and qualify.

(2) The ratification of the appointment of KPMG LLP as our independent registered public accounting firm for the year ending December 31, 2015.

(3) A non-binding advisory proposal to approve the compensation of our named executive officers, as described in the accompanying Proxy Statement (the “say on pay vote”).

(4) The transaction of such other business as may properly come before the Annual Meeting or any postponements or adjournments of the Annual Meeting.

These proposals are more fully described in the accompanying Proxy Statement.  We urge you to carefully review the Proxy Statement.

Our Board of Directors recommends a vote FOR the election of the eight director nominees to serve until the next annual meeting and until their respective successors are duly elected and qualify; a vote FOR the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for the year ending December 31, 2015; and a vote FOR the say on pay vote.

Your vote is important to us, whether you own few or many shares.

Whether or not you plan to attend our Annual Meeting, we urge you to authorize your proxy via the internet, or if you are receiving a paper copy of the Proxy Statement, by telephone or by completing and mailing a proxy card, to ensure your shares are represented and voted at our Annual Meeting. If you attend the Annual Meeting, you may, if you wish, withdraw your proxy and vote in person.

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REALTY INCOME CORPORATION

A Maryland corporation

11995 El Camino Real

San Diego, CA 92130

Only holders of record of our common stock at the close of business on the Record Date will be entitled to notice of and to vote at the Annual Meeting or any postponements or adjournments thereof.

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REALTY INCOME CORPORATION

11995 El Camino Real

San Diego, California 92130

PROXY STATEMENT

FOR THE

ANNUAL MEETING OF STOCKHOLDERS

May 12, 2015

Beginning at 9:00 A.M. Pacific Daylight Time

and at any postponements or adjournments of the Annual Meeting

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PROPOSAL 1

PROPOSAL 2

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PROPOSAL 3

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BOARD OF DIRECTORS

The following table sets forth certain information as of March 5, 2015 concerning our current directors.  Each person listed below is a director nominee for re-election at the Annual Meeting. On October 27, 2014, the Board appointed Stephen E. Sterrett to the Board of Directors as an independent director.

Board of Director Biographies

The information presented below highlights each director nominee’s specific experience, qualifications, attributes and skills that led our Board of Directors to the conclusion that he/she should serve as a director.  We believe that all of our director nominees have a reputation for integrity, honesty and adherence to high ethical standards. They each have demonstrated business acumen and an ability to exercise sound judgment, as well as a commitment of service to Realty Income and our Board of Directors. Finally, we value their significant experience on other company boards of directors and board committees.

Kathleen R. Allen, Ph.D.

Kathleen R. Allen, Ph.D. has been our director since February 2000.  She is a professor at the Marshall School of Business and the director of the Center for Technology Commercialization at the University of Southern California (1991-present).  She was the co-founder and chairwoman of Gentech Corporation (1994-2004) and in 2006 co-founded and became the Chief Executive Officer and served on the board of directors of N2TEC Institute, a nonprofit company focused on technology commercialization in rural America, until it completed its mission in 2013.  Dr. Allen has co-founded four private companies, is currently a principal and on the board of directors of a real estate investment and development company, and serves on the board of advisors for two life science companies as well as the Children's Hospital/Saban Institute’s Center for Innovation in Pediatrics.  She is a Visiting Scholar at the Department of Homeland Security where she advises on issues related to technology deployment, including cyber security.  She is the author of 15 books in the field of entrepreneurship and technology commercialization, a field in which she is considered an expert.  Dr. Allen is chairwoman of our Strategic Planning Committee and is a member of our Audit Committee and our Compensation Committee.

As a distinguished businesswoman, entrepreneur and consultant, Dr. Allen has helped our Board of Directors identify and assess the risks associated with new endeavours.  She has also worked with many early-growth and established companies to develop effective leadership and team-building skills, which she has implemented during her participation on various board committees.  With her years of experience in risk management in the areas of business models, investment opportunities, and markets, Dr. Allen brings to the Board of Directors achievement in strategic business planning, which is a key part of our growth strategy.

John P. Case

Mr. Case was promoted to Chief Executive Officer in September 2013 and reassumed the title of President in September 2014.  He joined Realty Income in 2010 as Executive Vice President, Chief Investment Officer and served in this capacity until March 2013, when he was promoted to President, Chief Investment Officer.  Prior to joining Realty Income, Mr. Case served for 19 years as a New York-based real estate investment banker.  Most recently he served as the co-head of Real Estate Investment Banking for RBC Capital Markets, where he also served on the firm’s Global Investment Banking Management Committee.  Prior to joining RBC, he was co-head of America’s Real Estate Investment Banking at UBS.  He began his career in real estate investment banking at Merrill Lynch, where he worked for 13 years, and was named a managing director in 2000.  During Mr. Case’s career, he was responsible for more than $100 billion in real estate capital markets and advisory transactions.  In addition, Mr. Case has been extensively involved in the broader real estate industry.  He currently serves on the National Association of Real Estate Investment Trusts (NAREIT) Board of Governors and is a member of The President’s Council of the Real Estate Roundtable and the International Council of Shopping Centers (ICSC).  He was a member of the Board of Directors of the National Multi-Housing Council (NMHC) from 2001 to 2009, serving on the Executive Committee from 2002 to 2004, the Real Estate Roundtable from 2009 to 2010, and the Urban Land Institute from 2003 to 2010.

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As the Chief Executive Officer, Mr. Case’s primary responsibility is fulfilling our mission to provide monthly dividends that increase over time.  This responsibility involves overseeing all of our operations, as well as creating and executing on the company’s strategy.  The implementation of our strategy involves constant monitoring of the economic environment, analyzing factors that can impact our operations, and doing what is required to generate investor returns, while mitigating the risks that are taken to achieve those returns.

Mr. Case has demonstrated extensive knowledge of the financial and operating issues facing real estate organizations.  His vast understanding of real estate investment trusts and financial strategy has helped guide the company in recent years.  In addition, Mr. Case’s knowledge of all aspects of the company’s business positions him as a valuable member of, and contributor to, our Board of Directors. Mr. Case is a member of our Strategic Planning Committee.

A. Larry Chapman

A. Larry Chapman has been our director since February 2012.  He is a retired 37-year veteran of Wells Fargo, having served most recently as Executive Vice President and the Head of Commercial Real Estate from 2006 until his retirement in June 2011, and as a member of the Wells Fargo Management Committee.  Mr. Chapman joined Wells Fargo in 1974 in its Houston Real Estate office.  In 1987, he was promoted to President of Wells Fargo Realty Advisors, a wholly-owned subsidiary of Wells Fargo & Co.  The subsidiary’s primary responsibility was managing Wells Fargo Mortgage and Equity Trust, which was formed in 1970 and sold in 1989.  He remained President of Wells Fargo Realty Advisors until 1990, and was promoted to Group Head of the Wells Fargo Real Estate Group in 1993.  Mr. Chapman managed the Wells Fargo Real Estate Group until his 2006 promotion to Executive Vice President and Head of Commercial Real Estate for Wells Fargo on a nationwide basis.  Mr. Chapman is a former board member of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley; past governor and trustee of the Urban Land Institute; former member of the National Association of Real Estate Investment Trusts; and member and past trustee of the International Council of Shopping Centers. Mr. Chapman is a member of our Audit and Compensation Committees.  He currently serves on the board of directors of CBL & Associates Properties, Inc. (NYSE: CBL) (August 2013-present).

Mr. Chapman’s extensive commercial real estate experience, across many industries and tenant types, provides valuable insight and expertise to the Board and our senior management team as we continue to expand our real estate portfolio.  In addition, his background as a leader of a Fortune 500 company, and as a member of its management team, further enhances the quality of leadership and oversight provided by our Board of Directors.

Priya Cherian Huskins

Priya Cherian Huskins has been our director since December 2007.  She is Senior Vice President and partner at Woodruff-Sawyer & Co., a commercial insurance brokerage firm (2003-present).  Prior to joining Woodruff-Sawyer & Co., Ms. Huskins served as a corporate and securities attorney at the law firm of Wilson Sonsini Goodrich & Rosati (1997-2003).  She has served on the advisory board of the Stanford Rock Center for Corporate Governance since 2012, the board of directors of the Silicon Valley Directors’ Exchange (SVDX) since 2013, and served on the board of directors of the National Association of Corporate Directors, Silicon Valley Chapter (2006–2013).  Ms. Huskins is Chairwoman of our Nominating/Corporate Governance Committee and is a member of our Strategic Planning Committee.

With her background in law, insurance and risk management, Ms. Huskins brings a focus on these areas to our Board of Directors.  As a recognized expert in directors and officers liability risk and its mitigation, Ms. Huskins provides valuable insight into our risk management strategy.  In addition, she brings experience regarding corporate governance matters, including ways that corporate governance can enhance stockholder value.  Ms. Huskins's experience makes her a valuable component of a well-rounded Board of Directors and a key member of both committees on which she serves.

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Michael D. McKee

Michael D. McKee has been a director since August 1994 and Chairman of the Board since February 2012.  He is the Chief Executive Officer of Bentall Kennedy (U.S.), a registered real estate investment advisor (February 2010-present).  He was the Vice Chairman (1999-2008) and Chief Executive Officer (2007-2008) of The Irvine Company, a privately-held real estate investment company, as well as Chief Operating Officer (2001-2007), Chief Financial Officer (1997-2001) and Executive Vice President (1994-1999) of The Irvine Company.  Prior to joining The Irvine Company, Mr. McKee was a partner in the law firm of Latham & Watkins (1986-1994).  Through each of these positions Mr. McKee has obtained extensive real estate experience and provides valuable insight and expertise to the Board and our senior management team.  He has served on the board of directors of HCP, Inc. (NYSE: HCP) (1987-present) where he serves as Non-Executive Chairman, Bentall Kennedy (U.S.) (2008-2012), First American Financial Corporation (NYSE: FAF) (2011-present), the Tiger Woods Foundation (2006-present), The Irvine Company (1998-2008) and Hoag Hospital Foundation (1999-2008).  In addition to being the chairman of our Board of Directors, Mr. McKee is a member of our Compensation Committee and our Nominating/Corporate Governance Committee.

Mr. McKee's business and legal experience includes numerous acquisition and disposition transactions, as well as a variety of public and private offerings of equity and debt securities. Additionally, he has been exposed to various compliance issues as they relate to real estate investment trusts.  With his knowledge of the complex issues facing real estate companies today and his understanding of what makes businesses work effectively and efficiently, Mr. McKee provides valuable insight to our Board of Directors.

Gregory T. McLaughlin

Gregory T. McLaughlin has been our director since June 2007.  Mr. McLaughlin is currently the President, PGA TOUR - Champions Tour and a Senior Vice President with the PGA TOUR in Ponte Vedra, Florida (2014-present).  Prior to joining the PGA TOUR, Mr. McLaughlin was President and Chief Executive Officer of the Tiger Woods Event Corporation and Tiger Woods Foundation in Irvine, California (1999-2014); Vice President of Business Development of the Western Golf Association / Evans Scholars Foundation (1993-1999); and Vice President of Business Development of the Los Angeles Junior Chamber of Commerce (1988-1993).  He is currently a member of the Board of Directors of Repucom (2014 - present).  Mr. McLaughlin is Chairman of the Compensation Committee and is a member of the Audit Committee and the Strategic Planning Committee.

