Compensation Discussion and Analysis
Executive Compensation Program
The Company’s executive compensation program is designed to reward performance, to attract and retain world-class talent and to align compensation with the long-term interests of its shareowners. The table below highlights the Company’s current executive compensation practices – both the practices the Company believes drive performance (left column) and the practices the Company has not implemented because it does not believe they would serve the shareholders’ long-term interests (right column).
|
|
|
The Company’s Executive Compensation Practices
|
Executive Compensation Practices the Company Has
Not
Implemented
|
The Company ties pay to performance. A substantial portion of executive pay is not guaranteed. The Company sets clear goals for company performance and differentiates certain elements of compensation based on individual achievement.
|
The Company does not have employment contracts for the Named Executive Officers.
Annual cash incentive bonuses are not guaranteed.
|
The Company mitigates undue risk, including utilizing caps on annual cash incentive bonuses under certain circumstances, retention provisions, multiple performance targets, and robust Board and management processes to identify risk.
|
The Company does not believe the executive compensation program creates risks that are reasonably likely to pose a material adverse impact to the Company.
|
The Company has reasonable post-employment and change in control provisions. The Company’s severance agreements with the Named Executive Officers generally provide for cash payments after a change in control only if an employee is also terminated within one year of the change in control (a double-trigger).
|
The Company has adopted a policy that it will not enter into an agreement with a new executive officer that includes a tax gross-up provision with respect to payments contingent upon a change in control.
|
The Compensation Committee benefits from its utilization of an independent compensation consulting firm. The reports prepared by the compensation consulting firm are used by the Compensation Committee to set executive compensation at levels that are competitive with the Company’s industry peers.
|
The Company’s compensation consulting firm does not provide any other services to the Company.
|
The Named Executive Officers do not receive dividends on unearned performance-based restricted shares.
|
The Company does not reprice underwater stock options.
|
The Company provides only modest perquisites that have a sound benefit to the Company’s business.
|
The Company does not have pension plans.
|
The Company has adopted share ownership guidelines for the Named Executive Officers.
|
|
Principles and Objectives of Executive Officer Compensation Program
The Company’s primary objectives are to provide income to its shareholders through increases in distributable cash flow and to increase long-term total returns to shareholders through appreciation in the value of its Common Shares. To do so, the Company seeks to enhance the return from, and the value of, the hotels in which it owns interests and any additional hotels the Company may acquire or develop, and invest in or acquire additional hotel properties on favorable terms.
The following table summarizes the primary components and rationale of the Company’s compensation philosophy and the pay elements that support that philosophy.
|
|
|
|
Philosophy Component
|
Rationale/Commentary
|
Pay Element
|
Compensation should reinforce business objectives and Company values
|
The Company strives to provide a rewarding and professionally challenging work environment for its executive officers. The Company believes that executive officers who are motivated and challenged by their duties are more likely to achieve the individual and corporate performance goals designed by the Compensation Committee. The Company’s executive compensation package should reflect this work environment and performance expectations.
|
All elements (salary, annual cash incentive bonuses, equity incentive compensation, health and welfare benefits)
|
Key executive officers should be retained
|
The primary purpose of the Company’s executive compensation program has been and is to achieve the Company’s business objectives by attracting, retaining and motivating talented executive officers by providing incentives and economic security.
|
All elements
|
Compensation should align interests of executive officers with shareholders
|
The Company’s executive compensation is designed to reward favorable total shareholder returns, both in an absolute amount and relative to peers of the Company, taking into consideration the Company’s competitive position within the real estate industry and each executive’s long-term career contributions to the Company.
|
Equity incentive compensation
|
A significant amount of compensation for top executive officers should be based on performance
|
Performance-based pay aligns the interest of management with the Company’s shareholders. Performance-based compensation motivates and rewards individual efforts and Company success. Approximately 50% to 60% of the executive officers’ targeted compensation is linked to individual or company performance. The performance-based percentage of actual compensation increases as performance improves and decreases as performance declines. If the Company has poor relative performance and/or poor total shareholder returns, the executive officers will receive reduced incentive compensation and reduced total compensation. The executive officers have an opportunity, in the event of superior relative performance and superior total shareholder returns, to earn overall compensation packages greater than the compensation that would otherwise be paid.
|
Merit salary increases, annual cash incentive bonuses and equity incentive compensation
|
Compensation should be competitive
|
To attract and reduce the risk of losing the services of valuable managers but avoid the expense of excessive pay, compensation should be competitive. The Compensation Committee, with the help of outside advisors, assesses the competitiveness of the Company’s compensation to its executive officers by comparison to compensation of executive officers at other public real estate companies. The Compensation Committee has regularly retained the services of Towers Watson, an independent human resources and compensation consulting firm, to report on current market data regarding executive officer pay levels and incentive programs. Towers Watson typically obtains data for its reports from publicly-available proxy statements and other public filings with the SEC. Towers Watson last provided the Compensation Committee with current compensation information, based on then available proxy statement data and other publicly filed data, in July 2012. The July 2012 report contained (i) a pay level comparison of the Company’s executive officers against the executive officers of a group of 21 public real estate companies and against the executive officers of a group of six publicly-traded lodging REITs,
(ii) a position-by-position analysis of executive officer pay at the selected REITs, and (iii) information about the financial position and market capitalization of the selected REITs. Towers Watson also reported on trends in the compensation of public REIT executive officers.
|
All elements
|
Role of the Compensation Committee
The Compensation Committee determines compensation for Messrs. Barnello, Riggins and Young (the “Named Executive Officers”). The Compensation Committee consists of five trustees, Denise M. Coll, Jeffrey T. Foland, William S. McCalmont, Donald S. Perkins and Donald A. Washburn (Chairman). The Compensation Committee exercises independent discretion in respect of executive compensation matters, including the retention or termination of any compensation consultant. The Committee may not delegate its primary responsibility of overseeing executive officer compensation but may delegate to management the administrative aspects of the Company’s compensation plans that do not involve the setting of compensation levels for the Named Executive Officers. As part of the executive compensation determination process, the Compensation Committee seeks input from the trustees who are not on the Compensation Committee and the Chief Executive Officer whose recommendations are evaluated along with all other compensation data gathered by the Compensation Committee, including the Towers Watson studies described below. Moreover, each year the Compensation Committee prepares a list of management business objectives (“MBOs”) in cooperation with the Named Executive Officers for the upcoming year. MBOs are used to determine 25% of each Named Executive Officer’s annual target cash incentive bonus (discussed below). MBOs vary from year to year and may consist of matters such as working with hotel managers to implement cost savings at target levels; evaluating alternative financing and acquisition structures; evaluating and pursuing acquisition and growth opportunities; effectively executing material financial, accounting, compliance and communication responsibilities; and developing long-term strategic plans for specific hotel properties. The MBOs focus, in part, on enhancing the return from, and value of, the Company’s hotels. The final MBOs are approved by the Board of Trustees. On a quarterly basis, the Named Executive Officers provide the Compensation Committee with status reports on their success in achieving the MBOs.
Compensation for fiscal year 2012 for each of the Named Executive Officers was determined by the Compensation Committee based on a review of incentive compensation and total compensation paid by the Company to each Named Executive Officer in prior years, publicly-disclosed compensation packages of executives of other public lodging and other public real estate companies and the Company’s performance both nominally and as compared to other public lodging REITs. During 2012, the Compensation Committee engaged, and met several times with, Towers Watson and directed Towers Watson to conduct industry compensation surveys. The resulting Towers Watson reports presented to the Compensation Committee focused on industry comparisons, based on the sample groups described below, of total compensation and its components, base salary and incentive compensation, which consisted of cash bonuses and equity awards. The reports also updated the Compensation Committee on current public REIT compensation trends. In addition, the Compensation Committee independently reviewed compensation information compiled by the National Association of Real Estate Investment Trusts (“NAREIT”). The Compensation Committee also considered other matters, including the realized value of previously granted equity awards, and the total compensation payable under different scenarios such as change in control of the Company or termination of the Named Executive Officers’ employment. With respect to incentive compensation, the Compensation Committee considered the number of time-based restricted shares that were vested, the number of performance-based restricted shares that were unearned and the number of time-based restricted shares that were outstanding but unvested.
Compensation Committee Consideration of the 2012 Vote on Executive Compensation
In determining the Company’s executive compensation program for the remainder of 2012 and for 2013, the Compensation Committee generally considered the results of the 2012 advisory vote on executive compensation presented in the Company’s 2012 proxy statement. The Compensation Committee noted that more than 97% of the votes cast approved the compensation of the Named Executive Officers as described in the Company’s 2012 proxy statement. The Compensation Committee considered these voting results as supportive of the Compensation Committee’s general executive compensation practices.
Company Performance and Executive Compensation
In 2012, the Company continued to manage its assets aggressively, invest responsibly and opportunistically, and maintain a conservative balance sheet. The Company’s teams delivered attractive hotel earnings before interest,
tax, depreciation and amortization (“EBITDA”) margins and invested wisely in the Company’s existing assets. In addition, the Company made strategic and substantial investments in three assets and one mezzanine loan in the Company’s target markets – San Diego, Washington, DC, Boston and Los Angeles.
Highlights from 2012 include:
|
|
•
|
hotel EBITDA margins for the full year 2012 increased 113 basis points to 32.1%, compared to the same period in 2011;
|
|
|
•
|
the Company acquired the L’Auberge Del Mar in Del Mar, California, the Hotel Palomar in Washington, DC and the Liberty Hotel in Boston, Massachusetts for an aggregate of approximately $390.7 million, and also purchased a $72 million mezzanine loan secured by ownership interests in Shutters on the Beach and Casa Del Mar in Santa Monica, CA for $67.4 million;
|
|
|
•
|
the Company obtained a new seven-year $177.5 million term loan and a new five-year $300 million term loan, on attractive terms;
|
|
|
•
|
the management team executed debt and equity transactions to maintain the Company’s overall strong balance sheet position, including a public offering of common stock in December 2012 for net proceeds of approximately $209.1 million; and
|
|
|
•
|
during 2012, the Company maintained ratios of general and administrative expenses to both total revenues and average assets well below most of its lodging REIT peers.
|
Company Performance Relative to its Peer Group
The Compensation Committee feels that the compensation levels of the Named Executive Officers reflects the Company’s strong performance relative to its six lodging REIT peers as shown in greater detail in the tables below.
Volatility and Leverage.
For the periods shown in the table below, the Company has had an attractive total shareholder return among its six lodging REIT peers, particularly considering the volatility of the Company’s share price to the volatility of its peers’ share prices. In addition, the Company operates at a significantly lower leverage level than its peers, as measured by the ratio of total indebtedness to EBITDA. The table below compares the Company’s 2012 total shareholder return and stock price volatility to the Company’s peer group of six other public lodging REITs as of December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
Lodging REIT Peers
(1)
|
|
LaSalle
|
|
25th Percentile
|
|
Median
|
|
75th Percentile
|
Cumulative Total Shareholder Return
|
1-Year
|
+8%
|
|
+11%
|
|
+25%
|
|
+36%
|
2-Year
|
+1%
|
|
-17%
|
|
-3%
|
|
+16%
|
3-Year
|
+26%
|
|
+23%
|
|
+34%
|
|
+121%
|
4-Year
|
+144%
|
|
+103%
|
|
+136%
|
|
+249%
|
5-Year
|
-8%
|
|
-53%
|
|
-31%
|
|
-6%
|
Stock Price Volatility
|
1-Year
|
24.9
|
|
25.7
|
|
27.0
|
|
28.7
|
2-Year
|
37.2
|
|
37.9
|
|
43.5
|
|
44.1
|
3-Year
|
37.8
|
|
38.5
|
|
45.6
|
|
52.8
|
4-Year
|
58.9
|
|
52.2
|
|
61.3
|
|
72.0
|
5-Year
|
63.6
|
|
60.9
|
|
72.1
|
|
85.6
|
______________
|
|
(1)
|
Consists of Ashford Hospitality Trust, Inc. (“AHT”), DiamondRock Hospitality Company (“DRH”), FelCor Lodging Trust Incorporated (“FCH”), Strategic Hotels & Resorts, Inc. (“BEE”), Sunstone Hotel Investors, Inc. (“SHO”), and Host Hotels & Resorts, Inc. (“HST”).
|
The following table compares the Company’s leverage ratio to the Company’s peer group as of December 31, 2012:
Note: Leverage ratio defined as debt / LTM EBITDA. HST, DRH, BEE, SHO, FCH, and AHT reflect reported Q4’12 net debt and EBITDA. LHO reflects Q4’12 bank covenant debt to EBITDA.
