Starwood 2008 Annual Report Download - page 34

Executive Officer in 2007 as well as the expected performance of the Company for 2008 at the time of grant. In
addition, the Compensation Committee considers structural changes to the equity program and the fact that the
Compensation Committee targets the median of the peer group for base salary but targets total compensation at
the 65% percentile resulting in larger long-term incentive awards. Messrs. McAveety and Turner received sign
on grants in 2008 following the commencement of their employment. In addition, in connection with his
promotion to President, Hotel Group, Mr. Avril received an additional promotion grant in 2008 reflecting his
increased role and responsibilities. Based on the factors set forth above, including the Company’s performance
and individual performance of each Named Executive Officer in 2007, the Compensation Committee believes
that equity award grants in 2008 were appropriate.
Total compensation for this group is evaluated against the peer group identified in this proxy statement.
Evaluated on this basis, the Compensation Committee believes the actual cash and equity compensation
delivered for the 2008 performance year was appropriate in light of the Company’s overall performance and
individual executive performance.
In its review of the overall compensation strategy and program in 2008, the Compensation Committee
made several key changes, most of which will be effective for the 2009 performance year. The Compensation
Committee changed its philosophy on tax gross ups in change in control agreements and eliminated gross ups
for arrangements put in place in 2008 with senior executives. For the 2009 performance year, the Compen-
sation Committee also eliminated the minimum payout on the Company financial performance portion by
establishing minimum performance measures that must be achieved for any bonus to be paid, made structural
changes to align the individual performance portion of annual bonuses to the Company’s financial perfor-
mance and lowered the ratio for determining the number of options to be granted from 3-to-1 to 2.5-to-1. In
addition, the Company froze salaries for all bonus eligible associates in corporate and divisional offices,
including the Named Executive Officers. These changes were designed to better align compensation with
(i) the creation and preservation of shareholder value and (ii) the Company’s financial performance.
Evaluation Process for Strategic/Operational and Other Goals.
Other Named Executive Officers. With oversight and input from the Compensation Committee, the
Chief Executive Officer, together with the Chief Human Resources Officer, conducts a formal performance
review process each year during which he evaluates how each other Named Executive Officer performed
against the officer’s strategic/operational performance goals for the prior year. The Chief Executive Officer
conducts this evaluation through the Performance Management Process (“PMP”), which results in a PMP
rating for each executive. This PMP rating corresponds to a payout range under the Executive Plan determined
annually by the Compensation Committee for that rating. As noted, for 2008 the portion of the Executive Plan
payouts based on PMP ratings could range from 0% to 175% of target. Where necessary to preserve the
competitive position of the Company’s compensation scale, the Chief Executive Officer may recommend a
market adjustment to the base amount that is subjected to this percentage. At the conclusion of his review, the
Chief Executive Officer submits his recommendations to the Compensation Committee for final review and
approval. In determining the actual award payable to a Named Executive Officer under the Executive Plan, the
Compensation Committee reviews the Chief Executive Officer’s evaluation and makes a final determination as
to how the executive performed against his strategic/operational goals for the year. The Compensation
Committee also determines, based on management’s report, the extent to which the Company’s financial
performance goals were achieved and whether the Company achieved the applicable minimum threshold(s)
required to pay awards. The Chief Executive Officer also meets in executive session with the Board of
Directors to inform the Board of his performance assessments regarding the Named Executive Officers and the
basis for the compensation recommendations he presented to the Compensation Committee.
Annual Incentive awards made to our Named Executive Officers under the Executive Plan with respect to
2008 performance are reflected in the Summary Compensation Table on page 29 and described in the
accompanying narrative.
Long-Term Incentive Compensation. Like the annual incentives described above, long-term incentives
are a key part of the Company’s executive compensation program. Long-term incentives are strongly tied to
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