With his diverse background, Mr. McLaughlin offers a unique perspective to the Board of Directors on a variety of business and legal matters.  His business and legal experience includes tax-exempt status and financing as well as business development, capital raising and program development. Additionally, his leadership skills in managing not-for-profit organizations brings financial reporting expertise, especially as it relates to audit and tax matters.  His proven effectiveness working with complex issues makes him a valuable member of our Board of Directors and the committees on which he serves.

Ronald L. Merriman

Ronald L. Merriman has been our director since July 2005.  He is a retired Vice Chairman and partner of KPMG LLP, a global accounting and consulting firm (1967-1997).  At KPMG LLP, Mr. Merriman served as Vice Chairman of the Executive Management Committee.  More recently, Mr. Merriman was the managing director of Merriman Partners, a management advisory firm (2003-2011).  Prior to founding Merriman Partners, Mr. Merriman served as a managing director of O’Melveny & Myers law firm (2000-2003), Executive Vice President of Carlson Wagonlit Travel (1999-2000) and President of Ambassador Performance Group, Inc. (1997-1999).  Mr. Merriman has served on the board of directors and is the chairman of the audit committee of the following public companies: Aircastle Limited (NYSE: AYR) (2006-present), and Pentair, Plc, formerly Pentair, Ltd. (NYSE: PNR) (2005-present). Additionally, he serves on the compensation committee of Aircastle Limited (2012–Present) and on the audit committee of Haemonetics Corporation (NYSE: HAE) (2005–Present).  Mr. Merriman is Chairman of our Audit Committee and is a member of our Nominating/Corporate Governance Committee and our Strategic Planning Committee.

Mr. Merriman is an experienced financial leader with the skills necessary to lead our Audit Committee.  Throughout his career, he has been exposed to various issues involving accounting and auditing standards, business law and corporate ethics. His professional background and experience on other audit committees make him a valuable asset, both on our Board of Directors and as the Chairman of our Audit Committee.  Mr. Merriman's positions have provided him with a wealth of knowledge in addressing financial and accounting matters.  The depth and breadth of his exposure to complex financial issues makes him a skilled advisor to the Board of Directors.

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Stephen E. Sterrett

Stephen E. Sterrett has been our director since October 2014.  He retired as the Senior Executive Vice President and Chief Financial Officer of Indianapolis-based Simon Property Group, Inc., an S&P 100 company, in December 2014.  Mr. Sterrett joined the Simon organization in 1988, was named Treasurer in 1993, and was the Chief Financial Officer from 2000 until his retirement.  Prior to joining Simon Property Group, Inc., he was a Senior Manager with the international accounting firm of Price Waterhouse.  Mr. Sterrett serves on the boards of Berry Plastics Group, Inc. (NYSE: BERY) and Equity Residential (NYSE: EQR).  Mr. Sterrett is active in several professional organizations, including the National Association of Real Estate Investment Trusts, the International Council of Shopping Centers and is a past member of the Indiana CPA Society.

As the former Chief Financial Officer of Simon Property Group, Inc., Mr. Sterrett had direct experience with matters arising from the business and financial issues pertaining to the company, particularly in the areas of corporate finance and capital markets. His experience as a Chief Financial Officer in the REIT industry brings to our Board a comprehensive understanding of matters unique to REITs and enables him to make significant contributions to our Board.

Corporate Governance

We believe that nothing is more important than a company’s reputation for integrity and serving its stockholders responsibly. We are committed to managing the company for the benefit of our stockholders and are focused on maintaining good corporate governance.  Practices that illustrate this commitment include:

·                  Our Board of Directors is currently comprised of eight directors, seven of which are independent, non-employee directors;

·                  Our Board of Directors is elected on an annual basis;

·                  We employ a majority vote standard for director elections;

·                  Our Compensation Committee works with independent consultants, in conducting annual compensation reviews for our key executives, and compensates each individual based on reaching certain performance metrics that determine the success of the company;

·                  We adhere to all other corporate governance principles outlined in our “Corporate Governance Guidelines” document;

·                  We have established an anti-hedging and anti-pledging policy;

·                  We have a stock ownership program for our directors and executive officers; and

·                  We have adopted a clawback policy that enables us to recover incentive compensation awards in the event of negligence or misconduct directly related to a material restatement of our financial or operating results, or miscalculated performance metrics that, if calculated correctly, would have resulted in a lower payment.

The Charters of each of our standing committees, our Code of Business Ethics and our Corporate Governance Guidelines are posted on our website at www.realtyincome.com and will be provided without charge upon request to the Corporate Secretary, Realty Income Corporation, 11995 El Camino Real, San Diego, CA 92130. During 2014, in accordance with the terms of each of our Committee Charters, each of our respective committees reviewed its charter.  Our Audit Committee, Nominating/Corporate Governance Committee, and Compensation Committee made minor updates to their charters in February 2014.  The Strategic Planning Committee determined that no updates to its charter were needed in 2014.

Code of Business Ethics. We have adopted a Code of Business Ethics that applies to our employees, officers and directors.  The Board of Directors adopted the Code of Business Ethics to codify and formalize certain of our long-standing policies and principles that help ensure our business is conducted in accordance with the highest standards of moral and ethical behavior.  Our Code of Business Ethics covers all areas of professional conduct, including conflicts of interest, insider trading and confidentiality, as well as requiring strict adherence to all laws and regulations applicable to our business and industry.  We conduct annual training of employees regarding ethical behavior and require all employees to acknowledge the terms of, and abide by, our Code of Business Ethics. We intend to disclose any future amendments to or waivers of certain provisions of our Code of Business Ethics applicable to our principal executive officer, principal financial officer, principal accounting officer, controller and individuals performing similar functions on our website at www.realtyincome.com within five business days following such waiver or as otherwise required by the SEC or the NYSE.

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Our Board of Directors has adopted a “whistleblower” policy, which outlines a procedure for all interested parties, including employees, to submit confidential complaints, concerns, unethical business practices, violations or suspected violations for any and all matters pertaining to accounting, internal control or auditing.

Anti-Hedging and Anti-Pledging Policy. We have established policies that prohibit our directors, officers, other employees and their family members from engaging in any transaction that might allow them to realize gains from declines in our securities. Specifically, we prohibit transactions using derivative securities, or otherwise participating in hedging, “stop loss,” or other speculative transactions involving our securities by officers, directors, other employees and their family members.  Short selling our securities, trading in any puts, calls, covered calls or other derivative products involving our securities, or the writing of purchase or call options, short sales and other similar transactions are also prohibited for our officers, directors, other employees and family members.

In addition, margin purchases of our securities and pledging any of our securities as collateral to secure loans is also prohibited.  This prohibition means that directors, officers, other employees and their family members cannot hold our securities in a “margin account” nor can they pledge any of our securities for any loans or indebtedness.

Adoption of Compensation Recoupment (“Clawback”) Policy.  Although the SEC still has not issued regulations regarding clawback policies, as required by the Dodd-Frank Act, we have recently voluntarily adopted our own formal clawback policy which applies to outstanding awards and will apply to future awards.  Our clawback policy provides that we may recoup all cash or equity-based incentive compensation paid or granted to an executive officer as defined pursuant to Rule 3b-7 under the Exchange Act, during the three year period preceding the “triggering event” that was in excess of what would have been paid or granted to such executive officer after giving effect, as applicable, to the accounting restatement that resulted from the triggering event or to what would have been the correct calculation of the performance metric(s) used in determining that a triggering event had occurred.  A “triggering event” includes: i) a decision by the Audit Committee to effect an accounting restatement of previously published financial statements caused by material non-compliance by the company with any financial reporting requirement under the federal securities laws due to fraud, misconduct, negligence, or lack of sufficient oversight on the part of any executive officer; and ii) a decision by the Compensation Committee that one or more performance metrics used for determining previously paid compensation was incorrectly calculated and, if calculated, correctly would have resulted in a lower payment to one or more executive officers.  However, the requirement to repay the incentive compensation that is recoverable under this policy shall only exist if the Board has actively taken steps to evaluate restating the financials or operating results or recalculating other associated metrics prior to the end of the fifth year following the year in question.  The company will not be bound by the three year recoupment period or this five year limitation in cases involving fraud or intentional misconduct.  Once applicable SEC regulations are adopted, we will reassess our clawback policy in light of the new rules and will implement appropriate changes to ensure that our policy is fully compliant with SEC regulations.

Stock Ownership Program.  We have adopted a stock ownership program for our directors, and executive vice presidents and above, with our CEO required to own a fixed number of shares based on five times his base salary.  A detailed description of each of these programs and the minimum share ownership requirements is included on page 21 and page 37 for directors and executives, respectively.

Committee Charters. Our Board of Directors has adopted a charter for each of the Audit Committee, the Compensation Committee, the Nominating/Corporate Governance Committee and the Strategic Planning Committee. Each of our charters is reviewed annually. Our Board of Directors may, from time to time, establish certain other committees to facilitate our management. We have also adopted Corporate Governance Guidelines that promote the functioning of the Board of Directors and its committees and sets forth expectations as to how the Board of Directors should perform its functions. The guidelines include information about the composition of the Board of Directors, orientation and continuing education, director compensation, Board of Directors meetings, Board of Directors committees, management succession, evaluation and compensation of senior officers, expectations of directors and information regarding the annual performance evaluation of the Board of Directors.

Social Responsibility and Ethical Standards. We are committed to being socially responsible and conducting our business according to the highest ethical standards. Our employees enjoy compensation that is in line with those of our peers and competitors, including healthcare benefits for employees and their families; participation in a 401(k) plan with a matching contribution by Realty Income; competitive vacation and time-off benefits and an infant-at-work program for new parents. Our employees also have access to members of our Board of Directors to report anonymously, if desired, any suspicion of misconduct, by any member of our senior management or executive team. We also have a long-standing commitment to equal employment opportunity and adhere to all Equal Employer Opportunity Policy guidelines.

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We apply the principles of full and fair disclosure in all of our business dealings, as outlined in our Corporate Code of Business Ethics. We are also committed to dealing fairly with all of our customers, suppliers and competitors.

Environmental Practices. Our focus on energy related matters is demonstrated by how we manage our day-to-day activities in our corporate headquarters. In our headquarters, we promote energy conservation and encourage the following practices:

·                  Powering down office equipment at the end of the day;

·                  Setting copier machines to “energy saver mode;”

·                  Encouraging employees to reduce paper usage whenever possible by storing documents electronically, using file-sharing technology to communicate edits to documents, and using “duplex” copy mode;

·                  Adopting policies such as an electronic invoice approval system to reduce the transfer of hard copies; and

·                  Encouraging employees to carpool to our headquarters.