Operating Performance.
For each of the last five years, the Company’s hotel EBITDA margins were greater than all six of its peers.
|
|
|
|
|
|
|
|
|
|
|
|
Hotel EBITDA Margin Comparison
(2)
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
AHT
|
28.5%
|
|
24.9%
|
|
27.5%
|
|
29.3%
|
|
31.6%
|
SHO
|
28.4
|
|
24.8
|
|
24.4
|
|
27.8
|
|
28.9
|
DRH
|
27.6
|
|
22.4
|
|
24.5
|
|
26.2
|
|
27.2
|
FCH
|
28.0
|
|
23.4
|
|
24.0
|
|
24.4
|
|
24.9
|
HST
|
26.2
|
|
21.1
|
|
21.3
|
|
22.3
|
|
24.0
|
BEE
(1)
|
23.2
|
|
16.3
|
|
17.9
|
|
21.0
|
|
22.7
|
Peer Average
|
27.0
|
|
22.2
|
|
23.3
|
|
25.2
|
|
26.6
|
LHO
|
30.8
|
|
27.4
|
|
29.1
|
|
30.5
|
|
32.1
|
Variance to Peer Average
|
14.1%
|
|
23.4%
|
|
24.9%
|
|
21.0%
|
|
20.7%
|
LHO Ranking
|
1
|
|
1
|
|
1
|
|
1
|
|
1
|
________________
(1) U.S. hotels only.
(2) Source: Company reports.
In addition, for each of the last five years, the Company’s hotel EBITDA per room was ranked first or second among its six peers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel EBITDA per Room Comparison (in thousands)
(2)
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
AHT
|
$
|
14.5
|
|
|
$
|
10.4
|
|
|
$
|
11.5
|
|
|
$
|
13.0
|
|
|
$
|
12.8
|
|
SHO
|
18.5
|
|
|
13.7
|
|
|
13.6
|
|
|
18.0
|
|
|
21.0
|
|
DRH
|
19.9
|
|
|
13.4
|
|
|
15.0
|
|
|
17.0
|
|
|
18.4
|
|
FCH
|
12.6
|
|
|
8.9
|
|
|
9.5
|
|
|
10.5
|
|
|
12.0
|
|
HST
|
22.0
|
|
|
14.2
|
|
|
14.9
|
|
|
16.8
|
|
|
19.4
|
|
BEE
(1)
|
28.5
|
|
|
15.8
|
|
|
16.8
|
|
|
23.6
|
|
|
28.2
|
|
Peer Average
|
19.3
|
|
|
12.7
|
|
|
13.5
|
|
|
16.5
|
|
|
18.6
|
|
LHO
|
24.5
|
|
|
18.7
|
|
|
22.3
|
|
|
24.9
|
|
|
27.0
|
|
Variance to Peer Average
|
26.9
|
|
|
47.2
|
|
|
65.2
|
|
|
50.9
|
|
|
45.2
|
|
LHO Ranking
|
2
|
|
1
|
|
1
|
|
1
|
|
2
|
________________
(1) U.S. hotels only.
(2) Source: Company reports.
A reconciliation of net income (loss) to EBITDA and hotel EBITDA, both non-GAAP financial measures, is presented in Appendix A attached hereto.
Executive Compensation Relative to the Peer Group
In July 2012, Towers Watson prepared a report for the Compensation Committee comparing the Company’s compensation of the Named Executive Officers to that of: (i) a sample of 21 public real estate companies, spanning industry subsectors and asset classes but which were comparable to the Company in total enterprise value (which is the Company’s total equity plus total debt); and (ii) a group of six public lodging REITs. The members of the peer groups are noted below.
|
|
|
Group of 21 Public Real Estate Companies
|
•
Ashford Hospitality Trust, Inc.
|
•
Mid-America Apartment Communities, Inc.
|
•
BioMed Realty Trust, Inc.
|
•
National Retail Properties, Inc.
|
•
Corporate Office Properties Trust
|
•
Piedmont Office Realty Trust, Inc.
|
•
DiamondRock Hospitality Company
|
•
Post Properties, Inc.
|
•
Equity One, Inc.
|
•
PS Business Parks, Inc.
|
•
Extra Space Storage Inc.
|
•
RLJ Lodging Trust
|
•
FelCor Lodging Trust Incorporated
|
•
Strategic Hotels & Resorts, Inc.
|
•
Highwoods Properties, Inc.
|
•
Sunstone Hotel Investors, Inc.
|
•
Kilroy Realty Corporation
|
•
Tanger Factory Outlet Centers, Inc.
|
•
Lexington Realty Trust
|
•
Washington Real Estate Investment Trust
|
•
Mack-Cali Realty Corporation
|
|
|
|
Publicly-Traded Lodging REITs
(1)
|
•
Ashford Hospitality Trust, Inc.
|
•
DiamondRock Hospitality Company
|
•
FelCor Lodging Trust Incorporated
|
•
RLJ Lodging Trust
|
•
Strategic Hotels & Resorts, Inc.
|
•
Sunstone Hotel Investors, Inc.
|
_______________
|
|
(1)
|
The Company does not include Host Hotels & Resorts, Inc. in its peer group of public lodging REITs for executive compensation purposes due to its size and the level of its executive compensation.
|
The Towers Watson report included the following compensation components for the sample of public lodging REITs and other real estate companies: (a) base salary, (b) target total cash compensation, (c) long-term incentives and (d) target total direct compensation. The compensation of the Company’s Named Executive Officers was determined by the Compensation Committee in the context of the comparison and reviews contained in the report, but the Compensation Committee did not seek to set compensation of the Named Executive Officers to a particular percentile of the peer compensation or any single component thereof, such as compensation such as base salary, total cash compensation, incentive compensation or total direct compensation. Instead, the Committee reviewed the compensation information to inform itself of the compensation amounts paid by the Company’s competitors to their executive officers and therefore required for executive officer recruitment and retention.
Based on the July 2012 Towers Watson report, below is a summary of the total compensation for each Named Executive Officer compared to the Company’s peer group of six public lodging REITs:
|
|
|
|
|
|
|
|
LaSalle v. Market Median
|
|
LaSalle v. Market 75th Percentile
|
Chief Executive Officer
|
|
-1%
|
|
-30%
|
Chief Financial Officer
|
|
-18%
|
|
-22%
|
Chief Operating Officer
|
|
11%
|
|
-8%
|
While the Compensation Committee did not seek to set compensation of the Named Executive Officers to a particular percentile of the peer compensation, based on the Company’s consistent outperformance relative to its peers, the Compensation Committee considered the median compensation values of both its peer groups of lodging REITs and public real estate companies in establishing the Named Executive Officer compensation. In the Compensation Committee’s view, the Company was receiving outstanding value by compensating its Named Executive Officers at levels ranging from lower than to slightly greater than the median levels of executive compensation paid by the Company peers, as evidenced by fact that the Company’s performance over various periods was generally much stronger than the median performance of its peers. Moreover, the Company’s performance was associated with both reduced risk as a result of the Company’s relatively lower leverage ratio and a more stable and consistent share price.
In addition, in August 2012, the Washington Business Journal named Mr. Barnello as the most “underpaid” Washington-area CEO (see “
Overpaid/Underpaid CEOs: Which Washington-area CEOs are earning their keep
,” Washington Business Journal, August 10, 2012).
Components and Criteria of Executive Compensation
The Committee believes that each Named Executive Officer’s overall compensation should be (i) payable over a longer period than one year, (ii) depend on a planned budget approved by the trustees, (iii) depend on the Company’s performance relative to other REITs, (iv) depend on total compensation paid by REITs similar to the Company, either by size or by industry (in this case, the REIT lodging industry), and (v) depend on the Company’s total shareholder return. The Committee believes that a significant portion of each Named Executive Officers’ total
compensation should be directly linked to the Company’s relative performance and its total shareholder return. If the Company has poor relative performance and/or poor total shareholder return, the Named Executive Officers will receive reduced incentive compensation and reduced total compensation. In return, the Named Executive Officers have an opportunity, in the event of superior relative performance and superior total shareholder return, to earn overall compensation packages greater than established target amounts and the compensation historically paid. The Compensation Committee imposed nominal limits on certain aspects of the incentive compensation to help control unexpected levels of overall compensation to the Named Executive Officers as a result of extraordinary Company performance and total shareholder return and to maintain aggregate compensation at a level that is reasonable for the Company’s overall size and cost structure. The Committee and the Board of Trustees retain the discretion to exceed the limits.
The Company pays annual base salaries at a competitive level compared to its peers, which is based on a review of the annual base salaries paid to the executive officers of the companies listed under “— Peer Groups.” The Company pays annual cash incentive bonuses — the amount of which depends on management’s achievement of the applicable MBOs and the Company’s funds from operations (“FFO”) and Return on Invested Capital (as defined below) performance relative to specific competitors— to encourage the Named Executive Officers to pursue strategies that, to an appropriate degree, will benefit the Company in the near and long term. The Company pays time-based and performance-based long-term equity incentive compensation to encourage the Named Executive Officers to pursue strategies that will create value for the Company’s shareholders over the long term and to promote continuity of management by retaining the Named Executive Officers.
The Committee seeks to have approximately half of overall executive compensation be paid in the form of annual base salary and target annual cash incentive bonus, and approximately half in the form of long-term equity incentive awards. For the Named Executive Officers, approximately 25% of their overall compensation is annual base salary, approximately 25% is in the form of the target annual cash incentive bonus, approximately 20% is in the form of time-based restricted share awards and approximately 30% is in the form of performance-based restricted share awards.
The Compensation Committee had previously determined that executive compensation for fiscal year 2012 primarily would consist of (i) annual cash base salary, (ii) annual cash incentive bonus, (iii) restricted share awards, subject to time-based forfeiture provisions and (iv) performance-based restricted share awards, the earned amount of which would depend on Company performance over a three-year period, one-third of which once earned vest at the end of the three-year period and two-thirds of which are subject to time-based forfeiture provisions once earned.
The following narrative discusses the components of historical fiscal year 2012 compensation.
Base Salary
Base salary is the only predictable form of annual cash compensation to the Named Executive Officers, and the Compensation Committee believes base salary is an important element of total compensation for that reason. The Compensation Committee believes that base salary should be commensurate with each Named Executive Officer’s position and experience, subject to annual adjustments based on market conditions, peer group analysis and individual contributions and performance.
For 2012, the base salary of each of the Named Executive Officers was based on the following qualitative and quantitative factors:
|
|
•
|
an assessment of the scope of the Named Executive Officer’s responsibilities and leadership and individual role within the executive management team;
|
|
|
•
|
the Named Executive Officer’s contributions to the Company;
|
|
|
•
|
the Named Executive Officer’s expertise and experience within the industry;
|
|
|
•
|
the competitive market compensation paid to executive officers in similar positions at the previously-described peer groups; and
|
|
|
•
|
the Company’s overall financial and business performance.
|
Individual Performance.
