DEF 14A
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.    )

 

 

Filed by the Registrant                              Filed by a Party other than the Registrant  

Check the appropriate box:

 

  Preliminary Proxy Statement
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  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material under §240.14a-12

Host Hotels & Resorts, Inc.

(Name of Registrant as Specified In Its Charter)

 

(Name of person(s) filing proxy statement, if other than the registrant)

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Table of Contents

LOGO

 

 

HOST HOTELS & RESORTS NOTICE OF ANNUAL MEETING OF STOCKHOLDERS AND 2019 PROXY STATEMENT


Table of Contents

Value Creation Through Sustainability Leadership

We’re committed to enhancing the value and profitability of our owned hotels through sustainable business practices. Our strategic framework follows three themes to inform the integration of sustainability into our business and guide engagement with our corporate responsibility stakeholders.

 

 

 Responsible Investment

  

 

 Environmental Stewardship

  

 

Corporate Citizenship

 

Evaluate opportunities to address climate change risks, invest in proven sustainability practices and enhance asset value while improving environmental performance.

  

 

Set environmental targets, monitor the performance of our responsible investments and measure our progress toward improving the environmental footprint of our properties.

  

 

Strengthen our local communities through financial support, community engagement and volunteer service.

 

$179M

 

  

500+

 

   $25M

 

    

135+

 

  

670

 

Engineering projects

with sustainability

benefits 2015-17

  

Projects with sustainability
attributes completed

2015-17

  

Expected annual utility

savings from combined

investments 2015-17

    

Charities

supported

2018

  

Hours volunteered

among 200
employees

2018

 

Accomplishments & Recognition    2020 Targets Met Three Years Early

 

                

 

GHG

  Energy   Water   Waste

 

LOGO

 

 

DJSI North America

Top 20% in 2018

 

 

LOGO

 

 

#1 Hotels &
#2 for all U.S./ Listed Companies
Green Star (6th consecutive

year) in 2018

 

 

LOGO

 

 

Lodging/Resorts

Leader in the Light
Winner
(2014, 2015, 2017

and 2018)

  

 

LOGO

   

 

 

 

 

 

LOGO

 

28%

 

Reduction

 

 

 

 

 

 

   

 

 

 

 

 

LOGO

 

15%

 

Reduction

 

 

 

 

 

 

   

 

 

 

 

 

LOGO

 

25%

 

Reduction

 

 

 

 

 

 

   

 

 

 

 

 

LOGO

 

50%

 

Major

 

 

 

 

 

 

 

LOGO

 

 

 

Leadership
recognition

 

 

 

LOGO

 

 

 

1st Hospitality company
to have its greenhouse gas
emissions verified

 

 

LOGO

 

 

 

Eight LEED
certified
properties

  

 

LOGO

 

Per
Square

Foot1

 

Per
Square

Foot1

 

Per

Occupied

Room1

 

renovations

with waste

diversion

      

 

 

 

1 Reduction against 2008 baseline year; new
targets under development

 


                  
                  
   New 2018 Initiatives

LOGO

 

 

Leadership
Ranking in 2018 (6th consecutive year)

 

 

LOGO

 

 

94% of U.S. hotels distinguished by the Trip Advisor® GreenLeaders Program

    

 

The Company has also set a new target to achieve 30% renewable energy consumption by 2025 and established an internal price of carbon aligned with guidance provided by the World Bank to inform investment decisions.

 

For more information on our corporate responsibility program, visit our website at www.hosthotels.com. Please also refer to our 2018 Corporate Responsibility Highlights report, which follows the Global Reporting Initiative (GRI) disclosure framework.


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LOGO

 

 

 

LOGO    April 5, 2019

Dear Fellow Stockholder:

I am pleased to invite you to our 2019 Annual Meeting of Stockholders of Host Hotels & Resorts, Inc., which will be held at 11:00 a.m. on Thursday, May 16, 2019, at the Ritz-Carlton Golf Resort, Naples, Florida. The doors will open at 10:30 a.m. Our directors and management team will be available to answer questions. At the annual meeting we will ask you to elect our Board of Directors, ratify the selection of KPMG LLP as our independent registered public accountants, and vote to approve executive compensation. These proposals are described in detail in the attached Notice of 2019 Annual Meeting of Stockholders and Proxy Statement. Our 2018 Annual Report is also enclosed, which we encourage you to read.

Host Hotels Delivered Another Year of Strong Performance in 2018

In 2018, we delivered strong operating performance at the high end of our guidance and successfully executed on our long-term strategic vision. On the transaction front, the Company completed $1 billion in acquisitions in Hawaii, San Francisco and Florida to strengthen our portfolio of iconic and irreplaceable assets, and in February 2019 we acquired the iconic 1 Hotel South Beach in Miami for $610 million. We also divested our interest in our European joint venture, as we continued to sharpen our focus on the U.S. In total, we sold approximately $2.2 billion in non-core assets in 2018 and early 2019. Our goal is to drive stockholder value by combining our operational expertise and exceptional portfolio with disciplined and opportunistic investments. Your Board of Directors is committed to achieving this goal through its continued active oversight and remains focused on generating long-term value for stockholders.

Underpinning our Performance is our Commitment to Corporate Responsibility Initiatives

Our commitment to environmental, social and governance initiatives is central to our business and corporate philosophy and serves as the foundation of Host Hotels’ sustainable long-term growth and success. Set forth on the inside front cover is more information on the themes of our corporate responsibility program, our targets and some of our initiatives. The leadership demonstrated by our corporate responsibility program has been confirmed by the recognition we have received. We invite you to learn more about our program through the corporate responsibility section of our website or by reading our 2018 Corporate Responsibility Highlights report, which communicates our approach and activities on environmental, social and governance matters in greater detail.

Your Vote is Important

The attendance of stockholders at our annual meeting helps maintain communication and can improve stockholders’ understanding of our business. We hope you will be able to join us. Whether or not you plan to attend, you can ensure that your shares are represented at the meeting by promptly voting and submitting your proxy by telephone, by Internet, or by completing, signing, dating and returning your proxy card. Instructions for these convenient ways to vote are set forth on the enclosed proxy card.

Thank you for your continued interest in Host Hotels & Resorts, and we look forward to seeing you at the meeting.

Sincerely,

 

 

LOGO

Richard E. Marriott

Chairman of the Board


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LOGO

   6903 Rockledge Drive, Suite 1500

Bethesda, Maryland 20817-1109

NOTICE OF 2019 ANNUAL MEETING OF STOCKHOLDERS

We cordially invite you to attend the 2019 annual meeting of stockholders of Host Hotels & Resorts, Inc., a Maryland corporation, and any postponements or adjournments of the meeting.

 

Meeting Date:    Thursday, May 16, 2019
Meeting Time:    11:00 a.m., Doors open at 10:30 a.m.
Location:   

The Ritz-Carlton Golf Resort, Naples, Florida

2600 Tiburon Drive, Naples, Florida

At the 2019 annual meeting, stockholders as of the record date will be asked to consider and vote upon the following matters, as more fully described in the proxy statement.

Agenda

 

1.

Election of eleven directors;

 

2.

Ratification of the appointment of KPMG LLP as the Company’s independent registered public accountants for 2019;

 

3.

An advisory resolution to approve executive compensation; and

 

4.

Transaction of any other business that may be properly brought before the annual meeting.

Record Date

You may vote if you were a holder of record of our common stock at the close of business on March 22, 2019, the record date.

By Order of the Board of Directors

Elizabeth A. Abdoo

Secretary

April 5, 2019

 

 

REVIEW YOUR PROXY STATEMENT AND VOTE IN ONE OF FOUR WAYS:

 

     LOGO   

VIA THE INTERNET

Go to the website address shown on your proxy card and vote via the Internet

   LOGO   

BY MAIL

Mark, sign, date and return the enclosed proxy card in the postage-paid envelope

     LOGO   

BY TELEPHONE

Use the toll-free number shown on your proxy card (this call is toll-free if made in the United States or Canada)

 

   LOGO   

IN PERSON

Attend the Annual Meeting in Naples, Florida

 


Table of Contents
       

 

  TABLE OF CONTENTS  

 

 

LOGO

PROXY STATEMENT

TABLE OF CONTENTS

 

     Page  

PROXY SUMMARY

 

    

 

1

 

 

 

PROPOSAL ONE—ELECTION OF DIRECTORS

     6  

Board Skills, Qualifications, Diversity and Tenure

     6  

Director Nominees

     7  

Voting Standard

     7  

Summary of 2019 Director Qualifications and Experience

     14  
   

CORPORATE GOVERNANCE AND BOARD MATTERS

     15  

Corporate Governance and Code of Business Conduct and Ethics

     15  

Board Leadership

     15  

Independence of Directors

     16  

Communications with Directors

     17  

Stockholder Outreach and Engagement

     17  

The Board’s Role in Risk Oversight

     18  

Succession Planning

     19  

Political Contributions Policy and Trade Association Memberships

     20  

Meetings and Committees of the Board

     21  

Role of the Compensation Consultant

     23  

Compensation-Related Risks

     24  

Compensation Policy Committee Interlocks and Insider Participation

     24  

Process for Selecting Directors

     25  

Stockholder Nominations and Recommendation of Director Candidates

 

    

 

25

 

 

 

PROPOSAL TWO—RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS

     26  

Principal Accountant Fees and Services

     27  

Pre-Approval Policy for Services of Independent Registered Public Accountants

     27  

Policy for Hiring Members of the Audit Engagement Team

     27  

Other Company Accountants and Auditors

     28  

Report of the Audit Committee

 

    

 

29

 

 

 

PROPOSAL THREE—ADVISORY RESOLUTION TO APPROVE EXECUTIVE COMPENSATION

 

    

 

30

 

 

 

COMPENSATION DISCUSSION AND ANALYSIS

     32  

2018 Company Performance Highlights

     32  

Results of 2018 Advisory Vote

     33  

Our Compensation Program

     33  

2018 Compensation Results

     39  

Risk Considerations

     48  

Additional Policies and Benefits

 

    

 

48

 

 

 

 

i


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  TABLE OF CONTENTS  

       

 

     Page  

EXECUTIVE OFFICER COMPENSATION

     52  

Summary Compensation Table for Fiscal Year 2018

     52  

Grants of Plan-Based Awards in Fiscal Year 2018

     54  

Outstanding Equity Awards at 2018 Fiscal Year End

     55  

Option Exercises and Stock Vested in Fiscal Year 2018

     56  

Nonqualified Deferred Compensation

     56  

Severance and Change in Control Payments

     57  

Securities Authorized for Issuance Under Equity Compensation Plans

     60  

CEO Pay Ratio

 

    

 

60

 

 

 

REPORT OF THE COMPENSATION POLICY COMMITTEE ON EXECUTIVE COMPENSATION

 

    

 

62

 

 

 

DIRECTOR COMPENSATION

     63  

2018 Director Fees

     63  

2018 Director Compensation Program

 

    

 

63

 

 

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

    

 

66

 

 

 

CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

     68  

Policy on Transactions and Arrangements with Related Persons

     68  

Related Person Transactions

 

    

 

68

 

 

 

STOCKHOLDER PROPOSALS FOR OUR NEXT ANNUAL MEETING

     72  

Proxy Statement Proposals

     72  

Director Nominations For Inclusion in Proxy Materials

     72  

Other Proposals and Nominations

 

    

 

72

 

 

 

ATTENDANCE AND VOTING MATTERS

 

    

 

73

 

 

 

OTHER MATTERS

 

    

 

77

 

 

 

Other Business at the Annual Meeting

     77  

Section 16(a) Beneficial Ownership Reporting Compliance

     77  

Hotel Information

     77  

Online Annual Report to Stockholders

 

    

 

77

 

 

 

Proxy Statement. The Board of Directors of Host Hotels & Resorts, Inc. is soliciting proxies to be voted at our 2019 Annual Meeting of Stockholders on May 16, 2019 and at any postponements or adjournments of the meeting. We expect that this Proxy Statement will be mailed and made available to stockholders beginning on or about April 5, 2019.

Important Notice Regarding the Availability of Proxy Materials for the Stockholders Meeting to be held on May 16, 2019. The Company’s Proxy Statement for the 2019 Annual Meeting and our Annual Report to Stockholders for 2018 are both available free of charge at https://www.proxydocs.com/HST. References in this Proxy Statement and accompanying materials to Internet web sites are for the convenience of readers. Information available at or through these web sites is not incorporated by reference in this Proxy Statement.

 

ii


Table of Contents
       

 

  PROXY SUMMARY  

 

PROXY SUMMARY

This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement carefully before voting.

ANNUAL MEETING OF STOCKHOLDERS

 

 

LOGO

VOTING MATTERS

Matter

 

 

      Board Recommendation      

 

  

Page Reference

 

(for more detail)

Election of Directors

 

 

   For each director nominee

 

      

 

6

 

 

Ratification of Appointment of KPMG LLP

 

 

   For

 

      

 

26

 

 

Advisory Resolution to Approve Executive Compensation

 

 

   For

 

      

 

30

 

 

BOARD NOMINEES

The following table provides summary information about each director nominee. Directors are elected annually by a majority of votes cast.

             

Committee
Memberships*

 

   

Name, Age

 

 

Director
Since

 

   

Principal Occupation

 

 

 

A

 

 

 

C

 

 

 

NCG

 

 

Other U.S. Public

Company Boards

 

Mary L. Baglivo, 61

 

   

 

2013

 

 

 

 

Chief Executive Officer

The Baglivo Group

 

   

LOGO

 

  LOGO  

PVH Corp.