In addition, our headquarters was constructed according to the State of California energy efficiency standards (specifically following California Green Building Standards Code and Title 24 of the California Code of Regulations) with the following features:

·                  Lighting control system with automatic occupancy sensors and light harvesting where applicable;

·                  LED lighting throughout the building;

·                  High efficiency heating and cooling system with high SEER rating;

·                  Plenum window shades to help capture and dispense heat;

·                  Energy efficient insulated PVC roofing system;

·                  Building Management System that monitors and controls energy use, specifically programmed for systems to operate during normal business operating hours only;

·                  Energy Star appliances;

·                  Low gallon per flush toilets and motion sensor faucets in restrooms; and

·                  Drought-tolerant landscaping with recycled materials used for ground covering.

With respect to recycling and reuse practices, we encourage the use of recycled products and the recycling of materials during our operations. Recycling bins are placed in all areas where materials are regularly disposed of and at the individual desks of our employees. Cell phones, wireless devices and office equipment are recycled or donated whenever possible.

With respect to the properties that we own, these properties are net-leased to our tenants who are responsible for maintaining the buildings and are in control of their energy usage and environmental sustainability practices.

More information on our corporate responsibility efforts can be found at http://www.realtyincome.com/invest/investing-resources/corporate-responsibility.shtml.

Board Independence

Our Board of Directors has determined that each of our current directors, except for Mr. Case, has no material relationship with us (either directly or indirectly through an immediate family member or as a partner, stockholder or officer of an organization that has a relationship with us) and is “independent” within the meaning of our director independence standards and NYSE director independence standards. Our Board of Directors established and employed categorical standards in determining whether a relationship is material and thus would disqualify such director from being independent.  Our categorical standards of independence mirror NYSE independence requirements, except that our categorical standards additionally consider a director to be not independent if:

·            The director (or an immediate family member of the director) received more than $100,000 per year in direct compensation from the company or any of its subsidiaries, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service);

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·            The director (or an immediate family member of the director) was, within the last three years, an affiliate or executive officer of another company which was indebted to us, or to which we were indebted, where the total amount of either company’s indebtedness to the other was five percent (5%) or more of our total consolidated assets or the total consolidated assets of such other company; and

·            The director (or an immediate family member of the director) was, within the last three years, an officer, director or trustee of a charitable organization where our (or an affiliated charitable foundation’s) annual discretionary charitable contributions to the charitable organization exceeded the greater of $1 million, or five percent (5%) of that organization’s consolidated gross revenues.

“Affiliate” includes any person beneficially owning in excess of 10% of the voting power of, or a general partner or managing member of, a company.

COMMITTEES OF THE BOARD OF DIRECTORS (as of the record date)

Audit Committee

The Audit Committee of our Board of Directors was established in accordance with Section 10A-3 of the Exchange Act and is comprised of Dr. Allen and Messrs. Chapman, McLaughlin and Merriman (Chairman).  Our Board of Directors has determined that Messrs. Merriman and McLaughlin qualify as audit committee financial experts, as defined in Item 407(d) of Regulation S-K and that all members of the Audit Committee are financially literate under the current listing standards of the NYSE. All of the members of the Audit Committee are “independent” within the meaning of our director independence standards, which reflect the NYSE director independence standards, as discussed above, and the audit committee requirements of the SEC. Additionally, our Board of Directors has considered Mr. Merriman’s concurrent service on the audit committees of four public companies and has determined that such simultaneous service does not impair his ability to effectively serve as Chairman of our Audit Committee.

The Audit Committee’s principal responsibilities include:

·            Compliance with legal and regulatory requirements;

·            The integrity of our financial statements;

·            The appointment, approval and engagement of our independent registered public accounting firm, approval of any special assignments given to the independent registered public accounting firm and review of:

o          The scope and results of the audit engagement with the independent registered public accounting firm, including the independent registered public accounting firm’s letters to the Audit Committee;

o          The independence and qualifications of the independent registered public accounting firm;

o          The effectiveness and efficiency of our internal accounting function; and

o          Any proposed significant accounting changes.

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Compensation Committee

The Compensation Committee of our Board of Directors is comprised of Dr. Allen and Messrs. Chapman, McKee and McLaughlin (Chairman).  All of the members of the Compensation Committee are “independent” within the meaning of our director independence standards, which reflect the NYSE director independence standards as discussed above, are “non-employee directors” within the meaning of Rule 16b-3 of the Exchange Act, and are “outside directors” under the regulations promulgated under Section 162(m) of the Internal Revenue Code of 1986, as amended (“Code”).

The Compensation Committee’s principal responsibilities include:

·            Establishing remuneration levels for our senior officers;

·            Reviewing significant employee benefits programs; and

·            Establishing and administering executive compensation programs, including bonus plans, stock option and other equity-based programs, deferred compensation plans and any other cash or stock incentive programs.

The Compensation Committee regularly reviews and approves our executive compensation strategies and principles to ensure that they (i) are aligned with our business strategies and objectives, (ii) encourage high performance, (iii) promote accountability and (iv) assure that employee interests are aligned with the interests of our stockholders. In addition, the Compensation Committee:

·            Conducts an annual review of our compensation philosophy, including a review of our company-wide incentive programs to assess whether the incentive programs encourage desirable behavior as it relates to our long-term growth and reflect our risk management philosophies, policies and processes;

·            Conducts an annual review of and approves the goals and objectives relating to the compensation of the Chief Executive Officer, evaluates the performance of the Chief Executive Officer in light of our business strategies and performance and determines and approves the compensation of the Chief Executive Officer based on such evaluation;

·            Conducts an annual review of and approves all compensation for all other senior officers (as such term is defined in Rule 16a-1 promulgated under the Exchange Act), and all of our employees who are a vice president or above;

·            Reviews and approves all officers’ employment agreements and severance arrangements;

·            Manages and annually reviews executive short-term and long-term incentive compensation;

·            Manages and annually reviews employee pension and welfare benefit plans (including 401(k) and other plans); and

·            Sets performance metrics under all short-term and long-term incentive compensation plans as appropriate.

The Compensation Committee’s charter reflects these various responsibilities, and the Compensation Committee periodically reviews and revises its charter. To assist in carrying out its responsibilities, the Compensation Committee regularly receives reports and recommendations from the Chief Executive Officer and management, from outside independent compensation consultants it selects and retains and, as appropriate, in consultation with its own legal or other advisors, all in accordance with the authority granted to the Compensation Committee in its charter.

To assist in its efforts to meet the objectives outlined above, the Compensation Committee has retained FPL Associates, LP (“FPL”), a nationally-known executive compensation and benefits consulting firm specializing in real estate companies, to advise it on a regular basis on the amount and form of our executive compensation and benefit programs. During 2014, the Compensation Committee engaged the consultant to provide peer group compensation data, compensation and benchmarking analysis, general executive compensation consulting services, and to respond to any Compensation Committee member’s questions as further described in the “Compensation Discussion and Analysis” section.

After review and consultation with FPL, the Compensation Committee assessed the independence of FPL in light of, among other factors, the independence factors established by the NYSE.  As a result of this assessment, the Compensation Committee has determined that FPL’s work raised no conflict of interest currently or during the year ended December 31, 2014.  Additionally, during 2014, advisory services were obtained from Latham & Watkins LLP.  After review of the services to be performed and consultation with this law firm, the Compensation Committee assessed the independence of this firm in light of, among other factors, the independence factors established by the NYSE, and determined to continue to directly or indirectly receive advice from this firm.

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The Chief Executive Officer, as well as the Chief Operating Officer, annually assists in the review of the compensation of the other officers and members of senior management. The Chief Executive Officer makes recommendations with respect to salary adjustments, and short-term and long-term incentive compensation awards to the Compensation Committee based on his review of each executive’s performance in relation to the guidelines and metrics established at the commencement of the year, compensation for similar positions at peer companies and the company’s performance for that year.

Nominating/Corporate Governance Committee

The Nominating/Corporate Governance Committee of our Board of Directors is comprised of Ms. Huskins (Chairwoman) and Messrs. McKee and Merriman. All of the members of the Nominating/Corporate Governance Committee are “independent” within the meaning of our director independence standards, which reflect the NYSE director independence standards, as previously discussed. The Nominating/Corporate Governance Committee’s principal purpose is to provide counsel to our Board of Directors on the broad range of issues surrounding the composition and operation of the Board of Directors, including:

·            Development and review of the qualifications and competencies required for membership on our Board of Directors;

·            Reviewing and interviewing qualified candidates to serve on our Board of Directors;

·            Structure and membership of the committees of our Board of Directors; and

·            Succession planning for our executive management.

The Nominating/Corporate Governance Committee also provides recommendations to the Board of Directors in the areas of committee selection and rotation practices, evaluation of the overall effectiveness of the Board of Directors and management, review of Board of Director compensation, and review and consideration of developments in corporate governance practices.  The Nominating/Corporate Governance Committee retains the sole authority to retain and terminate any search firm to be used to identify director candidates, including sole authority to approve the search firm’s fees and other retention terms.  On an annual basis, the Nominating/Corporate Governance Committee solicits input from the full Board of Directors and conducts a review of the effectiveness of the operation of the Board of Directors and all committees thereof, including reviewing governance and operating practices and the Corporate Governance Guidelines for operation of the Board of Directors.

Strategic Planning Committee

The Strategic Planning Committee of our Board of Directors is comprised of Dr. Allen (Chairwoman), Ms. Huskins and Messrs. Case, McLaughlin and Merriman.  With the exception of Mr. Case, our Chief Executive Officer, all of the other members of the Strategic Planning Committee are “independent” within the meaning of our director independence standards, which reflect the NYSE director independence standards as previously discussed.  The Strategic Planning Committee works with management to review initiatives designed to achieve continued growth and to enhance stockholder value.  The Strategic Planning Committee also assists management in looking beyond traditional quarterly and annual perspectives in considering our longer-term goals.

Director Qualifications

The director qualifications developed to date focus on what the Nominating/Corporate Governance Committee believes to be the essential competencies required to effectively serve on the Board of Directors.  In reviewing and considering potential nominees for the Board of Directors, the Nominating/Corporate Governance Committee looks at the following qualities, skills and attributes:

·            Personal and professional integrity, ethics, values and absence of conflicts of interest;

·            Experience in corporate governance, for example as an officer or former officer of a publicly-held company;

·            Experience in our industry and a general business understanding of major issues facing public companies;

·            Experience as a member of the board of directors of another publicly-held company;

·            Ability to fairly and equally represent all stockholders of the company and time to devote to being a director;

·            Practical and mature business judgment, including the ability to make independent analytical inquiries and function effectively in an oversight role;

·            Academic expertise in an area of our operations and achievement in one or more applicable fields;

·            Background in financial and accounting matters; and

·            Diversity in terms of background, expertise, perspective, age, gender and ethnicity.

