Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On February 18, 2022, the Board of Trustees (the “Board”) of Pebblebrook Hotel Trust (the “Company”) approved, as recommended by the Compensation Committee of the Board (the “Compensation Committee”), compensatory arrangements in which the executive officers of the Company will participate for 2022.
For 2022, the Compensation Committee and the Board determined that compensation for each executive will consist of: (i) an annual cash base salary; (ii) an annual cash bonus incentive award under the Company’s 2009 Equity Incentive Plan, as amended and restated effective July 10, 2012, as amended (the “Plan”); and (iii) awards of long-term equity-based compensation under the Plan. Of the awards of long-term equity-based compensation, 40% consists of restricted common shares of beneficial interest of the Company, $0.01 par value per share (“Common Shares”), subject to pro rata time-based vesting over a three-year period beginning January 1, 2023, and 60% consists of performance units, subject to performance-based vesting over a three-year performance period only if and to the extent that certain enumerated performance objectives are achieved. If vested, the performance units will be settled in the form of Common Shares, pursuant to the Plan.
After the Company determined that the awards described above could not be granted because the Plan did not permit grants after February 7, 2022, the Compensation Committee and the Board approved an amendment to the Plan, subject to shareholder approval at the Company’s 2022 annual meeting of shareholders, to change such date to be June 30, 2026 (the “Amendment”).
On March 31, 2022, the Compensation Committee and the Board made new grants, subject to shareholder approval of the Amendment, of awards of restricted common shares and performance units. As described below, the terms of the new awards, including the numbers of restricted Common Shares and performance units, under such new grants, if made, will be the same as those intended to be granted on February 18, 2022.
The following table shows each of the three components of target total compensation as a percentage of target total compensation for 2022 as determined by the Compensation Committee and the Board.
| | | | | | | | | | | | | | | | | | | | |
| | 2022 Target Compensation |
| | Components as a Percentage of Target Total Compensation (1) |
| | Base Salary | | Target Cash Incentive Bonus | | Target Equity-Based Compensation(2) |
| | | | | | |
| Jon E. Bortz | | 16% | | 25% | | 59% |
| | | | | | |
| Raymond D. Martz | | 23% | | 23% | | 54% |
| | | | | | |
| Thomas C. Fisher | | 23% | | 23% | | 54% |
______________________
(1) Target total compensation includes base salary, target cash incentive bonus, time-based restricted Common Shares and the target amount of performance units, as discussed below.
(2) Percentages include grants, subject to shareholder approval of the Amendment, of awards of time-based restricted Common Shares and performance units, which comprise 40% and 60%, respectively, of the regular target equity-based compensation amount.
Base Salary and Annual Cash Incentive Bonus
The Compensation Committee and the Board approved the following cash compensation arrangements for 2022 for each of the executive officers, which reflect no increase over the dollar amounts originally established for 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Target Cash Incentive Bonus as a % of |
| Base Salary | | Target Cash Incentive Bonus | | Base Salary | | Target Total Compensation(1) |
| | | | | | | |
| Jon E. Bortz | $750,000 | | $1,203,750 | | 161% | | 25% |
| | | | | | | |
| Raymond D. Martz | $500,000 | | $500,000 | | 100% | | 23% |
| | | | | | | |
| Thomas C. Fisher | $500,000 | | $500,000 | | 100% | | 23% |
______________________
(1) Target total compensation includes base salary and target cash incentive bonus, as well as the target value of grants, subject to shareholder approval of the Amendment, of restricted Common Shares and performance units, as discussed below.
For each executive, the target cash incentive bonus is contingent on the Company meeting the target levels of certain management objectives and goals established by the Board (the “2022 Annual Objectives”), which are established at the beginning of the year and are designed to align the incentives of the Company’s employees and management with the interests of the Company’s shareholders. The actual amount of cash incentive bonus that will be paid in 2023 for performance in 2022 will depend on the Company’s performance against the 2022 Annual Objectives and could be as little as zero or as much as 200% of the target cash incentive bonus.