Ruth’s Hospitality Group

 

Sheila C. Bair, 65

 

   

 

2012

 

 

 

 

Former President of Washington College

 

  LOGO  (F)    

LOGO

 

 

Thomson Reuters

 

Ann McLaughlin Korologos, 77

 

   

 

1993

 

 

 

 

Former Chair of RAND Corporation Board of Trustees

 

   

LOGO

 

   

Capri Holdings

 

Richard E. Marriott, 80

 

   

 

1993

 

 

 

 

Chairman of the Board

 

       

Sandeep L. Mathrani, 56

 

   

 

2016

 

 

 

 

Chief Executive Officer of Brookfield Properties’ retail group

 

 

LOGO      

 

 

LOGO

 

   

John B. Morse, Jr., 72

 

   

 

2003

 

 

 

 

Retired Vice President and CFO of The Washington Post Company

 

 

LOGO  (F)

 

     

AES Corporation

 

Mary Hogan Preusse, 50

 

   

 

2017

 

 

 

 

Founder and Principal of Sturgis Partners LLC

 

  LOGO  (F)    

LOGO

 

 

Digital Realty Trust

Kimco Realty

VEREIT

 

Walter C. Rakowich, 61

   

 

2012

 

 

 

 

Retired Chief Executive Officer of Prologis

 

 

LOGO  (F)

 

   

LOGO

 

 

Iron Mountain Inc.

Ventas, Inc.

 

James F. Risoleo, 63

 

   

 

2017

 

 

 

 

President and Chief Executive Officer

 

        Cole Office & Industrial REIT

Gordon H. Smith, 66

Lead Independent Director

 

   

 

2009

 

 

 

 

President & CEO of the National Association of Broadcasters

 

      LOGO  

A. William Stein, 65

 

   

 

2017

 

 

 

 

Chief Executive Officer of Digital Realty Trust

 

 

LOGO  (F)

 

 

LOGO

 

     

Digital Realty Trust

 

 

* A    Audit Committee    C    Compensation Policy Committee
   LOGO    Chair of the Committee    NCG    Nominating and Corporate Governance Committee
  (F)    Audit Committee Financial Expert      

 

Date and Time May 16, 2019 11:00 a.m. Eastern time Record Date March 22, 2019 Place Ritz-Carlton Golf Resort, Naples 2600 Tiburon Drive, Naples, Florida # Shares Eligible [738,975,540] shares of common stock

 

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  PROXY SUMMARY  

       

 

Snapshot of Director Diversity and Experience

All director nominees are independent other than our Chief Executive Officer and Chairman. The Nominating and Corporate Governance Committee and the Board believe it is important for the Board to be “refreshed” by adding directors from time to time, and two new independent directors joined the Board in 2017. The Committee and the Board also believe that long-serving directors bring critical skills and historical perspective to the Board in a cyclical business such as the lodging industry. The Committee and Board seek a balanced mix of both new and experienced directors and believe this balance is achieved with the current nominees.

 

LOGO

CORPORATE GOVERNANCE HIGHLIGHTS

The Company is committed to the values of effective corporate governance and high ethical standards. Our Board believes that these values are conducive to strong performance and creating long-term stockholder value. Our governance framework gives our highly experienced independent directors the structure necessary to provide oversight, advice and counsel to the Company. This framework is described in more detail in our Corporate Governance Guidelines and code of conduct, which can be found in the governance section of our website.

 

Board Independence   

LOGO    9 out of 11 of our directors are independent

 

LOGO    Our Chairman and CEO are the only management directors

 

Board Composition   

LOGO    36% of our Board members are women

 

LOGO    Annual self-assessment to review Board’s effectiveness

 

LOGO    The Nominating and Corporate Governance Committee leads the full Board in considering Board competencies and the identification and evaluation of director candidates.

 

Board Committees   

LOGO    Three Board committees – Audit, Nominating and Corporate Governance, and Compensation Policy

 

LOGO    Fully independent Board committees

 

LOGO    Five Audit Committee members are “financial experts”

 

Leadership Structure   

LOGO    Chairman of the Board separate from CEO

 

LOGO    Independent Lead Director (selected by the directors). Among other duties, he/she convenes and chairs executive sessions of the independent directors to discuss certain matters without management present.

 

Risk Oversight   

LOGO    Our full Board is responsible for risk oversight, and has designated committees to have particular oversight of certain key risks. Our Board oversees management as management fulfills its responsibilities for the assessment and mitigation of risks and for taking appropriate risks.

 

 

Our Director nominees exhibit an effective mix of skills, experience, diversity and fresh perspective. Four of the last six Board members added are either women or otherwise bring diversity to the Board. Median Tenure 6.4 years Gender Diversity 36% Women

 

2


Table of Contents
       

 

  PROXY SUMMARY  

 

Open Communication   

LOGO    We encourage open communication and strong working relationships among the Lead Director, Chairman, CEO and other directors.

 

LOGO    Our directors have access to management and employees.

 

Director Stock

Ownership

  

LOGO    Our independent directors are required to own common stock in an amount equal to five times the annual cash base retainer. Our management directors (CEO and Chairman) are required to own common stock in an amount equal to six times their annual salary.

 

LOGO    Comprehensive insider trading policy

 

LOGO    Prohibitions on hedging and pledging transactions

 

Accountability to

Stockholders

  

LOGO    Majority voting in uncontested director elections, coupled with a director resignation policy

 

LOGO    Fully non-classified board with annual election of directors

 

LOGO    Adopted proxy access rights

 

LOGO    No stockholder rights plan

 

LOGO    Annual advisory vote on executive compensation

 

LOGO    Opted out of the Maryland Control Share Acquisition Act, which provides certain takeover defenses

 

LOGO    Opted out of the provisions of the Maryland Unsolicited Takeovers Act, which permits a board of directors to classify itself without a stockholder vote

 

LOGO    Stockholder power to amend the Bylaws

 

LOGO    Stockholder power to call special meeting upon 25% of the votes entitled to be cast.

 

Management

Succession Planning

  

LOGO    The Board actively monitors our succession planning and people development and receives regular updates on employee engagement, diversity and retention matters.

 

Sustainability and

Corporate

Responsibility

  

LOGO    The Nominating and Corporate Governance Committee monitors our programs and initiatives on sustainability, environmental matters and social responsibility.

 

COMPENSATION PROGRAM

Our executive compensation programs are designed to:

 

   

Link pay to performance;

 

   

Attract and retain talented executive officers and key employees;

 

   

Emphasize performance-based compensation to motivate key executives;

 

   

Reward individual performance; and

 

   

Encourage long-term commitment to the Company and align the interests of executives with stockholders.

 

3


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  PROXY SUMMARY  

       

 

We meet these objectives through an appropriate mix of compensation, including for 2018:

 

Component    Form      Description & Objective
   

Long-Term

Incentive

(Performance-Based)

   Equity     

•  Represents two-thirds of total long-term incentive award

 

•  Restricted stock units that are solely performance based and vest either annually based on corporate objectives or following a three-year period based on relative total stockholder return

 

•  Aligns executive officers’ compensation with returns delivered to Company stockholders and motivates performance against key corporate objectives

Long-Term

Incentive

(Time-Based)

    

•  Represents one-third of total long-term incentive award

 

•  Restricted stock units that vest in annual installments over three years

 

•  Aligns the interests of the executives with long-term stockholder value

   

Annual Incentive

   Cash     

•  At-risk compensation with payments based on the Company’s achievement of key financial measures (adjusted funds from operations per share and return on invested capital) and objective individual performance goals

 

•  Formulaic with limited discretion and a cap on the maximum amount that can be earned

Base Salary

    

•  Provides market-competitive pay reflective of an executive’s role, experience and individual performance

 

•  Only component of compensation that is fixed

In 2017, we made several key enhancements to our compensation programs to continue to enhance the link between compensation and the Company’s business and strategy as well as the long-term interests of stockholders.

 

LOGO

 

 

 Approximately 94% of the votes cast on our 2018 say-on-pay proposal

were in favor of our executive compensation program and policies

 

See “Compensation Discussion and Analysis—Our Compensation Program” for a further discussion of the Company’s compensation programs.

 

4

removed individual performance measures from long-term incentive program modified mix of equity to 2/3rd performance based; and 1/3rd time based for retention purposes reweighted performance based long-term incentives to balance strategic measures and relative total stockholder return utilized forward looking 3-year relative total stockholder return measure (replacing previous historical approach) discontinued granting stock options


Table of Contents
       

 

  PROXY SUMMARY  

 

2018 PERFORMANCE HIGHLIGHTS

2018 was a year of continued growth for the Company. The Company’s comparable hotel revenue per available room (or RevPAR) increased 2.3%, representing the ninth consecutive year of positive RevPAR growth. RevPAR is a commonly used measure within the hotel industry to evaluate hotel operations. For more information on this measure and our 2018 results, see the Company’s Annual Report on Form 10-K.

We undertook a number of initiatives in 2018 to better position the Company for long-term, sustainable growth and continued to execute on our strategy to decrease international exposure and improve the overall quality of the portfolio by recycling out of low RevPAR hotels and into high RevPAR hotels.

 

 

Refocused the Company on the U.S. with targeted dispositions of:

 

$2,278

Million

 

(including one January 2019 sale) reducing our exposure to international and less profitable domestic markets at attractive prices.

 

   

Achieved the strongest balance sheet (in terms of leverage and interest coverage) in the Company’s history.

 

Maintained our investment grade bond rating.

   

2018 investment

activity:

 

 

$1,000

Million

 

Acquired 3 iconic Hyatt hotels – the Andaz Maui, Grand Hyatt San Francisco, and Hyatt Regency Coconut Point.

 

 

   

Returned value to

stockholders in

2018:

 

 

$635

Million

 

Represents $0.85 in dividends authorized to stockholders in 2018.

 

 

   

Current annualized dividend yield:

 

 

4.4%

 

Based on $0.85 per share in dividends authorized in 2018 and the Company’s closing stock price of $19.15 as of March 21, 2019.

 

5


Table of Contents

 

  PROPOSAL 1 – ELECTION OF 11 DIRECTORS  

       

 

LOGO

Our Board of Directors has nominated 11 directors for election at this Annual Meeting to hold office until the next Annual Meeting and the election of their successors. All the nominees are currently directors. Each nominee has consented to serve if elected, but if any director nominee is unavailable to serve (an event which our Board does not now anticipate), the proxies named on your proxy card will vote for a substitute nominee recommended by the Board. Alternatively, should such circumstances arise, the Board, on the recommendation of the Nominating and Corporate Governance Committee, may decide to reduce the size of the Board and the number of nominees.

Board Skills, Qualifications, Diversity and Tenure

The Nominating and Corporate Governance Committee reviews the composition of the Board in light of the Company’s changing requirements and its annual assessment of the Board’s performance. The Committee and Board seek a complementary mix of individuals with diverse backgrounds and skills reflecting the broad set of challenges that the Board confronts.

There are general qualifications that all Directors must have, which are described in the Committee’s charter and the Company’s Corporate Governance Guidelines, including integrity and high ethical standards, mature and independent judgment, diverse business experience, familiarity with the issues affecting the Company’s business, and a commitment to full participation on the Board and its committees. The Committee also considers other criteria, including: experience in running a major enterprise, sound business acumen, experience as a board member of another publicly held company, academic expertise in an area of the Company’s operations, and a reputation, both personal and professional, consistent with the image and reputation of the Company.

The Board and the Committee are also committed to a diversified membership, in terms of both the individuals involved and their experience. As stated in the Committee’s charter, the Committee may take into account the overall diversity of the Board, including professional background, experience, thought, perspective, age, tenure, gender, and ethnicity.

 

The Board and the Nominating and Corporate Governance Committee believe it is important for the Board to be “refreshed” by adding new directors from time to time. However, the Committee and the Board also believe that long-serving directors bring critical skills and knowledge to the Board. Among other things, such senior directors bring a historical perspective to the Board, which is highly relevant in a cyclical business such as the lodging industry. In addition, the Committee and the Board believe that long-serving directors have acquired extensive knowledge of the business that tends to make them less dependent upon management for information and perspectives. Accordingly, while the Committee considers tenure as a factor in determining the nominee slate, it is not a critical or determinative factor.

  

 

2016 & 2017 BOARD REFRESHMENT

 

LOGO

 

 

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Proposal 1 Election of 11 Directors The Board recommends a vote FOR each of the director nominees Diverse slate of directors with broad leadership experience Four of the last six Board members added are either women or bring diversity to the Board All candidates highly successful executives in large organizations or government with relevant skills and expertise Commitment to refreshment—4 directors added since 2016 Median director tenure 6.4 years


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  PROPOSAL 1 – ELECTION OF 11 DIRECTORS  

 

Director Nominees

 

The Committee believes that each of the nominees possesses the key attributes that are important to an effective Board. Each director nominee holds or has held senior executive positions in large organizations or the government and has experience relevant to the Company’s business. Our directors also serve on the boards of other public and private companies and have an understanding of corporate governance practices and trends. The Committee has also taken into account diversity considerations in determining the slate of directors and believes that, as a group, the nominees bring a broad range of perspectives to Board deliberations.

 

The director nominees have served on our Board for an average of approximately 9.5 years. The median tenure of our director nominees is 6.4 years. Four of the director nominees, or 36% of the Board, have served for less than three years.

 

The Committee also considered the specific experiences described in the biographical details that follow in determining to nominate the individuals set forth below for election as directors.

  

INDEPENDENCE

 

LOGO

 

TENURE

 

LOGO

Below each nominee’s biography, we have included an assessment of the skills and experience of such nominee. We have also included a chart that covers the assessment for the full Board.