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Identifying and Evaluating Nominees for Directors

The Nominating/Corporate Governance Committee identifies nominees for directors by first evaluating the current members of our Board of Directors willing to continue in service. Current members with qualifications and skills that are consistent with the Nominating/Corporate Governance Committee’s criteria for Board of Directors service are re-nominated. As to new candidates, the Nominating/Corporate Governance Committee will generally poll members of our Board of Directors and members of management for their recommendations. The Nominating/Corporate Governance Committee has in the past retained a search firm to assist with identifying new candidates for membership on our Board of Directors, and in the future may hire a search firm if deemed appropriate. An initial slate of candidates will be presented to the chairwoman of the Nominating/Corporate Governance Committee, who will then make an initial determination as to the qualification and fit of each candidate. Final candidates will be interviewed by one or more members of the Nominating/Corporate Governance Committee. The Nominating/Corporate Governance Committee will then approve final director candidates and, after review and deliberation of all feedback and data, will make its recommendation to our Board of Directors. Recommendations received from stockholders will be considered and processed and are subject to the same criteria as are candidates nominated by the Nominating/Corporate Governance Committee.

Stockholder Recommendations

The Nominating/Corporate Governance Committee’s policy is to consider candidates recommended by stockholders. The stockholder must submit a detailed resume of the candidate and an explanation of the reasons why the stockholder believes the candidate is qualified for service on our Board of Directors and how the candidate satisfies our Board of Directors’ criteria. The stockholder must also provide such other information about the candidate as would be required by the SEC rules to be included in a proxy statement. In addition, the stockholder must include the consent of the candidate and describe any arrangements or undertakings between the stockholder and the candidate regarding the recommendation. The stockholder must submit proof of Realty Income stockholdings. All communications are to be directed to the chairwoman of the Nominating/Corporate Governance Committee, c/o Corporate Secretary, Realty Income Corporation, 11995 El Camino Real, San Diego, CA 92130. Recommendations received before October 29, 2015 or after November 28, 2015 (more than 150 days or less than 120 days prior to the first anniversary of the date of the Proxy Statement for the previous year’s annual meeting of stockholders) will not be considered timely for consideration at next year’s annual meeting of stockholders. See “Stockholder Proposals for 2016 Annual Meeting” in this Proxy Statement. Properly submitted stockholder recommendations will be evaluated by the Nominating/Corporate Governance Committee using the same criteria used to evaluate other director candidates.

Board Leadership/Independent Chairman of the Board

The Nominating/Corporate Governance Committee also evaluates the Board of Directors leadership structure. Since 1997, the positions of Chairman of the Board of Directors and Chief Executive Officer have been separated in recognition of the differences between the two roles.  Mr. McKee serves as our Chairman of the Board of Directors and presides as lead Independent Director, while Mr. Case serves as our Chief Executive Officer. The Board of Directors believes this is the most appropriate structure at this time because it enables the independent directors to participate meaningfully in the leadership of our Board of Directors while utilizing most efficiently the leadership skills of both Mr. McKee and Mr. Case. In addition, separating the roles of Chairman and Chief Executive Officer allows our Chairman to serve as a liaison between the Board of Directors and management, while providing our Chief Executive Officer with the flexibility and focus needed to oversee our operations.

Board Risk Oversight

Our Board of Directors has overall responsibility for risk oversight with a focus on the more significant risks facing us. The Board of Directors reviews and oversees our enterprise risk management (“ERM”) program, which is a company-wide program designed to enable effective and efficient identification of, and management visibility into, critical company risks and to facilitate the incorporation of risk considerations into decision making.  The ERM program was established to clearly define risk management roles and responsibilities, bring together senior management to discuss risk, promote visibility and constructive dialogue around risk at the senior management and Board of Director levels, and facilitate appropriate risk response strategies.  During the year, as part of the ERM program, management and the Board of Directors jointly discuss major risks that they feel face our business. Throughout the year, the Board of Directors, and the committees to which it has delegated responsibility, dedicates a portion of their meetings to review and discuss specific risk topics in greater detail.  Strategic and operational risks are presented and discussed in the context of the Chief Executive Officer’s report on operations to the Board of Directors at regularly scheduled Board of Directors meetings and at presentations to the Board of Directors and its committees by senior management.  The Board of Directors has delegated responsibility for the oversight of specific risks to Board of Directors committees as follows:

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·                  The Audit Committee oversees our risk policies and processes relating to the financial statements and financial reporting processes, as well as key credit risks, liquidity risks, market risks and compliance, and the guidelines, internal controls, policies and processes for monitoring and mitigating those risks;

·                  The Strategic Planning Committee monitors the risks associated with meeting long-term goals, including evaluating the impact that future initiatives may have on risk decisions;

·                  The Nominating/Corporate Governance Committee oversees the risk related to our governance structure and processes and risks arising from related party transactions; and

·                  The Compensation Committee monitors the risks associated with management resources and structure, including evaluating the effect the compensation structure may have on risk decisions.

Compensation Risk Assessment

The Compensation Committee reviews our company-wide incentive programs to assess whether the incentive programs encourage desirable behavior as it relates to our long-term growth and reflect our risk management philosophies, policies and processes. The total compensation of our executive officers is established after consideration of performance metrics and is compared to the company’s peer group by the Compensation Committee.  The short-term incentive program metrics are based on financial and portfolio goals.  The long-term incentive program metrics are primarily based on our TSR performance relative to our peers, a value creation goal.

In addition to the compensation awarded to management, which is authorized by the Compensation Committee, management monitors incentive awards made to our staff and reviews those awards in light of the risks to which we may be subject and each respective staff member’s responsibilities with regards to policies and procedures and control environment. For example, our portfolio management team receives bonuses based on the re-leasing and sales of properties in our portfolio. All of these transactions are approved by the Executive Vice President, Portfolio Management.

We do not believe that the compensation programs give rise to any risks that are reasonably likely to have a material adverse effect on us.  Non-management employees are largely compensated on a fixed salary basis.  Any additional bonuses or other compensation awards are unlikely to encourage the taking of unnecessary or excessive risks that threaten our long-term value. The Compensation Committee has sought to align the interests of our employees with that of our stockholders through grants of restricted stock awards, thereby giving employees additional incentives to protect and align with our long-term value.  In addition, as discussed above, we have adopted a clawback policy that enables us to recover incentive compensation awards in the event of negligence or misconduct directly related to a material restatement of our financial or operating results or miscalculated performance metrics that, if calculated correctly, would have resulted in a lower payment.

Meetings and Attendance

Our Board of Directors met seventeen times during 2014, the Audit Committee met seven times, the Compensation Committee met thirteen times, the Nominating/Corporate Governance Committee met four times and the Strategic Planning Committee met three times. All directors attended at least 75% of the aggregate of (i) the total number of meetings of our Board of Directors while they were on our Board of Directors and (ii) the total number of meetings of the committees of our Board of Directors on which such directors served. Although we have no policy with regard to Board of Director members’ attendance at our annual meeting of stockholders, it is customary for, and we expect, all Board of Director members to attend. All of our directors, with the exception of Mr. Chapman and Mr. Sterrett, who joined our Board of Directors in October 2014, attended the 2014 annual meeting of stockholders.

To ensure free and open discussion among the independent directors, only independent directors attend executive sessions of our Board of Directors and Committee meetings. As the non-executive Independent Chairman of our Board of Directors, Mr. McKee presided at each of the five executive sessions held during 2014.

Communications with the Board

Stockholders and other interested parties may communicate with the chairman of our Board of Directors or with the non-employee directors, as a group, by sending an email to mpfeiffer@realtyincome.com or by regular mail addressed to the Chairman of the Board of Directors, c/o the Corporate Secretary, Realty Income Corporation, 11995 El Camino Real, San Diego, CA 92130. All appropriate correspondence will be promptly forwarded by the Corporate Secretary to the chairman of our Board of Directors.

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Compensation of the Company’s Directors for 2014

Compensation for our Independent Directors during 2014 consisted of an annual retainer, an additional retainer for acting as Chair of one of our Board’s committees, committee meeting fees, and an annual equity award.  With regards to Mr. Sterrett, his annual retainer was prorated based on his service during 2014. 2014 fees included (i) an annual retainer of $15,000 for each Board of Director member, other than the chairman of our Board of Directors, who receives a $35,000 annual retainer, (ii) an Audit Committee chair retainer of $18,000, (iii) a Compensation Committee chair retainer of $15,000, (iv) a Nominating/Corporate Governance Committee chair retainer of $10,000 and (v) a Strategic Planning Committee chair retainer of $10,000. Board of Director and committee meeting fees are $1,000 per meeting attended in person and $500 for telephonic attendance.

Mr. Case is a director who was also a member of management during 2014, and as a non-independent employee director, he does not receive any compensation for serving as a member of our Board of Directors or any of its committees. Our non-employee directors received the following aggregate amounts of compensation for the year ended December 31, 2014:

(1)                 On May 6, 2014, the date of our 2014 Annual Meeting of Stockholders, each non-employee director, with the exception of Mr. Sterrett, received 4,000 shares of restricted stock with a grant date fair value of $173,160, which is calculated by multiplying the 4,000 shares by the closing market price of our common stock on May 6, 2014 of $43.29, as prescribed by Accounting Standards Codification Topic 718.  On October 27, 2014, upon being appointed to the Board of Directors, Mr. Sterrett received 4,000 shares of restricted stock with a grant date fair value of $181,040, which is calculated by multiplying the 4,000 shares by the closing market price of our common stock on October 27, 2014 of $45.26, as prescribed by Accounting Standards Codification Topic 718. All of these stock grants vest according to the vesting schedule described below under “Stock Awards for Directors” and all shares, including shares of restricted stock, are paid dividends from the date of grant.

(2)                 Amounts represent the annual retainer of $10,000 for serving as the director of Crest Net Lease, Inc. (“Crest”), a wholly owned subsidiary of Realty Income.

(3)                 As of December 31, 2014, the non-employee directors did not hold any stock options, but held the following number of shares of unvested restricted stock:

(4)                 Mr. Case, our Chief Executive Officer, President and Director, did not receive any compensation for his services on our Board of Directors or as a director of Crest during 2014.  His compensation is reflected as part of the “Summary Compensation Table” on page 41.

Stock Awards for Directors

The 2012 Incentive Award Plan provides that typically, upon the initial election to our Board of Directors, and at each annual meeting of stockholders thereafter, if the director continues to serve as a director after the meeting, each non-employee director is automatically granted 4,000 shares of restricted stock. The vesting schedule for restricted shares granted to non-employee directors is as follows:

·            For directors with less than six years of service at the date of grant, shares vest in 33.33% increments on each of the first three anniversaries of the date the shares of stock are granted;

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·            For directors with six years of service at the date of grant, shares vest in 50% increments on each of the first two anniversaries of the date the shares of stock are granted;

·            For directors with seven years of service at the date of grant, shares are 100% vested on the first anniversary of the date the shares of stock are granted; and

·            For directors with eight or more years of service at the date of grant, there is immediate vesting as of the date the shares of stock are granted.

Other Payments for Directors

The members of our Board of Directors are also entitled to reimbursement of their travel expenses incurred in connection with attendance at Board of Director and committee meetings and conferences, in accordance with our travel policy.  Additionally, our Board of Director members are reimbursed for expenses incurred in connection with attending continuing education programs to assist them in remaining abreast of developments in corporate governance and other critical issues relating to the operation of public company boards.