While specific quantitative benchmarks are considered when making determinations about performance incentives and targets related to the annual cash incentive bonus and long-term equity awards (as described elsewhere in this Proxy Statement), base salary determinations are more heavily weighted by the Compensation Committee’s qualitative assessments of the Named Executive Officers. The Compensation Committee annually reviews each Named Executive Officer’s individual responsibilities and leadership attributes, as well as his role and contributions to the Company during the last year. Among other matters, the Committee considers the performance of employees managed by each Named Executive Officer; the asset management strategies proposed or implemented by each Named Executive Officer to improve hotel property performance; the status of the Company’s hotel property acquisition pipeline, as applicable; the Company’s execution on short- and long-term strategic initiatives for which each Named Executive Officer is responsible; and the Company’s compliance with applicable laws and regulations to the extent within each Named Executive Officer’s responsibility. Because of the historical success of the Named Executive Officers during the last ten years, the Compensation Committee considers each Named Executive Officer’s individual contribution to that team, and the base salary needed to retain the members of that team into the future.
In addition, a tool by which the Compensation Committee measures a Named Executive Officer’s performance is his progress with respect to his MBOs, which, as described above are prepared in cooperation with the Named Executive Officers by the Compensation Committee each year. Quarterly progress reports with respect to the MBOs provide the Compensation Committee with a regular update on the Named Executive Officer’s performance. As noted elsewhere in this Proxy Statement, MBOs are primarily used to determine the annual cash incentive bonus, but MBOs also influence the Committee’s determination of base salaries.
The Compensation Committee solicits the observations of the Chief Executive Officer with respect to the performance of the other Named Executive Officers, especially as to day-to-day responsibilities and intra-company leadership qualities and growth.
With respect to the Named Executive Officer’s expertise and experience within the industry, the Committee considers involvement in industry or trade groups such as NAREIT, as well as awards or other recognition by industry or trade groups or other industry participants.
Peer Group Comparison.
In addition to evaluating individual responsibilities, leadership and contributions to the Company, the Compensation Committee also considers the market compensation paid to executive officers in similar positions at the Company’s previously-described peer groups. As of July 2012, the Towers Watson report indicated that, compared to executive officers in similar positions at the public lodging REITs deemed comparable, the Company’s Chief Executive Officer was receiving a base salary approximately 3% below the 75
th
percentile, the Company’s Chief Financial Officer was receiving a base salary approximately 3% above the 75
th
percentile, and the Company’s Chief Operating Officer was receiving a base salary approximately 6% above the 75
th
percentile.
The 2012 base salary compensation paid to the Company’s Named Executive Officers was determined by the Compensation Committee in the context of the foregoing comparison and reviews, but the Compensation Committee did not seek to set base salary of the Named Executive Officers to a particular percentile of the base salary paid by the peer companies to their officers. Instead, the Committee reviewed the salary information to inform itself of the salary levels paid by the Company’s competitors and therefore required for executive officer recruitment or retention.
Company Performance.
The Compensation Committee also considers the financial and business performance of the Company in an absolute sense and relative to its peers. When evaluating the Company’s financial and business performance, the Compensation Committee does not focus on any one particular performance measure or target but does consider, in addition to the Company’s FFO performance, the Company’s total return
(defined as the increase in the market price of the Company’s Common Shares plus dividends declared thereon and assuming such dividends are reinvested into the Company’s Common Shares) over various periods. For example, from the Company’s initial public offering in 1998 through December 2012, the Company’s total return was 189%, which is the highest total return of any publicly-traded hotel REIT and outperformed each of the S&P 500, the Russell 2000 Index, the Dow Jones Industrial Average and the NASDAQ Composite Index during that period.
While the Committee placed greater weight on the Company’s performance over the long term, as discussed above, the Committee did consider the Company’s total return over shorter-term time horizons. The Committee reviewed the Company’s total return as described below and again determined that the Company’s performance was excellent. Over a three-year period (2009-2011), the Company’s total return was 126%, which outperformed the average total return of its peers by 22%.
As was the case with the base salary peer group comparisons, the Company’s performance compared to its peers identified above was one of several factors considered by the Compensation Committee in determining the 2012 base salary compensation of the Company’s Named Executive Officers. The Compensation Committee did not, however, seek to match base salary of the Named Executive Officers to a percentile that corresponded to the above performance percentages.
Annual Cash Incentive Bonus
The annual cash incentive bonus program is intended to compensate the Company’s Named Executive Officers for achieving the Company’s annual financial goals at both the corporate and hotel asset levels, as well as implementing long-term plans and strategies. The annual cash incentive bonus program is based on performance and responsibility level rather than on the basis of seniority, tenure or other entitlement. This performance-based program encourages the Company’s officers to continually improve their capabilities to deliver short- and long-term business results. The Compensation Committee set the Named Executive Officer target annual cash incentive bonuses so that they are competitive with bonuses paid to executive officers in similar positions and with similar responsibilities at companies in the Company’s previously-described peer groups. The annual cash incentive bonus for a fiscal year is typically paid in March of the fiscal year following such fiscal year, when audited financial statements for such fiscal year become available for both the Company and other publicly-traded lodging REITs.
The Committee emphasizes the importance of incentive cash compensation (the annual cash incentive bonus program) as a component of total compensation for the Named Executive Officers. This component of the Company’s compensation program is an investment in high quality, successful employees who can improve the operational performance of the existing portfolio and generate new business opportunities and investments that create value for shareholders.
The annual cash incentive bonus is the product of the Named Executive Officer’s annual target bonus (which is a percentage of his annual base salary) and a formula number. Depending on the achievement of the predetermined targets, the actual annual cash incentive bonus may be less than or greater than the target bonus, subject to limitations. Recognizing the need to remain competitive, the Compensation Committee set the maximum annual cash incentive bonus at 200% of target levels for 2012, which was unchanged from 2011. The Compensation Committee’s consideration of the competitiveness of the target levels included:
|
|
•
|
the Company’s need to retain its experienced executive officers;
|
|
|
•
|
the target cash compensation excluding base salary for executive officers at other publicly-traded real estate companies (as described in the 2012 report by Towers Watson); and
|
|
|
•
|
the overall target cash compensation including base salary for executive officers at other publicly-traded real estate companies (also as described in the 2012 report by Towers Watson).
|
As described below, the formula number consists of three components. At the Board’s discretion, it may allocate greater weight to any of the three components than the proportions stated below, and it may pay bonuses exceeding 200% of the target bonus.
The annual cash incentive bonus formula number consists of the following three components: (i) 25% of each target annual cash incentive bonus is based on management’s achievement of the MBOs, as determined in the discretion of the Compensation Committee; (ii) 50% of each target annual cash incentive bonus is based on the Company’s Comparable FFO per share performance (“Comparable FFO”) relative to a budget scale approved annually by the Board of Trustees; and (iii) 25% of each target annual cash incentive bonus is based upon the Company’s average adjusted FFO divided by the average book value of long-term indebtedness plus total equity, including common and preferred equity (“Return on Invested Capital”), relative to the Return on Invested Capital of a pre-selected peer group. Greater or less than the nominal amount may be awarded pursuant to any of the components, and caps and limitations apply.
Management Business Objectives
. Twenty-five percent of each target annual cash incentive bonus is nominally based on management’s achievement of the MBOs. MBOs vary each year and may include goals such as working with hotel managers to implement cost savings at target levels; evaluating alternative financing and acquisition structures; evaluating and pursuing acquisition and growth opportunities; effectively executing material financial, accounting, compliance and communication responsibilities; and developing long-term strategic plans for specific hotel properties.
Achievement of the MBOs for a given fiscal year is determined for the executive officers as a group and not on an individual officer basis. Similarly, achievement is considered in totality of the MBOs and, in some cases, requires a subjective analysis of the goals rather than a mathematical measurement of performance. In addition, even in the case of MBOs that are amenable to objective measurement, achievement is not necessarily a pass or fail construct. For example, the Compensation Committee may consider how much progress was made toward meeting an objective performance standard or by how much a standard was surpassed. Accordingly, overall achievement of the MBOs is a reasoned judgment made by the Compensation Committee based on the facts and circumstances prevailing at the time of the determination and including conversations among the executive officers and the Compensation Committee.
The table below describes the MBOs for 2012, including the considerations that the Compensation Committee considered in analyzing the MBOs:
|
|
|
|
2012 MBO
|
|
Compensation Committee Considerations
|
Continue to evaluate investments (including evaluation of the current economic environment) and pursue opportunities as appropriate, including utilization of equity as financially prudent.
|
|
The Company placed bids on many hotels; the Company continues to review all broadly marketed deals and pursue off-market opportunities through existing and new relationships in major markets; the Company acquired the Hotel Palomar, L’Auberge Del Mar, and The Liberty Hotel for an aggregate of approximately $390.7 million; the Company also purchased a $72 million mezzanine loan secured by ownership interests in Shutters on the Beach and Casa Del Mar in Santa Monica, CA for $67.4 million; and the Company raised net proceeds under its ATM program of $64 million and raised net proceeds of $209 million from its offering of Common Shares in December 2012.
|
Effectively execute all material financial, accounting, audit, compliance and communication responsibilities. Review the performance of the hotels with the Board and keep Board informed of any issues promptly as they arise.
|
|
There were no issues with closing the Company’s books and preparing financial statements for each of the four quarters in 2012; there were no audit differences; and that there were no identified material weaknesses in internal control over financial reporting. Additionally, the Board of Trustees was kept apprised through Chief Executive Officer updates and Board meetings.
|
Refinance Hilton Gaslamp mortgage through funding on credit facility or stand-alone mortgage.
|
|
The Hilton Gaslamp mortgage (5.35% rate) was paid off with funding under the Company’s credit facility (currently 2.25% rate) resulting in interest savings of over 300 basis points based on current interest rates.
|
Work with the Company’s management companies and property level executive teams to focus on maximizing revenues as well as controlling operating expenses and look for methods to improve EBITDA margins where appropriate.
|
|
The Company continues to work with all of its management companies to share best practices; revenue per available room for the full year 2012 increased 4.6 percent and that hotel EBITDA margins for the full year 2012 increased 113 basis points compared to the same period in 2011.
|
Maintain compliance with all unsecured and secured debt related covenants on a quarter to quarter basis.
|
|
The Company was in compliance with all debt covenants in the first, second, third and fourth quarters.
|
Comparable FFO Compared to Budget FFO
. Fifty percent of each target annual cash incentive bonus is nominally based on the Company’s Comparable FFO relative to a budget scale. The budget scale for fiscal year 2012 approved by the Board of Trustees and the Compensation Committee was based on a budget goal of $2.10 per outstanding Common Share. The Compensation Committee determined that the Company’s Comparable FFO and the budget goal would be calculated to eliminate the effect of (i) income taxes, (ii) transaction expenses related to acquisitions, dispositions and financings and (iii) pre-opening costs.
Pursuant to the budget FFO component of the bonus program, if Comparable FFO equaled budget FFO, the targeted 50 percentage points would be earned. In general, for every percentage point by which the Comparable FFO is greater than or less than the budget FFO, four percentage points are added or subtracted, respectively, from the targeted 50 percentage points. For example, if budget FFO were $1.00 and Comparable FFO were $0.885, or
12.5% below budget FFO, then none of the potential 50 percentage points of the bonus component would be awarded. As another example, if Comparable FFO were $1.02 and budget FFO were $1.00, or 2.0% above budget FFO, then eight percentage points would be added to the targeted 50 percentage points, and an amount equal to 58% of the target bonus would be awarded pursuant to this component
.
For fiscal year 2012, the Compensation Committee determined the Company’s Comparable FFO was approximately $2.19, or 4.3% greater than budget FFO.
Relative Return on Invested Capital.
Twenty-five percent of each target annual cash incentive bonus is nominally based upon the Company’s Return on Invested Capital relative to the Return on Invested Capital of six publicly-traded hotel REITs. Return on Invested Capital will be calculated based on each company’s published adjusted FFO divided by the average book value of long-term indebtedness plus total equity per each company’s audited year-end balance sheets as filed with the SEC.