DIVERSITY OF BACKGROUND

 

LOGO

Voting Standard

Each director nominee stands for election every year. Except in a contested election, each director will be elected only if he or she receives more votes “for” than votes “against”. As set forth in the Company’s Corporate Governance Guidelines, any director nominee who is not elected by the vote required and who is an incumbent director must promptly tender his or her resignation to the Board for consideration. The Nominating and Corporate Governance Committee will then make a recommendation to the Board as to whether to accept or reject the tendered resignation, or whether other action is recommended. The Board will act on the tendered resignation within 90 days and will promptly disclose its decision and rationale as to whether to accept the resignation or the reasons for rejecting the resignation. If a director’s resignation is accepted by the Board, or if a nominee for director is not elected and is not an incumbent director, the Board may fill the resulting vacancy or decrease the size of the Board.

 

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  PROPOSAL 1 – ELECTION OF 11 DIRECTORS  

       

 

NOMINEES FOR DIRECTOR

 

 

 MARY L. BAGLIVO

 

 

Ms. Baglivo is the Chief Executive Officer of the Baglivo Group, a strategy consulting company. Previously, she was the Vice Chancellor of Communications and Marketing for Rutgers University from 2017 to 2018 and was the Vice President for Global Marketing and Chief Marketing Officer for Northwestern University from 2013 to 2017. Before that, she was a partner with Brand Value Advisors, a strategic brand and digital marketing advisory firm. She also previously served as Chair and Chief Executive Officer, the Americas at Saatchi & Saatchi Worldwide from 2008 to 2013, and Chief Executive Officer, New York from 2004 to 2008. Prior to joining Saatchi & Saatchi, she was President of Arnold Worldwide from 2002 to 2004 and Chief Executive Officer of Panoramic Communications from 2001 to 2002. She currently serves on the board of directors of PVH Corp., where she is a member of its corporate responsibility committee, Ruth’s Hospitality Group, where she is a member of its compensation and nominating and corporate governance committees, and Verve Wireless, Inc., a private company.

 

Skills and Expertise:

 

•  in depth global marketing, advertising and consumer branding experience

 

•  strategic planning expertise

 

•  extensive business and leadership experience of large complex companies, including as Chair and CEO of the Americas at Saatchi & Saatchi Worldwide

 

•  understanding of growth strategies in worldwide branded businesses

 

 

 

LOGO

 

 Age: 61

 Director since: 2013

 Independent

 

 

 Committees:

 Compensation (Chair)
 Nominating and
    Corporate Governance

 

 

 Public Boards:

 PVH Corp.

 Ruth’s Hospitality

    Group

 

    

 

 SHEILA C. BAIR

 

Ms. Bair is the former President of Washington College. She is also the former Chair of the Federal Deposit Insurance Corporation, where she served in that capacity from 2006 to 2011. From 2002 to 2006 she was the Dean’s Professor of Financial Regulatory Policy for the Isenberg School of Management at the University of Massachusetts-Amherst. She also served as Assistant Secretary for Financial Institutions at the U.S. Department of the Treasury (2001 to 2002), Senior Vice President for Government Relations of the New York Stock Exchange (1995 to 2000), Commissioner of the Commodity Futures Trading Commission (1991 to 1995), and as counsel to Kansas Republican Senate Majority Leader Bob Dole (1981 to 1988). She continues her work on financial policy issues as chair emeritus of the Systemic Risk Council, a public interest group which monitors progress on the implementation of financial reforms. She is also an accomplished author and has written several books on financial issues, including educational writings on money and finance for children. She is on the board of the Thomson Reuters Corporation, where she is a member of its audit committee and Chair of its risk committee. In addition, she serves on the boards of the Volcker Alliance, Paxos Trust Company and is an independent non-executive director of the Industrial and Commercial Bank of China Ltd.

 

Skills and Expertise:

 

•  extensive expertise in banking and finance as a result of her services as Chair of the FDIC

 

•  recognized leader and author on financial policy issues

 

•  broad government and regulatory experience both from her service at the FDIC as well as prior service in senior positions at the NYSE, CFTC and the U.S. Department of the Treasury

 

•  audit committee financial expert

 

•  familiarity with aspects of managing and providing leadership to complex business organizations

 

•  familiarity and experience with global financial systems as an independent director for China’s largest bank, an advisor to the China Bank and Insurance Regulatory Commission, and as a former board member and current advisor to Grupo Santander, one of Europe’s largest banks

 

LOGO

 Age: 65

 Director since: 2012

 Independent

 

 

 Committees:

 Audit

 Nominating and

    Corporate Governance

 

 

 Public Boards:

 Thomson Reuters

 

    

 

 

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  PROPOSAL 1 – ELECTION OF 11 DIRECTORS  

 

 

 

 MARY HOGAN PREUSSE

 

  

Ms. Hogan Preusse is the founder and principal of Sturgis Partners, an advisory firm. She was formerly at APG Asset Management US, the New York subsidiary of the Netherlands-based firm from 2000 to 2017. At APG she served as the Managing Director and co-head of Americas Real Estate where she was responsible for managing all of APG’s public real estate investments in North and South America. She also served on the Executive Board of APG Asset Management US from 2008 to 2017. Prior to joining APG in 2000, she spent eight years as a sell side analyst covering the REIT sector, and began her career at Merrill Lynch as an investment banking analyst. Her industry memberships include the International Council of Shopping Centers and NAREIT where she serves as a member of the Advisory Board of Governors. She is also a member of the board of directors of Digital Realty Trust, where she is a member of its audit and nominating and corporate governance committees; Kimco Realty, where she is a member of its audit, executive compensation and nominating and corporate governance committees; and VEREIT, where she is a member of its nominating and corporate governance and compensation committees. Ms. Hogan Preusse is a member of the Bowdoin College Board of Trustees and a member of the Real Estate and Infrastructure Advisory Board of the Carey Business School at Johns Hopkins University.

 

Skills and Expertise:

 

•  over 25 years of real estate experience, including managing a $13 billion portfolio in real estate investment trusts and other public real estate securities

 

•  brings valuable investment focus to the Board

 

•  recognized expertise and leadership in the real estate sector and in 2015 received NAREIT’s E. Lawrence Miller Industry Achievement Award for her contributions to the industry

 

•  board oversight expertise, serving on the boards of three other public real estate companies

 

•  audit committee financial expert

 

LOGO

 

 Age: 50

 Director since: 2017

 Independent

 

 Committees:

 Audit

  Nominating and

    Corporate Governance

 

 Public Boards:

 Digital Realty Trust

 Kimco Realty

 VEREIT

 

 

 

 SANDEEP L. MATHRANI

 

 

  

Mr. Mathrani is the Chief Executive Officer of Brookfield Properties’ retail group and Vice Chairman of Brookfield Properties. Prior to its merger with Brookfield Properties, Mr. Mathrani served as Chief Executive Officer and director of GGP Inc. from 2010 to 2018. Prior to GGP, he served as the President of Retail at Vornado Realty Trust from 2002 to 2010 and was responsible for all retail real estate activities in the United States and India. Prior to Vornado, he served as an Executive Vice President at Forest City Ratner Companies, LLC from 1994 to 2002 and was responsible for its retail development and related leasing in the New York City metropolitan area. Mr. Mathrani is an Executive Board member and Chair of the National Association of Real Estate Investment Trusts, a member of the Real Estate Roundtable, and a member of the Executive Board and Board of Trustees of the International Council of Shopping Centers.

 

Skills and Expertise:

 

•  significant experience as CEO and a director of GGP, a large real estate investment trust focused on retail real estate

 

•  real estate industry veteran with almost 30 years of experience

 

•  extensive familiarity with all aspects of managing and providing leadership to a complex business organization

 

LOGO

 

 Age: 56

 Director since: 2016

 Independent

 

 Committees:

 Audit

 Compensation

 

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  PROPOSAL 1 – ELECTION OF 11 DIRECTORS  

       

 

 

 

  ANN MCLAUGHLIN
  KOROLOGOS

 

 

  

Ms. Korologos served as the Chair of the Board of Trustees of the RAND Corporation, an international public policy research organization from April 2004 to April 2009. She is currently Chair of the Board of the Middle East Investment Initiative and is the former Chair of the Board of the Anderson Ranch Arts Center. She was a member of the Board of Cristo Rey Network from 2012 to 2017. From October 1996 to December 2005 she served as Senior Advisor to Benedetto, Gartland & Company, Inc., a private investment banking firm in New York. She formerly served as President of the Federal City Council from 1990 until 1995 and as Chairman of the Aspen Institute from 1996 until 2000. Ms. Korologos has served in several United States Administrations in such positions as Secretary of Labor from 1987 to 1989 and Under Secretary of the Department of the Interior from 1984 to 1987. She also serves as a director of Capri Holdings Limited (formerly Michael Kors), where she is a member of the compensation and talent committee and Chair of the governance and nominating committee. She previously served on the boards of AMR Corporation (and its subsidiary, American Airlines), Kellogg Company, Harman International Industries, Inc. and Vulcan Materials Company.

 

Skills and Expertise:

 

•  significant experience as a director of large, diversified, global public companies

 

•  recognized expertise and leadership in the oversight of public companies (including specific experience in lead director role, compensation, audit, diversity, governance, and social responsibility oversight)

 

•  through her high-level U.S. government service, she also provides knowledge of labor issues, international affairs and expertise in providing leadership to complex business organizations

 

•  public policy, social responsibility and succession issues expertise

 

•  vast knowledge of and long-term experience with the Company, serving as a director since 1993

 

  LOGO

 

 Age: 77

 Director since: 1993

 Independent

 

 

 Committees:

 Compensation

 

 

 Public Boards:

 Michael Kors

 

 

 

  RICHARD E. MARRIOTT

 

 

  

Mr. Marriott is our Chairman of the Board. He is Chairman of the Board of First Media Corporation, the Chairman and a director of the J. Willard Marriott and Alice S. Marriott Foundation and a director of the Richard E. and Nancy P. Marriott Foundation. Mr. Marriott also serves on the Federal City Council and the National Advisory Council of Brigham Young University. He previously served on the Board of Marriott International, Inc. and is a past President of the National Restaurant Association and a past director of the Polynesian Cultural Center. In addition, Mr. Marriott is the President and a Trustee of the Marriott Foundation for People with Disabilities.

 

Skills and Expertise:

 

•  comprehensive knowledge of the Company and unique perspective and insight into the hospitality industry based on a 53-year history with the Company and Marriott International

 

•  during his tenure, Mr. Marriott has served in various executive capacities and has served as our Chairman since 1993

 

•  long history of successful management of the Company

 

  LOGO

 

 Chairman of the Board

 

 Age: 80

 Director since: 1993

 

 

 

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  PROPOSAL 1 – ELECTION OF 11 DIRECTORS  

 

 

 

 

 

 JOHN B. MORSE, JR.

  

Mr. Morse served as Senior Vice President, Finance and Chief Financial Officer of The Washington Post Company (now Graham Holdings Company) from November 1989 until his retirement in December 2008. He also served as President of Washington Post Telecommunications, Inc. and Washington Post Productions Inc., both subsidiaries of The Washington Post Company. Prior to joining The Washington Post Company, Mr. Morse was a partner at PricewaterhouseCoopers. Mr. Morse is the Chairman and lead independent director of AES Corporation, where he also previously served as Chairman of the financial audit committee. He previously served on the board of HSN, Inc., where he was chairman of both the compensation and audit committees. He is a former Trustee and President Emeritus of the College Foundation of the University of Virginia and a former director and Treasurer of Greater Naples Leadership.

 

Skills and Expertise:

 

•  substantial financial expertise that includes extensive knowledge of the complex financial and operational issues facing large companies

 

•  in-depth understanding of accounting principles and financial reporting rules and regulations acquired in the course of serving as the CFO of The Washington Post Company and his years as a partner at PricewaterhouseCoopers

 

•  board oversight expertise as an audit committee financial expert and a member of the audit committees of other public company boards

 

 

  LOGO

 

 Age: 72

 Director since: 2003

 Independent

 

 

 Committees:

 Audit

 

 

 Public Boards:

 AES Corporation

 

 

 

 

 WALTER C. RAKOWICH

 

 

Mr. Rakowich is the former Chief Executive Officer of Prologis, where he worked for 18 years before retiring in December 2012. Mr. Rakowich served as CEO of Prologis from November 2008 through June 2011, when Prologis merged with AMB Property Corporation. He then assumed the role of Co-CEO and served as a member of the Prologis board of directors up until December 2012 to manage the integration of the two companies. Prior to his service as CEO, Mr. Rakowich held a number of senior management positions while at Prologis, including as President and Chief Operating Officer from 2005 to 2008, and Managing Director and Chief Financial Officer from 1998 to 2005. Prior to joining Prologis, Mr. Rakowich was a partner with real estate provider Trammell Crow Company, where he worked for nine years; before that he was a senior audit and tax consultant for Pricewaterhouse. Mr. Rakowich is also a director of Iron Mountain Incorporated where he is a member of its audit and nominating and governance committees, and is a director of Ventas, Inc. where he is a member of its audit and compliance committee. He is also on the board of trustees of The Pennsylvania State University and is the Chairman of its audit and risk committee and is on the board of the Global Food Exchange, a private company, and Colorado UpLift.

 

Skills and Expertise:

•  significant real estate and financial experience, including extensive knowledge of the issues facing large international real estate investment trusts

 

•  from 1998 to 2012, Mr. Rakowich served, over time, as chief financial officer, chief operating officer and chief executive officer of Prologis, a real estate investment trust focused on industrial real estate with extensive international operations

 

•  brings valuable experience to the Board on issues facing the Company’s international portfolio, risk assessment and leadership development

 

•  extensive experience in accounting through his years at Pricewaterhouse

 

•  audit committee financial expert

 

 

  LOGO

 

 Age: 61

 Director since: 2012

 Independent

 

 

 Committees:

 Audit

 Nominating and

    Corporate Governance

    (Chair)

 

 

 Public Boards:

 Iron Mountain
 Incorporated

 Ventas, Inc.

