Starwood 2009 Annual Report Download - page 41

2. Tax Considerations
Section 162(m) 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 for 2009 meets these requirements
and is generally fully deductible for federal income tax purposes, except with respect to the special bonus
enhancement awarded to Mr. van Paasschen.
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 and for the 2010 fiscal year the Compensation Committee approved an increase in
Mr. van Paasschen’s base salary from $1,000,000 to $1,250,000. 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 2010.
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 were not effective until January 1, 2009, the Company
believes it was operating in good faith compliance with Section 409A and the interpretive guidance thereunder. The
Company entered into amendments to the employment arrangements with its senior officers, including the Chief
Executive Officer and Named Executive Officers, and amended its bonus and compensation plans in December
2008 to meet the requirements of these regulations. A more detailed discussion of the Company’s nonqualified
deferred compensation plan is provided on page 40 under the heading Nonqualified Deferred Compensation.
3. Share Ownership Guidelines
The Company has 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 times base salary and for the other
Named Executive Officers, the multiple is four 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, if later, the date
they first become subject to the policy to meet the ownership requirements.
4. Equity Grant Practices
Determination of Option Exercise Prices. The Compensation Committee grants stock options with an
exercise price equal to the fair market value of a Share on the grant date. Under the LTIP, the fair market value of our
common stock on a particular date is determined as the average of the high and low trading prices of a Share on the
NYSE on that date.
Timing of Equity Grants. The Compensation Committee generally makes annual equity compensation
grants to Named Executive Officers following its first regularly scheduled meeting that occurs after the release of
the Company’s earnings for the prior year (typically the grant date is the last business day in February). The timing
of this meeting is determined based on factors unrelated to the pricing of equity grants.
The Compensation Committee approves equity compensation awards to a newly hired Executive Officer at the
time that the Board meets to approve the executive’s employment package. Generally, the date on which the Board
approves the employment package becomes the grant date of the newly-hired Executive Officer’s equity com-
pensation awards. However, if the Company and the new Executive Officer enter into an employment agreement
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