Bonus achievement will be based on the following performance rankings:
|
|
•
|
if the Company is ranked first or second among the companies in the peer group based on its Return on Invested Capital, 200% of the target 25 percentage points of this bonus component would be earned;
|
|
|
•
|
if the Company is ranked third among the companies in the peer group based on its Return on Invested Capital, 150% of the target 25 percentage points of this bonus component would be earned;
|
|
|
•
|
if the Company is ranked fourth among the companies in the peer group based on its Return on Invested Capital, 100% of the target 25 percentage points of this bonus component would be earned; and
|
|
|
•
|
if the Company is ranked fifth, sixth or seventh among the companies in the peer group based on its Return on Invested Capital, none of the target 25 percentage points of this bonus component would be earned.
|
For fiscal year 2012, the peer group consisted of the following six publicly-traded hotel REITs: Ashford Hospitality Trust, Inc., DiamondRock Hospitality Company, FelCor Lodging Trust Incorporated, Strategic Hotels & Resorts, Inc., Sunstone Hotel Investors, Inc. and Host Hotels & Resorts, Inc.
The Company’s Return on Invested Capital was 6.5% in 2012, which ranked second among the companies in the peer group.
Calculation of the Bonus
. The target bonus for Mr. Barnello for 2012 was approximately 125% of his annual base salary, or $925,000. The target bonus for Mr. Riggins for 2012 was approximately 70% of his annual base salary, or $275,000. The target bonus for Mr. Young for 2012 was approximately 75% of his annual base salary, or $340,000. With respect to the specific formula components for 2012, the following were achieved: (i) the MBOs, as determined by the Compensation Committee (25% of the target of 25% for this component); (ii) per-share Comparable FFO in excess of the budget goal established by the Compensation Committee of the Board of Trustees (67% of the target of 50% for this component) and (iii) the Company’s Return on Invested Capital compared to the Return on Invested Capital of the applicable peer group
(50% of the target of 25% for this component). Taken together, the sum of these components equals 142%.
Long-Term Equity Incentive Awards
Overview.
The 2009 Equity Incentive Plan allows for long-term incentives to Named Executive Officers and key employees of, and consultants and other service providers to, the Company, its subsidiaries and advisors through grants of option rights, appreciation rights and restricted share awards. Since becoming self advised in 2001, the Company has never granted awards under the incentive plan to consultants and other service providers. Awards granted to Named Executive Officers and other employees under the incentive plan are designed to provide those grantees with an incentive to promote the long-term success of the Company in line with the shareholders’
interests. The awards align the Named Executive Officers’ interests with the interests of shareholders by providing each Named Executive Officer with an ownership interest in the Company and a stake in the Company’s success. The 2009 Equity Incentive Plan is administered by the Compensation Committee, which has the discretion to determine those individuals or entities to whom awards will be granted, the number of shares subject to such rights and awards and other terms and conditions of the option rights, appreciation rights and restricted share awards. Each such award may have a vesting period that is tied to each Named Executive Officer’s or employee’s continued service to the Company or a specifically identified set of performance measures.
January 2012 Awards
. The Compensation Committee considered a number of factors in determining to make the January 2012 awards, including:
|
|
•
|
the fact that equity awards constituted an integral component of the Company’s compensation philosophies described above, particularly that equity awards align the interests of the officers with those of the Company’s shareholders and that a significant portion of compensation should be based on performance;
|
|
|
•
|
the amount of target cash compensation of the officers for fiscal year 2012;
|
|
|
•
|
the effect on the Company’s operating results of cash and non-cash compensation;
|
|
|
•
|
the total potential compensation to the officers if performance measurements were achieved at maximum thresholds;
|
|
|
•
|
the long-term incentives and target and actual total direct compensation for executive officers at other publicly-traded real estate companies (as described in the 2012 report by Towers Watson); and
|
|
|
•
|
the other factors discussed above under “—Base Salary,” including the Company’s historical performance.
|
The January 2012 awards consisted of (i) immediate awards of restricted shares subject to time-based vesting only and (ii) agreements to award restricted shares where the award amount is not determined until the end of a three-year measuring period. The Committee refers to the group of awards described in (ii) as performance-based restricted share awards. In the case of the performance-based restricted share awards, once the award is determined and made at the end of the three-year measuring period, two-thirds of the awarded shares remain subject to time-based forfeiture provisions.
The January 2012 long-term equity incentive awards described in subsection (i) of the paragraph immediately above included 24,021 time-based restricted shares to Mr. Barnello, 9,239 time-based restricted shares to Mr. Riggins, and 12,934 time-based restricted shares to Mr. Young. Each award vests approximately one-third of the awarded amount on December 31, 2012, January 1, 2014 and January 1, 2015. All of the award shares are issued and outstanding as of the grant date, and the awardee is entitled to receive dividends as declared and paid on the shares and to vote the shares from the date of grant.
The Compensation Committee also approved the performance-based restricted share awards for Messrs. Barnello, Riggins and Young as an additional long-term incentive designed to further align their interests with that of the shareholders. Pursuant to the January 2012 performance-based restricted share awards, Mr. Barnello is eligible to receive a target amount of 44,346 shares, Mr. Riggins is eligible to receive a target amount of 15,152 shares and Mr. Young is eligible to receive a target amount of 20,325 shares. The actual amount of the award will be determined on January 1, 2015 and will depend on the “total return” of the Company’s Common Shares over a three-year period beginning with the closing price of the Company’s Common Shares on December 31, 2011, and ending with the closing price of the Company’s Common Shares on December 31, 2014. Each officer may actually receive as few as zero shares and as many as twice the target shares. The terms of the awards are as follows:
|
|
•
|
One-third of the award will be based on the Company’s “total return” (as defined below) compared to the total return of the companies in the NAREIT Equity Index. One-third of the award will be based on the Company’s total return compared to the total return of companies in a designated peer group of the Company and included in the NAREIT Equity Index. One-third of the award will be based on the amount of the Company’s total return compared to a Board-established total return goal.
|
|
|
•
|
“Total return” is as calculated by the NAREIT Equity Index and is the increase in the market price of a company’s Common Shares plus dividends declared thereon and assuming such dividends are reinvested.
|
|
|
•
|
After the actual amount of the award is determined (or earned) on January 1, 2015, the earned shares will be issued and outstanding but a portion will be subject to further vesting. Approximately one-third of the earned amount will vest immediately on January 1, 2015, and the remaining two-thirds will vest in equal amounts on January 1, 2016, and January 1, 2017.
|
|
|
•
|
Dividends will be deemed to have accrued only on the earned shares, including those shares subject to further vesting, from December 31, 2011, until the determination date, January 1, 2015. Such accrued dividends on the earned shares only will be paid to the awardee on or about January 1, 2015. Thereafter, the awardee is entitled to receive dividends as declared and paid on the earned shares and to vote the shares, including those shares subject to further vesting.
|
The first table below provides additional detail on the performance thresholds for the first two of the three performance criteria and the corresponding percentage earned for such criteria. The second table below provides additional detail on the performance thresholds for the third of the three performance criteria and the corresponding percentage earned for such criterion. For example, the Company’s total return compared to the NAREIT Equity Index and compared to its peers must be at least equal to the 40th percentile for Messrs. Barnello, Riggins and Young to earn any of their target shares in the first two performance categories. In addition, the Committee established a threshold total return over a three-year period of 22.5%, which is based on a 7% compounded annual total return, for Messrs. Barnello, Riggins and Young to earn any of their target shares in the third performance category.
Actual performance will be calculated to an exact percent (rounded to the nearest 1/100th), so the payment for each criterion is on a continuum between the threshold amount and target amount or between the target amount and maximum amount, as applicable.
Table 1: Total Return vs. NAREIT Equity Index Companies and Total Return vs. Peer Group
|
|
|
|
|
|
|
|
|
|
Percentile of Performance
|
|
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Less than 40th percentile
|
|
40th percentile
|
|
60th percentile
|
|
Greater Than or Equal to 80th percentile
|
NAREIT Index
|
0% earned
|
|
50% earned
|
|
100% earned
|
|
200% earned
|
Peer Group
|
0% earned
|
|
50% earned
|
|
100% earned
|
|
200% earned
|
Table 2: Total Return vs. Committee-Established Goals
|
|
|
|
|
|
|
|
|
|
Total Three-Year Return Performance
|
|
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Less Than 22.5%
|
|
22.5%
(1)
|
|
29.5%
(2)
|
|
Greater Than or
Equal to 36.8%
(3)
|
Company total return
|
0% earned
|
|
50% earned
|
|
100% earned
|
|
200% earned
|
______________
(1) Based on a 7% compounded annual total return.
(2) Based on a 9% compounded annual total return.
(3) Based on an 11% compounded annual total return.
Additional Award Provisions
. The Company’s performance-based restricted share agreements with Messrs. Barnello, Riggins and Young include a provision that accelerates the measuring period in the event of a change in control of the Company. As a condition to the acceleration of the earning period, Messrs. Barnello, Riggins and Young agreed to a 12-month limited non-compete with the Company that restricts Messrs. Barnello, Riggins and Young from participating in any business operation primarily engaged in owning (as compared to, for example, franchising or managing) luxury or upscale hotels in urban, resort or convention markets in the United States. In the event that Messrs. Barnello, Riggins or Young breaches the limited non-competition provisions, the Named Executive Officer must pay to the Company an amount equal to the market value of that portion of the performance-based restricted share award that received accelerated earning as a result of the change in control. The 12-month period commences at the time of the change in control, and market value is the market value at the time of the change in control.
Share Options
. The Company has not granted any share option awards to any of the executive officers since 2001 or any of the trustees since 2002. All share options previously issued have vested. All vested share options have been exercised.
Other Benefits
In addition, consistent with the philosophy of the Compensation Committee to establish individual- and Company-based performance measures, the Committee will continue to maintain competitive benefits and perquisites for Named Executive Officers; however, the Committee does not view benefits and perquisites for officers as a key component of the Company’s compensation program and their total value remains a small percentage of each Named Executive Officer’s base salary. The Compensation Committee may revise, amend or add to the Named Executive Officer’s benefits and perquisites if it deems it advisable.
Other Factors Considered by the Compensation Committee
Tax Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code places a limit on the amount of compensation that may be deducted annually by the Company on its tax return with respect to each of its Named Executive Officers. In general, compensation paid pursuant to a plan which is performance-related, non-discretionary and has been approved by the Company’s shareholders is not subject to this limit. Each of the Company’s 1998 Share Option and Incentive Plan and 2009 Equity Incentive Plan is qualified so that performance-based restricted share awards granted to the Named Executive Officers under the respective plans are not subject to the compensation deduction limitations described above. Time-based awards are subject to the compensation deduction limitations. Although the Compensation Committee generally seeks to preserve the federal income tax deductibility of compensation paid, to maintain flexibility in compensating the Named Executive Officers in a manner designed to promote the
Company’s corporate goals, including retaining and providing incentives for the Named Executive Officers, the Compensation Committee has not adopted a policy that all compensation must be deductible.
Payments Upon Termination of a Named Executive Officer and Vesting of Equity Awards Upon a Change in Control of the Company
The Company previously entered into an agreement with Messrs. Barnello, Riggins and Young to provide benefits to each in the event his employment is terminated in certain circumstances. The Compensation Committee reviews the terms of the severance agreements annually. Because each Named Executive Officer’s severance payment is derived from his annual base salary and other annual incentive compensation, the effect on severance payments is one of the factors considered by the Compensation Committee when annually reviewing the Named Executive Officer’s total compensation and severance agreement terms.