 

 

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  PROPOSAL 1 – ELECTION OF 11 DIRECTORS  

       

 

 

 

 

  JAMES F. RISOLEO

 

  

Mr. Risoleo became our President and Chief Executive Officer in January 2017. He joined our Company in 1996 as Senior Vice President for Acquisitions and Development, and was appointed Executive Vice President and Chief Investment Officer in 2000. In 2012, he became Executive Vice President and Managing Director of the Company’s European business activities and, in 2015, Mr. Risoleo assumed leadership for all of the Company’s West Coast investment activities in addition to Europe. Prior to joining our Company, Mr. Risoleo was Vice President, Development at Interstate Hotels Corporation and a Senior Vice President, Commercial Real Estate at Westinghouse Electric Corporation. Mr. Risoleo serves as a director of Cole Office & Industrial REIT, a public non-listed REIT, and is a member of its audit committee and Chairman of its valuation and compensation committee. He also previously served as the non-executive Chairman of Cole Office & Industrial REIT from 2015 to 2018. He serves as an Executive Board member of NAREIT, an Executive Committee member of the American Hotel & Lodging Association, a member of the U.S. Travel Association CEO Roundtable, and as a member of the Real Estate Roundtable. Mr. Risoleo is also a member of the Bar of the State of Pennsylvania.

 

Skills and Expertise:

 

•  extensive business, leadership and strategic planning experience

 

•  significant expertise in finance, equity and capital development, real estate and the hospitality industry

 

•  over 25 years of domestic and international hotel experience in investment, dispositions, capital budgets and asset management

 

•  extensive knowledge of the Company as a member of senior management for over 20 years, serving in various roles within the Company and culminating in his current service as CEO

 

 

 

  LOGO

 President and

 Chief Executive Officer

 

 

 Age: 63

 Director since: 2017

 

 Public Boards:

 Cole Office &
     Industrial REIT

 

 

 

 

  GORDON H. SMITH

 

Senator Smith is President and Chief Executive Officer of the National Association of Broadcasters. From March to October 2009 he was a senior advisor and resident at the Washington, D.C. office of Covington & Burling LLP as a member of the Government Affairs and International Trade practice groups. In 2008, Senator Smith completed his second term as a United States Senator from the State of Oregon, where he served on the Commerce, Science and Transportation Committee; the Energy and Natural Resources Committee; the Finance Committee; and the Indian Affairs Committee. In addition, he was a ranking member of the Senate Finance Subcommittee on International Trade and Global Competitiveness and for six years chaired the Senate Foreign Relations Subcommittee on European Affairs. Prior to his election to the United States Senate, he directed the operations of Smith Frozen Foods, his family’s frozen food processing business and is currently Chairman of the Board of Smith Frozen Foods, which is privately held. In 1992, he was elected to the Oregon State Senate, of which he became President in 1995. He also previously practiced law in the states of New Mexico and Arizona.

 

Skills and Expertise:

 

•  high-level U.S. government experience and leadership as a United States Senator

 

•  extensive knowledge of public policy, international affairs and trade and law

 

•  significant business experience and knowledge of finance, accounting and marketing obtained through his management of Smith Frozen Foods, a leading producer of frozen foods

 

 

  LOGO

 

 Age: 66

 Director since: 2009

 

 

 Lead Independent
 Director

 

 

 Committees:

 Nominating and
    Corporate Governance
    (Chair)

 

 

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  PROPOSAL 1 – ELECTION OF 11 DIRECTORS  

 

 

 

 A. WILLIAM STEIN

 

  

Mr. Stein is the Chief Executive Officer and a director of Digital Realty Trust. Prior to being named CEO in 2014, he served as Chief Financial Officer and Chief Investment Officer. Before joining Digital Realty in 2004, Mr. Stein was with GI Partners, a private equity fund of which Digital Realty was a portfolio company. Past positions include serving as Co-Head of VentureBank@PNC and Media and Communications Finance at The PNC Financial Services Group; President and Chief Operating Officer of TriNet Corporate Realty Trust (acquired by iStar Financial) and a variety of senior investment and financial management positions with Westinghouse Electric, Westinghouse Financial Services and Duquesne Light Company. In addition, Mr. Stein practiced law for eight years, specializing in financial transactions and litigation. Mr. Stein serves on the Executive Board and as Second Vice Chair of NAREIT and is a member of the Fisher Center for Real Estate & Urban Economics Policy Advisory Board. He is also a member of the University of Pittsburgh Chancellor’s Global Advisory Council.

 

Skills and Expertise:

 

•  over 30 years of investment, financial and operating management experience

 

•  in-depth understanding of the real estate industry and the issues facing real estate investment trusts

 

•  extensive leadership experience including as CEO of Digital Realty Trust, a real estate investment trust focused on data centers, and has overseen a doubling of the company’s total enterprise value, as well as its inclusion in the S&P 500 Index

 

•  audit committee financial expert

 

LOGO

 

 

 Age: 65

 Director since: 2017

 Independent

 

 

 Committees:

 Audit

 Compensation

 

 

 Public Boards:

 Digital Realty Trust

 

 

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  PROPOSAL 1 – ELECTION OF 11 DIRECTORS  

       

 

Summary of 2019 Director Qualifications and Experience

The Nominating and Corporate Governance Committee and the full Board believe a complementary mix of diverse skills, attributes, and experiences will best serve the Company and its stockholders. The director skills summary that appears below, and the related narrative for each director nominee, notes the specific experience, qualifications, attributes, and skills for each director that the Board considers important in determining that each nominee should serve on the Board in light of the Company’s business, structure, and strategic direction. The absence of a “•” for a particular skill does not mean the director in question is unable to contribute to the decision-making process in that area.

 

LOGO

 

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  CORPORATE GOVERNANCE AND BOARD MATTERS  

 

CORPORATE GOVERNANCE AND BOARD MATTERS

Corporate Governance and Code of Business Conduct and Ethics

Our Board of Directors oversees the management of the Company and its business for the benefit of our stockholders in order to enhance stockholder value over the long-term. The Board has adopted Corporate Governance Guidelines, which are reviewed annually and periodically amended as the Board enhances the Company’s corporate governance practices. The Board has also adopted a code of business conduct and ethics that applies to all directors, officers and employees of the Company. The purpose of the code of conduct is to promote honest and ethical conduct; to promote full, fair, accurate, timely and understandable disclosure in periodic reports required to be filed by the Company; and to promote compliance with all applicable rules and regulations that apply to the Company and its officers, employees and directors. The Corporate Governance Guidelines, code of conduct and other documents describing the Company’s corporate governance practices can be accessed in the “Governance” section of the Company’s website at http://www.hosthotels.com. Copies of these documents are also available in print to stockholders upon request.

Governance is a continuing focus of the Company. In 2016 the Board of Directors amended and restated the Company’s Bylaws to add “proxy access,” a means for the Company’s stockholders to include stockholder-nominated director candidates in the Company’s proxy materials for annual meetings of stockholders. Also in 2016 the Board proposed, and stockholders approved, Charter amendments which strengthened the rights of stockholders by providing stockholders the concurrent power to amend the Bylaws and reducing the threshold needed for stockholders to call a special meeting. Over the years, the Board has implemented numerous other corporate governance enhancements to serve the long-term interests of all stockholders. These have included:

 

 

u  adopting a majority vote standard for uncontested director elections, coupled with a director resignation policy;

 

u  declassifying the Board so that all directors are elected annually;

 

u  allowing the Company’s rights plan to expire;

 

u  opting out of the Maryland Control Share Acquisition Act;

 

u  opting out of the provisions of the Maryland Unsolicited Takeovers Act that permit the Board to classify itself without a stockholder vote;

 

 

 

u  supermajority of independent directors;

 

u  executive sessions of the Board without management present;

 

u  proactive and productive stockholder engagement policy;

 

u  independent lead director (selected by the directors); and

 

u  annual self-assessment to review the Board’s effectiveness.

 

For more information on the Company’s corporate governance practices, see the Corporate Governance Guidelines posted on our website.

Board Leadership

Our governance framework provides the Board with the flexibility to select the appropriate leadership structure for the Company. This will be driven by the needs of the Company as well as the particular makeup of the Board at any point in time. We have historically had a leadership structure that includes a Chairman of the Board, who is annually elected, a separate Chief Executive Officer, and an independent director serving as Lead Director. The CEO is responsible for setting the strategic direction of the Company and for the day-to-day leadership and management of the Company, while the Chairman of the Board provides guidance to the CEO, directs the agenda for Board meetings, presides over meetings of the full Board and participates in stakeholder outreach. This structure reflects the continued strong leadership, industry experience and energy brought to the Board by Richard E. Marriott, who has been elected and has led the Company as Chair since its split with Marriott International in 1993. His over 50-year career at the Company uniquely provides him with a perspective and wealth of knowledge that is invaluable to the Board.

 

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  CORPORATE GOVERNANCE AND BOARD MATTERS  

       

 

The Board also has the position of Lead Director who provides additional independent oversight of senior management and board matters in our current structure where the Chairman and CEO are not independent directors. The role of a Lead Director is meant to facilitate communication among the directors or between any of them and the Chairman and CEO. In addition, directors are encouraged to continue to communicate among themselves and directly with the Chairman and CEO, and under our Corporate Governance Guidelines each independent director may call an executive session. Upon recommendation of the Nominating and Corporate Governance Committee, our Lead Director is elected annually from among the independent directors. Gordon H. Smith was appointed Lead Director in May 2018.

The duties of the Lead Director include:

 

   

presiding at executive sessions of the Board, and briefing the Chairman and CEO, as needed, following such sessions;

 

   

presiding at meetings of the Board where the Chairman is not present;

 

   

convening and acting as chair of meetings of the independent directors;

 

   

providing input on Board agendas and meeting schedules;

 

   

providing feedback to and consulting with the Chairman and CEO on any concerns of the Board; and

 

   

serving as the director to whom correspondence may be directed on behalf of the non-management directors as a group, as described below under “Communications with Directors.”

Another component of our leadership structure is the active role played by our independent directors in overseeing the Company’s business, both at the Board and Committee level. Nine of eleven of our directors are independent within the meaning of the rules of the New York Stock Exchange as discussed below. Under our Corporate Governance Guidelines, non-management directors meet in executive session without the presence of the CEO, the Chairman of the Board or other executive officers. The purpose of these sessions is to promote open discussions among the independent directors concerning the business and affairs of the Company as well as matters concerning management, without any member of management present.

 

 

The Board believes that the separate roles of Chairman and CEO, coupled with an independent Lead Director, the use of regular executive sessions of the non-management directors, and the substantial majority of independent directors comprising the Board, allows the Board to maintain effective oversight of the Company.

 

At least annually, the Nominating and Corporate Governance Committee discusses the structure and composition of the Board of Directors and reviews the current leadership structure. This is discussed with the full Board as part of the Board’s annual evaluation to assess its effectiveness and takes into account our current business plans and long-term strategy as well as the particular makeup of the Board at that time.

Independence of Directors

It is the Board’s policy that a majority of the directors of the Company be independent. To be considered independent, a director must not have a material relationship with the Company that could interfere with a director’s independent judgment. To be considered independent, directors must also be “independent” within the meaning of the New York Stock Exchange’s requirements. To assist the Board in determining whether a director is independent, the Board has adopted standards for independence set forth in the Company’s Corporate Governance Guidelines.

In determining the independence of our directors, the Board considers all relevant facts and circumstances, including, but not limited to, whether the director receives any compensation or other fees from the Company, other than the fees described under “Director Compensation”, whether the director, or an organization with which the director is affiliated, has entered into any commercial, consulting, or similar contracts with the Company, and any charitable contributions the Company made to non-profit organizations with which director nominees or their

 

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  CORPORATE GOVERNANCE AND BOARD MATTERS  

 

immediate family members are associated. Consistent with these considerations, the Nominating and Corporate Governance Committee reviewed directors’ responses to a questionnaire asking about their relationships with the Company, as well as those of their immediate family members, and other potential conflicts of interest. The Committee determined that all of the director nominees other than Mr. Marriott and Mr. Risoleo are independent and recommended to the Board that Messrs. Mathrani, Morse, Smith, Stein and Rakowich and Mmes. Korologos, Bair, Hogan Preusse and Baglivo have been determined to be independent. The Board approved the determination that nine of the Company’s eleven director nominees are independent. Messrs.  Marriott and Risoleo are not independent because they are Company employees.

Communications With Directors

The Company invites stockholders and other interested parties to communicate any concerns they may have about the Company directly and confidentially with any of the full Board of Directors, the Lead Director or the non-management directors as a group by writing to:

 

LOGO     

Host Hotels & Resorts, Inc.

 
 

Attention: Secretary

 
 

6903 Rockledge Dr., Suite 1500

 
 

Bethesda, MD 20817

 

The Secretary will review and forward all stockholder communications to the intended recipient except those unrelated to the duties and responsibilities of the Board, such as junk mail and mass mailings, resumes and other forms of job inquiries, surveys, new business suggestions, business solicitations or advertisements. In addition, material that is hostile, threatening, illegal or similarly unsuitable or outside the scope of Board matters or duplicative of other communications previously forwarded to the recipient will also be excluded.

