Starwood 2008 Annual Report Download - page 30

each Named Executive Officer with substantial incentive compensation opportunities if performance objectives are
met. The Company believes that the allocation between base and incentive compensation is appropriate and
beneficial because:
• it promotes the Company’s competitive position by allowing it to provide Named Executive Officers with
competitive compensation if targets are met;
• it targets and attracts highly motivated and talented executives within and outside the hospitality industry;
• it aligns senior management’s interests with those of stockholders;
• it promotes achievement of business and individual performance objectives; and
• it provides long-term incentives for Named Executive Officers to remain in the Company’s employ.
Annual Incentive Compensation. Annual incentives are a key part of the Company’s executive
compensation program. The incentives directly link the achievement of Company financial and strategic/
operational performance objectives to executive pay. Annual incentives also provide a complementary balance
to equity incentives (discussed below). Each Named Executive Officer has an annual opportunity to receive an
award under the stockholder-approved Executive Plan. If and when earned, awards are typically paid to Named
Executive Officers partly in cash and, unless the Compensation Committee otherwise elects, partly as deferred
equity awards in the form of deferred stock units (under the Executive Plan). The deferred stock units vest over
a three-year period. See additional detail regarding these deferred equity awards in the Long-Term Incentive
Compensation section below.
Minimum Thresholds.
For the Named Executive Officers, the annual incentive award for 2008 was paid under the Executive
Plan. Each year, the Compensation Committee establishes in advance a threshold level of earnings before
interest, taxes, depreciation and amortization (“EBITDA”) that the Company must achieve in order for any
bonus to be paid under the Executive Plan for that year (the “EP Threshold”). The Executive Plan also specifies
a maximum bonus amount, in dollars, that may be paid to any executive for any 12-month performance period.
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 2008, the EP Threshold was $637,500,000.
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, retirement or other termination of
employment. 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
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