UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934

(Amendment No.     )

Filed by the Registrant

Filed by a Party other than the Registrant

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	Soliciting Material under §240.14a-12

AVALONBAY COMMUNITIES, INC.

(Name of Registrant as Specified in Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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	Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11

Dear Fellow Stockholders:

We welcome you to join us and the entire Board of Directors at our 2022 Annual Meeting of Stockholders, which will be held at 10:00 a.m. Eastern Daylight Time on May 19, 2022. The meeting will be held in a virtual format via audio webcast only. Stockholders will not be able to attend the Annual Meeting physically but will be able to vote and submit questions online before and during the meeting.

At this year’s meeting we will vote on the election of 12 directors and the ratification of Ernst & Young LLP as the Company’s independent auditor. We will also conduct a non-binding, advisory vote to approve the compensation of the Company’s named executive officers.

The past 18 months have been a time of transition for AvalonBay. Ben joined AvalonBay as President in January 2021, bringing fresh perspectives and talents to the Company from his diverse experiences in the real estate industry. At the beginning of 2022, in accordance with a previously announced transition, Tim retired as Chief Executive Officer and became Executive Chairman, and Ben assumed the additional role of Chief Executive Officer. We both remain committed to fulfilling AvalonBay’s purpose of Creating a Better Way to Live through our core values – a commitment to integrity, a focus on continuous improvement, and a spirit of caring. As an organization, we are energized as we shape the future course of AvalonBay and position the Company for continued growth and success.

Your vote at the upcoming Annual Meeting is important. Whether or not you plan to attend the meeting, we want your shares to be represented. Please authorize a proxy to vote your shares as soon as possible. You can do so on a dedicated website, by telephone, or by completing, signing and returning the proxy card or voting instruction form enclosed with the Proxy Statement (if you received a printed copy of the proxy materials). For more detailed instructions on how to vote and attend the virtual meeting audio webcast, as well as how to submit questions before and during the meeting, see pages 71-73 of the Proxy Statement.

Our Board of Directors values your participation as a stockholder and appreciates your continued support of AvalonBay.

April 7, 2022

Sincerely,

Timothy J. Naughton Executive Chairman of the Board	Benjamin W. Schall Chief Executive Officer and President

Holders of record of AvalonBay common stock may vote during the meeting. However, we suggest that you authorize a proxy to vote your shares in advance of the meeting, using one of the following three methods, in case you are unable to attend:
BY INTERNET	BY TELEPHONE	BY MAIL
Go to www.proxyvote.com and follow the instructions	Call 800-690-6903	Sign the enclosed proxy card and mail it promptly in the enclosed postage-prepaid envelope
For more information on how to vote, see “Some Questions You May Have Regarding This Proxy Statement.”

TABLE OF CONTENTS

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Proxy Summary

This summary highlights certain information about AvalonBay Communities, Inc., a Maryland corporation (“AvalonBay” or the “Company”), and its 2022 Annual Meeting of Stockholders and summarizes information contained elsewhere in this Proxy Statement. This summary does not contain all of the information that you should consider. Please read the entire Proxy Statement before voting. This Proxy Statement and the accompanying Notice of Annual Meeting and proxy card are first being made available to stockholders on or about April 7, 2022. For more complete information regarding AvalonBay’s 2021 performance, please review the Annual Report on Form 10-K for the year ended December 31, 2021, and the 2021 Annual Report to Stockholders, both of which are available online at www.proxyvote.com and on our website at www.avalonbay.com/investors.

2022 Annual Meeting of Stockholders Information

Date and Time:	Virtual Meeting Site:	Record Date:
Thursday, May 19, 2022, at 10:00 a.m., Eastern Daylight Time	www.virtualshareholdermeeting.com/ AVB2022	March 24, 2022

Meeting Agenda and Voting Matters

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Election of Directors

Our Board represents a broad range of ages, tenures, and experience, as shown below.

Name	Age	Director Since	Independent	Committees*
Glyn F. Aeppel	63	2013		IFC, NGCR
Terry S. Brown	60	2015		IFC (Chair), NGCR
Alan B. Buckelew	73	2011		AC, CC
Ronald L. Havner, Jr.	64	2014		AC (Chair), IFC
Stephen P. Hills	63	2017		CC, IFC
Christopher B. Howard	53	2021		AC, IFC
Richard J. Lieb	62	2016		AC, CC (Chair)
Nnenna Lynch	50	2021		AC, IFC
Timothy J. Naughton**	60	2005		IFC
Benjamin W. Schall	47	2021		IFC
Susan Swanezy	63	2016		NGCR (Chair), IFC
W. Edward Walter***	66	2008		CC, NGCR
* IFC = Investment and Finance Committee, AC = Audit Committee, CC = Compensation Committee, NGCR = Nominating, Governance and Corporate Responsibility Committee. ** Mr. Naughton is the Executive Chairman of the Board *** Mr. Walter is the Lead Independent Director

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Corporate Governance and ESG Best Practices

	Commitment to Board refreshment, including guidelines on director and committee chairman tenure		No stockholder rights plan (“poison pill”) and policy regarding adoption of future plans
	Annual Board, committee and director evaluations		Double-trigger equity compensation vesting in the event of a change in control
	Annual election of all directors with a majority voting standard in uncontested elections		Policy on political contributions and government relations publicly available on website
	Lead Independent Director		Directors encouraged to attend continuing education programs
	Independent Audit, Compensation and Nominating, Governance and Corporate Responsibility Committees		Published a comprehensive sustainability and corporate social responsibility report every year for the past decade
	Regular executive sessions of independent directors, including at each regularly scheduled Board meeting		Annual advisory vote to ratify independent auditor
	Director and senior officer stock ownership guidelines		Annual advisory vote on executive compensation
	Robust anti-hedging, anti-speculation and no pledging policies		Published diversity objectives
	Policy regarding stockholder approval of certain future severance agreements		Published EEO-1 data
	Bylaws contain provisions for stockholder rights relating to proxy access and Bylaw amendments		Published energy management and other ESG goals and regular reporting to Board and NGCR Committee
	Policy on recoupment of incentive compensation (clawback policy)		Board Audit Committee oversight of cybersecurity meetings and regular meetings with senior IT associates

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Executive Compensation Highlights

Consistent with our total compensation philosophy, a substantial majority of the target pay for our NEOs is variable and contingent on performance.

Target Total Compensation Mix*

*Does not include the non-routine supplemental stock option grants made in February 2021. See discussion on p. 47.

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Proposal 1. Election of Directors

The Board of Directors (which we refer to as the “Board”) currently consists of 12 members. All of the current directors are nominated for re-election at the Annual Meeting and if elected will serve until the 2023 Annual Meeting of Stockholders and until their successors are elected and qualify. The Board anticipates that each of the nominees, if elected, will serve as a director. However, if any nominee is unable to serve or chooses not to serve, proxies will be voted for the election of such other person as the Board may recommend. You may not vote for more than 12 directors at the Annual Meeting.

Required Vote and Recommendation

Only holders of record of AvalonBay’s common stock as of the close of business on the Record Date are entitled to vote on this proposal. Proxies will be voted for all of the nominees unless contrary instructions are set forth on a properly executed proxy card. Under our Bylaws, a majority of the total votes cast as to each nominee is required to elect such nominee. Under Maryland law, abstentions and broker non-votes are not treated as votes cast, and will have no effect on the result of the vote.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ALL OF THE NOMINEES.

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Information

The Nominating, Governance and Corporate Responsibility Committee and the full Board are focused on ensuring that the composition of the Board continues to provide the diversity of background, experience, functional skills, expertise, and thought necessary to appropriately address the needs of AvalonBay and our stockholders.

The following table summarizes certain qualifications, skills and experiences of each director that the Board considered important in its decision to re-nominate that individual to the Board. Exclusion of a factor for a nominee does not necessarily mean the nominee does not possess that attribute. It means only that when the Nominating, Governance and Corporate Responsibility Committee considered skills and experiences in the overall context of the members of the Board of Directors, certain attributes were not considered critical with respect to certain individuals.

Skills, attribute or experience

Accounting/Financial Literacy

Real Estate Development

Board Diversity*

C-Level Management Experience

Financial/Capital Markets Experience

Marketing/Brand Management/Consumer Focus

Non-AVB Public Board Experience

Public Company CEO Experience

Real Estate Investment & Finance

Leadership in Non-Corporate Settings (e.g. Military, Academia, Public Sector)

Technology, Information Security and Innovation

* Representation of gender or ethnic perspectives that expand the Board’s understanding of the needs and viewpoints of our prospective residents, residents, associates, and other stakeholders. The following directors have self-identified as female: Glyn Aeppel, Nnenna Lynch and Susan Swanezy. The following directors have self-identified as Black or African American: Christopher Howard and Nnenna Lynch.

The biographies below describe each director’s qualifications and relevant experience in more detail.

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Director Nominees

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Corporate Governance

Independence of the Board

The New York Stock Exchange (“NYSE”) has adopted independence standards for companies listed on the NYSE, which apply to AvalonBay. These standards require a majority of the Board of Directors to be independent and every member of the Audit Committee, Compensation Committee and Nominating, Governance and Corporate Responsibility Committee to be independent. NYSE standards provide that a director is considered independent only if the Board of Directors “affirmatively determines that the director has no material relationship with the listed company (either directly or as a partner, stockholder or officer of an organization that has a relationship with the company).” In addition, the NYSE prescribes certain other “independence” standards.