Stockholder Outreach and Engagement

Why We Engage

Our relationship with our stockholders is an important part of our corporate governance program. Engaging with our stockholders helps us:

 

Determine which issues are important to our stockholders and share our views on those issues

 

    

Provide transparency into our business, governance practices and compensation, and set expectations for our performance

 

    

Identify emerging issues that may affect our strategies, governance, compensation practices or operations.

 

How We Engage

Our stockholder and investor outreach generally includes investor road shows, analyst meetings, investor days, and investor conferences and meetings. In the last several years we have expanded our stockholder outreach by engaging stockholders directly and seeking their views on governance and other matters, concentrating our efforts on our largest stockholders. We also communicate with stockholders and other stakeholders through various media, including our annual report and SEC filings, proxy statement, news releases, correspondence, and our website. Our conference calls for quarterly earnings releases are open to all. These calls are available in real time and as archived webcasts on our website for a period of time.

 

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In 2018, Management met with over 200 members of the investment community, reaching holders of approximately 65% of the Company’s actively managed shares (i.e., excluding holdings of passive investors such as index funds).

 

 

 

What We Heard

 

  

 

How We Responded

 

 

Greater transparency into our business

  

 

In 2018 we overhauled our investor presentation and enhanced our supplemental financial information to provide property level results for our top hotels for the first time

 

 

Focus on the U.S.

  

 

Sold our interest in our European Joint Venture in December 2018 and the JW Marriott Hotel Mexico City, reducing the Company’s international exposure to approximately 1.5% of revenues

 

 

Issue an annual sustainability report

  

 

We continue to further enhance our ESG reporting, and we issued our 2018 Corporate Responsibility Highlights report, available on our website at www.hosthotels.com

 

 

Address human capital management

  

 

Our 2018 report focused on the Company’s environmental stewardship, responsible investment practices and corporate citizenship. Through discussion and engagement with investors, we intend to expand next year’s report to cover human capital management

 

 

Enhance CEO pay ratio disclosure

  

 

This proxy statement includes supplemental workforce information and context around the Company’s CEO pay ratio disclosure

 

 

Greater stockholder protections

  

 

In recent years we have adopted various corporate governance reforms to be responsive to trends and developments:

 

•  added proxy access

 

•  provided stockholders concurrent power to amend the bylaws

 

•  reduced the threshold for calling a special meeting

 

•  opted out of Maryland Unsolicited Takeovers Act

 

The Board’s Role in Risk Oversight

Our Board of Directors has overall responsibility for risk oversight with a focus on the most significant risks facing the Company. Reviews of certain areas are conducted by the relevant committees that report on their deliberations to the Board. Risks are considered in almost all business decisions and as part of the Company’s business strategy. The Board recognizes that it is neither possible nor prudent to eliminate all risk. Indeed, appropriate risk-taking is essential for the Company to be competitive and to achieve its business objectives. The chart below summarizes the primary areas of risk oversight for the Board and its committees.

 

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Risk Oversight

 

Board/Committee

 

  

Primary Areas of Risk Oversight

 

 

Full Board

  

 

Strategic, financial and execution risks and exposures associated with the annual business plan and strategic plan; major litigation and regulatory exposures, environmental and other current matters that may present material risk to the Company’s operations, plans, prospects or reputation; investments, acquisitions and divestitures; capital market and joint ventures; and senior management succession planning.

Audit Committee    Discusses guidelines and policies with respect to the Company’s risk assessment and risk management processes. Responsible for oversight of risks associated with financial matters, particularly the Company’s financial statements, tax, accounting, and disclosure; cybersecurity related risks; risks associated with derivatives and hedging strategy; risks associated with the independence, qualifications and performance of the Company’s outside auditor and internal auditors; and the Company’s compliance with legal and regulatory requirements.
Compensation
Policy Committee
   Exposures associated with compensation of the Company’s officers, stock ownership and incentive-compensation plans, executive retention, succession planning and employment related matters. As discussed in more detail in the Compensation Discussion & Analysis, the Committee reviews and approves compensation programs with features that are intended to mitigate risk without diminishing the incentive nature of compensation.
Nominating and
Corporate
Governance
Committee
   Risks and exposures relating to the identification of qualified candidates to become Board members; continuing oversight of Board composition; reviews of the structure, membership and charters of the Board committees; reviews the compensation for independent directors; oversight of the evaluation of the Board and management; and oversight of the Company’s policies, programs and practices on corporate responsibility and sustainability, including environmental, social and other matters.

The Board and its committees implement their oversight responsibilities through management reporting processes that are designed to provide visibility to the Board about the identification, assessment and management of critical risks and management’s risk mitigation strategies. These areas of focus include strategic, operating, financial, legal, compliance and reputational risk. Management communicates routinely with the Board, its committees and individual directors on the significant risks identified through this process and how they are being managed.

Succession Planning

The Board is actively engaged in executive talent management and succession planning. The Board reviews the Company’s “people strategy” in support of its business strategy at least annually and receives regular updates on employee engagement, diversity and retention matters. This includes a detailed discussion of the Company’s leadership bench and succession plans with a focus on key positions at the senior officer level. High potential leaders are given exposure and visibility to Board members through formal presentations and informal events.

Under the oversight of the Board, the Company’s CEO successions have been successfully managed and implemented. When seeking a successor CEO, the Board has historically focused on internal candidates, drawing on the Company’s deep bench strength. The Company’s past three CEO’s, over a span of almost 20 years, have all come from within the organization. In late 2016, Mr. W. Edward Walters stepped down as CEO after ten years in that position. In the same press release announcing Mr. Walter’s departure, the Company announced that Mr. James Risoleo, then Executive Vice President and Managing Director of Investments, West Coast and Europe, was appointed CEO by the Board of Directors effective January 1, 2017 in a seamless management transition.

 

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Political Contributions Policy and Trade Association Memberships

Under the Company’s longstanding policy, Company funds may not be used to contribute to candidates, political party committees, or political action committees. Company funds also may not be used to make direct independent expenditures to support or oppose political campaigns, to contribute to “social welfare” organizations organized under Section 501(c)(4) of the U.S. Internal Revenue Code or organizations organized under Section 527 of the Internal Revenue Code, or to support ballot measure committees. The Company does not have a political action committee.

The Company believes that participation in the public policy process is an important and essential means of enhancing stockholder value. To help us achieve this objective, the Company belongs to a number of trade associations (organized under Section 501(c)(6) of the Internal Revenue Code), which allows us to network, build business skills, advance our public agenda and related business goals and monitor industry policies and trends. Company participation in trade associations, including membership on a trade association board, does not mean that the Company agrees with every position a trade association takes on an issue. In fact, from time to time our positions may differ from those of the trade associations of which we are members.

The Company makes payments to these associations, including membership fees and dues. Pursuant to the Company’s code of business conduct and ethics, the Company’s legal department oversees compliance with the Company’s policy on political contributions. The Nominating and Corporate Governance Committee discusses the Company’s political spending policies and disclosures. The chart below lists organizations receiving dues and other contributions from the Company totaling $25,000 or more between 2018 and 2015. Based on each organization’s records, we have listed below the portion of Company dues and other amounts that are used by each organization for lobbying.

Trade Association Memberships

 

    2018   2017   2016   2015

U.S. Trade Association

 

 

Company

Dues and

Contributions

 

 

Lobbying
% (1)

 

 

Company

Dues

Allocated
to Lobbying

 

 

Company

Dues and

Contributions

 

 

Lobbying
% (1)

 

 

Company

Dues

Allocated
to Lobbying

 

 

Company

Dues and

Contributions

 

 

Lobbying
% (1)

 

 

Company

Dues

Allocated
to Lobbying

 

 

Company

Dues and

Contributions

 

 

Lobbying
% (1)

 

 

Company

Dues

Allocated
to Lobbying

 

 

National Association

of Real Estate

Investment Trusts

 

     

 

$144,867

 

 

     

 

20

 

 

     

 

$28,973

 

 

     

 

$130,572

 

 

     

 

20

 

 

     

 

$26,114

 

 

     

 

$126,740

 

 

     

 

25

 

 

     

 

$31,685

 

 

     

 

$127,652

 

 

     

 

25

 

 

     

 

$31,913

 

 

 

US Travel Association

 

     

 

74,300

 

 

     

 

20

 

 

     

 

14,860

 

 

     

 

72,500

 

 

     

 

27

 

 

     

 

19,575

 

 

     

 

70,850

 

 

     

 

27

 

 

     

 

19,130

 

 

     

 

104,286

 

 

     

 

38

 

 

     

 

39,629

 

 

 

Real Estate Roundtable

 

     

 

35,000

 

 

     

 

65

 

 

     

 

22,750

 

 

     

 

30,000

 

 

     

 

65

 

 

     

 

22,750

 

 

     

 

30,000

 

 

     

 

65

 

 

     

 

19,250

 

 

     

 

45,000

 

 

     

 

65

 

 

     

 

29,250

 

 

 

The Real Estate

Board of New York

 

   

 

 

 

 

29,000

 

 

 (2)

 

 
   

 

 

 

 

9

 

 

 

   

 

 

 

 

2,520

 

 

 

   

 

 

 

 

29,000

 

 

 (2)

 

 
   

 

 

 

 

9

 

 

 

   

 

 

 

 

2,520

 

 

 

   

 

 

 

 

29,000

 

 

 (2)

 

 
   

 

 

 

 

7

 

 

 

   

 

 

 

 

1,960

 

 

 

   

 

 

 

 

29,000

 

 

 (2)

 

 
   

 

 

 

 

7

 

 

 

   

 

 

 

 

1,960

 

 

 

 

American Hotel & Lodging Association (3)

 

     

 

75,608

 

 

     

 

18

 

 

     

 

13,609

 

 

     

 

74,072

 

 

     

 

36

 

 

     

 

26,665

 

 

     

 

198,085

 

 

     

 

36

 

 

     

 

24,881

 

 (4)

 

 
     

 

164,266

 

 

     

 

34

 

 

     

 

32,299

 

 (5)

 

 

 

Federal City Council

      25,000       0       0                                     50,000       0       0       50,000       0       0

 

(1)

Lobbying percentages obtained from the respective trade association.

 

(2)

Of this amount, $28,000 was paid in dues and $1,000 was paid in contributions (no contributions were used for lobbying).

 

(3)

In addition to these totals, certain hotels owned by the Company also contribute to the AH&LA.

 

(4)

AH&LA only used dues (and not contributions) to fund its lobbying activities. The Company paid AH&LA $69,115 in dues in 2016.

 

(5)

AH&LA only uses dues (and not contributions) to fund its lobbying activities. The Company paid AH&LA $94,996 in dues in 2015.

 

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  CORPORATE GOVERNANCE AND BOARD MATTERS  

 

Meetings and Committees of the Board

 

The Board met four times in 2018. Each director attended at least 75% of the meetings of the Board and of the committees on which the director served. Under the Corporate Governance Guidelines, directors are expected to attend the annual meeting of stockholders, and all directors attended the annual meeting in 2018. Under our Corporate Governance Guidelines, our independent directors meet in executive session without management and did so after each regularly scheduled Board meeting in 2018. Mr. Smith, the Lead Director, presided over the executive sessions of the non-management directors.

 

 

Host’s Board of Directors 2018 by the Numbers

 

 

LOGO

 

  

meetings held by the Board of Directors

 

 

 

 

 

LOGO

 

  

times the independent directors met in Executive

Session

 

 

 

 

LOGO

 

  

total Board and Committee meetings

 

 

 

 

 

LOGO

  

of Board members attended the Annual Meeting

held on May 17, 2018

 

 

The Board has three standing committees to assist it in carrying out its responsibilities: the Audit Committee, the Compensation Policy Committee and the Nominating and Corporate Governance Committee. The Board has adopted a written charter for each committee, all of which are available on the Company’s website (http://www.hosthotels.com). Copies of these charters are also available in print to stockholders upon request. See “Attendance and Voting Matters—How can I obtain copies of documents referenced in this proxy statement?” Each committee consists entirely of independent directors in accordance with New York Stock Exchange rules. The composition of each committee, including the designation of committee chairs, is determined annually by the Board, based on recommendations from the Nominating and Corporate Governance Committee. Assignments to committees are made based on a combination of factors, including each individual Board member’s expertise and the needs of the Company. The Nominating and Corporate Governance Committee considers rotating chair and committee assignments every three to five years, taking into account, among other considerations, the benefits of continuity and experience, the desirability of new perspectives and continual education and engagement for directors, the applicable regulatory and stock exchange requirements, and the appropriate distribution of work. The Board may from time to time appoint other committees as circumstances warrant. Any new committees will have authority and responsibility as delegated by the Board.

 

Audit

 

Members & Meetings    Committee Functions

Walter C. Rakowich (Chair)

Sheila C. Bair

Sandeep L. Mathrani

John B. Morse, Jr.

Mary Hogan Preusse

A. William Stein

 

Number of Meetings

in 2018: Seven

  

•  Appoints and oversees the independent auditors;

 

•  Approves the scope of audits and other services to be performed by the independent and internal auditors;

 

•  Interviews, discusses and approves the selection of the lead audit partner of the independent auditor;

 

•  Reviews and approves in advance the engagement fees of the outside auditor and all non-audit services and related fees, and assesses whether the performance of non-audit services could impair the independence of the independent auditors;

 

•  Reviews the work and findings, if any, of the internal auditors;

 

•  Reviews the results of internal and external audits, the accounting principles applied in financial reporting, and financial and operational controls;

 

•  Meets with the independent auditors, management representatives and internal auditors;

 

•  Reviews interim financial statements each quarter before the Company files its Quarterly Report on Form 10-Q with the SEC;

 

•  Reviews audited financial statements each year before the Company files its Annual Report on Form 10-K with the SEC; and

 

•  Reviews risk exposures and management policies.