The agreement with each Named Executive Officer provides that the Named Executive Officer, upon 15 days prior written notice to the Company, may terminate his employment for “good reason.” In addition, each agreement provides that upon the termination of such Named Executive Officer either by the Company without “cause” or by the Named Executive Officer for “good reason” within one year of a change in control of the Company, the Named Executive Officer will be entitled to the severance payments and benefits detailed under “Termination Payment Tables.” As noted at the beginning of this CD&A, one of the Company’s executive compensation philosophies is the retention of key executive officers. The Compensation Committee believes that the terms of the severance agreements described above, including the events triggering severance payments, are competitive with the Company’s peer group and promote stability among its Named Executive Officers which is important to the Company’s overall performance.
In addition, the Committee considers the effect of accelerated vesting of certain equity awards upon a termination of a Named Executive Officer or a change in control of the Company. The Committee reviewed the terms of the restricted share award agreements, including the immediate vesting of time-based restricted shares upon a change in control of the Company or upon a Named Executive Officer’s termination without cause. The Compensation Committee also reviewed the vesting terms of the performance-based restricted share award agreements. The Compensation Committee believes that the terms of the restricted share award agreements are competitive with the Company’s peer group and promote stability among its Named Executive Officers which is important to the Company’s overall performance. For more information on the vesting terms of the Named Executive Officer’s restricted shares, see “Severance Agreements, Equity Award Vesting and Other Termination Policies—Vesting of Long-Term Equity Incentive Awards.”
Security Ownership of Management
The Compensation Committee has established the share ownership guidelines described in the table below. The Compensation Committee believes that requiring the Named Executive Officers to maintain a meaningful ownership interest in the Company relative to their annual base salaries may encourage the Named Executive Officers to act in a manner that creates value for the Company’s shareholders.
|
|
|
|
Position
|
|
Multiple
|
Chief Executive Officer
|
|
5x Base Salary
|
Chief Financial Officer
|
|
3x Base Salary
|
Chief Operating Officer
|
|
3x Base Salary
|
Restricted shares that remain subject to time vesting issued pursuant to the 1998 Share Option and Incentive Plan or the 2009 Equity Incentive Plan count toward the suggested share ownership guidelines. Performance-based restricted share awards that have not been earned will not count toward the recommended levels.
Once a Named Executive Officer meets the share ownership guidelines, periodic market declines in the value of the Company’s Common Shares will not adversely affect any previous determination by the Board of Trustees that the share ownership guidelines had been met by the Named Executive Officer. Messrs. Barnello and Young met the share ownership guidelines as of February 9, 2010 and December 31, 2012, respectively. Under the policy, Mr. Riggins has five years from the date he joined the Company as an executive officer, or January 24, 2016, to meet the share ownership guidelines.
EXECUTIVE OFFICER COMPENSATION TABLES
Summary Compensation Table
The following table sets forth the information required by Item 402 of Regulation S-K promulgated by the Securities and Exchange Commission. The amounts shown represent the compensation paid to the Named Executive Officers for the year shown as consideration for services rendered to the Company.
With respect to long-term equity incentive awards, the dollar amounts indicated in the table under “Share Awards” are the aggregate grant date fair value of awards computed in accordance with FASB ASC Topic 718. With respect to performance-based restricted share awards, the dollar value computed is based on the probable outcome of the performance conditions as of the grant date of the award.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Principal Position
|
|
Year
|
|
Salary
|
|
Bonus
(1)
|
|
Share Awards
(2)
|
|
Non-Equity Incentive Plan Compensation
(1)
|
|
All Other Compensation
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael D. Barnello
|
|
2012
|
|
$
|
735,000
|
|
|
$
|
—
|
|
|
$
|
1,850,011
|
|
|
$
|
1,313,500
|
|
|
$
|
206,368
|
|
(3)
|
$
|
4,104,879
|
|
President and Chief Executive Officer
|
|
2011
|
|
671,250
|
|
|
—
|
|
|
1,300,017
|
|
|
575,000
|
|
|
182,198
|
|
|
2,728,465
|
|
|
2010
|
|
600,000
|
|
|
—
|
|
|
1,200,021
|
|
|
900,000
|
|
|
84,916
|
|
|
2,784,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce A. Riggins
|
|
2012
|
|
395,000
|
|
|
—
|
|
|
660,020
|
|
|
390,500
|
|
|
33,170
|
|
(4)
|
1,478,690
|
|
Executive Vice President, Chief Financial Officer and Secretary
|
|
2011
|
|
357,404
|
|
|
—
|
|
|
799,965
|
|
|
190,000
|
|
|
26,940
|
|
|
1,374,309
|
|
|
2010
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alfred L. Young
|
|
2012
|
|
450,000
|
|
|
—
|
|
|
899,989
|
|
|
482,800
|
|
|
36,883
|
|
(5)
|
1,869,672
|
|
Executive Vice President and Chief Operating Officer
|
|
2011
|
|
375,000
|
|
|
—
|
|
|
700,009
|
|
|
218,000
|
|
|
33,137
|
|
|
1,326,146
|
|
|
2010
|
|
275,023
|
|
|
—
|
|
|
—
|
|
|
300,000
|
|
|
225,467
|
|
|
800,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The combined amount to be shown in each of the Bonus and Non-Equity Incentive Plan Compensation columns equals the amount of the annual cash incentive bonus for each Named Executive Officer. The amount shown in the Bonus column is the discretionary amount of the annual cash incentive bonus awarded to a Named Executive Officer in excess of the formula-based amount of the annual cash incentive bonus.
|
|
|
(2)
|
For more information regarding the Company’s assumptions made in the valuation of time-based restricted share awards and performance-based restricted share awards, see note 7 to the financial statements included in the Company’s Form 10-K for the period ended December 31, 2012. The table below shows the dollar value of performance-based restricted share awards for each of Messrs. Barnello, Riggins and Young assuming that on the grant dates of the awards, the highest level of performance was probable and the maximum value of the awards would be earned. The value of the performance-based restricted share awards are dependent on the Company’s performance over a three-year period and there is no assurance that the maximum value of the awards will be earned.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Value of Performance-based Restricted Share
Awards Assuming Highest Performance Level
|
|
Barnello
|
|
Riggins
|
|
Young
|
2012
|
$
|
2,400,006
|
|
|
$
|
820,026
|
|
|
$
|
1,099,989
|
|
2011
|
1,300,017
|
|
|
499,979
|
|
|
700,009
|
|
2010
|
1,200,021
|
|
|
—
|
|
|
—
|
|
|
|
(3)
|
All Other compensation consists of (i) $1,197 in Company-paid life insurance premiums, (ii) $3,213 in Company-paid long-term disability insurance premiums, (iii) $10,000 in employer matching contributions to the Company’s 401(k), (iv) $10,000 in employer matching charitable contributions, (v) $175,358 in dividends earned on unvested restricted shares (including accrued dividends paid on performance shares earned during 2012), (vi) $5,150 in fees related to membership in the Young Presidents’ Organization, and (v) $1,450 in Board recommended executive health program.
|
|
|
(4)
|
All Other compensation consists of (i) $1,079 in Company-paid life insurance premiums, (ii) $10,000 in employer matching contributions to the Company’s 401(k), (iii) $5,920 in employer matching charitable contributions, (iv) $13,548 in dividends earned on unvested restricted shares, and (v) $2,623 in Board recommended executive health program.
|
|
|
(5)
|
All Other compensation consists of (i) $2,003 in Company-paid life insurance premiums, (ii) $10,000 in employer matching contributions to the Company’s 401(k), (iii) $2,500 in employer matching charitable contributions, (iv) $20,430 in dividends earned on unvested restricted shares, and (v) $1,950 in Board recommended executive health program.
|
2012 Grants of Plan-Based Awards
The following table sets forth information with respect to plan-based restricted share awards granted in 2012 to the Named Executive Officers. The dollar amounts indicated under the “Grant Date Fair Value” is the full fair value of each grant, in accordance with the applicable accounting literature, which, with respect to the value of performance-based restricted share awards, is the probable outcome of the performance conditions as of the grant date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Possible Payouts Under Non-Equity Incentive Plan Awards
(1)
|
|
Estimated Future Payouts Under Equity Incentive Plan Awards (in number of shares)
(2)
|
|
All Other Share Awards: Number of Shares
(3)
|
|
Grant Date Fair Value
|
Name
|
|
Date of Grant
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
|
Michael D. Barnello
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Cash Incentive Bonus
|
|
|
|
$
|
0
|
|
|
$
|
925,000
|
|
|
$
|
1,850,000
|
|
|
|
|
|
|
|
|
|
|
|
Time-Based
|
|
January 26, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,021
|
|
|
$650,008
|
|
Performance-Based
|
|
January 26, 2012
|
|
|
|
|
|
|
|
22,173
|
|
|
44,346
|
|
|
88,692
|
|
|
|
|
1,200,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce A. Riggins
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Cash Incentive Bonus
|
|
|
|
0
|
|
|
275,000
|
|
|
550,000
|
|
|
|
|
|
|
|
|
|
|
|
Time-Based
|
|
January 26, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,239
|
|
250,007
|
|
Performance-Based
|
|
January 26, 2012
|
|
|
|
|
|
|
|
7,576
|
|
|
15,152
|
|
|
30,304
|
|
|
|
|
410,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alfred L. Young
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Cash Incentive Bonus
|
|
|
|
0
|
|
|
340,000
|
|
|
680,000
|
|
|
|
|
|
|
|
|
|
|
|
Time-Based
|
|
January 26, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,934
|
|
349,994
|
|
Performance-Based
|
|
January 26, 2012
|
|
|
|
|
|
|
|
10,163
|
|
|
20,325
|
|
|
40,650
|
|
|
|
|
549,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For the year ended December 31, 2012, the Compensation Committee approved annual cash incentive bonuses for Messrs. Barnello, Riggins and Young of $1,313,500, $390,500 and $482,800, respectively.
|
|
|
(2)
|
The actual amount of the award will be determined on January 1, 2015 and will depend on the “total return” of the Company’s Common Shares over a three-year period beginning with the closing price of the Company’s common stock on December 31, 2011 and ending with the closing price of the Company’s common stock on December 31, 2014. For more information regarding the performance criteria for these awards, see “Executive Officer Compensation—Compensation Discussion and Analysis—Components and Criteria of Executive Compensation—Long-Term Equity Incentive Awards.”
|
|
|
(3)
|
These shares will vest annually in three equal installments beginning December 31, 2012. For additional information, see “Executive Officer Compensation—Compensation Discussion and Analysis—Components and Criteria of Executive Compensation—Long-Term Equity Incentive Awards.”
|
2012 Share Options and Share Vesting
The Company has not granted share option awards with respect to a fiscal year after 2001. Certain trustees received options in 2002 that related to fiscal year 2001. No other options were granted in 2002 or any subsequent year. The Named Executive Officers did not exercise any options during 2012. The following table sets forth information with respect to the exercising of options and the vesting of restricted shares by the Named Executive Officers during 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Share Awards
|
Name
|
|
Vesting Date
|
|
Closing Market Price
|
|
Number of Shares Acquired on Exercise
|
|
Value Realized on Exercise
|
|
Number of Shares Acquired on Vesting
|
|
Value Realized on Vesting
|
Michael D. Barnello
|
|
January 1, 2012
|
|
$
|
24.21
|
|
|
—
|
|
|
$
|
—
|
|
|
29,768
|
|
$
|
720,683
|
|
|
|
December 31, 2012
|
|
$
|
25.39
|
|
|
—
|
|
|
—
|
|
|
25,282
|
|
641,910
|
|
Bruce A. Riggins
|
|
January 1, 2012
|
|
$
|
24.21
|
|
|
—
|
|
|
—
|
|
|
6,545
|
|
158,454
|
|
|
|
December 31, 2012
|
|
$
|
25.39
|
|
|
—
|
|
|
—
|
|
|
9,625
|
|
244,379
|
|
Alfred L. Young
|
|
January 1, 2012
|
|
$
|
24.21
|
|
|
—
|
|
|
—
|
|
|
15,393
|
|
372,665
|
|
|
|
December 31, 2012
|
|
$
|
25.39
|
|
|
—
|
|
|
—
|
|
|
19,704
|
|
500,285
|
|
Outstanding Equity Awards at Fiscal Year-End 2012
The following table sets forth information with respect to outstanding equity awards held by the Named Executive Officers as of December 31, 2012. No option awards were outstanding for the Named Executive Officers as of December 31, 2012. The aggregate dollar values indicated in the table below for equity incentive plan awards are the market or payout values and not the FAS 123R values or the compensation expense recognized by the Company on its financial statements for fiscal year 2012 with respect to its long-term equity incentive plan awards. In addition, the number of unearned shares that have not vested for the equity incentive plan awards are the threshold amounts that may be earned pursuant to the awards. For more information regarding the threshold, target and maximum amounts with respect to plan-based restricted share awards granted in 2012, see “—2012 Grants of Plan-Based Awards.”