To determine which of its members is independent, the Board of Directors uses the standards prescribed by the NYSE and also considers whether a director had any other past or present relationships with AvalonBay that created conflicts or the appearance of conflicts. Based on its most recent review, the Board determined that all nominees for director are independent, except for Mr. Naughton and Mr. Schall.

NYSE rules provide for additional independence standards that apply to members of the Audit Committee and the Compensation Committee. The Board has determined that each current and proposed member of these committees satisfies these additional standards.

Leadership Structure and Lead Independent Director

Timothy J. Naughton served as AvalonBay’s Chairman of the Board and Chief Executive Officer during 2021. He retired as Chief Executive Officer effective January 3, 2022, and Mr. Schall assumed that role, reporting directly to the Board of Directors. Mr. Naughton continues to serve on the Board and as an officer of AvalonBay as Executive Chair.

The Board believes that having Mr. Naughton serve as the Executive Chairman while Mr. Schall takes over the role of Chief Executive Officer ensures a smooth transition of leadership, consistent with AvalonBay’s 25-year history of continuity of strategy and leadership. Having Mr. Naughton serve as Executive Chairman enables Mr. Naughton to act as a bridge between management and the Board, helping both groups to act with common purpose.

To help ensure sound corporate governance practices, the Board of Directors established the position of Lead Independent Director. Mr. Walter has served as the Lead Independent Director since May 2019. The Lead Independent Director presides at all meetings of the Board of Directors at which the Chairman is not present, serves as a liaison between the Chairman of the Board and the Chief Executive Officer, on the one hand, and the independent directors, on the other, establishes and approves meeting agendas for the Board, has the authority to call meetings of the independent directors, confers with the Chairman of the Board and the Chief Executive Officer regularly, and acts as a contact person for stockholders and others who wish to communicate with the independent directors.

Succession Planning and Board Refreshment

The Board considers a variety of factors when choosing candidates for Board appointment or nomination. While we value long-tenured directors who know AvalonBay and management well, the Board also believes it is important to ensure there are occasional vacancies that create opportunities for new directors who may bring different or more recent experiences or expertise to the Board. Consistent with this philosophy, we have recruited three new independent directors to join the Board in the past five years.

AvalonBay’s Corporate Governance Guidelines incorporate term expectations that reflect the Board’s view of the importance of succession planning. Specifically, the Corporate Governance Guidelines express an expectation that (i) an independent director will not be re-nominated after completing 12 full years of service or within the several years that follow; (ii) the Lead Independent Director will serve in that role for approximately three to five years; and (iii) committee chairs will serve for three to five years. In each case, the guideline is flexible and the exact timing for any transition will depend on the needs of the Board at the time and whether an appropriate successor has been identified and nominated.

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Evaluation and Nomination of Director Candidates

One of the key functions of the Nominating, Governance and Corporate Responsibility Committee is identifying and nominating candidates for service on the Board. In this regard, the Nominating, Governance and Corporate Responsibility Committee considers the factors set forth in the Corporate Governance Guidelines, which include the nominee’s business and professional background; history of leadership or contributions to other organizations; functional skill set and expertise; general understanding of marketing, finance, accounting and other elements relevant to the success of a publicly-traded company; and service on other boards of directors. Given the current business, opportunities and challenges confronting our industry, the Nominating, Governance and Corporate Responsibility Committee pays particular attention to the skills and experience described in the Director Skills/Experience Matrix provided above.

When recommending a slate of nominees for director and identifying new candidates for service, the Nominating, Governance and Corporate Responsibility Committee considers whether the Board as a whole has and will continue to have an adequate distribution and representation of relevant skills, backgrounds and experience. In addition to professional history and expertise, the Board may consider diversity of background, experience and thought in evaluating and recommending candidates for election. The Board believes that diversity (including diversity of gender, race and ethnicity) is important because a variety of points of view can contribute to a more effective decision-making process.

The Nominating, Governance and Corporate Responsibility Committee may employ a variety of methods for identifying and evaluating nominees for director. In considering whether to recommend re-nomination of a current director for another term, the Nominating, Governance and Corporate Responsibility Committee considers whether the skills, commitment and performance of the individual director are such that the individual’s continued service on the Board is desirable. The Nominating, Governance and Corporate Responsibility Committee also may assess the size of the Board, the need for particular expertise, and whether any vacancies are expected, due to retirement or otherwise.

The Nominating, Governance and Corporate Responsibility Committee will consider potential candidates for director who come to the committee’s attention through current Board members, professional search firms, stockholders or other sources. When compiling a pool of candidates to review and interview for a new director search, the Nominating, Governance and Corporate Responsibility Committee endeavors to include, and requests that any search firm it engages endeavor to include, candidates with a diversity of race, ethnicity and gender. AvalonBay has in the past and may in the future engage a third party firm to help identify and/or evaluate potential director nominees.

Nominees Recommended by Stockholders

The Nominating, Governance and Corporate Responsibility Committee will consider candidates properly recommended by stockholders using the same criteria that apply to candidates from other sources. Following verification of the stockholder status of the party or parties proposing a candidate, the Nominating, Governance and Corporate Responsibility Committee makes an initial analysis of the candidate’s qualifications based on the criteria summarized above to determine whether the candidate is suitable for service on the Board of Directors before deciding whether to undertake a complete evaluation of the candidate. If a stockholder provides any materials in connection with the nomination of a director candidate, such materials are forwarded to the Nominating, Governance and Corporate Responsibility Committee as part of its review. The Board may also consider the specific information required to be provided by nominating stockholders pursuant to the requirements of AvalonBay’s Bylaws. Stockholders may also nominate directors in accordance with the proxy access provisions of AvalonBay’s Bylaws. For more information on stockholder nominations, see “Other Matters - Stockholder Nominations for Directors and Proposals for the Annual Meeting.”

Board of Directors Risk Oversight

We have a number of practices with regard to Board oversight of risk management matters. The charter of each Board committee provides that the committee will, from time to time and to the extent the committee deems appropriate, review risk and compliance matters relevant to the committee and report the results of such review to the full Board. As required by NYSE rules, the charter of the Audit Committee states that the Audit Committee will assist with Board oversight of risk and compliance matters, and in any event will review AvalonBay’s perceived major financial risk exposures and the steps management has taken to monitor and control such exposures. At most regularly scheduled Board meetings, the Board reviews key matters relating to AvalonBay’s finances, liquidity, operations and investment activity. On an annual basis, the Board and/or the Audit Committee engages in a broader discussion about Company-wide risk management. The Audit Committee (and on occasion the full Board in lieu of the Audit Committee) also reviews matters related to cyber security. Although it is not the primary reason the Board’s current leadership structure was implemented, AvalonBay and the Board believe the current leadership structure—including both an Executive Chairman of the Board and a separate Lead Independent Director—helps facilitate these risk oversight functions by providing multiple channels for risk-related concerns and comments.

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Stockholder Engagement and Responsiveness

We consider our relationship with our stockholders to be an important part of AvalonBay’s success and we value the outlook and opinions of our investors. During 2021 and early 2022, our management reached out to stockholders who collectively held a majority of AvalonBay’s outstanding stock, and to stockholder advisory firms, to discuss our practices and policies with respect to environmental, social and governance (“ESG”) issues and other matters. Management spoke with those who responded to that outreach regarding such issues. These discussions addressed matters such as Board composition and refreshment, stockholder rights, the format for executive compensation, and sustainability efforts. The goal of these conversations was to ensure that management and the Board understood and considered the issues that are most important to our stockholders and to enable AvalonBay to address them effectively. The feedback received was conveyed to and discussed with the Nominating, Governance and Corporate Responsibility Committee and the full Board.

In addition to conversations with our stockholders, AvalonBay management occasionally receives and responds to correspondence from stockholders and stockholder advocacy groups and, when appropriate, shares this correspondence with the Nominating, Governance and Corporate Responsibility Committee and the full Board. The Board also considers the votes of stockholders at our Annual Meeting and discusses potential issues raised through that forum.

Board and Committee Self-Evaluation

Each year the Board conducts a self-evaluation in which the Lead Independent Director talks to each director individually regarding his or her view of how the Board overall and each of our directors is performing. Topics discussed may include whether there are additional items that should be added to agendas, whether management is providing the Board with the information it needs to effectively review AvalonBay’s performance and risks, whether meetings feature a healthy level of debate and participation, whether the composition of the Board is appropriate, whether the Board is adequately monitoring AvalonBay’s strategic direction, and the performance and development of management. This feedback is then discussed in an executive session of the Board.

In addition, each of the Board’s committees annually conducts a review of its charter and a self-assessment of the performance of committee duties under its charter over the previous year. The review generally includes:

During late 2021 and early 2022, the Board and its committees reviewed the committee charters to ensure there were clearly delineated responsibilities with respect to oversight of ESG matters, and clarifying amendments were made to the charters.