 

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Each member of the Audit Committee, in the business judgment of the Board, meets the qualifications (including independence) and expertise requirements of the New York Stock Exchange and Ms. Bair, Ms. Hogan Preusse, Mr. Morse, Mr. Rakowich and Mr. Stein are “audit committee financial experts” within the meaning of SEC rules. Our independent and internal auditors have unrestricted access to the Audit Committee. The Report of the Audit Committee appears later in this proxy statement.

 

Nominating and Corporate Governance

 

Members & Meetings    Committee Functions

Gordon H. Smith (Chair)

Mary L. Baglivo

Sheila C. Bair

Mary Hogan Preusse

Walter C. Rakowich

 

Number of Meetings

in 2018: Four

  

•  Makes recommendations to the Board on corporate governance matters and is responsible for keeping abreast of corporate governance developments;

 

•  Oversees the annual evaluation of the Board, its committees and, in conjunction with the Compensation Policy Committee, management;

 

•  Reviews periodically the compensation and benefits of non-employee directors and makes recommendations to the Board or the Compensation Policy Committee of any modifications;

 

•  Reviews the composition—in terms of independence, experience, expertise, skills, diversity and special knowledge—and tenure of the Board and recommends nomination of Board members and addition of new members, as appropriate;

 

•  Ensures that the Board maintains its diversity;

 

•  Reviews policies and programs on matters of corporate responsibility and sustainability, including environmental, social and other matters; and

 

•  Fulfills an advisory function with respect to a range of matters affecting the Board and its committees, including making recommendations with respect to:

 

—   selection and rotation of committee chairs and committee assignments; and

 

—   implementation, compliance and enhancements to the Company’s code of conduct and Corporate Governance Guidelines.

 

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Compensation Policy

 

Members & Meetings    Committee Functions

Mary L. Baglivo (Chair)

Ann McLaughlin Korologos

Sandeep L. Mathrani

A. William Stein

 

Number of Meetings

in 2018: Five

  

•  Oversees compensation policies, plans and benefits for the Company’s employees;

 

•  Approves the goals, objectives and total target compensation of all executive officers of the Company and approves compensation for department heads and any employee earning more than $500,000 in annual target cash compensation;

 

•  Advises our Board on the adoption of policies that govern the Company’s annual compensation and stock ownership plans;

 

•  Reviews and approves the Company’s goals and objectives relevant to the compensation of the CEO and evaluates the CEO’s performance in light of those goals and objectives;

 

•  Reviews and advises the Company on compensation trends and peer group practices;

 

•  Reviews the Company’s succession plans relating to the CEO and other senior management and discusses with the full Board;

 

•  Reviews periodic reports from management on matters relating to the Company’s personnel appointments and practices;

 

•  Directs preparation of a report on executive compensation for inclusion in the Company’s annual proxy statement; and

 

•  Reviews the demographics of the Company’s workforce as it relates to diversity.

Role of the Compensation Consultant

Pursuant to its charter, the Compensation Policy Committee is authorized to engage, retain and terminate any consultant, as well as approve the consultant’s fees, scope of work and other terms of retention. Starting in 2010, the Committee retained Pay Governance LLC as its advisor. Pay Governance advises and consults with the Committee on compensation issues, compensation design and trends, and keeps the Committee apprised of regulatory, legislative, and accounting developments and competitive practices related to executive compensation. Pay Governance assisted the Committee in the design, structure and implementation of the current executive compensation program, and reviews, at the direction of the Committee, compensation levels, trends and practices annually. Pay Governance does not determine the exact amount or form of executive compensation for any executive officers. See “Compensation Discussion and Analysis—Our Compensation Program.” Pay Governance reports directly to the Committee, and representatives of Pay Governance, when requested, attend meetings of the Committee, are available to participate in executive sessions and communicate directly with the Committee Chair or its members outside of meetings. Pay Governance also served as a consultant retained by the Nominating and Corporate Governance Committee to assist the Committee with its review of the compensation of independent directors. Pay Governance is retained by, and conducts its work at the direction and request of, the Board committees. It is not retained by, and does no work directly for, the Company.

In compliance with the disclosure requirements of the SEC regarding the independence of compensation consultants, Pay Governance addressed each of the six independence factors established by the SEC with the Compensation Policy Committee. Its responses affirmed the independence of Pay Governance on executive compensation matters. Based on this assessment, the Committee determined that the engagement of Pay Governance does not raise any conflicts of interest or similar concerns. The Committee also evaluated the independence of other outside advisors to the Committee, including outside legal counsel, considering the same independence factors and concluded their work for the Committee does not raise any conflicts of interest.

 

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The Compensation Policy Committee may delegate any or all of its responsibilities to a subcommittee but did not do so in 2018. The Compensation Policy Committee’s Report on Executive Compensation appears later in this proxy statement.

Compensation-Related Risks

The Compensation Policy Committee oversees all of our compensation policies and practices. Management, at the request of the Committee, has assessed the Company’s compensation programs and has concluded that they do not create risks that are reasonably likely to have a material adverse effect on the Company. This risk assessment process included a review of all material compensation policies and practices, which were discussed with the Committee. The compensation programs of the Company are all centrally designed and centrally administered. The elements of compensation for senior management and upper middle management are also the same: base salary, annual cash incentive awards and long-term incentives. The performance measures for the annual cash incentive awards are (i) Company financial metrics that are based on an annual business plan and budget reviewed and approved by the Board and (ii) personal performance goals that are derived from the annual business plan and budget and Company strategic plan, which tie to measures of long-term success of the Company. The business plan and budget are reviewed at each Board meeting, and the strategic plan is addressed annually. Performance measures for long-term incentives are strategic goals of the Company, established annually and are tied to the business plan and budget, and total stockholder return measured over a three-year period. The total achievable compensation for the year is capped at the beginning of the performance year throughout our compensation programs. The Compensation Policy Committee reviews the compensation of executives, department heads and that of any employee earning more than $500,000 in annual target cash compensation, which includes salary and bonus. Based on the foregoing, we believe that our compensation policies and practices do not create inappropriate or excessive risk-taking.

Compensation Policy Committee Interlocks and Insider Participation

None of the members of the Compensation Policy Committee is or has been an officer or employee of the Company or had any relationship that is required to be disclosed as a transaction with a related person.

 

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  CORPORATE GOVERNANCE AND BOARD MATTERS  

 

 

Process for Selecting Directors

The Nominating and Corporate Governance Committee screens candidates and recommends candidates for nomination by the full Board. The Company’s Charter and Bylaws provide that the size of the Board may range from three to thirteen. The Board currently believes that an appropriate size is nine to eleven members, allowing, however, for changing circumstances that may warrant a higher or lower number. The Committee considers director candidates suggested by members of the Committee, other directors, stockholders (as discussed below) and management, and has engaged the services of third party firms to assist in identifying and evaluating director candidates. The Committee retained Ferguson Partners Ltd. in the fall of 2015 for this purpose.

We had three new directors in 2017, two of whom are independent. Mr. Risoleo, our CEO, became a Board member on January 1, 2017. Ms. Mary Hogan Preusse was identified as a candidate by Mr. Risoleo and elected to the Board effective in June 2017 on the recommendation of Committee. Mr.  Stein was identified as a candidate by Ferguson Partners Ltd. and elected to the Board in July 2017 on the recommendation of the Committee.

Stockholder Nominations and Recommendation of Director Candidates

The Committee considers any written suggestions of stockholders for director nominees. The recommendation must include the name and address of the candidate, a brief biographical description and a description of the person’s qualifications. Recommendations should be mailed to: Host Hotels & Resorts, Inc., 6903 Rockledge Drive, Suite 1500, Bethesda, MD 20817, Attn: Secretary.

In addition, we amended our Bylaws in 2016 to permit a stockholder (or group of up to 20 stockholders) who has owned at least 3% of our outstanding common stock continuously for at least three years to submit director nominees for the greater of two individuals or 20% of the Board for inclusion in our proxy statement if the stockholder(s) and nominee(s) meet the requirements of the Bylaws.

Stockholders who would like to nominate a candidate for director for inclusion in the Company’s proxy statement, or who would like to nominate a director candidate that is not intended to be included in the Company’s proxy statement must in each case comply with the requirements described in this proxy statement and the Company’s Bylaws. See “Stockholder Proposals for our Next Annual Meeting.”

 

HOW WE BUILD A BOARD THAT IS RIGHT FOR HOST

 

 

The Board continuously identifies potential director candidates in anticipation of retirements, resignations, or the need for additional capabilities. The graphic below describes the ongoing Nominating and Corporate Governance Committee process to identify highly qualified candidates for Board service.

 

 

Consider current Board skill sets and needs

 

 

LOGO

 

 

Ensure Board is strong in core competencies of strategic oversight, corporate governance, stockholder advocacy and leadership and has diversity of expertise and perspective

 

 

Consider qualified candidates

 

 

Looking for exceptional candidates that possess integrity, independent judgement, broad business experience, diversity and a skill set to meet existing or future business needs

 

 

Check conflicts of interest and references

 

 

All candidates are screened for conflicts of interest, and all directors are independent, except the CEO and Chairman

 

 

Nominating and Corporate Governance Committee

 

 

To consider shortlisted candidates; after deliberations, Committee recommends candidates for election to the Board

 

 

Full Board of Directors

 

 

Dialogue and decision with a commitment to refreshment and diversity

 

     

Outcome

 

•  Added four highly qualified directors since 2016 that bring the following skills and traits to our Board:

   

—   Public company CEO

—   Financial and accounting expertise

—   Executive leadership

  

—   Real estate and REIT knowledge

—   Governance experience

—   Financial and capital markets expertise

•  Four of the last six Board members added are either women or otherwise bring diversity to the Board

 

 

 

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  PROPOSAL 2 – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC  ACCOUNTANTS  

       

 

LOGO

The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the independent registered public accountants retained to audit the Company’s financial statements. The Audit Committee has unanimously approved and voted to recommend that the stockholders ratify the appointment of KPMG LLP as independent registered public accountants of the Company for 2019.

KPMG LLP has been retained as the Company’s independent registered public accountant since 2002. In determining whether to reappoint the independent accountant, the Audit Committee considers several factors including:

 

   

the length of time the firm has been engaged;

 

   

the firm’s independence and integrity;

 

   

the quality of the discussions with the independent accountant and its annual assessment of the past performance of both the lead audit partner and KPMG;

 

   

data relating to audit quality and performance; and

 

   

the appropriateness of KPMG’s fees.

Last year, the Audit Committee conducted a comprehensive review of the independent auditor relationship and solicited proposals and interviewed prospective engagement teams from other major audit firms. After the interview process and review of proposals, the members of the Audit Committee and the Board determined that retaining KPMG to serve as the Company’s independent registered public accounting firm was in the best interests of the Company. Among the factors considered by the Committee were the designation of a new and very senior lead audit partner with significant experience in the lodging and REIT industry and national exposure, and a renegotiation of the annual fee arrangements. A new lead audit partner is designated at least every five years as required by the SEC to ensure continued independence and to provide a fresh perspective. The Audit Committee and its Chair were directly involved in the selection of the new lead audit partner. The Audit Committee is also responsible for the negotiation of audit fees associated with the Company’s retention of KPMG LLP and set forth below are KPMG’s fees for 2018 and 2017. Other factors leading to the retention of KPMG included its strong capability and expertise within our industry and the benefits gained from KPMG’s institutional knowledge and deep expertise regarding the Company’s complex operations, accounting policies and practices, and internal control over financial reporting. In addition, the Audit Committee reviewed and discussed the results of the firm’s reports on its quality controls and external assessments, including the results of inspections conducted by the Public Company Accounting Oversight Board (PCAOB).

The Audit Committee also has a long-standing policy regarding its pre-approval of all audit and permissible non-audit services provided by the independent registered public accountant, which is summarized below, as part of the controls and processes that help ensure KPMG’s continued independence.

Although ratification is not required by our Bylaws, the Board is submitting the selection of KPMG LLP to our stockholders for ratification as a matter of good corporate practice. Representatives of KPMG LLP will be at the annual meeting and will be given the opportunity to make a statement, if they desire to do so, and to respond to questions.

 

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  PROPOSAL 2 – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED  PUBLIC ACCOUNTANTS  

 

If the selection is not ratified, the Audit Committee will consider whether it is appropriate to select another independent registered public accounting firm. Even if the selection is ratified, the Audit Committee in its discretion may select a different public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company.

The Board of Directors unanimously recommends a vote FOR ratification of the appointment of KPMG LLP as independent registered public accountants of the Company for 2019.

Principal Accountant Fees and Services

The Company was billed the following amounts for professional services by KPMG LLP, its independent registered public accountants, for 2018 and 2017:

 

      2018      2017  

 

Audit fees (1)

  

 

$

 

2,534,000

 

 

  

 

$

 

2,631,000

 

 

 

Audit-related fees (2)

  

 

 

 

22,000

 

 

  

 

 

 

22,000

 

 

  

 

 

 

 

Audit and audit-related fees

  

 

 

 

2,556,000

 

 

  

 

 

 

2,653,000

 

 

 

Tax fees (3)

     

 

 

 

30,000

 

 

 

All other fees

  

 

 

 

 

 

  

 

 

 

 

 

 

Total Fees

  

 

$

 

2,556,000

 

 

  

 

$

 

2,683,000

 

 

 

(1)

Audit fees consisted of fees for the audits of the Company’s and Host Hotels & Resorts, L.P.’s annual consolidated financial statements, the audit of the Company’s internal control over financial reporting, reviews of the Company’s and Host Hotels & Resorts, L.P.’s quarterly condensed consolidated financial statements, audits of certain subsidiaries, reviews of SEC registration statements and other filings, comfort letters and consents, audit procedures related to acquisitions and dispositions, and accounting and reporting consultations.