The level of performance against each 2022 Annual Objective will be measured relative to a target. The payout level of each objective varies by level of performance achieved, from a minimum of 0% up to target and maximum amounts that differ by objective. Regardless of the Company’s actual performance against any of the 2022 Annual Objectives, no executive officer will be entitled to receive more than a maximum of 200% of his target cash incentive bonus as an actual annual cash bonus incentive award.
There are three 2022 Annual Objectives:
•30% (up to a maximum of 75%) of the target cash amount will be determined by the degree to which the Company successfully manages the transition out of the adverse effects of the COVID-19 pandemic (“Transition Management”);
•10% (up to a maximum of 25%) of the target cash amount will be determined by the degree to which the Company successfully continues the development of its Environmental, Social and Governance program and meets the program's commitments (“ESG Results”); and
•60% (up to a maximum of 150%) of the target cash amount will be determined by the degree to which the Company achieves certain asset management initiatives, including successfully completing renovations or transitions for certain hotel properties and generating hotel-level earnings before interest, taxes, depreciation and amortization (“EBITDA”) per key in the top two with a group of six peer companies in the full-service hotel sector (Braemar Hotels & Resorts Inc., DiamondRock Hospitality Company, Host Hotels & Resorts, Inc., Park Hotels & Resorts Inc., Sunstone Hotel Investors, Inc. and Xenia Hotels & Resorts, Inc.), continues to grow Curator Hotel & Resort Collection, and achieves certain other business objectives, including meeting acquisition/disposition goals and complying with internal controls and compliance.
Long-Term Equity Incentive Awards
The Compensation Committee and the Board granted, subject to shareholder approval of the Amendment, long-term equity incentive awards to each executive officer for 2022, consisting of: an award of restricted Common Shares subject to time-based vesting following completion of a three-year period; and an award of performance units subject to performance-based vesting (which, if vested, will settle in the form of Common Shares) following completion of a three-year period (half of the award) and each year within that three-year period (one-sixth of the award). Long-term equity incentive awards are intended to provide grantees with an incentive to promote the long-term success of the Company in line with the interests of the Company’s shareholders.
Award of Restricted Common Shares
For 2022, the Board granted, subject to shareholder approval of the Amendment, awards of time-based restricted Common Shares, which will vest ratably on January 1, 2023, January 1, 2024 and January 1, 2025, provided that the recipient remains employed by the Company through the applicable vesting date or as otherwise described below, to Messrs. Bortz, Martz and Fisher as follows:
•Mr. Bortz - 49,933 Common Shares;
•Mr. Martz - 21,400 Common Shares; and
•Mr. Fisher - 21,400 Common Shares.
The time-based restricted Common Share awards granted, subject to shareholder approval of the Amendment, to each of Messrs. Bortz, Martz and Fisher also provide the following vesting- and forfeiture-related terms:
•upon a change in control of the Company, unvested awards vest;
•upon termination of the executive’s employment with the Company because of his death or disability, unvested awards vest;
•upon resignation of the executive for good reason (which must be in connection with or within one year after a change in control), unvested awards vest;
•upon termination of the executive’s employment with the Company without cause, unvested awards vest; and
•upon termination of the executive’s employment with the Company for cause, unvested awards are forfeited.
Except as described above, any awards that are unvested at the time the executive terminates his employment with the Company will be forfeited.
If shareholders approve the Amendment, the restricted Common Shares will be awarded pursuant to share award agreements substantially in the form filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the United States Securities and Exchange Commission (the “SEC”) on February 16, 2018.
Award of Performance Units
For 2022, the Board granted, subject to shareholder approval of the Amendment, awards of performance units (which, if vested, will settle in the form of Common Shares) to each of the Company’s executive officers pursuant to a Performance Unit Award Agreement. The performance units will vest only if, and to the degree that, the performance criteria established by the Board are met, provided that the recipient remains employed by the Company through the end of the applicable measurement period or as otherwise described below.