Director Stock Ownership Guidelines

Our non-employee directors are subject to stock ownership guidelines. Under these guidelines, each non-employee director will be required, within five years of January 1, 2013, to hold stock valued at no less than five times the amount of the annual cash retainer paid to such director for service as a member of the Board of Directors, without reference to committee service.  For each of our non-employee directors, the stock ownership goal is determined using five times their annual cash retainers as of January 1, 2015 of $15,000, or $75,000, divided by the closing price of our common stock as of December 31, 2014 of $47.71, which equals a minimum share ownership requirement of 1,572 shares.

All vested and unvested restricted stock awards qualify towards satisfaction of the requirement.  For any new director, compliance with the guidelines will be required within five years after being elected to the Board of Directors. As of January 1, 2015, each director subject to the guidelines met or exceeded the stock ownership requirements.

Stock ownership guidelines for our executive officers, including Messrs. Case, are described below under “Executive Compensation — Compensation Discussion and Analysis — Executive Stock Ownership Requirements.”

EXECUTIVE OFFICERS OF THE COMPANY

The following table sets forth certain information as of the record date of March 5, 2015 concerning our executive officers:

Executive Officer Biographies

John Case’s biographical information is set forth above under Board of Director Biographies.

Sumit Roy is our Executive Vice President, Chief Operating Officer, and Chief Investment Officer, positions he has held since October 2014.  Prior to that, he was Executive Vice President, Chief Investment Officer, a position he has held since October 2013.  Prior to that, he was Executive Vice President, Acquisitions, a position he held from March 2013 to October 2013.  From September 2011 to February 2013, he was our Senior Vice President, Acquisitions.  Prior to joining us, Mr. Roy was an Executive Director, Global Real Estate, Lodging & Leisure, for UBS Investment Bank in New York (UBS).  Prior to UBS, Mr. Roy worked at Meadwestvaco (2003-2004), Merrill Lynch (2001-2003), and as a Principal at Cap Gemini Ernst & Young LLP (1994-1999).  Mr. Roy has a Bachelors and Masters in Computer Science, and a MBA from the University of Chicago.

Paul M. Meurer is our Executive Vice President, Chief Financial Officer and Treasurer, positions he has held since joining us in 2001.  Prior to joining us, he was a director in Merrill Lynch & Co.’s Real Estate Investment Banking Group (1992-2001), a real estate consultant with General Atlantic Partners (1991) and worked in the Real Estate Investment Banking Department at Goldman Sachs & Co. (1987-1990).

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Michael R. Pfeiffer is our Executive Vice President, General Counsel and Secretary, positions he has held since May 2002.  He joined us in 1990 and served as Corporate Counsel until 1995, when he was named General Counsel and Secretary.  Mr. Pfeiffer left us in September 2001 and served as Executive Vice President and General Counsel for Westfield Corporation, Inc., a retail shopping mall owner, until May 2002, at which time he returned to us as Executive Vice President, General Counsel and Secretary.  Prior to 1990, Mr. Pfeiffer was in private practice with a law firm specializing in real estate transactional law and served as associate counsel with First American Title Insurance Company.  He is a licensed attorney and member of the State Bar of California and Florida.  Mr. Pfeiffer is a licensed Real Estate Broker in California and holds the real estate officer license for us.

Richard G. Collins is our Executive Vice President, Portfolio Management, a position he has held since August 2005.  Prior to becoming Executive Vice President, Portfolio Management, Mr. Collins served as the President of our subsidiary, Crest.  He joined us in 1990 and has served in a variety of positions, including Vice President, Portfolio Management and Senior Vice President, Portfolio Acquisitions.  Prior to joining us, he was involved as a principal in the acquisition and sale of land and commercial real estate, as a general partner for land and commercial real estate partnerships (1979-1990) and as a leasing and sales specialist in the Office Properties Division for Grubb & Ellis Commercial Real Estate Services (1974-1979).

Robert J. Israel is our Senior Vice President, Research, a position he has held since 2006.  He joined us in 1997 and served as Senior Research Director, Associate Vice President and Vice President of Research prior to being promoted to his current position.  Prior to joining us, Mr. Israel was a Vice President of corporate banking for First National Bank and a Corporate Banker for City National Bank.

Laura S. King is our Senior Vice President, Assistant General Counsel and Assistant Secretary, positions she has held since December 2008.  From November 1998 to December 2008, she was our Vice President, Assistant General Counsel and Assistant Secretary.  She joined us in 1985 and held various investor services and legal positions until her promotion to Vice President, Assistant General Counsel in 1998.  Prior to joining us, Ms. King held various accounting positions with Southern California Savings and Loan Associations.  She is a licensed attorney and member of the State Bar of California.

Debra M. Bonebrake is our Senior Vice President, Industrial and Office Properties, a position she has held since March 2014.  Prior to joining us, Ms. Bonebrake was a Managing Director with Prologis.  She was responsible for global property management and managed property management and customer service through all regions of the company.  Prior to that, Ms. Bonebrake had overall responsibility for property management in North America.  She joined Prologis in September 1995 as Vice President of Customer Service.  From 1989 through 1995, Ms. Bonebrake was with Paragon Group, Inc., where she was responsible for property management operations in St. Louis, Missouri.

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

This Compensation Discussion and Analysis section discusses the compensation policies and programs for the following executive officers of the company (the “named executive officers”):

Mr. Malino served as President and Chief Operating Officer through September 30, 2014, at which point, Mr. Roy took on the role of Chief Operating Officer, and Mr. Case took on the title of President.  Mr. Malino served as a consultant until January 31, 2015 to assist with the transition.

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Elements of Compensation

In structuring executive compensation, the Compensation Committee considers how each component of compensation motivates performance, promotes retention and creates long-term stockholder value.  Base salaries, severance and other termination benefits are primarily intended to attract and retain highly qualified executives.  We believe that in order to attract and retain top executives, we need to provide them with compensation levels that reward their continued service.  Annual incentive cash payments and equity awards, and long-term performance shares are designed to (i) directly reward performance, (ii) achieve specific strategies and operating objectives and (iii) provide incentives to create long-term stockholder value.  All of our equity incentives are primarily intended to align named executive officers’ long-term interests with stockholders’ long-term interests, although we believe they also play a role in helping us reward performance and to attract and retain top executives.

Base Salaries

Base salaries provide our executive officers with a degree of financial certainty and stability, reward them for performing their core job duties and responsibilities, and are used to attract and retain highly qualified individuals.  The Compensation Committee annually reviews and determines the base salaries of our executive officers at the commencement of each year, after review of performance over the prior year and comparative market data.  Base salaries are also evaluated at the time of a promotion or other significant changes in responsibilities.  Increases in base salaries are based on the Compensation Committee’s evaluation of such factors as an executive officer’s level of responsibility and development potential, the results previously achieved by the executive officer, and the level of pay for the executive officer relative to other similarly situated executive officers at our peer companies.

In connection with its review of fiscal 2013 performance and setting of compensation in January 2014, the Compensation Committee decided to increase the base salaries paid to all of our named executive officers commencing on January 1, 2014.  The Compensation Committee’s decision to increase 2014 salaries was based, in part, on its review of peer compensation data, which illustrated that base salaries of our named executive officers were around the median of their peers.  The increases in 2014 base salaries also reflected the named executive officers’ increased responsibilities due to the significant growth and outstanding 2013 operating performance of the company.  The base salaries, including any 2014 mid-year promotional salary increases, are reflected in the table below.  Also shown below are the salary increases approved for 2015:

(1)                Mr. Roy was appointed Chief Operating Officer of the company, effective October 1, 2014, and also retained his title of Chief Investment Officer.  In connection with his appointment to Chief Operating Officer, the Compensation Committee increased Mr. Roy’s salary from $400,000 to $425,000, effective October 1, 2014.

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(2)                Mr. Malino departed from the company on September 30, 2014.  Mr. Malino continued to serve as a consultant to the company until January 31, 2015, pursuant to a consulting agreement entered into between the company and Mr. Malino on September 3, 2014.  Under the consulting agreement, which was effective as of October 1, 2014, Mr. Malino received a $20,000 monthly consulting fee and a bonus of $220,000, which was paid in full in February 2015.

Incentive Compensation Programs and Performance Objectives

In early 2014, the Compensation Committee, with the assistance of its independent compensation consultant, FPL, undertook a thorough examination and deliberation regarding market practices and effective designs for incentive compensation programs.  In April 2014, after much consideration and review, the Compensation Committee implemented new short-term and long-term incentive compensation programs that (i) provide clear objectives and targets, (ii) improve alignment with measurable company performance and stockholder returns, and (iii) recognize and adjust for individual contributions to our success in the short-term program.  The Compensation Committee sought to transition from an annual program, that was based on review of historical performance at fiscal year-end, to two distinct incentive programs, short-term and long-term, that were based largely on forward-looking objective performance metrics.

The STIP employs objective performance goals for five metrics, weighted 70% in total, that measure our operating success and reflect our strategies.  The Compensation Committee believes these annual targeted operating and financial goals align with our strategy to attain long-term financial stability that will support sustained cash flows beneficial to our stockholders.  Our STIP also reserves 30% of the short-term incentive compensation opportunity to be awarded based upon individual performance and such other factors as the Compensation Committee deems relevant.  This preserves a degree of discretion at year-end to ensure proper incentives and alignment of compensation with performance and market practices.

Amounts are earned under the STIP based on our annual performance relative to threshold, target and maximum performance goals for these objective measures, with 50%, 100% and 150% of target incentive opportunity payable based on threshold, target and maximum performance achieved, respectively, with linear interpolation between threshold and maximum.  The remaining 30% of incentive opportunity is earned based on an evaluation of individual performance, median peer compensation for similar positions, market conditions, and other factors deemed relevant by the Compensation Committee.  The earned payout is expressed as a percentage of target incentive opportunity and the target incentive opportunity is set by the Compensation Committee when establishing the performance goals. No compensation will be awarded for below-threshold performance and performance in excess of maximum goals is capped at 150% of target payout.  Thus, the STIP payout ranges from zero to a capped amount of 150% of target for our named executive officers.

The amounts earned under our STIP are paid two-thirds in cash and one-third in restricted shares.  The equity portion of the STIP does not result in full payout of the annual incentive until an additional five years after the annual performance period ends, and is subject to continued employment through such vesting dates.

The LTIP is comprised of annual grants of long-term performance shares that are earned based on our performance over a three year performance period against objective goals.  The 2014-2016 performance shares include metrics with 80% based on our relative TSR performance under two different measures, which align our executives with the interests of our stockholders and focus their efforts on long-term stockholder value creation, and 20% is based on our debt-to-EBITDA ratio, which measures our financial health.

Threshold, target and maximum performance result in earning 50%, 100% and 150%, respectively, of the target awarded performance shares, with linear interpolation between threshold and maximum.  No performance shares are earned for below-threshold performance and performance in excess of maximum goals is capped at 150% of target payout.

The performance shares earned based on our performance then vest 50% on the first and second January 1 after the end of the three year performance period, subject to continued service.  This vesting schedule delays full payout for an additional year after the performance period is over, which promotes retention.

