Starwood 2009 Annual Report Download - page 22

Executive Plan in December 2008 for the primary purpose of bringing it into documentary compliance with
Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).
The Board of Directors adopted the Executive Plan to assure that bonuses made to the Company’s executive
officers would continue to qualify as “other performance-based compensation” under Section 162(m) of the Code
(“Section 162(m)”). Under Section 162(m), no deduction is allowed in any taxable year of the Company for
compensation in excess of $1 million paid to certain executive officers. An exception to this rule applies to certain
performance-based compensation that is paid pursuant to a plan or program approved by our stockholders and that
specifies the performance objectives to be obtained, the class of employees eligible to receive awards and the
maximum amount that can be paid to eligible employees under such plan or program. For certain awards, such as
cash bonus awards under the Executive Plan, to qualify for the exception available for performance-based
compensation, stockholders must approve the performance objectives to which such awards relate.
As set forth below, we are currently seeking reapproval of the Executive Plan, as amended and restated in
December 2008, in order to continue to qualify certain compensation payable thereunder for deductibility by the
Company for federal income tax purposes. Under the applicable federal income tax regulations, stockholders must
reapprove the performance criteria set forth in the Executive Plan every five years to have the compensation that is
paid under the Executive Plan continue to be exempted from the limits under Section 162(m).
The Executive Plan permits the Company to award qualified annual cash bonuses to the Company’s executive
officers based on a determination by the Committee that performance objectives established by the Committee and
based on those criteria set forth in the Executive Plan have been attained. In addition, the Committee may authorize
payment of up to 25% of a participant’s bonus in the form of restricted stock awards, which are valued at 75% of the
fair market value of a Share.
The principal features of the Executive Plan are summarized below. The description is subject to the terms of
the Executive Plan, which is attached as an appendix to this Proxy Statement. The existence of the Executive Plan
shall not preclude the Company from making additional payments outside the Executive Plan to participants therein
or to other employees.
Annual Incentive Plan for Certain Executives
The Executive Plan will be administered by a committee (the “Committee”) comprised solely of two or more
Directors, each of whom is (i) a “non-employee director” within the meaning of Rule 16b-3 under the Exchange
Act, and (ii) an “outside director” within the meaning of Section 162(m). The Compensation Committee is expected
to serve as the Committee. The Company’s Chief Executive Officer, the Company’s Executive Chairman (if any),
and any other executive officer of the Company who is designated by the Committee on or before the 90th day of a
fiscal year will participate in the Executive Plan for such fiscal year. For the 2009 fiscal year, Messrs. van Paasschen,
Avril, Cava, McAveety, Prabhu, Siegel and Turner are the only participants (“Participants”) in the Executive Plan.
Under the Executive Plan, payment of annual bonuses to Participants is subject to the satisfaction of specific
annual performance targets determined under a bonus formula established by the Committee within the first 90 days
of each fiscal year. The performance targets must be directly and specifically tied to one or more of the following
business criteria: earnings before interest, taxes, depreciation and amortization (“EBITDA”), consolidated pre-tax
earnings, net revenues, net earnings, operating income, earnings before interest and taxes, cash flow measures,
return on equity, return on net assets employed or earnings per share for the applicable fiscal year, subject to such
other special rules and conditions as the Committee may establish within the 90-day period (which may include
rules providing for adjustments to performance targets on account of extraordinary or unusual events).
Within the same 90-day period, the Committee will also establish a minimum threshold level of performance
for each fiscal year based on one or more of the targets specified above. The Committee has historically used an
EBITDA performance measure for this purpose. If this minimum threshold is not met, then no payment is made to
any Participant. The Committee also establishes an objective formula or standard for calculating the maximum
bonus payable to each Participant for the fiscal year, subject to the requirement that the maximum bonus payable to
any Participant for any fiscal year may not exceed $9 million.
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