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Committees of the Board of Directors

The Board of Directors has four committees: the Audit Committee, the Compensation Committee, the Nominating, Governance and Corporate Responsibility Committee, and the Investment and Finance Committee. With the exception of the Investment and Finance Committee, the committees are made up entirely of independent directors. The charters for the Audit, Compensation, and Nominating, Governance and Corporate Responsibility Committees are available in the Investor Relations section of our website under “Corporate Governance Documents.”

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Meetings and Attendance

The Board of Directors met five times during 2021. The Board generally schedules regular executive sessions at each of its meetings during which the independent directors meet without management participation. The independent directors met in executive session five times during 2021.

During 2021, each director attended at least 75% of the total number of meetings of the Board and meetings of the Board committees of which he or she was a member. The Board’s policy is that every director should attend our annual meetings of stockholders. All of the directors attended the virtual 2021 Annual Meeting of Stockholders.

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Governance Documents

The Board has adopted a Code of Business Conduct and Ethics that applies to the Board of Directors and all AvalonBay executives and employees. In addition, the Board has adopted Corporate Governance Guidelines that govern many of its practices and policies. These documents are available on the Investor Relations section of our website (www.avalonbay.com) under “Corporate Governance Documents,” together with the following additional documents:

To the extent required by the rules of the SEC and the NYSE, we will disclose amendments and waivers relating to these documents in the same place on our website. Additional information on corporate governance policies is included in the Compensation Discussion & Analysis section of this proxy statement under the heading “Compensation Policies.” The information contained on, or available through, our website is not incorporated by reference into this proxy statement.

Contacting the Board

Any stockholder or other interested party may contact any of our directors, including the Lead Independent Director or our independent directors as a group, by writing to them at the following address. All communications addressed to one or more directors will be forwarded as addressed.

[Name of Director or Group of Directors]
c/o AvalonBay Communities, Inc.
4040 Wilson Boulevard, Suite 1000
Arlington, VA 22203
Attention: Corporate Secretary

Human Capital Management

Our Workforce

As of January 31, 2022, we had 2,927 full-time and part-time employees and 32 temporary employees. Approximately 70% of our associates work on-site at our operating communities and the remainder work on other functions.

Inclusion and Diversity

We believe an inclusive and diverse mindset at all levels of our organization is critical if we are to succeed in the competition for talent. We believe this company-wide mindset also contributes to a motivated and engaged workforce with a variety of perspectives. To help promote an inclusive culture, we support associate resource groups and opportunities for associates with diverse backgrounds, experiences, and perspectives to connect with one another. Our senior leaders sponsor these networks, but they are managed by associates.

Current associate resource groups include:

We have also offered training in unconscious bias to all associates at the manager level and above, and we have broadened our talent acquisition efforts to incorporate diverse interview slates and panels and incorporate outreach to student groups and associations that represent diverse populations.

In 2020, we announced our Company’s vision to:

The Company publishes its most recently filed EEO-1 data on its website. The information contained on, or through, our website is not incorporated by reference into this proxy statement.

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As previously announced, we will continue our partnership with the National Urban League, including a $150,000 annual commitment.

Mr. Naughton, AvalonBay’s Chief Executive Officer until 2021, joined the CEO Action for Diversity and Inclusion pledge and the Dividends Through Diversity, Equity & Inclusion (DDEI) CEO Council initiative spearheaded by Nareit. Upon becoming Chief Executive Officer, Mr. Schall also joined both groups.

As of January 31, 2022, approximately 39% of our associates (including management and executives) self-identify as female, and the self-reported ethnicity of our associates was as follows:

Ethnicities

Training & Development

We recognize that attracting, motivating, developing, and retaining engaged and capable associates is critical to our long-term success. We have several strategies for promoting the professional development and career advancement of our associates, including:

Offering our associates extensive training, including through our learning management system, AvalonBay University, which offers approximately 900 courses providing technical, safety, management, leadership, ethics, compliance and cyber-awareness instruction.

Associate Engagement

Each year we conduct an Associate Perspective Survey, which enables management to better understand how associates view AvalonBay, their managers, and their overall experience. Based on the survey results, we endeavor to improve in areas identified by associates. For the 2021 survey, we included four engagement questions as well as three open-questions that addressed what associates most appreciate, where they need additional support, and how AvalonBay can continue to provide a safe working environment.

Health and Safety

We take workplace safety seriously at our construction sites, our operating communities, and our offices. We monitor project-level safety performance metrics at our construction sites through our Construction Site Safety Observation program and our dedicated safety team. Our maintenance associates are required to take monthly safety training on a variety of subjects, and our risk management group monitors incident reports from our offices and communities. To emphasize the importance of these issues, elements of compensation for our construction group and our Chief Executive Officer are based on safety compliance performance.

The COVID-19 pandemic has presented unique health and safety challenges. We responded by taking a number of actions to promote the well-being of our associates, including permitting remote work and flexible schedules where feasible, providing extended paid leave for associates who needed to miss work for COVID-19-related reasons, establishing office and community safety protocols, conducting training and refresher courses on COVID-19 prevention, and communicating regularly with associates on topics like how to obtain vaccinations.

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Board Oversight of Human Capital

The Board of Directors, through its Compensation Committee, regularly reviews management’s human resources practices, including talent management, succession planning, diversity metrics, and inclusion and diversity efforts. The Board actively supports activities that encourage an inclusive culture at AvalonBay, including in some cases participating in and contributing to programs sponsored by our associate resource groups.

Additional information on each of these areas relating to human capital management can be found in our Corporate Responsibility Report by visiting https://www.avaloncommunities.com/about-us/corporate-responsibility/cr-reports. Materials located on AvalonBay’s website and referenced herein are not deemed to be part of this proxy statement and are not incorporated herein by reference.

Transactions with Related Persons, Promoters and Certain Control Persons

Our Code of Business Conduct and Ethics prohibits employees, including executive officers and directors, from engaging in activities that create a conflict of interest with AvalonBay unless all relevant details have been disclosed and an appropriate waiver permitting the conduct has been received. An activity constitutes a conflict of interest under the Code if (i) the activity could adversely affect or compete with AvalonBay, (ii) any interest, connection or benefit to the employee or director from the activity could reasonably be expected to cause such employee or director to consider anything other than the best interest of AvalonBay when deliberating and voting on Company matters, (iii) any interest, connection or benefit to the employee or director from the activity could give such employee or director or a member of his or her family an improper benefit that was obtained on account of his or her position within AvalonBay, or (iv) the employee or director is placing his or her own interests above the Company’s interest. Waivers for executive officers or directors may only be granted by the Board or a designated committee of the Board, and any waiver granted to an executive officer or director will be disclosed to the extent required by law or NYSE rules. The Nominating, Governance and Corporate Responsibility Committee (or any other committee that is designated) is responsible for administering the Code for executive officers and directors.

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Director Compensation

The compensation for our non-employee directors is described below. Directors who are also employees do not receive additional compensation for serving on the Board. Our Board and Nominating, Governance and Corporate Responsibility Committee periodically assess the total compensation for non-employee directors relative to the compensation provided by similarly sized real estate investment trusts, by our multifamily peer group, and by a group of cross-industry similarly sized companies. Based on the most recent review, the Board has approved increases to the compensation of non-employee directors effective beginning after the 2022 Annual Meeting, as noted in the table below.

All shares of restricted stock (or deferred stock awards) granted to non-employee directors vest in four quarterly installments over a one-year period, subject to accelerated vesting upon departure from the Board except in the case of a voluntary departure by the director during the director’s elected term that is not due to death or disability or the director’s removal for cause. If a director elects to receive a deferred stock award in lieu of restricted stock, the director will receive shares of stock in respect of the vested portion of the deferred stock award within 30 days following termination of service as a director.

Director Stock Ownership Guidelines

Under our Corporate Governance Guidelines, non-employee directors are generally required to hold shares (or deferred stock units) having a value that equals or exceeds five times the annual cash retainer paid to non-employee directors. Directors have five years from the commencement of their service as a director to comply with such requirement. As of April 1, 2022, all the non-employee directors who have served on the Board for five years or more were in compliance with this requirement.

The following table sets forth the compensation for service as an AvalonBay director received by each non-employee director in 2021.

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Director Compensation Table

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Proposal 2. Non-Binding, Advisory Vote on Executive Compensation

The Compensation Discussion and Analysis as presented below describes AvalonBay’s executive officer compensation program and decisions made by the Compensation Committee and the Board of Directors with respect to the 2021 compensation of our named executive officers. We believe the compensation program achieves our goals of (i) attracting, motivating and retaining experienced and effective executives, (ii) directing the performance of those executives with clearly defined goals and measures of achievement, and (iii) aligning the interests of management with the interests of our stockholders.

Our Board currently intends for AvalonBay to hold a non-binding advisory vote on executive compensation (known as a say-on-pay vote) every year until the 2023 Annual Meeting of Stockholders. At that meeting we will hold an advisory vote regarding the frequency of future say-on-pay votes.

