Starwood 2012 Annual Report Download - page 54

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.-2013Proxy Statement48
EXECUTIVE COMPENSATION
Stock options provide compensation only when vested and only if
our stock price appreciates and exceeds the exercise price of the
option. Therefore, during business downturns, option awards may
not represent any economic value to an executive.
Prior to the 2012 annual incentive awards, our named executive
officers mandatorily deferred 25% of their annual incentive
compensation awards under the Executive Plan in the form of
deferred restricted stock units. The Compensation Committee had
the discretion to reduce the percentage of an annual long-term
incentive compensation award that was required to be deferred.
For 2011, the deferred amount (as increased by the percentage
described below) was converted into a number of deferred restricted
stock units by dividing the amount of the deferred award by the
average of the high and low fair market value of a share on the
date of grant. The deferred restricted stock units are then subject
to time-based vesting. Upon vesting, shares of our common stock
equal to the number of vested units will be delivered to the named
executive offi cers. As such, the awards combine performance-based
compensation with a further link to stockholder interests. First,
amounts must be earned based on annual Company fi nancial and
strategic/operational/leadership performance under the Executive
Plan. Second, these already earned amounts are put at risk through
a vesting schedule. Vesting occurs in installments over a three-year
period. Third, these earned amounts become subject to share
price performance. Primarily in consideration of this vesting risk
being applied to already earned compensation (but also taking
into account the enhanced stockholder alignment that results from
being subject to share performance), the amount of the deferred
long-term incentive compensation amount was increased by 33%.
Vesting for these deferred restricted stock units will accelerate in
the event of death, disability or retirement. While this program was
discontinued commencing with 2012 annual incentive awards
paid in 2013, deferred restricted stock units that were awarded
with respect to 2011 annual incentive compensation earnings are
refl ected in certain of the compensation tables below.
Restricted stock and restricted stock unit awards provide some
measure of mitigation of business cyclicality while maintaining a
direct tie to share price. We seek to enhance the link to stockholder
performance by building a strong retention incentive into the equity
program. Consequently, for 2012 grants, 100% of restricted stock
unit awards vest on the fi scal year-end of the year immediately prior
to the third anniversary of the date of grant, and 100% of restricted
stock awards vest on the third anniversary of the date of grant.
This vesting places an executive’s long-term compensation at risk
to share price performance for a signifi cant portion of the business
cycle, while encouraging long-term retention of executives.
Promotion Equity Award. On August 1, 2012, we granted Mr. Rivera
a special award of 5,550 shares of restricted stock in connection
with his promotion to his current position as Co-President, The
Americas, to reward him for the new responsibilities and duties that
he assumed in connection with this position. The Compensation
Committee determined the value for this award based on competitive
benchmarking based on his new role. One hundred percent of this
restricted stock award vests on the third anniversary of the date of
grant. The fair value for this award is refl ected in the 2012 Summary
Compensation Table on page 55 of this proxy statement .
Special Long-Term Cash Incentive Award. In 2009, we granted
Mr. Rivera a special long-term performance-based cash award
opportunity related to the development of our St. Regis Bal Harbour
property. The design of the award was to align Mr. Rivera’s long-term
cash-based incentive compensation with overall construction
completion, contract sales and actual unit closing rates versus our
projections for the property. The target opportunity for the award
was established at $1.0 million, and performance metrics were
established for the award for 2010 and 2011 (to be evaluated in 2012)
consisting of: (1) achieving construction of the project below budget
and on time (during 2012); (2) funding all costs of the property from
Starwood Vacation Ownership cash fl ow; (3) achieving budgeted
closing rates for sales of property units; (4) exceeding mid-2012
revenue goals for the property; and (5) keeping cumulative sales
and marketing costs for the property below target. We do not
disclose any of the specifi c quantitative goals established for these
performance metrics for competitive harm reasons, but the goals
established for each of these performance metrics refl ected very
aggressive timetables and fi nancial expectations and tight budgetary
limits that were expected to require exceptional effort on the part of
Mr. Rivera to achieve. The St. Regis Bal Harbour property opened in
January 2012, after which Mr. Rivera’s performance with respect to
this award was evaluated by the Compensation Committee. Based
on its evaluation that Mr. Rivera exceeded all quantitative goals
for the applicable performance metrics and achieved signifi cant
outperformance against all of the other award terms, and based
on overwhelming external positive reviews of the property since
it opened, the Compensation Committee authorized a payout of
$1.1 million to Mr. Rivera for this award in 2012, representing 110%
achievement of the performance metrics. The payout for this award
is refl ected in the 2012 Summary Compensation Table on page
55 of this proxy statement .
Changes to Long-Term Incentive
Compensation Design in 2013
As outlined above, despite what we consider to be overwhelming and
continuing majority stockholder support for our say-on-pay proposals
(evidenced through the results for our recent say-on-pay votes), in 2012
we noted the concerns expressed by a small minority of stockholders
about a perceived lack of alignment between our named executive
offi cers and our stockholders due to the lack of performance-based
equity vehicles in our long-term equity incentive program. As part of a
routine review of our compensation program design conducted during
2012, the Compensation Committee approved the introduction of
performance-based equity awards for our named executive offi cers
starting in 2013. The Compensation Committee believes the introduction
of performance share equity vehicles into our program will enhance our
already strong “pay for performance” philosophy and serve to ensure that
key executives’ interests are closely aligned with long-term stockholder
objectives and expectations. The changes for 2013, which will be further
described and analyzed in next year’s proxy statement, are designed to:
•Remain aligned with best practices;
• Link executive reward opportunities to our performance, especially
in relation to peer companies;
•Support global strategic business objectives, long-term growth
and key metrics of performance;