Starwood 2007 Annual Report Download - page 37

In performing its competitive analysis, the Compensation Committee typically reviews:
• base pay;
• target and actual total cash compensation, consisting of salary and target and actual bonus awards in prior
years; and
• direct total compensation consisting of salary, target and actual bonus awards, and the value of option and
restricted stock/restricted stock unit awards.
During 2007, compensation paid to the Company’s Named Executive Officers was compared to peer group
data reported in 2007 proxy statements, as provided by compensation consulting firms and reflecting 2006
compensation. The Company’s Named Executive Officer compensation data taken into account for this comparison
included 2007 salary, AIP bonuses paid in 2008 for 2007 performance and equity grants awarded in 2007.
The competitive position of the Company’s compensation based on total cash (salary and bonus) ranged from
the median to the lower quartile while the competitive position of its compensation based on total compensation at
target, which includes the equity grants, ranged from the median to the upper quartile.
2. Tax and Accounting Considerations
Tax. Section 162(m) of the Code generally disallows a federal income tax deduction to public companies for
compensation in excess of $1,000,000 paid to the chief executive officer and the four other most highly
compensated executive officers. Qualified performance-based compensation is not subject to the deduction limit
if certain requirements are met. The Company believes that compensation paid under the Executive Plan meets
these requirements and is generally fully deductible for federal income tax purposes. In designing the Company’s
compensation programs, the Compensation Committee carefully considers the effect of this provision together with
other factors relevant to its business needs. Therefore, in certain circumstances the Company may approve
compensation that does not meet these requirements in order to advance the long-term interests of its stockholders.
At the same time, the Company has historically taken, and intends to continue taking, reasonably practicable steps
to minimize the impact of Section 162(m). Accordingly, the Compensation Committee has determined that each of
the Named Executive Officers will participate under the Executive Plan for 2008.
On October 22, 2004, the American Jobs Creation Act of 2004 was signed into law, adding Section 409A to the
Code and thereby changing the tax rules applicable to nonqualified deferred compensation arrangements effective
January 1, 2005. While final Section 409A regulations are not effective until January 1, 2009, the Company believes
it is operating in good faith compliance with Section 409A and the Interpretive guidance thereunder. A more
detailed discussion of the Company’s nonqualified deferred compensation plan is provided on page 34 under the
heading Nonqualified Deferred Compensation.
Accounting. Beginning on January 1, 2006, the Company began accounting for awards under its LTIP in
accordance with the requirements of FASB Statement 123(R) (“SFAS 123(R)”).
3. Share Ownership Guidelines
In 2007, the Company adopted share ownership guidelines for our executive officers, including the Named
Executive Officers. Pursuant to the guidelines, the Named Executive Officers, including the Chief Executive
Officer, are required to hold that number of Shares having a market value equal to or greater than a multiple of each
executive’s base salary. For the Chief Executive Officer, the multiple is five (5) times base salary and for the other
Named Executive Officers, the multiple is four (4) times base salary. A retention requirement of 35% is applied to
restricted Shares upon vesting (net shares after tax withholding) and Shares obtained from option exercises until the
executive meets the target, or if an executive falls out of compliance. Shares owned, stock equivalents (vested/
unvested units), and unvested restricted stock (pre-tax) count towards meeting ownership targets. However, stock
options do not count towards meeting the target. Officers have five years from the date of hire or the date they first
become subject to the policy to meet the ownership requirements.
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