 

(2)

Audit-related fees consisted of fees for the audits of financial statements of our employee benefit plan.

 

(3)

Tax fees consisted of fees for tax compliance services.

The Audit Committee concluded that the provision of audit-related and tax services is compatible with maintaining the independence of KPMG LLP. The Company does not engage KPMG LLP for any tax services unrelated to audit services or tax compliance.

Pre-Approval Policy for Services of Independent Registered Public Accountants

All services performed by KPMG LLP were pre-approved by the Audit Committee in accordance with its 2018 pre-approval policy. The policy describes the audit, audit-related, tax and other services permitted to be performed by the independent registered public accountants, subject to the Audit Committee’s prior approval of the services and fees. On an annual basis, the Audit Committee will review and provide pre-approval for certain types of services (and corresponding cost levels) that may be provided by the independent registered public accountants without obtaining specific pre-approval from the Audit Committee. If a type of service to be provided has not received pre-approval during this annual process, it will require specific pre-approval by the Audit Committee. Any proposed services exceeding pre-approved cost levels or budgeted amounts will also require separate pre-approval by the Committee.

The Audit Committee has designated the Senior Vice President, Corporate Controller to monitor the performance of all services provided by the independent registered public accountants and to determine whether such services are in compliance with the pre-approval policy.

Policy for Hiring Members of the Audit Engagement Team

The Audit Committee adopted a policy regarding the hiring of audit engagement team members to address the potential for impairment of auditor independence when partners and other members of the audit engagement team

 

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  PROPOSAL 2 – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC  ACCOUNTANTS  

       

 

accept employment with the Company. Under the policy, the Company may not hire into a financial reporting oversight role any individuals who were members of the Company’s audit engagement team for the prior year. Individuals not subject to the one-year “cooling off” period include, among others, persons who provided less than 10 hours of audit services and individuals whose employment resulted from an emergency or other unusual situation. In all such cases, the Audit Committee must determine that the relationship is in the best interests of the Company. In addition, the Company may not appoint a director who is affiliated with or employed by a present or former auditor of the Company until three years after the affiliation or auditing relationship has ended.

Other Company Accountants and Auditors

The Company has engaged Ernst & Young LLP for tax consultation and tax compliance services and the Audit Committee has engaged PricewaterhouseCoopers LLP as the Company’s internal auditors. The purpose of the internal audit program is to provide the Audit Committee and Company management with ongoing assessments of the Company’s risk management processes and to review the effectiveness and design of internal controls at our properties and the Company’s corporate office.

 

28


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  REPORT OF THE AUDIT COMMITTEE  

 

 

Report of the Audit Committee

 

To Our Stockholders:

 

The Audit Committee serves as the representative of the Board of Directors of Host Hotels & Resorts, Inc. (the “Company”) for general oversight of the Company’s financial accounting and reporting, systems of internal controls and audit processes. Management of the Company has responsibility for preparing the Company’s financial statements, as well as for the Company’s financial reporting process and internal controls. KPMG LLP, acting as independent registered public accountants, is responsible for performing an independent audit of the Company’s financial statements and internal controls over financial reporting and for expressing an opinion on the conformity of the Company’s financial statements with U.S. generally accepted accounting principles and the effectiveness of the Company’s internal controls over financial reporting. PricewaterhouseCoopers, LLP, acting as non-independent registered public accountants in its performance as the Company’s internal auditor, is responsible for assisting the Company’s review and the effectiveness of its internal controls over financial reporting. The Audit Committee is responsible for monitoring and overseeing these processes. The Audit Committee members are not professional accountants or auditors, and the Audit Committee’s functions are not intended to duplicate or certify the activities of management and the independent registered public accountants. In this context, the Audit Committee has:

 

•  reviewed and discussed with management the audited financial statements for each of the Company and Host Hotels & Resorts, L.P. for the year ended December 31, 2018, including discussions of the quality, not merely the acceptability, of the Company’s accounting principles, the reasonableness of significant estimates and judgments, and the clarity of disclosure in the Company’s financial statements;

 

•  discussed with both the Company’s internal and independent registered public accountants the overall scope for their respective audits and the results of their examinations, the evaluations of the Company’s internal controls and financial reporting, and the overall quality of the Company’s financial reporting;

 

•  discussed with the independent registered public accountants the matters required to be discussed by the requirements of the Public Company Accounting Oversight Board;

 

•  received the written disclosures and the letter from the independent registered public accountants required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence; and

 

•  discussed with KPMG LLP their independence from the Company and its management.

 

In reliance on the reviews, reports and discussions referred to above, the Audit Committee recommended to the Board of Directors, and the Board of Directors has approved, that the audited financial statements be included in the Annual Report on Form 10-K of the Company and Host Hotels & Resorts, L.P. for the year ended December 31, 2018. The Annual Report on Form 10-K was filed with the Securities and Exchange Commission on February 26, 2019.

 

The Audit Committee

 

Walter C. Rakowich, Chair

 

Sheila C. Bair

 

Sandeep L. Mathrani

 

John B. Morse, Jr.

 

Mary Hogan Preusse

 

A. William Stein

 

 

 

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  PROPOSAL 3 – ADVISORY RESOLUTION TO APPROVE EXECUTIVE COMPENSATION  

       

 

LOGO

The Dodd-Frank Wall Street Reform and Consumer Protection Act requires that the Company seek a non-binding advisory vote from its stockholders to approve executive compensation. Since the required vote is advisory, the result of the vote is not binding upon the Company or the Board.

We urge stockholders to read the “Compensation Discussion and Analysis”, which describes how our executive compensation policies operate and how they are designed to achieve our compensation objectives, as well as the Summary Compensation Table and related compensation tables and narrative which provide detailed information on the compensation of our named executive officers. Our executive compensation program is designed to provide the opportunity to earn a competitive level of compensation necessary to attract, motivate and retain talented and experienced executives and to motivate them to achieve short-term and long-term corporate goals that enhance stockholder value. Highlights of the Company’s compensation programs include the following:

 

   

As an executive officer’s responsibility and ability to affect the financial results of the Company increases, the portion of his or her total compensation “at-risk” increases.

 

   

Annual cash incentive program is 100% performance based and tied to achievement of predetermined corporate financial measures and objective individual performance goals in support of the Company’s business plan.

 

   

Long term incentive program that is predominately performance based and tied to the achievement of corporate financial, operating and strategic objectives as well as multiple relative stockholder return measures. Certain of these performance goals were not met for 2018 and a significant portion of each award was subsequently forfeited.

 

   

Reasonable compensation levels, as reflected by a CEO pay ratio of 43 to 1 as compared to our median employee. The Company’s CEO pay ratio ranks within the lowest 10% among S&P 500 companies and is over 3.5x lower than the median ratio for S&P 500 companies (160:1), based on a study conducted by a third-party compensation consultant.

 

   

The Compensation Policy Committee regularly assesses the Company’s individual and total compensation programs against peer companies, the general marketplace and other industry data, and the Compensation Policy Committee engages an independent consultant to independently review key aspects of our executive compensation programs annually.

The Compensation Policy Committee and the Board believe that these policies are effective in implementing our compensation philosophy, in achieving its goals, and have been effective at incenting the achievement of the Company’s strong financial performance.

For the reasons stated above, the Board of Directors unanimously recommends a vote “FOR” approval of the following resolution:

“RESOLVED, that the stockholders of the Company approve, on an advisory basis, the compensation of the Company’s named executive officers, as described in the Compensation Discussion and Analysis and in the tabular disclosure regarding named executive officer compensation (together with the accompanying narrative disclosure) in this Proxy Statement.”

 

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  PROPOSAL 3 – ADVISORY RESOLUTION TO APPROVE EXECUTIVE COMPENSATION   

 

Effect of Proposal

This advisory resolution to approve named executive officer compensation, commonly referred to as a “say-on-pay” resolution, is non-binding on the Board of Directors. The approval or disapproval of this proposal by stockholders will not require the Board, the Compensation Policy Committee or the Company to take any action regarding the Company’s executive compensation practices. Although non-binding, the Board and the Compensation Policy Committee will carefully review and consider the voting results when evaluating our future executive compensation program.

 

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  COMPENSATION DISCUSSION AND ANALYSIS  

       

 

COMPENSATION DISCUSSION AND ANALYSIS

This Compensation Discussion and Analysis (“CD&A”) provides you with information on the Company’s executive compensation programs and practices, and the decisions that the Compensation Policy Committee of the Board of Directors (the “Compensation Committee”) has made under the program. The CD&A focuses on our named executive officers for 2018, who were:

 

James F. Risoleo    President and Chief Executive Officer
Michael D. Bluhm    Executive Vice President, Chief Financial Officer
Nathan S. Tyrrell    Executive Vice President, Chief Investment Officer
Elizabeth A. Abdoo    Executive Vice President, General Counsel & Secretary
Joanne G. Hamilton    Executive Vice President, Human Resources

CD&A Table of Contents

 

2018 COMPANY PERFORMANCE HIGHLIGHTS

 

    

 

32

 

 

 

RESULTS OF 2018 ADVISORY VOTE

 

    

 

33

 

 

 

OUR COMPENSATION PROGRAM

     33  

Elements of Program

     34  

How our Incentive Program is Tied to our Long-Term Strategy

     36  

Best Practices

     37  

Target Compensation for 2018

 

    

 

37

 

 

 

2018 COMPENSATION RESULTS

     39  

Realized Pay

     39  

Salary

     40  

Annual Cash Incentive

     41  

Long-Term Incentives

 

    

 

44

 

 

 

RISK CONSIDERATIONS

 

    

 

48

 

 

 

ADDITIONAL POLICIES AND BENEFITS

 

    

 

48

 

 

 

2018 Company Performance Highlights

2018 was a year of significant achievement for the Company. The Company’s comparable hotel revenue per available room (or RevPAR) increased for the ninth consecutive year. We also accomplished a number of strategic initiatives in 2018 to better position the Company for long-term, sustainable growth. Some of the highlights for 2018 include:

 

   

We returned $635 million to stockholders in the form of dividends. The $0.85 per share in dividends authorized to stockholders in 2018 represents an annualized dividend yield of 4.4% based on the Company’s closing stock price of $19.15 as of March 21, 2019.

 

   

In 2018 we acquired three Hyatt hotels—the Andaz Maui, Hyatt Regency Coconut Point and the Grand Hyatt San Francisco—for $1 billion, and in February 2019 we acquired the 1 Hotel South Beach in Miami for $610 million. We also reduced our international exposure to approximately 1.5% of revenues with the disposition of the JW Marriott Hotel Mexico City and the sale of the Company’s interest in its European joint venture, as we continued to sharpen our focus on the U.S. In addition, due to efforts undertaken during 2018 and the beginning of 2019, we sold The Westin New York Grand Central. Collectively, these

 

32


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  COMPENSATION DISCUSSION AND ANALYSIS  

 

 

transactions significantly advance our ongoing efforts to strengthen our portfolio of iconic and irreplaceable assets while reducing our exposure in New York and in international markets, two of the Company’s long-term strategic goals.

 

   

We maintained our investment grade rating on our senior long-term unsecured notes, achieving the strongest balance sheet (in terms of leverage and interest coverage) in the Company’s history.

 

   

We invested $474 million in capital improvements at our properties and made tremendous progress on creating value in our portfolio, most notably at the Phoenician where a new planned unit development was approved enabling us to sell land zoned for residential unit development, which should net us an incremental profit in 2019 and beyond.

 

   

We continued to be recognized as a leader for corporate action on climate change and again were named to the 2018 Climate “A” List and Climate Disclosure Leadership Index (CDLI) by CDP. We also achieved the top position for hotels and second position overall in the U.S. among public companies in the 2018 Global Real Estate Sustainability Benchmark (GRESB) survey. We were the winner of the NAREIT “Leader in the Light” award and were the first hospitality company to have its greenhouse gas emissions verified by the Science Based Targets initiative.

For more complete information about our 2018 performance, please review the Company’s Annual Report on Form 10-K included in our mailing to stockholders.

Results of 2018 Advisory Vote

 

Each year, the Compensation Committee considers the outcome of the stockholder advisory vote on executive compensation when making decisions relating to the compensation of the named executive officers and our executive compensation program design, structure and policies.

In 2018, stockholders continued their significant support for our executive compensation program with approximately 94% of the votes cast for approval of the “say on pay” proposal at the 2018 Annual Meeting of Stockholders. The Compensation Committee believes that last year’s voting results conveyed our stockholders’ strong support for the design changes made to our compensation programs for 2017 and that last year’s voting results, together with the 92% or better approval received since the inception of the advisory vote, conveyed our stockholders’ continued strong support of the philosophy, design and structure of our executive compensation program.

Our Compensation Program

The Compensation Committee annually approves the design and structure of our executive compensation programs, which provide for flexibility in light of changing times and stockholder involvement. Our long-standing compensation philosophy, which has supported our business and talent needs over the past decade and the various economic cycles we have experienced, consists of the following principles:

 

Foster a strong relationship between stockholder interests and executive compensation

 

    

Provide annual and long-term incentives that emphasize performance-based compensation

 

    

Provide overall levels of compensation that attract, retain and motivate talented executives

 

 

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  COMPENSATION DISCUSSION AND ANALYSIS  

       

 

Elements of Program

Our compensation program has three key elements—a base salary, an annual cash incentive, and a long-term incentive. The mix of target total direct compensation for 2018 for our CEO and the average of our other named executives is shown in the charts below. Importantly, our compensation program seeks to maximize the alignment between stockholder results and executive compensation by emphasizing variable pay tied to performance, with the majority of the opportunity based on annual and long-term incentive compensation.

