Starwood 2012 Annual Report Download - page 29

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.-2013Proxy Statement 23
APPROVAL OF THE COMPANY’S 2013 LONG-TERM INCENTIVE COMPENSATION PLAN
that it implements best practices in equity-based compensation
plan design, and that we continue to operate the plan in an
effective manner. If the 2013 Plan is not approved and the 2004
Plan expires, we would be at a severe competitive disadvantage
as we would not be able to use stock-based awards to recruit
and compensate our offi cers and other employees.
The use of our stock as part of our compensation program is
also important to our continued success because we believe it
fosters a pay-for-performance culture that is an important element
of our overall compensation philosophy. We believe that equity-
based compensation motivates employees to create stockholder
value because the value employees realize from equity-based
compensation is based on our stock price performance. Equity-
based compensation also aligns the compensation interests of
our employees with the investment interests of our stockholders
and promotes a focus on long-term value creation because our
equity-based compensation awards can be subject to vesting
and/or performance criteria.
As mentioned above, as of March 1, 2013, 55,807,363 shares
remained available for issuance under the 2004 Plan, constituting
a signifi cant number of shares. However, if the 2013 Plan is not
approved by our stockholders, the 2004 Plan will expire in May
2014, and we will have no ability to grant any of the shares remaining
as of that date as equity-based compensation in the future. In
2012, we granted awards under the 2004 Plan to 1,623 employees
covering 1,788,048 shares and we granted awards to 10 non-
employee directors covering 55,510 shares of our common stock.
We currently anticipate that our award grants in 2013 and in future
years (assuming a consistent stock price) will cover substantially the
same amount of (or potentially more) shares as those covered by our
2012 grants. If the 2013 Plan is not approved, we expect that our
2004 Plan will expire by its terms in May 2014 (eliminating our ability
to use shares currently available under that plan for equity-based
compensation), and we may be compelled to increase signifi cantly
the cash component of our employee compensation, which may
not necessarily align employee compensation interests with the
investment interests of our stockholders as well as the alignment
achieved by equity-based awards. Replacing equity-based awards
with cash payments would also increase cash compensation
expense and use up cash that would be better utilized if reinvested
in our business or returned to our stockholders.
If approved, the 2013 Plan’s share reserve will signifi cantly decrease
the number of shares that we may issue pursuant to equity-based
awards from 55,807,363 shares to 11,000,000 shares of common
stock, par value $0.01 per share, plus those shares underlying
awards under the 2004 Plan that are forfeited or cancelled or expire
without having shares issued (or such shares are reacquired by
the Company). The closing price of the common stock on the
NYSE on April 1, 2013 was $62.90 per share.
In determining the number of shares to request for the 2013 Plan’s
share authorization, we, at the direction of the Compensation
Committee, worked with Meridian Compensation Partners,
LLC (“Meridian”), the Compensation Committee’s independent
compensation consultant, to evaluate our recent share usage,
our share availability under the 2004 Plan, our historical burn rate
under the 2004 Plan, our projected burn rate under the 2013 Plan,
the potential cost to stockholders of the new share request under
the 2013 Plan, and the overhang cost associated with outstanding
equity-based awards that we granted under the 2004 Plan.
If the 2013 Plan is approved, we intend to utilize the shares
authorized under the 2013 Plan to continue our practice of
incentivizing key individuals through annual equity-based grants.
We have used a commercially available modeling tool to assist
us in developing the number of available shares as well as the
share counting principles refl ected in the 2013 Plan. Based on
the analyses provided by this tool, we believe that our authorized
share request and share counting principles are appropriate and
within industry standards. We expect that the authorized share
request will allow us to continue to grant long-term incentives for
the next three years.
We believe that we have demonstrated a commitment to sound
equity compensation practices in recent years. We recognize that
equity-based compensation awards dilute shareholder equity, so we
have carefully managed our equity-based incentive compensation.
Our equity-based compensation practices are targeted to be
competitive and consistent with market practices, and we believe
our historical share usage has been responsible and mindful of
stockholder interests, as described above.
In evaluating this proposal, stockholders should specifi cally
consider the information set forth under the section entitled Plan
Summary below.