Starwood 2007 Annual Report Download - page 29

When the threshold is established at the beginning of a year, the achievement of the threshold is considered
substantially uncertain for purposes of Section 162(m) of the Code, which is one of the requirements for
compensation paid under the Executive Plan to be deductible as performance-based compensation under
Section 162(m). For 2007, the EP Threshold was $680,000,000.
Generally, a Named Executive Officer will receive payment of an award under the Executive Plan only if
he remains employed by the Company on the award payment date. However, pro rata awards may be paid at the
discretion of the Compensation Committee in the event of death, disability or retirement. To determine the
actual bonus to be paid for a year, if the threshold is met and subject to the maximum described above, the
Compensation Committee also establishes specific annual Company financial and strategic/operational
performance targets and a related target bonus amount for each executive. These financial and strategic/
operational targets are described below.
Additional Criteria.
If the EP Threshold under the Executive Plan is met for a year, the Company financial and strategic/
operational goals referenced above are then used to determine a Named Executive Officer’s actual bonus, as
follows:
Financial Goals.
The Company financial goals for Named Executive Officers under the Executive Plan consist of operating
income and earnings per share targets, with each criteria accounting for half of the financial goal portion of the
annual bonus. As the Company generally sets target incentive award opportunities above market median, the
Company financial and strategic/operational goals to achieve such award levels are considered stretch but
achievable, representing above-market performance. Consistent with maintaining these high standards and
subject to achieving the EP Threshold, the Compensation Committee retains the ability to consider whether an
adjustment of the financial goals for any year is necessitated by exceptional circumstances, e.g.,an
unanticipated and material downturn in the business cycle that triggers, in response, an increased focus by
the Compensation Committee on the Company’s performance relative to the industry. This ability is intended
to be narrowly and infrequently used and would, if applicable, be detailed in the proxy.
Performance against the financial targets determined 60% of Mr. Van Paasschen’s total target opportunity
and 50% of the total target opportunities for the other Named Executive Officers. Subject to achieving the EP
Threshold, actual incentives paid to Named Executive Officers for financial performance may range from 0%
to 200% of the pre-determined target bonus for this category of performance. For Named Executive Officers
other than Mr. Gellein, the Company performance portion is based 50% on earnings per share and 50% on
operating income of the Company. For Mr. Gellein, the Company performance portion is based 50% on
earnings per share and 50% on the net income for SVO, the Company’s vacation ownership subsidiary.
Even if the EP Threshold is achieved, nothing is generally paid on a component of the “Financial Goals”
portion of the annual bonus unless certain minimum levels of performance for the applicable metric are
achieved (i.e., the “performance minimum”). Further, once a certain level of performance is achieved, the
bonus payout for the applicable metric is limited to 200% (i.e., the “performance maximum”). The table below
sets forth for each metric the performance levels for 2007 which would have resulted in 100% payout (i.e.
“target”), the performance minimum level that would have resulted in a 50% payout and the performance
maximum level that would have resulted in a 200% payout. In addition, the table sets forth the mid-points of
performance and payout between the performance minimum to target and from target to performance
maximum:
Minimum
(50%)
Mid-point
(75%)
Target
(100%)
Mid-point
(150%)
Maximum
(200%)
Earnings per Share . . $ 2.01 $ 2.26 $ 2.51 $ 2.82 $ 3.14
Company Operating
Income . ........ $793,800,000 $893,100,000 $992,300,000 $1,116,300,000 $1,244,900,000
SVO Net Income . . . $162,800,000 $183,200,000 $203,500,000 $ 244,200,000 $ 284,900,000
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