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Total Target Direct Compensation

The Compensation Committee worked with FPL to determine appropriate levels of total target direct compensation and guidelines to employ to achieve balance between (i) cash and equity compensation, (ii) long-term and short-term compensation and (iii) performance-based and time-based equity.  The Compensation Committee also considered market median total target direct compensation within our peer group, based on market data provided in December 2013.  In adopting the new compensation programs in April 2014, the Compensation Committee was also guided by market data prepared by FPL regarding the aggregate total target direct compensation awarded by our peer group.  The Compensation Committee sought to achieve aggregate total target direct compensation for our executive group at or around the median of our peer group.  After review and consideration, the Compensation Committee approved the following total target direct compensation and guidelines for 2014 compensation.  Total target direct compensation is composed of (i) base salary, (ii) annual incentive opportunity (two-thirds cash and one-third equity), (iii) performance shares and (iv) annual grant of restricted shares.  In aggregate, the 2014 total target direct compensation established for the named executive officers was approximately 95% of the market median.

Guidelines.  The Compensation Committee used the following guidelines for determining the various elements of direct compensation payable for 2014 for our CEO.

Total Target Direct Compensation to be approximately 50% annual cash and 50% annual equity, where:

·                  Annual cash equals base salary plus the STIP portion payable in cash (two-thirds of the total annual opportunity under the STIP) and

·                  Annual equity grants value consists of the one-third equity portion of the STIP, and the remaining value is 50% performance shares and 50% time-based restricted shares.

As a result, approximately two-thirds of target annual equity for our CEO is earned based on our performance, with one-third earned as performance shares and the remaining amount in the form of time-based restricted shares earned under the STIP.  Similar guiding principles were used for our other named executive officers, except that the remaining value of equity after the one-third equity portion of the STIP, was allocated 75% performance shares and 25% time-based restricted shares.

Annual Short-Term Incentive Program – Cash and Equity

As discussed above, the Compensation Committee adopted a new pay for performance annual STIP for 2014, which employs objective performance goals for five metrics weighted 70% in total.  The remaining 30% of incentive opportunity is awarded based upon individual performance and other factors as the Compensation Committee deems appropriate based on its discretion.  The amount earned can range from 0% of incentive opportunity for below-threshold performance to 150% of incentive opportunity for maximum performance.  The amounts earned under the STIP are paid two-thirds in cash and one-third in restricted shares that vest 20% per year thereafter. The STIP is used as an important tool in determining proper equity grants consistent with our actual performance.  100% of compensation awarded under this program is at-risk, and is tied not only to our objective performance, but is also aligned with the interests of our stockholders.

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The performance criteria, weightings and amounts that can be earned, in addition to our actual performance and amounts earned for 2014 performance, under our STIP, are set forth in the table below.

STIP Objective Performance Criteria – 70% Weighting

The Compensation Committee used interpolation for results between threshold and maximum criteria.  Performance in excess of maximum goals is capped at 150% of target payout for that measure.  AFFO per share is defined as Funds from Operations adjusted for unique revenue and expense items, which we believe are not as pertinent to the measurement of our ongoing operating performance, and is consistent with the presentation of AFFO in our public SEC filings.

STIP Individual Payout Earned - 30% Weighting

Our Chief Executive Officer and each of the remaining named executive officers establish individual executive performance objectives, for each year, under the general categories of strategy, leadership and operations, which are largely subjective in nature.  These individual performance objectives were reviewed with the Compensation Committee when they were established early in 2014.  At the end of the 2014 performance year, our Chief Executive Officer recommended to the Compensation Committee the percentage that should be earned under the individual performance component of the STIP for each named executive officer, other than himself, based in part on his evaluation of each executive’s performance under these objectives as well as other accomplishments, hurdles, and additional factors that occurred during the year, such as market positioning, as our Chief Executive Officer deemed relevant.  The Compensation Committee engaged in a discussion with our Chief Executive Officer regarding his recommendations and his assessments.  The Compensation Committee adopted the recommendations of the Chief Executive Officer regarding the individual performance percentage earn-outs for the other named executive officers.  The Compensation Committee also engaged in a review of the Chief Executive Officer’s performance and the company’s performance, as well as the state of our industry and market competitive practices, in determining the Chief Executive Officer’s individual percentage earn-out.  The percentages earned under the individual performance metric and the material factors considered are set forth below.

·                  John P. Case – 145%

During his first full year as CEO, Mr. Case successfully executed our business plan, helping lead the company to strong operating results.  Under his leadership, FFO per share increased 7.1% and AFFO per share increased 6.6%, which allowed us to increase our dividend paid per common share by 2.1%. His performance exceeded his objectives.

·                  Sumit Roy – 150%

Mr. Roy led the successful execution of our acquisition strategy during the year. In 2014, we completed $1.4 billion in acquisitions, which made 2014 our second most acquisitive year in the company’s history. We achieved this level of acquisitions while remaining selective and securing attractive yields.  Under his leadership, we sourced acquisition opportunities of approximately $24 billion during the year.  His performance exceeded his objectives.

·                  Paul M. Meurer – 100%

Mr. Meurer was instrumental in accessing the capital markets to raise capital to fund our $1.4 billion of 2014 acquisitions by raising $1.3 billion in permanent and long-term capital of which more than half was equity.  His performance was in alignment with his objectives.

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·                  Michael R. Pfeiffer – 75%

Mr. Pfeiffer successfully provided oversight and legal expertise for the $1.4 billion of acquisitions closed during the year, as well as the $1.3 billion of capital raised.  His performance was in alignment with his objectives, which was tempered by his total target direct compensation for 2014 relative to the market median.

·                  Richard G. Collins – 75%

Mr. Collins oversaw our existing portfolio which continued to perform well during the year.  Under his leadership, we had one of our most active years for lease rollover, and achieved successful re-leasing execution with high recapture rates. Our proactive approach to portfolio management resulted in occupancy rate increasing to 98.4% at the end of 2014, the highest it has been since 2007.  His performance was in alignment with his objectives, which was tempered by his total target direct compensation for 2014 relative to the market median.

·                  Gary M. Malino - 100%

While Mr. Malino served as President and Chief Operating Officer during 2014, he was responsible for overseeing the operating activities of our growing company.  During the first nine months of the year, he helped grow our information technology and human resources departments, which has strengthened our IT security, as well as our ability to manage a growing employee base.  His performance during the first nine months of the year was in alignment with his objectives.

The incentive opportunities and the total actual incentive award earned by each named executive officer for 2014 under the STIP is set forth in the table below.  Two-thirds of the earned incentive award was paid in cash in January 2015 while the remaining one-third was awarded in restricted shares. The restricted shares were granted effective as of January 15, 2015, based on the dollar value of the earned incentive award allocated to restricted shares and our closing stock price of $52.21 on January 15, 2015. Named executive officers not employed by us on the date the earned incentive award was granted were not entitled to receive the full amount of the award.

2014 Incentive Opportunities and Earned Incentive Compensation under the STIP

(1) No compensation would be awarded for below-threshold performance.

(2) Mr. Roy’s initial 2014 annual incentive opportunities were the same as Mr. Meurer’s.  They were then adjusted to reflect his assumption of the additional role of Chief Operating Officer on October 1, 2014.  The adjustment was based on using three-fourths of his initial calculation and one-fourth (his pro rata time during 2014 as COO) of Mr. Malino’s incentive payouts.

(3) Given that Mr. Collins is retirement eligible, he was granted restricted share units (“RSUs”) instead of restricted shares in order to preserve the deferral of his income taxation until the issuance of the shares to him upon vesting.

(4) Mr. Malino’s annual incentive under the STIP was pro-rated based on his service as an executive officer through September 30, 2014 and was paid solely in cash.

Equity Based Long-Term Incentive Awards

The Compensation Committee has historically granted restricted share awards on an annual basis, in recognition of individual executive’s and company’s performance for the prior fiscal year.  From time-to-time the Compensation Committee has also deemed it appropriate to grant restricted share awards for additional efforts related to non-recurring events or transactions.

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The restricted share awards are designed to, (i) increase executive officers’ common stock ownership, (ii) motivate our executive officers to improve long-term common stock price performance, (iii) align their interests with the interests of stockholders, (iv) encourage long-term dedication and (iv) operate as a retention mechanism for key members of our management.

2014 Equity Compensation

In 2014, the Compensation Committee continued its practice of granting restricted shares in January 2014 reflective of and as compensation for 2013, and it also introduced the grant of long-term performance shares in April 2014 as part of the total target direct compensation for 2014.  At this time, the Compensation Committee also established the STIP grants of restricted shares based upon achievement of the goals established under the STIP, as discussed above.  The number of shares earned under the STIP for 2014 is set forth above and was granted on January 15, 2015, (the “STIP Earned Restricted Shares”).  In connection with the adoption of the STIP and the allocation of equity awards among approved total target direct compensation in accordance with its guidelines discussed above, in April 2014, the Compensation Committee proposed initial 2014 annual restricted share award values to be granted in January 2015.  The proposed annual award values were reviewed and approved on January 15, 2015, with a minor adjustment to Mr. Roy’s grant due to his assumption of the Chief Operating Officer role in October 2014.

The long-term performance shares granted in April 2014 and the time-based restricted shares granted effective January 15, 2015 are as follows:

(1)                 Amounts reflect the Compensation Committee’s initial expectation of awards to be granted to the named executive officers.

(2)                 Annual restricted shares reflect the actual number of shares that were granted by the Compensation Committee on January 15, 2015.  The number of annual restricted shares was calculated by dividing the dollar value authorized by the Compensation Committee by the close price of our common stock on the date of grant, January 15, 2015, of $52.21 and rounded down to the nearest whole number.  Mr. Malino did not receive the annual restricted shares as he was no longer employed as of the January 15, 2015 grant date.

(3)                 The number of Performance Shares granted at target value, reflect the grant date fair value of $39.84 per share, using a multifactor Monte Carlo simulation model for the market conditions associated with the TSR performance goals, valued at $29.06 per share, plus $10.78 per share for the performance condition of Debt-to-EBITDA ratio.

(4)                 Mr. Roy’s initial proposed grants were the same as Mr. Meurer’s, but were adjusted by the Compensation Committee to reflect his assumption of the additional role of Chief Operating Officer on October 1, 2014.  The adjustment was based on using three-fourths of his initial proposed grant and one-fourth (his pro rata time during 2014 as COO) of Mr. Malino’s proposed grants.  The adjustment resulted in of 411 additional Performance Shares and 112 additional annual time-based shares granted on January 15, 2015, which are included in the table above.

(5)                 In accordance with the terms of the Performance Share Award Agreement, Mr. Malino vested in a pro-rated portion of the performance shares granted on April 10, 2014, based on our performance under the performance measures during the performance period through September 30, 2014, his termination date, resulting in 4,067 shares being earned and vested.  The remaining unearned and unvested performance shares were forfeited.

The Grants of Plan Based Award Table and Summary Compensation Table for 2014 reflect (i) restricted share grants made in January 2014, which are reflective of the 2013 performance year and intended as compensation for 2013, and (ii) the performance shares granted in April 2014.  The 2014 annual time-based restricted shares reflected in the table above and the 2014 STIP Earned Restricted Shares, which are both intended to be compensation for 2014 and earned based on 2014 performance, will be reflected in the 2015 Grants of Plan Based Award Table and Summary Compensation Table based on their actual grant date.  Since the 2014 proxy table presentation does not align with the Compensation Committee’s intended 2014 compensation, we have provided supplemental footnote tables and disclosures in that section of the proxy.