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Awards
|
Name
|
|
Number of Shares That Have Not Vested
(3)
|
|
Market Value of Shares That Have Not Vested
(1)
|
|
Equity Incentive Plan Awards: Number of Unearned Shares or Other Rights That Have Not Vested
(4)
|
|
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares or Other Rights That Have Not Vested
(2)
|
Michael D. Barnello
|
|
155,520
|
|
|
$
|
3,948,653
|
|
|
83,847
|
|
|
$
|
2,128,875
|
|
Bruce A. Riggins
|
|
12,704
|
|
|
322,555
|
|
|
12,039
|
|
|
305,670
|
|
Alfred L. Young
|
|
15,406
|
|
|
391,158
|
|
|
16,449
|
|
|
417,640
|
|
_______________________
|
|
(1)
|
Based on the Company’s Common Share closing price of $25.39 on December 30, 2012.
|
|
|
(2)
|
Based on the Company’s Common Share closing price of $25.39 on December 30, 2012 and assumes that the Named Executive Officers earn the threshold amounts of performance-based restricted share awards.
|
|
|
(3)
|
The following table summarizes the time-based restricted share awards for which a portion of the Common Shares remain unvested as of December 31, 2012. The table also provides information about the applicable vesting periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Time-Based Restricted Shares Granted to Named Executive Officers
|
|
|
Grant Date
|
|
Closing Market Price
|
|
Michael D. Barnello
|
|
Bruce A. Riggins
|
|
Alfred L. Young
|
|
Common Shares Vesting Periods
|
May 31, 2008
|
|
|
$32.82
|
|
|
175,000
|
|
|
—
|
|
|
—
|
|
|
75,000 shares vested on June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
50,000 shares vest on June 30, 2014
|
|
|
|
|
|
|
|
|
|
|
50,000 shares vest on June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
April 28, 2009
|
|
|
$11.30
|
|
|
69,899
|
|
|
—
|
|
|
—
|
|
|
Three equal periods beginning on January 1, 2012
|
|
|
|
|
|
|
|
|
|
|
|
November 3, 2009
|
|
|
$17.11
|
|
|
—
|
|
|
—
|
|
|
3,892
|
|
|
Three equal periods beginning on December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
January 27, 2010
|
|
|
$21.07
|
|
|
12,638
|
|
|
—
|
|
|
—
|
|
|
Three equal periods beginning on December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
January 24, 2011
|
|
|
$28.01
|
|
|
—
|
|
|
19,635
|
|
|
—
|
|
|
Three equal periods beginning on January 1, 2012
|
|
|
|
|
|
|
|
|
|
|
|
January 26, 2011
|
|
|
$27.84
|
|
|
23,348
|
|
|
—
|
|
|
12,572
|
|
|
Three equal periods beginning on January 1, 2012
|
|
|
|
|
|
|
|
|
|
|
|
January 26, 2012
|
|
|
$27.06
|
|
|
24,021
|
|
|
9,239
|
|
|
12,934
|
|
|
Three equal periods beginning on December 31, 2012
|
|
|
(4)
|
The following table summarizes the performance-based restricted share awards (at threshold amounts) for which a portion of the Common Shares remain unearned and unvested as of December 31, 2012. The table also provides information about the applicable vesting periods, assuming the performance-based restricted shares are earned at the conclusion of the applicable three-year measuring period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Performance-Based Restricted Shares Granted to Named Executive Officers
|
|
|
Grant Date
|
|
Closing Market Price
|
|
Michael D. Barnello
|
|
Bruce A. Riggins
|
|
Alfred L. Young
|
|
Vesting Periods
|
May 31, 2008
|
|
|
$32.82
|
|
|
50,000
|
|
|
—
|
|
|
—
|
|
|
25,000 shares immediately vest, if earned, on July 1, 2014
|
|
|
|
|
|
|
|
|
|
|
25,000 shares immediately vest, if earned, on July 1, 2017
|
|
|
|
|
|
|
|
|
|
|
|
January 24, 2011
|
|
|
$28.01
|
|
|
—
|
|
|
4,463
|
|
|
—
|
|
|
Common Shares, if earned, vest in three equal installments beginning on January 1, 2014
|
|
|
|
|
|
|
|
|
|
|
|
January 26, 2011
|
|
|
$27.84
|
|
|
11,674
|
|
|
—
|
|
|
6,286
|
|
|
Common Shares, if earned, vest in three equal installments beginning on January 1, 2014
|
|
|
|
|
|
|
|
|
|
|
|
January 26, 2012
|
|
|
$27.06
|
|
|
22,173
|
|
|
7,576
|
|
|
10,163
|
|
|
Common Shares, if earned, vest in three equal installments beginning on January 1, 2015
|
Equity Compensation Plan Information
The following table summarizes information, as of December 31, 2012 relating to equity compensation plans of the Company pursuant to which grants of options, restricted shares, restricted share units or other rights to acquire shares may be granted from time to time.
|
|
|
|
|
|
|
|
|
Plan Category
|
|
Number of securities to be issued upon exercise of outstanding options, warrants and rights
|
|
Weighted-average exercise price of outstanding options, warrants and rights
|
|
Number of securities remaining available for future issuance under equity compensation plans
|
Equity compensation plans approved by security holders
(1)
|
|
120,883
|
|
(2)
|
None
|
(3)
|
1,428,088
|
Equity compensation plans not approved by security holders
|
|
None
|
|
|
None
|
|
None
|
Total
|
|
120,883
|
|
|
None
|
|
1,428,088
|
_________________________________
|
|
(1)
|
The 2009 Equity Incentive Plan.
|
|
|
(2)
|
120,883 Deferred Shares.
|
|
|
(3)
|
Deferred Shares have no exercise price.
|
SEVERANCE AGREEMENTS, EQUITY AWARD VESTING AND
OTHER TERMINATION POLICIES
Severance Agreements
The Company previously entered into an agreement with each of its Named Executive Officers to provide benefits to each in the event his employment is terminated in certain circumstances. The Compensation Committee believes that such severance agreements are in the best interests of the Company and its shareholders to ensure the continued employment and dedication of the Named Executive Officers by diminishing the inevitable distraction of such employees created by the personal uncertainties and risks associated with a potential change in control. Providing critical employees with defined compensation and benefits arrangements upon a change in control may help ensure that such employees’ compensation and benefits expectations will be satisfied. The Compensation Committee also believes that these arrangements are important as a recruitment and retention device and that many companies with which the Company competes for executive talent have customarily had similar arrangements in place for their senior employees.
The Compensation Committee reviews the terms of the severance agreements annually. As described in more detail below, because each Named Executive Officer’s severance payment is derived from his annual base salary and other annual incentive compensation, the effect on severance payments is one of the factors considered by the Compensation Committee when annually reviewing the Named Executive Officer’s total compensation and severance agreement terms.
Severance Agreement of Mr. Barnello
Mr. Barnello’s amended and restated severance agreement became effective on October 19, 2009 for an initial term of three years; provided, however, that each term is automatically extended at the end of such term for a successive one-year term unless, not less than six months prior to the termination of the then existing term, the Board of Trustees provides notice to Mr. Barnello of its intent not to extend the term further. Mr. Barnello may terminate the agreement prior to the expiration of the term as described below.
Termination in Connection with a Change in Control
Upon 15 days prior written notice to the Company, Mr. Barnello may terminate his employment for “good reason.” The agreement provides that upon the termination of Mr. Barnello either by the Company without “cause” or by Mr. Barnello for “good reason” within one year of a change in control of the Company, Mr. Barnello will be entitled to the following severance payments and benefits:
|
|
•
|
annual base salary, annual cash incentive bonus and accrued vacation time earned but not paid to the date of termination;
|
|
|
•
|
a lump sum cash payment equal to the product of three times the sum of (x) Mr. Barnello’s then current annual base salary, plus (y) the average of the annual cash incentive bonuses paid to Mr. Barnello with respect to the three most recent fiscal years ending before the date of termination; and
|
|
|
•
|
such other or additional benefits, if any, as are provided under applicable plans, programs and/or arrangements of the Company (including accelerated vesting of equity awards as discussed below under “—Vesting of Long-Term Equity Incentive Awards”).
|
Termination without Cause
If Mr. Barnello is terminated without “cause” and not in connection with or within one year of a change in control of the Company, Mr. Barnello will be entitled to the following severance payments and benefits:
|
|
•
|
annual base salary, annual cash incentive bonus and accrued vacation time earned but not paid to the date of termination;
|
|
|
•
|
a lump sum cash payment equal to the sum of (x) Mr. Barnello’s then current annual base salary, plus (y) the average of the annual cash incentive bonuses paid to Mr. Barnello with respect to the three most recent fiscal years ending before the date of termination; and
|
|
|
•
|
such other or additional benefits, if any, as are provided under applicable plans, programs and/or arrangements of the Company (including accelerated vesting of equity awards as discussed below under “—Vesting of Long-Term Equity Incentive Awards”).
|
Termination without Good Reason
If Mr. Barnello voluntarily terminates his employment without “good reason,” Mr. Barnello will be entitled to the following severance payments and benefits:
|
|
•
|
annual base salary, annual cash incentive bonus and accrued vacation time earned but not paid to the date of termination; and
|
|
|
•
|
such other or additional benefits, if any, as are provided under applicable plans, programs and/or arrangements of the Company (including accelerated vesting of equity awards as discussed below under “—Vesting of Long-Term Equity Incentive Awards”).
|
Severance Agreement of Mr. Young
The severance agreement entered into by Mr. Young became effective on November 3, 2009, for an initial term of three years; provided, however, that the term is automatically extended at the end of such term for a successive one-year term unless, not less than six months prior to the termination of the then existing term, the Board of Trustees provides notice to Mr. Young of its intent not to extend the term further. Mr. Young may terminate the agreement prior to the expiration of the term as described below.