While the vote on the following resolution is advisory and will not bind us to take any particular action, our Board of Directors will carefully consider the stockholder say-on-pay vote in making future decisions regarding our compensation program. The Board of Directors is asking stockholders to adopt the following resolution:

“RESOLVED, that the compensation paid to AvalonBay’s Named Executive Officers, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, compensation tables and any related material disclosed in this Proxy Statement, is hereby APPROVED, on a non-binding, advisory basis, by the stockholders of AvalonBay.”

Required Vote and Recommendation

Only holders of record of AvalonBay’s common stock as of the close of business on the Record Date are entitled to vote on this proposal. Proxies will be voted for adoption of the resolution approving the compensation disclosed unless contrary instructions are set forth on the proxy card. A majority of the votes cast on the proposal at the Annual Meeting is required to provide non-binding, advisory approval of the compensation paid to AvalonBay’s named executive officers. Under Maryland law, abstentions and broker non-votes are not treated as votes cast. Accordingly, an abstention or broker non-vote will have no effect on the result of the vote.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE RESOLUTION TO APPROVE, ON A NON-BINDING, ADVISORY BASIS, THE COMPENSATION PAID TO AVALONBAY’S NAMED EXECUTIVE OFFICERS.

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Compensation Discussion and Analysis

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This Compensation Discussion and Analysis (“CD&A”) describes how the Board of Directors, the Compensation Committee and the Company think about compensation for the Company’s executive officers and what decisions were made in setting 2021 compensation, including how we established goals and aligned compensation with performance and stockholder interests.

Specifically, the CD&A describes the compensation of the following individuals, who were our named executive officers (“NEOs”) in 2021:

Consistent with a previously announced planned transition, Mr. Naughton retired as CEO on January 3, 2022 and transitioned to the role of Executive Chairman on that date. Mr. Schall, our President, was appointed to the additional role of CEO effective January 3, 2022, reporting directly to the full Board of Directors.

Executive Summary

Our Company Performance

The Company’s performance was impacted by the pandemic and related economic conditions and regulatory responses. In particular, Core Funds from Operations (“Core FFO”) per share declined by 4.9% in 2021 from 2020; however, apartment market fundamentals improved significantly throughout 2021, and we delivered an increase in Core FFO growth per share and Same Store Residential rental revenue in the fourth quarter 2021 as compared to the same period of 2020. Our one-year and three-year annualized total shareholder returns were 62.2% and 17.1% respectively. During 2021, we successfully ramped up our investment activity with almost $2 billion of new development starts and acquisitions funded primarily by dispositions and incremental debt financing at a historically low cost of capital. We also made investments in technology and innovation with a view to providing future value to prospects and residents, and enabling greater operating efficiencies and new sources of revenue. Finally, we continued our emphasis on ESG matters, which are of increasing importance for our residents, employees and stockholders, and we maintained our focus on fostering an inclusive and diverse culture that attracts, retains and provides growth opportunities to our employees.

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Balance Sheet Management  We raised approximately $2.1 billion of capital, including $1.1 billion from two “green bond” offerings and approximately $1.0 billion from the sale of real estate. At year-end, the Company’s Net Debt-to-Core-EBITDAre was 5.1x and unencumbered NOI was 95% as a percent of total NOI.	NEW GREEN DEBT OFFERINGS
Portfolio Management We sold nine wholly-owned communities, containing 2,404 apartment homes for an aggregate sales price of $867 million. The Company also acquired seven wholly-owned communities, containing 1,932 apartment homes for an aggregate purchase price of $725 million. Six of the seven newly acquired communities were in our expansion markets. We announced our expansion into the following new markets: Charlotte, North Carolina; Raleigh-Durham, North Carolina; Austin, Texas, and Dallas, Texas, in addition to Southeast Florida and Denver.	SIX EXPANSION MARKETS
One-Year Total Shareholder Return As of December 31, 2021, our one-year total shareholder return was 62.2%, and we were ranked second in this category for the S&P 500 Multifamily REITs.	62.2% HIGHEST ANNUAL TSR PERFORMANCE SINCE 2004
Environmental, Social and Governance We earned an “A” grade from the CDP formerly known as the Carbon Disclosure Project, which places us on their Climate Leader list for our emissions reductions and climate resiliency work. We ranked first in our sector regionally for the Global Real Estate Sustainability Benchmark (GRESB) Development Score and we received the Nareit Residential Leader in the Light award. We furthered our efforts on our science-based emission reduction targets and we increased our emphasis on inclusion and diversity efforts.
Employee Engagement Our overall Glassdoor rating was 4.1 and the Willingness to Refer was 83%. In addition, the Washington Post named the Company as a Top Place to Work in the DC Metro Area for 2021.	TOP PLACE TO WORK IN DC METRO
Definitions and Reconciliations For definitions of Core FFO, NOI, Same Store, and Residential, see pages 41, 37, 20 and 33, respectively, of the Company's Annual Report on Form 10-K for the year ended December 31, 2021 (the "Form 10-K"), as filed with the SEC on February 25, 2022. For reconciliations of Core FFO and NOI to the nearest GAAP financial measures, see pages 42 and 37, respectively, of the Form 10-K. For definitions and reconciliations of Net Debt-to-Core EBITDAre and Unencumbered NOI to the nearest GAAP financial measures, see Appendix I attached hereto.

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Overview of our Executive Compensation Program

Consistent with our total compensation philosophy, a substantial majority of the target pay for our NEOs is variable and contingent on performance.

Target Total Compensation Mix

 

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Our Compensation Programs Incorporate Best Practices

The Board implements and maintains leading practices in the Company’s executive compensation programs.

What we do
Pay for performance		At least 50% of our NEOs’ target total direct compensation is performance-based and tied to pre-established performance goals aligned with our short-term and long-term objectives
Rigorous performance goals		We use rigorous, objective performance-based Company goals in our incentive plans
Annual say-on-pay vote		We have conducted an annual advisory say-on-pay vote on our NEO compensation since 2011
Annual compensation peer group review		We review competitive market information when considering executive pay
Caps on annual and long-term incentives		Performance-based incentive awards have maximum achievement levels to mitigate the risk that executives will make unwise decisions in pursuit of excessive rewards
Limited perquisites		We provide limited perquisites to officers in the Company
Limited employment agreements		We do not have employment agreements with officers except for our CEO and President, an external hire who joined us in January 2021 and whose agreement expires on the third anniversary of his start date without need for advance notice
Policy on recoupment of incentive compensation (clawback policy)		The Compensation Committee can require forfeiture or reimbursement of incentive compensation paid or awarded to any officer holding the title of senior vice president or higher
Director and senior officer stock ownership guidelines		Our stock ownership guidelines require significant ownership of AvalonBay stock by officers holding the title of senior vice president or higher, and by our independent directors, to align the long-term interests of our officers and non-employee directors with those of our stockholders
Independent Compensation Committee consultant		The Compensation Committee engages its own independent compensation consultant to advise on executive and director compensation matters
Prohibition on certain transactions in Company stock by directors and officers		Our Anti-Hedging and Anti-Speculation Policy, which applies to all directors, officers and employees, prohibits hedging and the use of derivative securities and similar transactions relating to our securities. Our No Pledging Policy prohibits our directors and officers from holding AvalonBay securities in a margin account or pledging our securities as collateral for loans

What we don’t do
No single-trigger equity compensation vesting		We do not maintain any plans that require automatic acceleration of equity awards to officers or associates upon a change in control of AvalonBay
No excise tax gross-ups on change in control payments		We do not provide our NEOs with any excise tax gross-ups or other payment or reimbursement of excise taxes on severance in connection with a change in control of AvalonBay
No tax gross-ups on perquisites		We do not provide our NEOs with any tax gross-ups on perquisites, other than in limited circumstances for expense reimbursement associated with approved business-related relocations

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What we don’t do
No discounting of stock options or repricing of underwater options		Our equity compensation plan expressly prohibits discounting the exercise price of stock options and repricing underwater stock options without stockholder approval
No guaranteed bonuses		Our annual incentive plan is entirely performance-based, and our NEOs are not guaranteed any minimum levels of payment under that plan

2021 Stockholder Advisory Vote on Executive Compensation

At the 2021 Annual Meeting of Stockholders, the Company’s executive officer compensation for 2020 was approved by approximately 93.4% of the votes cast on the matter. The Compensation Committee and the Company considered these results to be an endorsement by stockholders of the Company’s compensation structure, target levels and actual executive compensation.

Chairman and Chief Executive Officer 2021 Target Compensation at-a-glance

Timothy J. Naughton Chairman and Chief Executive Officer

Fiscal 2021 Target Total Compensation

Timothy J. Naughton-	Chairman and Chief Executive Officer (1)
Fiscal 2021 Target Total Compensation(2) - $10,800,000
Base Salary:	Mr. Naughton’s base salary has been $1,000,000 since 2018
Cash Bonus 2021 target:	200% of base salary
Stock Bonus 2021 target:	$2,050,000
Perf award target for 2021-2023 performance period:	$5,750,000
	(for 2019-2021 performance award, combined achievement was 72.6%, with a realized stock value of $4,786,558, including stock price appreciation over the performance period, vs initial target value of $5,600,000).

Cash Bonus

Mr. Naughton’s target cash bonus was 200% of base salary in 2021, with 90% of the target cash bonus based on corporate performance factors and 10% based on individual performance. The achievement levels for corporate performance and individual factors for 2021 were determined to be 142.7% and 115%, respectively, resulting in a final cash bonus for 2021 of $2,798,600.