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2014-2016 Long-Term Performance Shares

Our new long-term incentive program is an equity program wherein long-term performance shares are awarded each year and earned based on our performance over a three year period, with the initial performance period running from January 1, 2014 through December 31, 2016.  The objective performance goals that determine the number of performance shares earned are based (i) 60% on our TSR performance within the MSCI US REIT Index on a percentile basis, (ii) 20% on the spread between our TSR compared to the TSR of the NAREIT Freestanding Index, and (iii) 20% on maintaining a conservative level of debt as evidenced by our Debt-to-EBITDA ratio.  TSR is calculated by comparing the trailing 20-trade-day average stock price at the end of the performance period, assuming contemporaneous reinvestment of dividends, to the closing stock price on December 31, 2013.  We are a member of both the MSCI US REIT Index, a broader REIT index, and the NAREIT Freestanding Index, a net-leased focused REIT index, and both indices are widely used to measure performance between REITs. There were many ways to compare our performance to each of these indices.  The Compensation Committee analyzed different methods and determined that comparisons on a percentile basis and based on a spread, were both widely used in the market-place and appropriate for evaluating our performance during the 2014-2016 performance period.

Threshold, target and maximum performance result in earning 50%, 100% and 150%, before weighting, of the target awarded performance shares, with linear interpolation between threshold and maximum.  No performance shares are earned for below-threshold performance and performance in excess of maximum goals is capped at 150% of target payout.

The number of performance shares that are earned based on the achievement of the performance goals during the 2014-2016 performance period will vest 50% on the first and second January 1 after the three year performance period, subject to the named executive officer’s continued employment (and except as described in “Severance and Change in Control Arrangements”).  Any earned performance shares that remain unvested as of the date on which an executive’s employment terminates, and any performance shares not earned as a result of the failure to achieve the applicable performance goals, will be forfeited.

The performance shares provide for a cash payment equal to the aggregate cash dividends that would have been paid on the total number of performance shares earned as if the shares had been outstanding from January 1, 2014 through the date on which the shares are issued, if any.

Promotional Grant for Mr. Roy

In recognition of the additional responsibilities Mr. Roy has assumed as our Chief Operating Officer, effective as of October 1, 2014, the Compensation Committee decided to provide Mr. Roy with an additional annual time-based restricted share award valued at $500,000 and additional 2014-2016 performance shares with a target value of $23,900, which were granted on January 15, 2015.  These amounts were determined by the Compensation Committee as compensation for the additional duties and responsibilities that he took on by assuming the Chief Operating Officer role while continuing in his role as the Chief Investment Officer.  The performance shares are subject to the identical terms as those granted on April 10, 2014.

Time-Based Restricted Shares Granted in January 2014 for 2013 Performance

Historically, our restricted share awards are typically granted after fiscal year end, in recognition of the company’s prior year performance under the performance metrics for that year, as well as each executive officer’s individual performance for the prior fiscal year.  The 2013 guideline performance metrics, their weightings and the Compensation Committee’s ultimate assessment at the end of 2013 based on 2013 performance, which guided the determination of the January 2014 restricted share awards, are provided in detail in the 2014 Proxy Statement filed with the SEC on March 21, 2014.  In summary, the named executive officers were granted equity awards between 114% and 158% above their target salary multiples, as a result of performance results above target levels.

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Outstanding 2013 Performance Award Granted in Connection with Promotion of our CEO

In September 2013, in connection with Mr. Case’s promotion to Chief Executive Officer, the Compensation Committee determined that it was appropriate and in our stockholders’ best interests to include, as part of his promotional equity compensation, a one-time equity grant which vests subject to our performance.  The Compensation Committee believes that this grant promotes retention amidst a very competitive environment in the net-lease sector, further aligns Mr. Case’s interests with those of our stockholders, and continually motivates him to focus on a variety of key performance metrics.

In September 2013, Mr. Case was granted 51,454 shares of restricted common stock (the “2013 Performance Award”) that are scheduled to vest on December 31 of 2013, 2014, 2015 and 2016 based on seven annual performance metrics, with a maximum of 12,864 shares that can vest at each date.  The vesting of these shares is based on our achievement relative to the performance metrics, with a range of zero shares vesting for a poor rating to 3,676 shares vesting for an outstanding rating per annual performance metric.  If we achieve at or below the “poor” threshold with respect to a performance metric, then none of the shares subject to such performance metric’s tranche would vest.  If we achieve “average,” “good,” “excellent” or “outstanding” rating for the applicable calendar year with respect to an applicable performance metric, then 75%, 125%, 150% or 200%, respectively, of a targeted 1,838 shares subject to such performance metric’s tranche would vest.  However, in no event, will more than an aggregate of 12,864 shares vest with respect to any calendar year, and no more than 51,454 shares will vest, in the aggregate, pursuant to the 2013 Performance Award.

The metrics and our performance rating for 2014 under the 2013 Performance Award are set forth below:

During 2014, based on our strong financial and operational performance under these metrics, 12,864 shares of the 2013 Performance Award vested on December 31, 2014, representing the capped and maximum number that may vest per year.  As a result of similar strong performance under these metrics during 2013, 12,864 shares of the 2013 Performance Award also vested on December 31, 2013.

Restricted Share Vesting

Historically, our restricted shares vested in 20% per year increments for employees less than 55 years of age, with increased vesting over shorter periods for persons less than 60 years of age, with vesting for persons 60 years old or more vesting upon grant.  Commencing with the awards granted in January 2015 for 2014 performance, our restricted shares vests 20% per year on January 1, 2016 and each January thereafter through January 1, 2020, but are subject to accelerated vesting in the event of retirement, which is defined as age 60 plus 10 years of service.  The Compensation Committee believes that this vesting approach is (i) easier to administer, (ii) consistent with market practices and (iii) preserves the benefit of acceleration, which occurs only upon actual retirement.

Given that Mr. Collins is retirement eligible, he was granted restricted share units (“RSUs”) in January 2015 instead of restricted shares in order to preserve the deferral of his income taxation until the issuance of the shares to him upon vesting.  The RSUs have dividend equivalents that pay out currently on the payment date for the dividend, regardless of the vested status of the RSUs, in order to provide the RSUs with the same economic rights as shares of restricted stock, which, as outstanding shares of common stock, are entitled to cash dividends on the dividend payment date.

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In June 2013, the Compensation Committee approved amendments to the existing employment agreements that provide for accelerated vesting of outstanding restricted share awards upon an involuntary termination without cause or an executive’s constructive termination (as defined in “Potential Payments upon Termination or Change in Control”).  The Compensation Committee determined that these acceleration provisions were advisable to promote executive retention.

Compensation for the Chief Executive Officer in 2014

In determining the incentive compensation opportunities for our CEO for 2014, the Compensation Committee employed the guidelines discussed above in the section titled Total Target Direct Compensation on page 27. As a result, approximately two-thirds of target annual equity for our CEO is earned based on our performance, with one-third earned as performance shares (granted at target value) and the remaining amount in the form of time-based restricted share awards that may be earned under the STIP at target performance.

Set forth below is a table that illustrates the application of the guiding principles for the compensation decisions for 2014 for our CEO under our new incentive programs and total target direct compensation compared to the market median total target direct compensation.

The Compensation Committee believes that a significant portion of executive compensation should be at risk and tied to our performance in order to best align management’s interests with those of our stockholders.  In 2014, approximately 69% of our CEO’s total target direct compensation consisted of compensation that is at risk based on achievement of objective performance metrics. Set forth in the table below is the breakout of CEO target compensation for 2014.

CEO Total Target Direct Compensation (1)

(1)           The components of total target direct compensation for 2014 are included in the immediately preceding table.  For a detail of actual amounts paid to our CEO for 2014, refer to the table at the top of the following page.

In order to provide stockholders with a more complete picture of our Chief Executive Officer’s actual compensation, the table below provides additional compensation information not required by the SEC. The following table shows our Chief Executive’s total compensation for services performed in 2014. In accordance with the SEC rules, the Summary Compensation Table discloses the grant date value of equity awards granted in the listed years, even though such awards may be for service in prior years. In contrast, this table shows the grant date value of such awards for the services performed in 2014.

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(1) The performance shares may be earned based on our performance over a three year performance period from January 1, 2014 through December 31, 2016. No performance shares will be earned if results do not meet threshold performance levels.

Changes to 2015 Incentive Programs

The Compensation Committee adopted the 2015 STIP with terms substantially similar to the 2014 program, except that the 2015 STIP incentive awards will be earned based on the following performance goals and weightings:

In addition, the threshold, target and maximum amounts subject to the 2015 STIP have been revised to reflect the 2015 total target direct compensation established by the Compensation Committee, included in the table below.

Additionally, the Compensation Committee adopted the 2015 LTIP and granted performance shares in February 2015 based on the following performance goals and weightings measured over the performance period from January 1, 2015 through December 31, 2017:

Severance and Change in Control Arrangements

We have employment agreements with each of our named executive officers and other executive officers, which provide for severance payments and other benefits to the officers if their respective employment is terminated by us without cause or by the executive due to a constructive termination, including any such termination following a change of control of us.  We do not provide any tax gross-up payments.

In general, the employment agreements provide that in the event of a change in control, without termination, no cash payments will be made to our named executive officers.  The only benefit they are entitled to is the accelerated vesting of their outstanding equity awards.

In the event of a change in control and a qualifying termination within 12 months after such change in control, for executives other than Mr. Case, we will provide severance payments equal to 18 months of base salary plus the average bonus paid over the past three years, and continued medical insurance for 18 months following termination.  In the event of a qualifying termination not in conjunction with a change in control, the benefits for our executives other than Mr. Case equal 12 months of base salary plus the average bonus paid over the past three years, and continued medical insurance for 12 months following termination.

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For Mr. Case, in the event of a change in control termination, we will provide severance equal to (a) 36 months of base salary, plus three times his “bonus amount,” (as defined) (b) a prorated portion of his target bonus for the partial fiscal year; and (c) any earned but unpaid annual bonus with respect to the prior fiscal year.  In the event of a qualifying termination, Mr. Case’s employment agreement provides for severance equal to (a) 24 months of base salary, plus two times his “bonus amount,” (as defined) and (b) any earned but unpaid annual bonus with respect to the prior fiscal year.  Mr. Case also receives continued medical insurance for 12 months following these types of terminations.

Also, in accordance with the terms of our restricted share agreements, upon a qualifying termination or change in control, the vesting of all unvested restricted shares accelerates.

In regards to performance shares, in the event of a change in control during the performance period, the performance shares will be earned and vested based on the achievement of the performance goals through the date of the change in control and then pro-rated based on the number of days in the performance period through such date.  In the event of a change in control or certain qualifying termination following the end of the performance period, the named executive officers will vest in the number of performance shares that remains unvested as of the change in control or qualifying termination.