Termination in Connection with a Change in Control
Upon 15 days prior written notice to the Company, Mr. Young may terminate his employment for “good reason.” The agreement provides that upon the termination of Mr. Young either by the Company without “cause” or by Mr. Young for “good reason” within one year of a change in control of the Company, Mr. Young will be entitled to the following severance payments and benefits:
|
|
•
|
annual base salary, annual cash incentive bonus and accrued vacation time earned but not paid to the date of termination;
|
|
|
•
|
a lump sum cash payment equal to the product of two times the sum of (x) Mr. Young’s then current annual base salary, plus (y) the average of the annual cash incentive bonuses paid to Mr. Young with respect to the three most recent fiscal years ending before the date of termination; and
|
|
|
•
|
such other or additional benefits, if any, as are provided under applicable plans, programs and/or arrangements of the Company (including accelerated vesting of equity awards as discussed below under “—Vesting of Long-Term Equity Incentive Awards”).
|
Termination without Cause
If Mr. Young is terminated without “cause” and not in connection with or within one year of a change in control of the Company, Mr. Young will be entitled to the following severance payments and benefits:
|
|
•
|
annual base salary, annual cash incentive bonus and accrued vacation time earned but not paid to the date of termination;
|
|
|
•
|
a lump sum cash payment equal to the sum of (x) Mr. Young’s then current annual base salary, plus (y) one half of the average of the annual cash incentive bonuses paid to Mr. Young with respect to the three most recent fiscal years ending before the date of termination; and
|
|
|
•
|
such other or additional benefits, if any, as are provided under applicable plans, programs and/or arrangements of the Company (including accelerated vesting of equity awards as discussed below under “—Vesting of Long-Term Equity Incentive Awards”).
|
Termination without Good Reason
If Mr. Young voluntarily terminates his employment without “good reason,” Mr. Young will be entitled to the following severance payments and benefits:
|
|
•
|
his annual base salary, annual cash incentive bonus and accrued vacation time earned but not paid to the date of termination; and
|
|
|
•
|
such other or additional benefits, if any, as are provided under applicable plans, programs and/or arrangements of the Company (including accelerated vesting of equity awards as discussed below under “—Vesting of Long-Term Equity Incentive Awards”).
|
Severance Agreement of Mr. Riggins
Mr. Riggins’s severance agreement became effective on January 24, 2011. The terms and conditions of Mr. Riggins’s agreement are the same as those for Mr. Young described above. The Company anticipates that until about April 2014, in calculating any lump sum cash payment under his severance agreement based on an average of bonuses paid over the three prior years, the target amount of the annual cash incentive bonus of Mr. Riggins will be used for any year or years for which an actual bonus had not been paid because Mr. Riggins was not employed long enough to be eligible to receive a bonus (i.e., if he had not been employed long enough to have been eligible to receive a bonus for the prior three years).
Other Key Severance Agreement Terms
As a condition of any severance payment and related benefits described above, each of Messrs. Barnello, Young and Riggins has agreed to a general release of any and all claims relating to the Named Executive Officer’s employment. In addition, each has agreed, for a one-year period, not to solicit, hire or recruit employees or trustees of the Company either directly or indirectly for his own account or for another party.
Under the terms of each of their severance agreements, Messrs. Barnello, Young and Riggins are entitled to a tax gross-up payment under certain conditions in the event that their employment is terminated in connection with a change in control. The tax gross-up payment reinforces the purpose of the severance agreements, which is to incentivize critical employees to remain at the Company by providing them with a guaranteed level of financial protection upon loss of employment and alleviating their concerns about their own continued employment prior to or following a change in control. The Company has adopted a policy that it will not enter into an agreement with a new executive officer that includes a tax gross-up provision with respect to payments contingent upon a change in control.
Below are a list of terms and their meanings as defined in each Named Executive Officer’s severance agreement:
|
|
•
|
“Cause” shall mean that the Board concludes, in good faith and after reasonable investigation, that:
|
|
|
◦
|
the Named Executive Officer is accused of engaging in conduct which is a felony under the laws of the United States or any state or political subdivision thereof;
|
|
|
◦
|
the Named Executive Officer Executive engaged in conduct relating to the Company constituting material breach of fiduciary duty, willful misconduct (including acts of employment discrimination or sexual harassment) or fraud;
|
|
|
◦
|
the Named Executive Officer breached the non-solicitation covenant contained in his severance agreement in any material respect; or
|
|
|
◦
|
the Named Executive Officer materially failed to follow a proper directive of the Board (or, with respect to Messrs. Young and Riggins, the Chief Executive Officer) of the Company within the scope of the Named Executive Officer’s duties (which shall be capable of being performed by the Named Executive Officer with reasonable effort) after written notice from the Board (or, with respect to Messrs. Young and Riggins, the Chief Executive Officer) specifying the performance required and the Named Executive Officer’s failure to perform within 30 days after such notice. No act, or failure to act, on the Named Executive Officer’s part shall be deemed “willful” unless done, or omitted to be done, by the Named Executive Officer not in good faith or if the result thereof would be unethical or illegal.
|
|
|
•
|
“Change in Control” shall mean a change in control of the Company which will be deemed to have occurred after the date hereof if:
|
|
|
◦
|
any “person” as such term is used in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof except that such term shall not include (A) the Company or any of its subsidiaries, (B) any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its affiliates, (C) an underwriter temporarily holding securities pursuant to an offering of such securities, (D) any corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of the Company’s Common Shares, or (E) any person or group as used in Rule 13d-1(b) under the Exchange Act, is or becomes the Beneficial Owner, as such term is defined in Rule 13d-3 under the Exchange Act, directly or indirectly, of securities of the Company representing more than 50% of the combined voting power or Common Shares of the Company;
|
|
|
◦
|
during any period of two consecutive years, individuals who at the beginning of such period constitute the Board, and any new trustee (other than (A) a trustee designated by a person who has entered into an agreement with the Company to effect a transaction described in these bullets or (B) a trustee whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of trustees of the Company) whose election by the Board or nomination for election by the Company’s shareholders was approved by a vote of at least two-thirds (2/3) of the trustees then still in office who either were trustees at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof;
|
|
|
◦
|
there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, more than 50% of the combined voting power and Common Shares of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or
|
|
|
◦
|
the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets (or any transaction having a similar effect) other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, more than 50% of the combined voting power and Common Shares of which are owned by shareholders of the Company in substantially the same proportions as their ownership of the Common Shares of the Company immediately prior to such sale.
|
|
|
•
|
“Good Reason” shall mean the occurrence, without the Named Executive Officer’s prior written consent, of any of the following in connection with or within one year after a Change in Control:
|
|
|
◦
|
any material reduction of the Named Executive Officer’s base salary or target bonus as a percentage of base salary;
|
|
|
◦
|
any material adverse change in the Named Executive Officer’s duties or responsibilities, including assignment of duties inconsistent with his position, significant adverse alteration of the nature or status of responsibilities or the conditions of employment or any material diminution in authority, duties, or responsibilities, including, without limitation, any such material adverse change that results from a transaction pursuant to which the Company ceases to be a public reporting lodging REIT;
|
|
|
◦
|
a material diminution in the authority, duties, or responsibilities of the supervisor to whom the Named Executive Officer is required to report including, without limitation, any material diminution that results from a transaction pursuant to which the Company ceases to be a public reporting lodging REIT; and
|
|
|
◦
|
the relocation of the Named Executive Officer’s principal place of performance outside of the Washington, D.C. metropolitan area.
|
Vesting of Long-Term Equity Incentive Awards
The terms of the time-based share award agreements granted to the Named Executive Officers generally provide that:
|
|
•
|
Upon a change in control of the Company, the unvested shares vest.
|
|
|
•
|
Upon termination of the Named Executive Officer’s employment with the Company by the Company without cause, the unvested shares vest.
|
|
|
•
|
Upon termination of the Named Executive Officer’s employment with the Company because of the Named Executive Officer’s death or disability, the unvested shares vest.
|
|
|
•
|
Upon termination of the Named Executive Officer’s employment with the Company by the Company for cause, the unvested shares are forfeited.
|
The time-based share award agreements do not provide, in the absence of a change in control of the Company, for acceleration of the unvested shares in the event the Named Executive Officer terminates his employment with the Company, for any reason other than death, disability or, under certain conditions, retirement.
The terms of the performance-based restricted share award agreements granted to the Named Executive Officers generally provide that:
|
|
•
|
In the event of a Named Executive Officer’s death or disability during the “earning” period of the award agreement (which is generally a designated three-year period specified at the time the award is granted), his performance-based restricted share awards will be measured early, as of the date of death or disability (with the measuring period and cumulative return goals reduced accordingly), and all earned shares and deferred dividends thereon will vest immediately and be paid promptly thereafter, except that the number of shares subject to the award will be reduced pro rata, based on the amount of time elapsed in the measuring period compared to the full, original measuring period.
|
|
|
•
|
In the event of a change in control in the Company during the earning period of the award agreement, the award will be measured as of the date of the change in control (with the measuring period and cumulative return goals reduced accordingly) and all earned shares and deferred dividends thereon will vest immediately and be paid promptly thereafter. The amount of the awards will not be pro rated as in the case of death or disability.
|
|
|
•
|
In the event the Company terminates a Named Executive Officer’s employment with the Company for cause, or the Named Executive Officer terminates his employment with the Company without good reason, all unearned or unvested shares under the award agreement are forfeited.
|
|
|
•
|
In the event that the Company terminates a Named Executive Officer’s employment with the Company without cause, or a Named Executive Officer terminates his employment with the Company for good reason, the performance-award will be measured early, as of the date of termination (with the measuring period and cumulative return goals reduced accordingly), and all earned shares and deferred dividends thereon shall vest immediately and be paid promptly thereafter, except that the number of shares subject to the award will be reduced pro rata, based on the amount of time elapsed in the measuring period compared to the full, original measuring period.
|
For purposes of the time-based and performance-based restricted share award agreements, the definitions of “cause,” “good reason” and “change in control” are similar but not identical to the definitions contained in the severance agreements of the Named Executive Officers. For example, the definition of “good reason” for purposes of the award agreements does not include any requirement of a change in control. In addition, the definition of “change in control” for purposes of the award agreements includes mergers and consolidations where the outstanding securities of the Company represent less than 75% of the combined voting power of the Company or surviving entity after the merger or consolidation and includes a sale of substantially all of the assets of the Company to an entity in which the Company’s shareholders own less than 75% of the combined voting power in substantially the same proportions as their Company ownership before the sale.
Retirement Policy
Since January 2007, the Company has had a retirement policy for Named Executive Officers. The policy is designed to reward years of dedication and service to the Company. Under the policy, all previously-granted equity awards to a Named Executive Officer who is at least 60 years old and who has served the Company at least 20 years
will immediately vest. Performance-based awards will be measured as of the retirement date (with the measuring period and cumulative return goals reduced accordingly).
None of the Company’s Named Executive Officers has met the age or service requirements to be eligible for benefits under this policy.
CHANGE OF CONTROL AND TERMINATION PAYMENT TABLES
The tables on the following pages indicate the cash amounts, accelerated vesting and other payments and benefits that the Named Executive Officers would be entitled to under various circumstances pursuant to the terms of the 1998 Share Option and Incentive Plan, the 2009 Equity Incentive Plan, the agreements governing awards made under the 1998 Share Option and Incentive Plan and the 2009 Equity Incentive Plan, the severance agreements of the Named Executive Officers and the Company’s retirement policies. In all cases, each Named Executive Officer is entitled to a cash payment consisting of his salary, bonus and cash equivalent of vacation time earned but not paid as of the termination date. Each of the following tables assumes that separation occurs on December 31, 2012.
Michael D. Barnello—President and Chief Executive Officer
Payments Upon Termination Without Change in Control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination by Company With Cause
|
|
Termination by Company Without Cause
|
|
Termination by Employee With Good Reason
|
|
Termination by Employee Without Good Reason
|
Cash Payment
(1)
|
$
|
0
|
|
|
$
|
1,403,312
|
|
|
$
|
1,403,312
|
|
|
$
|
0
|
|
Cash Payment for Time-based Restricted Shares
|
0
|
|
|
3,948,653
|
|
|
3,948,653
|
|
|
0
|
|
Cash Payment for Performance-based Restricted Shares
|
0
|
|
|
630,313
|
|
|
630,313
|
|
|
0
|
|
Dividends Awarded on Restricted Shares
(2)
|
0
|
|
|
24,149
|
|
|
24,149
|
|
|
0
|
|
Excise Tax Gross-Up Payments
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
TOTAL
|
$
|
0
|
|
|
$
|
6,006,427
|
|
|
$
|
6,006,427
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
(1) Each Named Executive Officer is also paid his salary, annual cash incentive bonus and the cash equivalent vacation time earned but not paid as of the termination date.