The number of performance units that vest in each measurement period will be determined by the “Relative TSR Objective,” which is the Company’s total shareholder return (Common Share price appreciation/depreciation plus paid dividends) (“TSR”) compared to the TSR of each member of group of 13 publicly listed hospitality REITs, collectively referred to as the TSR Peer Group. The following companies comprise the “TSR Peer Group”: Apple Hospitality REIT, Inc., Ashford Hospitality Trust, Inc., Braemar Hotels & Resorts Inc., Chatham Lodging Trust, DiamondRock Hospitality Company, Hersha Hospitality Trust, Host Hotels & Resorts, Inc., Park Hotels & Resorts Inc., RLJ Lodging Trust, Ryman Hospitality Properties, Inc., Summit Hotel Properties, Inc., Sunstone Hotel Investors, Inc. and Xenia Hotels & Resorts, Inc.
There are four measurement periods of the Relative TSR Objective under the awards, and the percentage of the target number of performance units that may vest based on performance during that period varies, as follows:
•50% (up to a maximum of 125%) of the target number of performance units will be determined by the Relative TSR Objective measured for the three-year period from December 31, 2021 through December 31, 2024;
•16.7% (up to a maximum of 41.8%) of the target number of performance units will be determined by the Relative TSR Objective measured for the one-year period from December 31, 2021 through December 31, 2022;
•16.7% (up to a maximum of 41.7%) of the target number of performance units will be determined by the Relative TSR Objective measured for the one-year period from December 31, 2022 through December 31, 2023; and
•16.6% (up to a maximum of 41.5%) of the target number of performance units will be determined by the Relative TSR Objective measured for the one-year period from December 31, 2023 through December 31, 2024.
The level of performance against the Relative TSR Objective will be measured relative to a target. The payout level varies by level of performance achieved for each measurement period, from a minimum of 0% up to target and a maximum of 250%, as shown in the following table (and a payout level between the minimum and target, or between target and the maximum, will be interpolated):
| | | | | | | | | | | |
| Minimum % of Target # of Units | Target Performance Level and
% of Target Number of Units | Maximum % of Target # of Units |
Performance Level
(relative to Target Performance) | TSR < Peer Group min. | TSR in 50th percentile of Peer-Group | TSR > Peer Group max. |
| | | |
Payout Level per Period
(percent of target number of units) | 0% | 100% | 250% |
If the Company’s TSR is greater than 0% for the three-year measurement period ending December 31, 2024, then the maximum percentage of the target number of performance units will be capped at 200%, regardless of the degree of the Company’s out-performance, if any, against the Relative TSR Objective. If the Company’s TSR is less than 0% for the three-year measurement period ending December 31, 2024, then the maximum percentage of the target number of performance units will be capped at 100%, regardless of the degree of the Company’s out-performance, if any, against the Relative TSR Objective.
The target and maximum number of performance units subject to the Relative TSR Objective for the Company’s three executive officers granted, subject to shareholder approval of the Amendment, are as follows, and in each case the minimum number is zero:
•Mr. Bortz - 74,900 performance units, target (149,800 performance units, maximum);
•Mr. Martz - 32,100 performance units, target (64,200 performance units, maximum); and
•Mr. Fisher - 32,100 performance units, target (64,200 performance units, maximum).
For each executive, the actual number of performance units that will vest (and be settled in the form of Common Shares) after the end of each measurement period will depend on the Company’s performance against the Relative TSR Objective as determined by the Compensation Committee and requires that the recipient remains employed by the Company through the end of such measurement period or as otherwise described below. The performance units will, prior to vesting, not be entitled either to receive dividends or to be voted, but dividends will, in effect, accrue on the performance units and will be paid if, but only if, and to the extent the performance units vest and are settled in the form of Common Shares.
The vesting-related terms of the performance unit awards granted, subject to shareholder approval of the Amendment, to each of Messrs. Bortz, Martz and Fisher also provide that, prior to December 31, 2024, upon termination of the executive’s employment with the Company: (i) for cause, the unvested units are forfeited; and (ii) under the following scenarios, the number of units that shall vest will be up to the greater of (x) the target number of units and (y) the number of units determined by the performance provisions:
•upon a change in control of the Company;
•upon termination of the executive’s employment with the Company because of his death or disability;
•upon resignation of the executive for good reason (which must be in connection with or within one year after a change in control); and
•upon termination of the executive’s employment with the Company without cause.