The performance shares also provide for accelerated vesting and earn-out based on truncated performance periods in the event of certain terminations of employment, in order to provide incentive and rewards for performance through the date of such terminations, as follows:

·                  Termination of employment without “cause” or for “good reason” during the performance period.  The performance shares will be earned and vested based on the achievement of the performance goals through the termination date and the amount will be pro-rated based on the amount of time employed during the performance period.

·                  Retirement (age 60 plus 10 years of service.) Named executive officers, other than Mr. Case, will have the same benefit as described above.

·                  Death or disability. For named executive officers that die or become disabled during the performance period, the target number of performance shares granted will be earned and vested as of such date.  Mr. Case will receive this same benefit in the event of his retirement.

·                  Non-renewal of Mr. Case’s employment agreement. The performance shares will be earned and vested based on the achievement of the performance goals through the termination date.

The Compensation Committee believes these benefits are reasonable. The payments and benefit levels under the employment agreements did not influence and were not influenced by other elements of compensation.  The agreements were designed to help (i) attract and retain key employees, (ii) preserve key employee’s morale and productivity and (iii) promote continuity of management in the event of an actual or threatened change in control. These change in control benefits allow executives to assess takeover bids objectively without regard to the potential impact on their individual job security.

Mr. Malino’s employment terminated effective as of October 1, 2014.  At that time, Mr. Malino played a key role in overseeing the re-development of our new corporate headquarters.  Accordingly, we entered into a consulting agreement with Mr. Malino on September 3, 2014.  Under the agreement Mr. Malino continued to serve as a consultant until January 31, 2015, and oversaw the re-development of our headquarters through completion.  Under the consulting agreement, Mr. Malino received a $20,000 monthly consulting fee and a bonus of $220,000 at the end of the consulting period.  In addition, Mr. Malino’s termination was deemed to qualify for severance benefits under his employment agreement.

Other Benefits and Policies

We provide medical and other benefits to our named executive officers that are similar to those benefits offered to our full-time employees, including employer matching contributions to their 401(k) savings accounts and coverage under a health and disability insurance program.

When the Compensation Committee believes that it is necessary, we will occasionally supply perquisites to named executive officer.  No perquisites were provided to the named executive officers during 2014.

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Executive Stock Ownership Requirements

Effective as of January 1, 2013, the Board of Directors implemented stock ownership requirements for the company’s Chief Executive Officer and the executive vice presidents, to closely align the interests of these individuals with the interests of our stockholders.  The minimum share requirements are five times base salary for our Chief Executive Officer and three times base salary for our executive vice presidents.

For each executive employed upon the effective date of January 1, 2013, their stock ownership requirement was determined using their base salary as of January 1, 2013 and the average closing price of our common stock for the period November 1, 2012 through December 31, 2012 and each such person has until January 1, 2018 to satisfy his ownership level.  For persons assuming an executive-level position after January 1, 2013, the stock ownership requirement under these guidelines will be determined using their base salaries as of the date they become subject to these guidelines and using the average closing common stock price for the 60 trading days prior to such date, with five years to achieve the requirement. If an individual’s share ownership requirement increases because of a change in position, a five-year period to achieve the incremental amount of shares will begin on the effective date of the change in position.  All vested and unvested restricted share awards qualify towards satisfaction of the requirement.  Performance Shares do not qualify towards the requirement.  Compliance is evaluated on an annual basis, as of December 31 of each year.  The following table sets for the requirements for each of our named executive officers:

(1)    The requirement for each person was determined, first in dollars as a multiple of the executive’s annual base salary, and then by converting such amount to a fixed number of shares.

As of December 31, 2014, each of our named executive officers satisfied his ownership requirements.

Clawback Policy

In March 2014, the Compensation Committee reviewed, considered and adopted a recoupment policy, which provides that we may recoup from any executive officer’s incentive compensation paid or granted that was in excess of what would have been paid or granted after giving effect to the triggering financial accounting restatement, without regard to whether there was any misconduct or negligence on the part of the executive. This policy is intended to reflect current best practices and is not intended to replace any rights we may have to recoup compensation under applicable law.

Compensation Process

Compensation Consultant

To assist in its efforts to meet the objectives outlined above, the Compensation Committee has retained FPL, a nationally-known independent executive compensation and benefits consulting firm specializing in real estate companies, to provide general executive compensation consulting services and to respond to any Compensation Committee member’s questions.  In addition, the consultant performs special executive compensation projects and consulting services from time to time, as directed by the Compensation Committee.  In 2014, as in the prior year, the Compensation Committee continued to review its program designs and guidelines, and conducted its annual review of the competitiveness of its compensation program and the market practices of our peer group.  The consulting services provided by FPL in connection with these reviews included:

·                  Evaluating the current compensation program in place for the named executive officers and assistance in structuring a compensation program that meets the objectives outlined by the Compensation Committee;

·                  Providing competitor information to assist the Compensation Committee in selecting the appropriate peer group;

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·                  Benchmarking the compensation for the named executive officers against the appropriate peer group;

·                  Identifying the appropriate mix between compensation components, including base salary, annual incentives, and long-term incentive compensation;

·                  Discussing market-based incentive programs, including performance metrics and targets, within the peer group companies, and providing guidance and recommendations for design and modifications to program elements; and

·                  Reviewing an overview of industry trends as it relates to human capital across the entire real estate industry.

FPL reports only to the chairman of the Compensation Committee and the other committee members and works with management as directed by the Compensation Committee.  The Compensation Committee retains the right to terminate or replace the consultant at any time.  Pursuant to the Compensation Committee’s charter, the Compensation Committee has the power to engage such consultants and other advisors as it deems necessary.

Peer Group Data

The Compensation Committee uses comparison data from various companies in certain peer groups as a guide in its review and determination of base salaries, cash payments, equity awards, and long-term performance shares.  From March 2014 through January 2015, the Compensation Committee reviewed peer group data to assist in its determination of total target direct compensation (on an aggregate and individual basis), the appropriate mix of equity vs. cash, long-term vs. short-term, and performance-based vs. time-based awards to be paid or granted for 2014 performance.  Additionally, peer group data was reviewed to assist in the determination of salary increases for 2015.  The Compensation Committee evaluates our performance and determines whether the compensation elements and levels that are provided to our executive officers are generally appropriate relative to the compensation elements and levels provided to their counterparts at our peer companies, in light of our performance relative to our peers and in light of each executive officer’s contribution to our performance.  This approach enables us to respond to dynamics in the labor market and provides us with flexibility in maintaining and enhancing our executive officers’ engagement, focus, and motivation for the future.

The Compensation Committee, with the help of the compensation consultant, periodically reviews the composition of our peer group and the criteria and data used in compiling our peer group list, and considers modifications to this group.  During November and December 2014, the Compensation Committee reviewed data provided by FPL regarding the appropriate companies to include in the peer group and the effect any change in the peer group would have on our standing within the peer group.  The peer group recommended by FPL and used by the Compensation Committee for 2014 compensation decisions is consistent with the group used for 2013 compensation decisions, with the addition of one company, National Retail Properties, Inc.  National Retail Properties, Inc. was added to the peer group used for 2014 compensation decisions to obtain a larger representation of net lease companies within the peer group.

The peer group recommended by the compensation consultant and approved by the Compensation Committee consists of 16 public real estate companies that focus on a variety of asset classes, including those having a net lease component to the extent available, and those that are similar in size to us in terms of total market capitalization (common and preferred stock, partnership units convertible into stock and long-term debt). The companies were selected so that our total market capitalization exceeded the median of the peer group.  As of September 30, 2014, this peer group had total market capitalization ranging from approximately $7.3 billion to $34.9 billion.  At September 30, 2014 our total market capitalization placed us in the 64th percentile of our peer group.

The Compensation Committee met in February 2015 to review the peer group that will be used for 2015 compensation decisions and decided to add Spirit Realty Capital Inc. to continue to increase the representation of net lease companies in the peer group.

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Management Involvement

In setting compensation for executive officers, the Compensation Committee solicits appropriate input from the Chief Executive Officer concerning each of the other executive officers.  In addition, from time to time, the Compensation Committee will direct management to work with its consultant in providing proposals, program design, and compensation recommendations.  Each year, the Chief Executive Officer provides the Compensation Committee with a report regarding performance for the past fiscal year under the company’s performance metrics and discusses his personal assessment of individual performance of each executive officer.  In addition, at the request of the Compensation Committee, the Chief Executive Officer makes recommendations regarding salary and incentive compensation awards for each executive officer other than himself.  The Compensation Committee considers these recommendations and other factors as discussed above in making the final determinations.

Tax Considerations

Section 162(m) of the Code limits the deductibility of compensation paid to our Chief Executive Officer, former Chief Executive Officer and our three other most highly compensated executive officers, other than the Chief Financial Officer.  To qualify for deductibility under Section 162(m), compensation (including base salary, cash bonus, stock option exercises, compensation attributable to vesting of stock grants and nonqualified benefits) in excess of $1,000,000 per year, paid to each of these executive officers, generally must be “performance-based” compensation as determined under Section 162(m).  While the Compensation Committee considers whether to structure compensation so that it satisfies the “performance-based” compensation requirements under Section 162(m), the Compensation Committee balances the costs and burdens involved in doing so against the value to us, and our stockholders, of the potential tax benefits.  The tax deductibility of our compensation is just one of a multitude of factors that the Compensation Committee considers when making its compensation decisions.

Despite the fact that the equity and non-equity incentive awards for 2014 were determined by taking into consideration certain financial and strategic goals, the Compensation Committee did not apply these factors on a strict formulaic basis.  As a result, the majority of equity and non-equity incentive awards, granted or earned in 2014, with the exception of the performance shares, did not satisfy the “performance-based” compensation requirements of Section 162(m).  As a result, compensation of $11.1 million, in aggregate, was not deductible from a tax perspective for 2014.  We believe that we qualify as a REIT under the Code and generally are not subject to federal income taxes, provided we distribute to our stockholders at least 90% of our taxable income each year.  As a result of our tax status as a REIT, the loss of this deduction did not affect the amount of federal income tax payable by us for our 2014 taxable year.  However, the loss of this deduction increased the portion of our 2014 distributions that were taxed as dividends to our stockholders and reduced the portion of such distributions treated as a return of capital.  The Compensation Committee will continue to evaluate the advisability of providing performance-based compensation under Section 162(m).

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COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management, and based on the review and discussions, the Compensation Committee recommended to the Board of Directors of Realty Income Corporation, a Maryland corporation, or Realty Income, that the Compensation Discussion and Analysis be included in this Proxy Statement for the 2015 Annual Meeting of stockholders and in Realty Income’s 2014 Annual Report on Form 10-K.

Submitted on March 9, 2015 by the members of the Compensation Committee of Realty Income’s Board of Directors.

The above report of the Compensation Committee will not be deemed to be incorporated by reference into any filing by the company under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the company specifically incorporates the same by reference.

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Summary Compensation Table

The following table sets forth information concerning the compensation of our Chief Executive Officer, Chief Financial Officer and three other most highly compensated executive officers (collectively, the “named executive officers”), for the fiscal years ended December 31, 2014, 2013 and 2012.  Additionally, we have included information for our former President and Chief Operating Officer who vacated his position on September 30, 2014.