(2) Dividends are awarded only with respect to the earned performance-based restricted shares.
|
Payments Upon Change in Control and Termination With Change in Control
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated Vesting Upon a Change in Control
|
|
Termination by Company With Cause
|
|
Termination by Company Without Cause
|
|
Termination by Employee With Good Reason
|
|
Termination by Employee Without Good Reason
|
Cash Payment
(2)
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
4,209,936
|
|
|
$
|
4,209,936
|
|
|
$
|
0
|
|
Cash Payment for Time-based Restricted Shares
|
3,948,653
|
|
|
0
|
|
|
3,948,653
|
|
|
3,948,653
|
|
|
0
|
|
Cash Payment for Performance-based Restricted Shares
|
1,199,370
|
|
|
0
|
|
|
1,199,370
|
|
|
1,199,370
|
|
|
0
|
|
Dividends Awarded on Restricted Shares
(3)
|
45,524
|
|
|
0
|
|
|
45,524
|
|
|
45,524
|
|
|
0
|
|
Excise Tax Gross-Up Payments
(4)
|
0
|
|
|
0
|
|
|
2,271,629
|
|
|
2,271,629
|
|
|
0
|
|
TOTAL
|
$
|
5,193,547
|
|
|
$
|
0
|
|
|
$
|
11,675,112
|
|
|
$
|
11,675,112
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
(1) Assumes change in control occurred on December 31, 2012.
(2) Each Named Executive Officer is also paid his salary, annual cash incentive bonus and the cash equivalent vacation time earned but not paid as of the termination date.
(3) Dividends are awarded only with respect to the earned performance-based restricted shares.
(4) Represents a payment by the Company to each Named Executive Officer in an amount equal to the federal excise tax on qualifying termination compensation plus all federal, state and local income taxes payable with respect to the excise tax payment.
|
Payments With or Without Change in Control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Death
(1)
|
|
Disability
|
|
Retirement
|
Cash Payment
(2)
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Cash Payment for Time-based Restricted Shares
|
3,948,653
|
|
|
3,948,653
|
|
|
0
|
|
Cash Payment for Performance-based Restricted Shares
|
630,313
|
|
|
630,313
|
|
|
0
|
|
Dividends Awarded on Restricted Shares
(3)
|
24,149
|
|
|
24,149
|
|
|
0
|
|
Excise Tax Gross-Up Payments
|
0
|
|
|
0
|
|
|
0
|
|
TOTAL
|
$
|
4,603,115
|
|
|
$
|
4,603,115
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
(1) Each Named Executive Officer receives benefits per life insurance policies and disability policies.
(2) Each Named Executive Officer is also paid his salary, annual cash incentive bonus and the cash equivalent vacation time earned but not paid as of the termination date.
(3) Dividends are awarded only with respect to the earned performance-based restricted shares.
|
Bruce A. Riggins—Executive Vice President, Chief Financial Officer and Secretary
Payments Upon Termination Without Change in Control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination by Company With Cause
|
|
Termination by Company Without Cause
|
|
Termination by Employee With Good Reason
|
|
Termination by Employee Without Good Reason
|
Cash Payment
(1)
|
$
|
0
|
|
|
$
|
518,333
|
|
|
$
|
518,333
|
|
|
$
|
0
|
|
Cash Payment for Time-based Restricted Shares
|
0
|
|
|
322,555
|
|
|
322,555
|
|
|
0
|
|
Cash Payment for Performance-based Restricted Shares
|
0
|
|
|
46,832
|
|
|
46,832
|
|
|
0
|
|
Dividends Awarded on Restricted Shares
(2)
|
0
|
|
|
2,121
|
|
|
2,121
|
|
|
0
|
|
Excise Tax Gross-Up Payments
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
TOTAL
|
$
|
0
|
|
|
$
|
889,841
|
|
|
$
|
889,841
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
(1) Each Named Executive Officer is also paid his salary, annual cash incentive bonus and the cash equivalent vacation time earned but not paid as of the termination date.
(2) Dividends are awarded only with respect to the earned performance-based restricted shares.
|
Payments Upon Change in Control and Termination With Change in Control
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated Vesting Upon a Change in Control
|
|
Termination by Company With Cause
|
|
Termination by Company Without Cause
|
|
Termination by Employee With Good Reason
|
|
Termination by Employee Without Good Reason
|
Cash Payment
(2)
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
1,283,333
|
|
|
$
|
1,283,333
|
|
|
$
|
0
|
|
Cash Payment for Time-based Restricted Shares
|
322,555
|
|
|
0
|
|
|
322,555
|
|
|
322,555
|
|
|
0
|
|
Cash Payment for Performance-based Restricted Shares
|
70,248
|
|
|
0
|
|
|
70,248
|
|
|
70,248
|
|
|
0
|
|
Dividends Awarded on Restricted Shares
(3)
|
3,182
|
|
|
0
|
|
|
3,182
|
|
|
3,182
|
|
|
0
|
|
Excise Tax Gross-Up Payments
(4)
|
0
|
|
|
0
|
|
|
491,483
|
|
|
491,483
|
|
|
0
|
|
TOTAL
|
$
|
395,985
|
|
|
$
|
0
|
|
|
$
|
2,170,801
|
|
|
$
|
2,170,801
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
(1) Assumes change in control occurred on December 31, 2012.
(2) Each Named Executive Officer is also paid his salary, annual cash incentive bonus and the cash equivalent vacation time earned but not paid as of the termination date.
(3) Dividends are awarded only with respect to the earned performance-based restricted shares.
(4) Represents a payment by the Company to each Named Executive Officer in an amount equal to the federal excise tax on qualifying termination compensation plus all federal, state and local income taxes payable with respect to the excise tax payment.
|
Payments With or Without Change in Control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Death
(1)
|
|
Disability
|
|
Retirement
|
Cash Payment
(2)
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Cash Payment for Time-based Restricted Shares
|
322,555
|
|
|
322,555
|
|
|
0
|
|
Cash Payment for Performance-based Restricted Shares
|
46,832
|
|
|
46,832
|
|
|
0
|
|
Dividends Awarded on Restricted Shares
(3)
|
2,121
|
|
|
2,121
|
|
|
0
|
|
Excise Tax Gross-Up Payments
|
0
|
|
|
0
|
|
|
0
|
|
TOTAL
|
$
|
371,508
|
|
|
$
|
371,508
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
(1) Each Named Executive Officer receives benefits per life insurance policies and disability policies.
(2) Each Named Executive Officer is also paid his salary, annual cash incentive bonus and the cash equivalent vacation time earned but not paid as of the termination date.
(3) Dividends are awarded only with respect to the earned performance-based restricted shares.
|
Alfred L. Young—Executive Vice President and Chief Operating Officer
Payments Upon Termination Without Change in Control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination by Company With Cause
|
|
Termination by Company Without Cause
|
|
Termination by Employee With Good Reason
|
|
Termination by Employee Without Good Reason
|
Cash Payment
(1)
|
$
|
0
|
|
|
$
|
569,667
|
|
|
$
|
569,667
|
|
|
$
|
0
|
|
Cash Payment for Time-based Restricted Shares
|
0
|
|
|
325,297
|
|
|
325,297
|
|
|
0
|
|
Cash Payment for Performance-based Restricted Shares
|
0
|
|
|
65,969
|
|
|
65,969
|
|
|
0
|
|
Dividends Awarded on Restricted Shares
(2)
|
0
|
|
|
2,988
|
|
|
2,988
|
|
|
0
|
|
Excise Tax Gross-Up Payments
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
TOTAL
|
$
|
0
|
|
|
$
|
963,921
|
|
|
$
|
963,921
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
(1) Each Named Executive Officer is also paid his salary, annual cash incentive bonus and the cash equivalent vacation time earned but not paid as of the termination date.
(2) Dividends are awarded only with respect to the earned performance-based restricted shares.
|
Payments Upon a Change in Control and Termination With Change in Control
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated Vesting Upon a Change in Control
|
|
Termination by Company With Cause
|
|
Termination by Company Without Cause
|
|
Termination by Employee With Good Reason
|
|
Termination by Employee Without Good Reason
|
Cash Payment
(2)
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
1,378,667
|
|
|
$
|
1,378,667
|
|
|
$
|
0
|
|
Cash Payment for Time-based Restricted Shares
|
325,297
|
|
|
0
|
|
|
325,297
|
|
|
325,297
|
|
|
0
|
|
Cash Payment for Performance-based Restricted Shares
|
98,953
|
|
|
0
|
|
|
98,953
|
|
|
98,953
|
|
|
0
|
|
Dividends Awarded on Restricted Shares
(3)
|
4,482
|
|
|
0
|
|
|
4,482
|
|
|
4,482
|
|
|
0
|
|
Excise Tax Gross-Up Payments
(4)
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
TOTAL
|
$
|
428,732
|
|
|
$
|
0
|
|
|
$
|
1,807,399
|
|
|
$
|
1,807,399
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
(1) Assumes change in control occurred on December 31, 2012.
(2) Each Named Executive Officer is also paid his salary, annual cash incentive bonus and the cash equivalent vacation time earned but not paid as of the termination date.
(3) Dividends are awarded only with respect to the earned performance-based restricted shares.
(4) Represents a payment by the Company to each Named Executive Officer in an amount equal to the federal excise tax on qualifying termination compensation plus all federal, state and local income taxes payable with respect to the excise tax payment.
|
Payments With or Without Change in Control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Death
(1)
|
|
Disability
|
|
Retirement
|
Cash Payment
(2)
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Cash Payment for Time-based Restricted Shares
|
325,297
|
|
|
325,297
|
|
|
0
|
|
Cash Payment for Performance-based Restricted Shares
|
65,969
|
|
|
65,969
|
|
|
0
|
|
Dividends Awarded on Restricted Shares
(3)
|
2,988
|
|
|
2,988
|
|
|
0
|
|
Excise Tax Gross-Up Payments
|
0
|
|
|
0
|
|
|
0
|
|
TOTAL
|
$
|
394,254
|
|
|
$
|
394,254
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
(1) Each Named Executive Officer receives benefits per life insurance policies and disability policies.
(2) Each Named Executive Officer is also paid his salary, annual cash incentive bonus and the cash equivalent vacation time earned but not paid as of the termination date.
(3) Dividends are awarded only with respect to the earned performance-based restricted shares.
|
CASH STAY BONUS FOLLOWING A CHANGE IN CONTROL
If a Named Executive Officer remains employed by the Company on the first anniversary of a change in control event, the Named Executive Officer is entitled to receive a lump sum cash stay bonus. For Mr. Barnello, the cash stay bonus is equal to the sum of Mr. Barnello’s base salary plus the average of the annual cash bonuses paid to Mr. Barnello with respect to the three most recent fiscal years. Based on Mr. Barnello’s 2012 base salary and his average annual cash incentive bonus paid for 2009, 2010 and 2011, Mr. Barnello’s cash stay bonus would be equal to $1,403,312.
For Mr. Riggins, the cash stay bonus is equal to one half of the sum of (x) his base salary, plus (y) the average of the annual cash incentive bonus paid to him with respect to 2011 and the target amount of his annual cash incentive bonus for 2012. Based on Mr. Riggins’s 2012 base salary and the average of his annual cash incentive bonus for 2011 and the target amount of his annual cash incentive bonus for 2012, Mr. Riggins’s cash stay bonus would equal $313,750.
For Mr. Young, the cash stay bonus is equal to one half of the sum of (x) his base salary, plus (y) the average of the annual cash incentive bonuses paid to Mr. Young with respect the three most recent fiscal years. Based on Mr. Young’s 2012 base salary and his average annual cash incentive bonus paid for 2009, 2010 and 2011, Mr. Young’s cash stay bonus would be equal to $328,000.