Stock Bonus

Mr. Naughton’s target stock bonus for 2021 was $2,050,000. The performance measures used in calculating the stock bonus reflect different elements of the Company’s performance and are not duplicative of the performance measures used to evaluate corporate performance under the annual cash bonus program. The achievement level for these stock bonus performance measures for 2021 was 117.5%, which resulted in a payout of $2,408,750. The payout is delivered in the form of restricted stock that vests ratably over three years from the date of grant. Please note that under applicable SEC rules this award will be disclosed in the 2023 proxy statement Summary Compensation Table as the actual grant of stock based on 2021 achievement occurred in 2022.

2021-2023 Performance Awards

Mr. Naughton’s target performance award for the 2021-2023 performance period was $5,750,000. Fifty percent of the target award was tied to relative three-year TSR metrics against REIT indices, and 50% of the target award was tied to three-year relative financial operating metrics. More details are provided later in the CD&A.

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Settled Performance Awards

Mr. Naughton’s target performance award for the 2019 - 2021 performance period was $5,600,000. Sixty percent of the target award was tied to three-year TSR metrics, including absolute and relative comparisons, and 40% of the target award was tied to three-year relative financial operating metrics. The Compensation Committee determined achievement under the award at 72.6% of target payout for the 2019 - 2021 performance awards. Mr. Naughton’s award was settled in 20,270 shares of fully vested stock valued at $4,786,558 based on the closing price of the Company’s common stock on the NYSE on February 17, 2022 of $236.14, and a cash dividend totaling $381,076 based on the earned performance awards.

Target Compensation

As described above, Mr. Naughton’s 2021 target total compensation was $10,800,000, which was unchanged from the 2020 level, due to uncertainties regarding the economic environment created by the pandemic.

CEO Transition and New President Hire Package

In accordance with a previously announced planned transition, Mr. Schall joined the Company as President on January 25, 2021, and he was appointed to the additional role of Chief Executive Officer on January 3, 2022, reporting directly to the Board of Directors, when Mr. Naughton retired from that role. Effective as of January 3, 2022, Mr. Naughton serves as Executive Chairman, a half-time role. As Executive Chairman, in addition to remaining on our Management Investment Committee as a voting member, Mr. Naughton assists the Company in identifying and evaluating strategic initiatives and technology opportunities and pursuing business development opportunities, particularly in our expansion markets.

In designing Mr. Schall’s compensation package, the Compensation Committee sought to deliver market-competitive compensation commensurate with Mr. Schall’s capabilities and experience. In order to recruit Mr. Schall, a sitting CEO of another publicly traded REIT, to become President of AvalonBay with a planned transition to CEO after one year of service, the Committee determined that an employment agreement with some protections for Mr. Schall and some replacement of foregone equity awards and bonuses at his prior employer, was appropriate.

Based on these considerations, the Compensation Committee approved the terms of Mr. Schall’s initial compensation as set forth in a three-year employment agreement. These terms set Mr. Schall’s 2021 annual target total compensation at $7.5 million, consisting of:

In addition, on account of unvested equity and performance awards and a cash bonus from his prior employer that Mr. Schall forfeited as a result of leaving his prior employer before vesting or payment of such items, the Company awarded Mr. Schall the following one-time awards in connection with the commencement of his employment with the Company:

President Initial Pay Package

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Our Compensation Decision-Making Process

Who is Involved in Compensation Decisions

How We Review Market Compensation

In determining the total direct compensation for each NEO, the Compensation Committee generally considers a number of factors on a subjective basis, including:

Although the Compensation Committee reviews the officers’ compensation relative to the peer group, target compensation is not mechanically set at a particular percentage of the peer group average. An officer’s target compensation may vary from the peer group data for the following reasons:

The Compensation Committee believes that the ultimate decision as to appropriate target compensation for a particular officer should be made based on the full review described above.

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How We Select and Use Peer Groups

Peer Group for Market Compensation Purposes

The Compensation Committee uses the peer group described below when evaluating the appropriate levels of executive compensation. In determining the peer group composition, the Compensation Committee considers the following elements:

The peer group for 2021 compensation decisions consisted of the companies listed below.

Total Capitalization (Equity + Debt)

($ in Millions as of Dec. 31, 2021)

The Compensation Committee regularly reviews the peer group to ensure they remain relevant to our business. While the total capitalization of Prologis and Equinix are beyond the 2x multiple of AvalonBay’s total capitalization, the Compensation Committee decided to retain these companies in the peer group for the following reasons: (i) the impact of COVID-19 has resulted in different financial performance among the various companies in the REIT sector and such impact might be temporary, and (ii) these companies have been in the peer set for the past five years and were not recently added.

Peer Groups for Performance Award Measurement Purposes

The Compensation Committee uses a different peer group for determining performance under the executives’ performance awards. This peer group emphasizes multifamily peers rather than similarly sized companies since the performance metrics—operating performance and shareholder return—are more appropriately compared with direct competitors in our specific sector of the real estate industry.

For the 2021-2023 performance awards relating to three-year relative TSR, we used two indices. The FTSE Nareit Equity Apartments Index represents REITs in the U.S. multifamily housing industry. The FTSE Nareit Equity REITS Index represents a comprehensive group of REITs that spans the U.S. commercial real estate industry, and includes all investment and property sectors other than REITs that have been designated as Timber REITs or Infrastructure REITs.

For the 2021-2023 performance awards relating to operating metrics, the peer group consisted of the following multifamily REITs:

These companies were chosen primarily because they are publicly traded companies in the multifamily industry.

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How We Establish Goals and Determine Achievement for Incentive Compensation

Setting Goals

At the beginning of each year, the Board of Directors reviews and approves the Company’s business plan and budget, and management proposes corporate goals for that year for the annual cash bonus program and the multiyear performance program. The Compensation Committee reviews these proposed goals, adopts any revisions it deems appropriate, and approves and recommends the final corporate goals to the full Board of Directors for ratification and approval by a vote of the independent directors. The approved targets are intended to be rigorous, and our annual goals are consistent with our short-term business outlook provided to the investment community and our business plan.

Annual business unit goals are drafted by the head of each business unit and reviewed, modified, and approved by the Chief Executive Officer and presented to the Compensation Committee.

The individual goals for the annual bonus program are determined in a similar manner. The goals for the Chief Executive Officer are determined by the Compensation Committee and ratified by the independent directors of the Board who would qualify for membership on the Compensation Committee. Goals for the other NEOs are determined by the Chief Executive Officer and presented to the Compensation Committee.

Determining Achievement

At the end of each year, the CEO reviews and reports to the Compensation Committee his assessment of the achievement of the corporate goals for both the annual bonus program and the long-term incentive program, as well as achievement of the business unit and individual goals for the annual bonus programs for the other NEOs. Recommendations for bonus awards and compensation changes for the CEO, and all executive officers, are approved by the Compensation Committee and ratified by the independent directors of the Board who would qualify for membership on the Compensation Committee.

Compensation Consultants

The Compensation Committee has engaged Steven Hall & Partners, an executive compensation consulting firm, to provide general advice regarding trends and changes in executive and Board compensation regulation and governance and their impact on the Company, particularly in light of the Company’s compensation structure and levels, and general commentary regarding the Company’s executive compensation structure, goals and levels. The firm also reviews, and, if appropriate, comments to the Committee on the work prepared by Ferguson Partners Consulting, L.P. (“FPC”), management's consultant. Steven Hall & Partners did not provide any services directly to the Company or management and after review, taking into account relevant factors in accordance with SEC guidelines, the Compensation Committee concluded that no conflicts of interest exist in connection with the services of Steven Hall & Partners to the Committee. 

Management uses the services of FPC, another compensation consulting firm, to provide information about competitive pay practices and data that is shared with the Compensation Committee. In 2020 and 2021, an affiliate of FPC provided recruitment services to management and the Board of Directors with respect to potential officer and director candidates. The Compensation Committee considered whether FPC’s work for the Company raised any conflict of interest, taking into account relevant factors in accordance with SEC guidelines, and determined that, in light of the nature of the advisory work that FPC does for the Company and the policies that FPC and its affiliates have put in place to prevent compensation advisor conflicts of interest, the engagement of FPC does not create any material conflict of interest.

2021 Compensation Framework and Decisions

With respect to 2021 compensation matters for our NEOs, the Compensation Committee reviewed and approved the following: (i) base salaries, (ii) target cash and stock bonuses, (iii) criteria and metrics for the 2021 annual cash bonuses to be paid in 2022, and (iv) 2021-2023 multi-year performance awards. In February 2021, the Compensation Committee also approved a non-routine supplemental employee stock option award for each officer. These reviews and determinations are discussed below.

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Base Salary

The Compensation Committee reviews the executive officers’ base salaries annually by considering the information from the relevant peer group, internal pay equity, and each executive’s position, experience, demonstrated abilities, and level of achievement. In establishing the base salary for each NEO, we determined a reference market rate after considering comparator group company data and evaluated whether that rate should be adjusted up or down based on differences in the scope of the NEO’s position as compared to the scope of comparable positions in the industry and the comparator group companies. The reference market rate is for review purposes only and base salaries are not determined by the reference market rate. Due to the pandemic and other considerations, there were no changes to the NEOs’ base salaries in 2021.

