Starwood 2007 Annual Report Download - page 34

date of grant, or earlier in the event of termination of employment. Stock options provide compensation only
when vested and only if the Company’s stock price appreciates and exceeds the exercise price of the option.
Therefore, during business downturns, option awards may not represent any economic value to an executive.
Restricted stock units and restricted stock provide some measure of mitigation of business cyclicality
while maintaining a direct tie to share price. The Company seeks to enhance the link to stockholder
performance by building a strong retention incentive into the equity program. Consequently, for 2007 grants,
50% of restricted stock units and awards vest on the third anniversary of the date of grant and the remaining
50% vests on the fourth anniversary of the date of grant, subject to accelerated vesting of awards granted in
2007 on the 18 month anniversary of the grant date for associates who are retirement eligible under the LTIP
(Mr. Gellein is currently retirement eligible); different rules regarding accelerated vesting upon retirement
apply to awards granted prior to 2006 (see footnote 3 to the Outstanding Equity Awards at Fiscal Year-End
table on page 32). This delayed vesting places an executive’s long term compensation at risk to share price
performance for a significant portion of the business cycle, while encouraging long-term retention of
executives.
As mentioned above, Named Executive Officers have a mandatory deferral of 25% of their awards under
the Executive Plan in the form of deferred stock units, unless reduced in the discretion of the Compensation
Committee (as done, for example, for Mr. Gellein’s 2007 award in light of his retirement). As such, the awards
combine performance-based compensation with a further link to stockholder interests. First, amounts must be
earned based on annual Company financial and strategic/operational performance under the Executive Plan.
Second, these already earned amounts are put at risk through a vesting schedule. Vesting occurs in installments
for employment over a three year period. Third, these earned amounts become subject to share price
performance. Primarily in consideration of this vesting risk being applied to already earned compensation
(but also taking into account the enhanced stockholder alignment that results from being subject to share
performance), the deferred amount is increased by 33% of value. The Compensation Committee has the
discretion to accelerate vesting or pay out deferred amounts in cash (without interest and without the
percentage increase in value) in a limited number of termination circumstances (e.g., involuntary terminations
or retirements).
Mr. Van Paasschen agreed not to sell any Company stock awards or shares received on exercise of options
(except as may be withheld for taxes) for the first two years of his employment and thereafter only in
consultation with the Board of Directors.
Benefits and Perquisites. Base salary and incentive compensation are supplemented by benefits and
perquisites.
Current Benefits. The Company provides employee benefits that are consistent with local practices and
competitive markets, including group health benefits, life and disability insurance, medical and dependent care
flexible spending accounts and a pre-tax premium payment arrangement. Each of these benefits is provided to
a broad group of employees within the Company and our Named Executive Officers participate in the
arrangements on the same basis as other employees.
Perquisites. As reflected in the Summary Compensation Table below, the Company provides certain
perquisites to select Named Executive Officers when necessary to provide an appropriate compensation
package to those Named Executive Officers, particularly in connection with enabling the executives and their
families to smoothly transition from previous positions which may require relocation.
For example, in 2007 the Company reimbursed Mr. Van Paasschen for $44,556 of legal fees incurred
negotiating his employment agreement with the Company. In addition, Mr. Van Paasschen’s employment
agreement provides that the Company will provide Mr. Van Paasschen with up to a $500,000 credit (based on
the Standard Industry Fare Level formula) for personal use of the Company’s aircraft during the first 12 months
of his employment with the Company. The Company also provided Mr. Van Paasschen with relocation benefits
associated with the sale of his home in Colorado and relocation to the White Plains, New York area.
Mr. Van Paasschen and his immediate family had access to a Company owned or leased airplane on an “as
available” basis for personal travel, i.e., assuming such plane was not needed for business purposes, with an
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