Annual Cash Incentive Program

Our annual cash bonus program emphasizes short-term goals. The performance measures we assessed to determine payouts under the 2021 Annual Cash Incentive Program are described below.

Annual Cash Incentive Mix

For each metric, the payout is as follows:

Payouts for achievement that falls between two performance levels is determined by linear interpolation.

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Core FFO per Share

Core FFO per share is a key measure of the Company’s performance and is, with some variation among REITs, an industry-wide measure. Due to the uncertainty in 2021 related to the COVID-19 pandemic, the Company provided to the investment community quarterly guidance on Core FFO per share in lieu of full-year guidance. Consistent with that approach, for our annual bonus program the Core FFO per share metric was also measured quarterly rather than annually, with each quarter’s achievement weighted equally. During 2021, apartment fundamentals and Company performance outperformed our quarterly budgets and guidance, and achievement on this metric was 156.3%.

Net Debt-to-Core EBITDAre

EBITDAre is comparable to the more traditional measure EBITDA, but it incorporates adjustments that are specific to real estate companies. Uncertainty related to the pandemic increased the importance of focusing on balance sheet strength and financial stability and flexibility. As a result, we replaced Development Yield, which was a metric for the 2020 annual bonus, with Net Debt-to-Core EBITDAre in 2021.

For the annual cash incentive program, we define Net Debt-to-Core EBITDAre as the straight average of adjusted Net Debt to EBITDAre, calculated on a Last Quarter Annualized (LQA) basis for each of the four quarters during the calendar year. Adjusted Net Debt-to-Core EBITDAre is calculated based on the straight average of the monthly average Net Debt outstanding for each month of the quarter being measured (e.g., the average Net Debt outstanding for January 2021 is the sum of Net Debt as of 12/31/2020 and Net Debt as of 1/31/2021, divided by two), divided by full-quarter Core EBITDAre multiplied by four. This calculation is different from the Company’s earnings release because the net debt is based on the last quarter annualized rather than an average.

GRESB

GRESB is an organization that provides ESG data, scores and benchmarks on the real estate and infrastructure industries. The GRESB score is an overall measure of ESG performance, including commitment, disclosure and implementation. Our ESG goals include Approved Science-Based Targets, reductions in Scope 1, 2 and 3 greenhouse gas emissions, reduction in waste, and increased community investment.

For our 2021 performance, GRESB assigned AvalonBay a score of 85 (out of a possible 100). We believe this score reflects our continued progress on our science-based targets and our public commitment to a low-carbon and renewable energy future. At 85, the Company also outperformed the peer group that GRESB used for the review.

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Customer Satisfaction – Mid-Lease Net Promoter Score (“NPS”) and Online Reputation Sentiment

Mid-Lease NPS

Mid-Lease NPS measures customer feedback from residents who have an active six-month or longer lease agreement and are at the midpoint of that lease term. The NPS is calculated by determining the percentage of responding residents who would promote us (those who gave us a 9 or 10 rating) and subtracting the percentage of responding residents who rated us a 6 or below. Residents are surveyed by an independent third party.

We achieved an NPS of 31 for stabilized communities, which exceeded the top end of our target range by three, resulting in 175.0% of target performance. Key drivers of NPS include: (i) being friendly, helpful and responsive, (ii) keeping our properties clean, (iii) focusing on the safety of our residents, (iv) addressing noise, and (v) timely maintenance service.

Online Reputation Sentiment

Online reputation sentiment measures the average rating of all reviews on all of our communities (including communities in lease-up or undergoing redevelopment) that are written during the calendar year and are still live on Google or Facebook as of the end of the calendar year. This information is monitored and scored by a third party.

Our online reputation sentiment improved from 4.4 in 2020 to 4.6 out of 5.0 in 2021. Our positive online reputation sentiment continued to be driven by the outstanding service of our maintenance teams and the responsiveness of on-site leasing staff through their interactions with prospects and residents.

Qualitative Performance Metrics

The following metrics represent qualitative assessments of AvalonBay’s performance.

Strategic & Corporate Technology Initiatives

Determining our progress on strategic and corporate initiatives requires a qualitative judgment about the Company’s achievement on multi-year corporate investments and projects. Our 2021 strategic initiatives included:

We made considerable progress on our market expansion objective through the acquisition of four communities in Texas and North Carolina, marking our entrance into the Dallas and Charlotte metropolitan regions, as well as the addition of two other communities, expanding our presence in Florida and Colorado. We also secured our first development opportunity in North Carolina. We expanded our residential offerings to include on-demand furnished housing and extended our limited-service model to additional communities while also adding new services such as smart access and high-speed, reliable internet at an attractive price to select communities. We designed and developed a new website experience and a new application and leasing experience that is expected to be launched in 2022 and piloted a new mobile maintenance platform that is expected to be fully deployed in 2022. We also deployed a new renter’s insurance product portfolio wide in 2021. Based on the above and progress on other initiatives, the Compensation Committee determined that the achievement on Strategic & Corporate initiatives in 2021 was 115% of target.

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Effectiveness of Management

This measure considers capital allocation, portfolio allocation, balance sheet management, and associate engagement. During 2021, we increased development activity, started 10 new developments totaling $1.246 billion, and accelerated our asset trading activity significantly by taking advantage of a favorable transaction market to make progress on our portfolio allocation goals through expanded acquisitions in our targeted expansion markets and dispositions from our established legacy regions. Our balance sheet ratios remain strong, and we are well-positioned to pursue growth opportunities or portfolio repositioning through strategic transactions. To ensure associate engagement, throughout the year we provided ongoing communications regarding the Company’s actions to keep employees safe and healthy, offered training and development opportunities, launched a mentorship program and continued to promote and support our associate resource groups, held associate appreciation events, and created a new internal career portal. Based on review and assessment of management’s achievements with respect to the above, the Compensation Committee determined that achievement on this category was 125% of target.

Pandemic Response

This goal addressed our performance and responsiveness with respect to aspects of our business and planning affected by the pandemic, including associate matters (engagement, safety, designing and implementing new protocols, and maintaining associate engagement), property operations (compliance with changing regulations, managing leasing and customer processes, and maintaining leasing volume and customer satisfaction), development and construction (maintaining schedules in light of pandemic related challenges), and finance (maintaining financial flexibility and balance sheet strength).

Our Coronavirus Task Force, formed in 2020 at the outset of the pandemic, met at least weekly throughout 2021 to discuss and implement changes to our Safety Plan, Operating Guidelines, and COVID-related associate policies. We implemented a vaccine mandate for associates (with accommodations for associates with approved medical or religious exemptions), monitored the varied and fluid landlord tenant restrictions created by local and state jurisdictions in response to COVID-19, and adjusted operating practices for restrictions on rent increases, charging of late fees, required payment plans, and changing rules about group access to amenities. We also monitored rent relief programs available through state and local governments to ensure that applications were made. Lastly, we returned to in-office operations at our corporate and regional offices in November 2021 under a new, hybrid work model.

Based on the Company’s response to the developing pandemic environment and adherence to our core values and cultural norms, the Compensation Committee determined achievement at 125% of target for this metric.

Cash Bonus Performance Measures
	Metric	Weight		Performance (% of target)	Weighted payout
	Quarterly Core FFO per Share	40%		156.3%	62.52%
	Net Debt-to-Core EBITDAre	15%		134.0%	20.1%
	GRESB Score	7.5%		141.7%	10.63%
	Mid-Lease NPS	3.75%		175.0%	6.56%
	Online Reputation Sentiment	3.75%		170.0%	6.4%
	Strategic and Corporate Initiatives	10%		115.0%	11.5%
	Effectiveness of Management	10%		125.0%	12.5%
	Pandemic Response	10%		125.0%	12.5%
	Total Payout	100.0%			142.7%

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Business Unit Component of the Bonus Program

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Individual Goals and Achievement

Individual goals for officers include the executive’s leadership and managerial performance, as well as specific business-related objectives that are evaluated on a subjective basis annually.

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The individual performance achievement for each the named executive officers was determined to be between 110% and 115%.

Annual Cash Bonus

Target Bonus Opportunities and Actual Bonuses

Annual Stock Bonus

For 2021, Messrs. Naughton’s and Schall’s 2021 annual stock bonus metrics, goals and achievements were identical, as noted below. Annual stock bonuses for Messrs. O’Shea, Birenbaum and Breslin were based on the achievement of their respective business unit goals, as described above.

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The annual stock bonus for Messrs. Naughton and Schall was based on the following one-year performance measures:

Performance Measure	Original Weight	Threshold (Payout 50%)	Target (Payout 100%)	Max (Payout 200%)	Actual	% of Target Payout
Quarterly Same Store Residential Revenue vs. Target	25%				Based on each quarter	105.8%
Same Store Base Rental Revenue vs. Submarket Composite	25%				-0.3%	100.0%
Review and Assessment of Development Completions Against Plan in Terms of Capital Cost	10%	Completion Volume: Target $1.071 billion versus Actual $1.070 billion				100.0%
Review and Assessment of Construction Budget (vs. projection) and Safety* Performance for Full Year Performance	Budget 10%				Project based	97%
	Safety 5%					177.9%
Leadership Effectiveness	25%	Effective capital allocation, strategic & financial planning and decision making, pandemic response, CEO leadership transition				150.0%
Total	100%					117.5%

These performance measures intentionally do not duplicate the performance measures for the corporate annual cash bonus program to ensure that the CEO and the President focus on all aspects of the Company’s business. Similar to the Core FFO per share metric, for 2021 the same store revenue metric was set and reviewed on a quarterly basis instead of annually due to uncertainty related to the pandemic.

Once the final achievement for the annual stock bonus is determined, the number of shares of restricted stock earned by each NEO is calculated and awarded in February of the year following the performance period. The restricted stock will vest ratably over three years after the grant date as long as the NEO remains employed by the Company through each vesting date. Vesting will be accelerated in the event of a termination due to death, disability, retirement, or termination by the Company without cause.

Annual Stock Bonus (based on business unit performance for NEOs other than Messrs. Naughton and Schall)

Annual stock bonus awards for 2022 will be disclosed in the 2023 proxy statement Summary Compensation Table as they were granted in February 2022.

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Multi-Year Performance Award Program

Under our multi-year, long-term incentive award program, performance awards are granted each year with a target number of performance units that may be reduced or increased at the end of the three-year performance period depending on achievement against established metrics. For the 2021-2023 performance period, payouts will be determined based on the Company’s performance against two relative TSR metrics and three financial operating metrics, described below. The performance units that are earned at the end of the performance period will be settled in shares of common stock and a cash payment equal to the dividends that would have been earned on that number of shares during the performance period.

The performance awards strengthen the alignment of executive compensation with long-term stockholder value creation. The two indices selected for the relative TSR metric represent the broader REIT industry and the REIT apartment industry, which we believe are complementary investment vehicles for our investors. The operating metrics—Core FFO per share growth, Net Debt-to-Core EBITDA ratio and net asset value (“NAV”) per share growth, each measured relative to the performance of our peers—motivate our officers to focus on critical operating performance objectives that we believe will contribute to sustainable stockholder returns over the long term.

The targets set for the five performance metrics are intended to be challenging. The threshold and maximum goals for the majority of the 2021-2023 performance awards metrics were widened from the prior year’s award to reflect the increased variability and volatility in financial performance in the REIT industry. This increased variability and volatility is attributable to differences between coastal and sunbelt apartment markets and the varying impact of the pandemic on different REIT sectors (e.g., data, retail, apartment, etc.). Achievement of maximum performance levels would require meaningful outperformance over the performance period.

The metrics under the performance awards made in 2021 with a three-year performance period ending on December 31, 2023, are as follows:

2021–2023 Performance Awards

	Performance Level and Payouts(1) (relative performance stated as percentage points above or below index performance)
TSR Metrics (Weighted 50%)	Threshold 50% payout	Target 100% payout	Max 200% payout	Percent of TSR Metrics
Relative to FTSE Nareit Equity Apartments Index				35.0%
Relative to FTSE Nareit Equity REITs Index				15.0%
	Performance Level and Payouts(1) (relative performance stated as (i) percentage points above or below average peer performance(2) or (ii) difference between AVB performance and average peer performance)
Operating Metrics (Weighted 50%)	Threshold 50% payout	Target 100% payout	Max 200% payout	Percent of Operating Metrics
Core FFO per share growth vs. peers				20%
Net Debt-to-Core EBITDA ratio vs. peers				15%
Net Asset Value per share growth vs. peers				15%

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2021–2023 Performance Awards

The target, threshold and maximum number of performance units granted in 2021 that may be earned for the 2021-2023 performance period are shown below.

Settlement of 2019–2021 Performance Awards

Our 2019–2021 Performance Awards were structured similarly to the 2021–2023 Performance Awards, with a focus on TSR metrics and operating metrics, but some of the specific metrics and weightings were not the same.

TSR Metrics (Weighted 59.04%)	Weight	Threshold	Target	Max	% of Target Payout
Absolute 3-yr TSR(1)	25%				200.0%
AvalonBay 3-yr TSR vs. Nareit Equity REIT Index	25%				90.4%
AvalonBay 3-yr TSR vs. Nareit Apt Index	50%				—
TSR Metrics %	100%				72.6%
Operating Metrics (Weighted 40.96%)	Weight	Threshold	Target	Max	% of Target Payout
3-yr Core FFO per share growth vs. Peers	66.7%				50%*
3-yr Net Debt-to-Core EBITDA vs. Peers	33.3%				118.0%
Operating Metrics %	100%				72.7%
Final Achievement % (weighted by units)	100%				72.6%

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Sixty percent of each NEO’s total performance award target value was tied to the TSR metrics identified above and 40% of the award target value was tied to the operating metrics identified above. However, because we used the Monte Carlo value of a unit to calculate the number of target performance units tied to TSR metrics and the actual stock price to calculate the number of target performance units tied to operating metrics, the actual total number of units awarded reflected 59.04% based on the TSR metrics and 40.96% based on the operating metrics.

Although the 3-year Core FFO per share growth vs. peers resulted in below threshold performance at -3.27%, the Compensation Committee exercised discretion to provide for threshold achievement on that metric. The Compensation Committee believes that such discretion should be used only in very unique circumstances. In making this decision, the Committee considered that the impact on consumers, consumer preferences, and regulatory responses resulting from the COVID-19 pandemic varied markedly and unexpectedly by region and market, making the original range for measuring relative performance versus peers in other markets less appropriate. As well, the Committee recognized that the calculation of Core FFO among companies varies, such that applying below threshold achievement because of a narrow 27 basis point miss was inappropriate, particularly given the level of effort by officers to respond to and address the challenges of 2020 and 2021 and the competitive market for retaining senior talent. As a result of setting achievement on the Core FFO/share growth at threshold rather than below threshold, the total (combined) achievement on the 2019-2021 award was 72.6% rather than 59.0%. As this use of discretion was applied in 2022, the impact of the adjustment will be reflected in the Summary Compensation Table and Grants of Plan-Based Awards Table in our 2023 proxy statement.

The following table shows the actual performance units earned at the completion of the three-year performance period ended December 31, 2021. These awards were settled in unrestricted shares of stock.

Supplementary Stock Options

In early 2021, our Compensation Committee granted a supplementary award to officers to encourage retention, engagement and consistency of management during a period of uncertainty created by both the announcement of a planned CEO leadership transition and challenging pandemic-impacted business climate. The Compensation Committee also considered that Mr. Schall was an external hire and was the first outside hire for the CEO role in the Company’s history. The awards are focused on maintaining stability and retaining important institutional knowledge, which is necessary to facilitate our leadership team’s execution of the Company’s strategic goals.

After review and analysis, the Compensation Committee approved, and the independent directors on the Board of Directors who qualify for service on the Compensation Committee ratified, a non-routine supplementary stock option award to each officer (other than Mr. Schall) with an exercise price equal to the closing price of our common stock on the award date (February 25, 2021) and with cliff vesting on March 1, 2023. The value of the supplementary stock options awarded to the NEOs (based on the Black-Scholes value of the options) was approximately 18.5% of the 2021 target total compensation for Mr. Naughton and an average of 12.9% for the other NEOs who received options. These options will be forfeited if the officer’s employment or other business relationship terminates prior to the March 1, 2023 vesting date except in the case of death, disability or termination without cause.

The supplementary stock option grant amounts for the NEOs are shown below.

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Realized Pay for 2021 Performance

The following chart shows one of the ways our Compensation Committee evaluated compensation paid to the NEOs for service and performance with respect to 2021. This chart differs from the Summary Compensation Table, which includes several items that are driven by accounting and reporting requirements that do not necessarily reflect the compensation actually realized by the executives during or with respect to 2021. The primary difference between this supplemental table and the Summary Compensation Table is the timing and method used to value multi-year performance award units and stock awards.

SEC rules require that the grant date fair value of all performance award units and stock awards be reported in the Summary Compensation Table in the row for the year in which they were granted, regardless of the year for which the awards were made or the year the awards will pay out. As a result, a significant portion of the total compensation for 2021 reported in the Summary Compensation Table relates to restricted stock awards granted in early 2021 for performance in 2020 and performance awards for the 2021–2023 performance cycle. The actual awards for the 2021-2023 performance cycle will not be determined until the performance period ends, so the value of these awards is uncertain (and may end up being $0).

In contrast, the chart below illustrates the actual value of the restricted shares received by each NEO for service and performance in 2021 and the actual cash and the value of unrestricted shares received by each NEO for the 2019–2021 maturing performance period. As a result, these amounts differ substantially from the amounts determined under SEC rules and reported in the Summary Compensation Table. This chart is not a substitute for the Summary Compensation Table.

Realized Pay for 2021 Performance

The realized long-term incentive amounts were calculated using a price of $236.14 per share, the closing price of the Company’s common stock on the NYSE on February 17, 2022.

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Aligning 2020-2022 Performance Goals with 2021-2023 Performance Awards

For the 2021-2023 performance awards that were granted in early 2021, at the time of grant the Compensation Committee widened the ranges of four of the metrics from the prior years to take into account that the impact of the pandemic on consumers, consumer preferences, and regulatory responses varied markedly and unexpectedly by region, market and real estate asset class, making the original ranges for measuring threshold and maximum performance too narrow. These ranges were incorporated again for the 2022-2024 performance awards.

In early 2022, the Compensation Committee determined that it was appropriate to align the ranges of the 2020-2022 performance awards, which were granted in February 2020 before the beginning of the full impact of the pandemic in the United States. After alignment, the new ranges for the 2020-2022 performance awards align with the 2021-2023 and 2022-2024 awards. The metrics and targets remain unchanged, but the ranges for four of the metrics were widened by 100 basis points on both ends of the threshold and maximum range as described in more detail below.

No change was made to the threshold and maximum goals for the Net Debt-to-Core EBITDA ratio vs. peers metric. As the determination to modify the award was made in early 2022, the incremental fair value associated with the modification will be reflected in the Summary Compensation Table and Grants of Plan-Based Awards Table in the 2023 proxy statement. The Compensation Committee believes that changes to goal ranges should be made only in unique circumstances. As noted above, the impact on consumers, consumer preferences and regulatory responses resulting from the COVID-19 pandemic varied markedly and unexpectedly by region, market, and real estate asset class. Pandemic-related effects included decreased apartment demand in major urban cities and a shift towards suburban and sunbelt markets, as well as state and local restrictions on rent increases and evictions that had less impact on many sunbelt markets where the Company has only limited presence. For these reasons, the Compensation Committee determined that it was appropriate to align the ranges for the 2020-2022 performance award with the ranges for the 2021-2023 and 2022-2024 awards. As noted previously, no modification was made to the 2020-2022 metrics themselves nor the target goals.

By widening the ranges for four metrics, while retaining the same target goals, it becomes more difficult to achieve maximum performance on those metrics but less difficult to achieve performance that is above threshold. Overall, based on performance for the first two years of the 2020-2022 performance award, mid-flight performance achievement was below target but above threshold both before the change (29.1%) and after the change (58.4%). There can be no assurance what overall achievement will be upon completion of the full three-year performance period.

Other Benefits

Pursuant to our Deferred Compensation Plan, certain employees, including the NEOs, may defer up to 25% of annual base salary and up to 50% of annual cash bonus on a pre-tax basis and receive a tax-deferred return on those deferrals. Deferral elections are made by eligible employees during an open enrollment period each year for amounts to be earned in the following year. Participating employees direct the deemed investment of their deferral accounts by selecting among certain available investments in mutual funds.

We have an employee stock purchase plan that provides our employees the opportunity to purchase our common stock at a 15% discount to the lower of the closing price of the common stock, as reported on the NYSE, on the first business day of the purchase period or the closing price of the common stock on the last day of the purchase period. There were two purchase periods in 2021: January 1 through June 10 and July 1 through December 10. Employees had the opportunity to purchase up to $12,500 of our common stock at the discounted rate during each of the two purchase periods.

We maintain a 401(k) retirement savings plan and match 50% of the contributions up to the first six percent of a participant’s eligible compensation (subject to certain tax limitations). We offer medical, dental and vision insurance plans, with a portion of the cost paid by the employee. We also provide life insurance, accidental dismemberment insurance, and short-term and long-term disability insurance for each employee.

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Compensation Policies

Executive Stock Ownership Guidelines

The Company believes it is important for senior officers to hold Company stock. To that end, the Board has established the Senior Officer Stock Ownership Guidelines for officers who are at the senior vice president level or above. These guidelines provide that the following classes of senior officers are expected to maintain ownership of common stock (including unvested restricted shares) equal to the indicated multiple of base salary.

Covered officers must achieve the required ownership within five years of the date they become subject to these guidelines. The full text of the Senior Officer Stock Ownership Guidelines, which includes a retention policy for executives who have not achieved the required ownership level, is posted on the Investor Relations section of the Company’s website (www.avalonbay.com) under “Corporate Governance Documents.” All of our covered executives who have been in office for at least five years are in compliance with the stock ownership guidelines.

Anti-Hedging and Anti-Speculation Policy

The Board has adopted the following Anti-Hedging and Anti-Speculation Policy, which applies to all officers, employees, and directors:

“Associates (including officers) and members of the Board of Directors of AvalonBay Communities, Inc. (the “Company”) may not, directly or indirectly (including, without limitation, through trading done by immediate family members sharing the person’s household and/or not financially independent of such person or through trading done through an account over which the person has investment power or authority):

No Pledging Policy

The Board has also adopted the following No Pledging Policy:

“No officer and no member of the Board of Directors of AvalonBay Communities, Inc. (the “Company”) may, directly or indirectly (including, without limitation, through accounts owned by immediate family members sharing the person’s household and/or not financially independent of such person or through trading done through an account over which the person has investment power or authority), purchase Company equity securities on margin, hold Company equity securities in a margin account, or borrow money from a broker or other lender that is secured by Company Securities.”

Severance Policy

The Board has adopted a Policy Regarding Shareholder Approval of Future Severance Agreements (the “Severance Policy”). The Severance Policy generally provides that the Company will not, without stockholder approval or ratification, enter into or bind the Company to the terms of any severance agreement with a senior executive officer that provides for severance benefits (as defined) in excess of 3.0 times the sum of the officer’s base salary plus annual bonus. The full text of the Severance Policy is posted on the Investor Relations section of the Company’s website (www.avalonbay.com) under “Corporate Governance Documents.”

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Policy on Recoupment of Incentive Compensation (Clawback Policy)

The Board has adopted a compensation clawback policy, which applies to senior officers (generally senior vice presidents and above). Pursuant to this policy, in the event the Company is required to prepare an accounting restatement due to material non-compliance with any financial reporting requirement, then an independent committee of the Board of Directors may require any covered officer to repay to the Company all or part of any “Excess Compensation” that such officer previously received. Excess Compensation is defined as that part of the incentive compensation received by a covered officer during the three-year period preceding the publication of the restated financial statement that exceeded the amount such officer would have received had such incentive compensation been calculated based on the financial results reported in the restated financial statement. The full text of the policy is posted on the Investor Relations section of the Company’s website (www.avalonbay.com) under “Corporate Governance Documents.”

Dates and Pricing of Stock and Option Grants

The Compensation Committee determines the number of shares underlying options or the number of shares of restricted stock to award to officers as part of the annual compensation. Those members of the Board of Directors who would qualify for service on the Compensation Committee review and ratify these awards for executive officers at the Board’s regularly scheduled February meeting. The award date for options and stock grants is generally the date of ratification, but that date may be delayed if there is a pending announcement by the Company of material non-public information, such as an earnings release. In all cases, our options are granted: (i) on the date described above; (ii) on the date of (or a date set in connection with) a new employee’s start with the Company, as approved by the Chief Executive Officer or the Board of Directors in advance of the start date; or (iii) on the date of approval by the Chief Executive Officer for retention or recognition purposes (under his delegated authority to grant equity awards to certain employees of up to a Board-authorized maximum value of $250,000). Option exercise prices are equal to the NYSE closing price of our common stock on the date of grant.

Transactions in Company Stock by Officers

All officers must receive prior authorization for any purchase or sale of our common stock (unless made pursuant to a previously approved Rule 10b5-1 plan, by automatic dividend reinvestment, or through our employee stock purchase plan), which, in the case of open market transactions, is generally only given during approved trading windows that are generally established in advance based upon earnings release dates.

Risk Considerations

The Compensation Committee reviewed and considered risks arising from the Company’s compensation policies and practices for its employees. This review included consideration of the following specific elements of the Company’s executive compensation policies and procedures:

Following this review, the Compensation Committee concluded that any risks arising from the Company’s compensation policies and practices are not reasonably likely to have a material adverse effect on the Company at this time.

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Compensation Committee Report

The Compensation Committee of the Board of Directors of AvalonBay Communities, Inc., a Maryland corporation, has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K of the Securities and Exchange Commission with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

Submitted by the Compensation Committee

Richard J. Lieb (Chair)
Alan B. Buckelew
Stephen P. Hills
W. Edward Walter

Compensation Committee Interlocks and Insider Participation

Richard J. Lieb, Alan B. Buckelew, Stephen P. Hill and W. Edward Walter each served on the Compensation Committee during 2021. No member of the Compensation Committee has served as an officer of the Company or any of its subsidiaries. None of our executive officers serves as a member of the board of directors or compensation committee of any company that has one or more of its executive officers serving as a member of our Board of Directors or Compensation Committee. No member of the Compensation Committee has any other business relationship or affiliation with the Company or any of its subsidiaries (other than service as a director).

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Executive Compensation Tables

Summary Compensation Table

The table below summarizes the compensation amounts paid in or earned by each of the NEOs for the fiscal years ended December 31, 2021, December 31, 2020 and December 31, 2019.

Executives are eligible to defer a portion of their salaries and bonuses under our Nonqualified Deferred Compensation Plan. The amounts shown below are before any deferrals under the Nonqualified Deferred Compensation Plan.