 

 

 

 

CHIEF EXECUTIVE OFFICER

    

 

 

 

 

LOGO

 

 

 

AVERAGE OF OTHER NAMED

EXECUTIVE OFFICERS

 

 

 

 

LOGO

 

 

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  COMPENSATION DISCUSSION AND ANALYSIS  

 

The following table summarizes the key elements of target direct compensation for our 2018 executive compensation program. Our incentives are designed to drive overall corporate performance, achieve strategic goals, and individual performance using measures that correlate to stockholder value.

SUMMARY OF 2018 EXECUTIVE COMPENSATION PROGRAM DESIGN

 

 

CASH COMPENSATION

 

 

 

EQUITY COMPENSATION

 

    

Base Salary

 

 

Annual Cash Incentive

Awards

 

 

Performance-Based

Long-Term Incentive
Awards

 

 

Time-Based Long-

Term Incentive

Awards

 

Key

Characteristics  

 

•  Fixed compensation component payable in cash.

 

•  Reviewed annually and adjusted when appropriate.

 

•  At risk compensation component payable annually in cash.

 

•  Amount payable is based on actual performance against annually established goals.

 

•  Two-thirds of the value of annual equity awards is performance-based.

 

•  One-half of the performance-based equity award is eligible to vest annually based on achievement of pre-determined corporate objectives.

 

•  One-half of the performance-based equity award is eligible to vest at the end of three years based on relative TSR performance.

 

 

•  One-third of the value of annual equity awards is time-based.

 

•  Equity award that vests in annual installments over three years.

Why We Pay

This Element

 

•  Provide a base level of competitive cash compensation for executive talent.

 

•  Only component of compensation that is fixed.

 

•  Motivate and reward executives for performance based on the Company’s achievement of key financial measures and objective individual performance goals.

 

 

•  Motivate and reward executives for performance on key measures.

 

•  Align the interests of executives with long-term stockholder value.

 

•  Align the interests of executives with long-term stockholder value.

 

•  Retain executive talent.

How We

Determine

Amount

 

•  Experience, job scope, market data, and individual performance.

 

•  Salaries of the named executive officers and department heads are approved by the Compensation Committee.

 

•  Formulaic determination with limited discretion and a limit on the maximum amount payable.

 

•  Target awards are based on job scope, market data, and individual performance.

 

•  Amount of the awards that ultimately vest is based on performance against corporate objectives and relative TSR measures.

 

   

 

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  COMPENSATION DISCUSSION AND ANALYSIS  

       

 

How our Incentive Program is Tied to our Long-Term Company Strategy

As illustrated below, we tie our executive compensation program to our long-term business strategy by keeping our executive officers focused on, and rewarding them for, their achievement of goals and the fulfillment of activities that support both annual and long-term Company performance goals.

 

LOGO

 

36

Compensation Component Annual Incentive Plan: Corporate and Individual Performance Performance Based Long-Term Incentive Awards: Corporate and Relative TSR Performance Link to Strategy Majority of annual incentive tied to key corporate performance metrics: Adjusted funds from operations per diluted share (“Adjusted FFO”) Return on Invested Capital (“ROIC”) Individual performance goals based on annual business plan, long-term strategic objectives and individual department objectives One half of award tied to corporate strategic objectives approved by Compensation Committee that are drivers of long-term value One half of award vests based on relative TSR performance Strategy & Performance Alignment Adjusted funds from operations per diluted share is the predominant measure of operating performance used by real estate investment trusts ROIC emphasizes investing capital efficiently At-risk compensation rewards individual behaviors in support of business plan and strategic goals Annual objectives based on budget and business plan Measures our collective success at achieving pre-determined goals that drive stockholder value Focuses all of executive on the same Company-wide strategic objectives Links substantial portion of compensation to stock performance as compared to the S&P 500, an index of North American Real Estate Investment Trusts (“NAREIT”) and publicly traded lodging companies reflecting the Company’s competitors for investment capital Utilizes a three-year forward-looking measurement period to focus on long-term future value creation


Table of Contents
       

 

  COMPENSATION DISCUSSION AND ANALYSIS  

 

Best Practices

Our compensation program for 2018 continues to incorporate our best practices:

 

              
     

 

What We Do

 

•  Compensation Committee comprised solely of independent directors;

 

•  An independent compensation consultant retained exclusively by the Committee and which has no ties to the Company;

 

•  Annual advisory vote on executive compensation;

 

•  Stock ownership and retention requirements for senior management and directors;

 

•  Regular reviews of our compensation and relative TSR peer groups and indices;

 

•  Regular briefings from the independent consultant regarding key trends in executive compensation and regulatory developments;

 

•  An annual review of the performance of the chief executive officer;

 

•  Market-aligned severance policy for executives with a double trigger for any change in control payments under the plan;

 

•  A policy authorizing recoupment of compensation that results from a misstatement of financial results;

 

•  Limited perquisites;

 

•  The vast majority of total compensation is tied to performance; and

 

•  Cap on performance-based compensation.

 

     

 

 

What We Don’t Do

 

•  No employment contracts with executive officers;

 

•  No individual change in control agreements;

 

•  No tax gross-up on change in control payments or severance payments;

 

•  No pledging, hedging or short sales of Company securities by directors, officers or employees;

 

•  No pension plans or supplemental executive retirement plans;

 

•  No dividends paid on unvested restricted stock or restricted stock unit awards unless the awards actually vest;

 

•  No counting of performance vesting restricted stock toward our stock ownership guidelines;

 

•  No grants of stock options since 2016; and

 

•  No option repricing without stockholder approval.

  
              

Target Compensation for 2018

The Compensation Committee annually reviews and sets total target direct compensation for senior executives. This consists of a salary, an annual cash incentive based on the “target” level of performance, an award of restricted stock units valued based on the “target” level of performance and an award of time-based restricted stock units that vest over three years. The Committee’s decisions regarding total target direct compensation are informed by the assistance of its independent consultant, Pay Governance. The Committee reviews compensation levels, trends and practices every year, and has historically requested that Pay Governance conduct a thorough review every two years. This is because pay practices and market pay ranges generally do not change dramatically over a one-year period, and the Committee prefers to take a broad view of the compensation landscape. The last comprehensive compensation review was conducted in 2016 to inform compensation decisions for 2017.

 

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  COMPENSATION DISCUSSION AND ANALYSIS  

       

 

At its July 2017 meeting, the Committee reviewed compensation trends and peer group practices for the compensation review. The Committee used the data sources from the prior year to inform its assessment on compensation for promotions and new appointments in 2017 as well as 2018 compensation. Data from three sources were approved by the Committee for use in generally assessing and comparing pay levels at the Company. These were (1) pay data reported in 2016 proxy filings for peer companies, (2) general industry survey data of companies for non-real estate specific functions, size adjusted based on revenues, and (3) NAREIT survey data focused on companies of similar size in terms of total capitalization. The peer group is generally 15-25 companies, which is a sufficient number to provide robust market data and minimize year over year changes to the extent possible. The companies primarily operate in the real estate and/or hospitality industry and with North American operations or a similar business model to that of the Company. The companies are generally competitors for talent and/or investment capital. They are screened as to size and generally fall within a range of a market capitalization that is 0.5 times to 3 times that of the Company or with revenues in the range of 0.4 times to 2.5 times that of the Company. The Committee determined to use the same peer group as in 2016, except that it removed Starwood Hotels & Resorts Worldwide, Inc., which ceased to be a publicly traded company as a result of its acquisition by Marriott International, Inc. in September 2016. The compensation peer group consisted of the following 20 companies:

 

COMPENSATION PEER GROUP

AvalonBay Communities, Inc.

Boston Properties, Inc.

Duke Realty Corporation

Equity Residential

Essex Property Trust, Inc.

Federal Realty Investment Trust

General Growth Properties, Inc.*

HCP, Inc.

Hilton Worldwide Holdings, Inc.

Hyatt Hotels Corporation

 

Kimco Realty Corporation

Macerich Company

Marriott International, Inc.

Prologis, Inc.

SL Green Realty Corp.

UDR, Inc.

Ventas, Inc.

Vornado Realty Trust

Welltower, Inc. (formerly known as Health Care REIT, Inc.)

Wyndham Worldwide Corporation

* acquired by Brookfield Properties in August 2018

The NAREIT survey data provided the Committee with industry specific references for a broad range of companies. It also would reflect companies against which the Company competes directly for talent and investment capital. The general industry database presented information from a broader market than the real estate industry and is consistent with the Company’s inclusion in the S&P 500 Index.

The Committee generally compared the compensation of each executive to multiple percentiles of each data source. In addition, the Committee took into consideration the characteristics of each executive’s position, scope of responsibilities, experience, performance and internal equity. Compensation levels for an executive officer who is new to a position tended to be at a lower end of the competitive range, while compensation levels for seasoned executives would tend to be positioned at the higher end of the competitive range.

Based on its review, the Committee approved target total compensation for the named executive officers in February 2018. The chart below shows the elements of total target direct compensation for 2018 and provides a comparison of the total to 2017. It does not include other benefits or perquisites provided. All of the named executive officers received increases in total target direct compensation for 2018 except Mr. Bluhm, whose 2018 target direct compensation was determined at the time of his hiring in October 2017. A majority of the increases to the target total compensation for the named executive officers were to the variable components, reflecting the compensation program’s focus of emphasizing performance-based compensation. Mr. Risoleo’s compensation for 2018 was recommended by the Committee and approved after review and discussion of CEO performance with the independent directors of the Board. Among the factors considered were Mr. Risoleo’s growth in the role of CEO, his leadership in implementing strategic and organizational initiatives, and the strong performance of the Company since the beginning of his tenure.

 

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  COMPENSATION DISCUSSION AND ANALYSIS  

 

2018 Target Direct Compensation

 

     

Salary

 

  

Annual Cash

Incentive

 

  

Long-Term

Incentives (1)

 

  

Total Target Direct   

Compensation   

2018   

 

       

Total Target
Direct

Compensation

2017

 

 

Mr. Risoleo

 

     $

 

900,000

 

 

     $

 

1,350,000

 

 

     $

 

4,500,000

 

 

     $

 

6,750,000

 

  

 

         $

 

5,300,000

 

 

 

Mr. Bluhm

 

      

 

560,000

 

 

      

 

560,000

 

 

      

 

1,880,000

 

 

      

 

3,000,000

 

 

          

 

3,000,000

 

 

 

Mr. Tyrrell

 

      

 

530,000

 

 

      

 

530,000

 

 

      

 

1,340,000

 

 

      

 

2,400,000

 

 

          

 

2,018,410

 

 

 

Ms. Abdoo

 

      

 

566,500

 

 

      

 

566,500

 

 

      

 

1,550,000

 

 

      

 

2,683,000

 

 

          

 

2,325,000

 

 

 

Ms. Hamilton

 

      

 

425,000

 

 

      

 

425,000

 

 

      

 

700,000

 

 

      

 

1,550,000

 

 

          

 

1,450,000

 

 

 

(1)

This column reflects the “target” level value of long-term incentives. These are equity-based awards; two-thirds of the award value shown is performance-based and the remaining one-third of the award value shown is time-based, vesting ratably over three years. The Compensation Committee determines the dollar value that should be awarded and the number of shares of stock underlying the award is then determined by dividing the value by the average of the closing prices of the Company’s common stock on the New York Stock Exchange for the 60 calendar days preceding December 31, 2017, which was $19.64. The Compensation Committee believes that an average price over a period of time is a better gauge of value as it mitigates volatility of using single day beginning/ending stock prices.

2018 Compensation Results

Realized Pay

The table below, which supplements the Summary Compensation Table that appears on page 52, shows the compensation that might be realized for 2018 by each named executive officer. Our compensation program allows the named executive officers to earn variable compensation at “threshold”, “target” and “high” levels based on performance against:

 

   

objective financial measures (Adjusted FFO per diluted share and Return on Invested Capital);

 

   

personal objectives;

 

   

corporate objectives; and

 

   

relative TSR.

Realized compensation in 2018 was above total target direct compensation (which excludes amounts indicated under the column in the table below entitled “All Other Compensation”) because performance was above “target” for each of the measures used to assess performance noted above except relative TSR, which was slightly below “target”. The Compensation Committee believes that the program functioned as designed with pay tied to performance of the Company on key strategic objectives and aligned with stockholder interests. As we describe later in this CD&A, key performance results included the following:

 

   

We achieved strong performance against our annual financial metrics, with above “target” achievement against each of Adjusted FFO per diluted share and Return on Invested Capital measures. This is reflected in the table below under “Non-Equity Incentive Plan Compensation”;

 

   

We made significant progress against our corporate performance objectives. These included (i) executing on the Company’s long-term strategic objectives of reducing the Company’s international exposure and selling profitability-challenged hotels, while successfully completing the acquisition of several iconic properties; (ii) performing strongly against operational performance goals; and (iii) completing a targeted capital expenditure deal with Marriott International to reposition 17 hotels over a four-year period. These objectives are described in more detail below in the section entitled “2018 Results on Corporate Performance Objectives.”

 

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Our relative TSR performance was mixed, depending on the index used for comparison. We were above “target” compared to the NAREIT index and above “threshold” compared to the Lodging and S&P 500 indices, as described below in the section entitled “2018 Results on Relative TSR Measures.”

2018 Realized Pay Table (1)

 

Name    Salary    Bonus   

Performance-
Based Equity
Incentive

Awards (2)

  

All Other
Equity
Incentive

Awards (3)

  

Non-Equity

Incentive

Plan

Compensation

  

All Other

Compensation

  

2018 Total

Compensation

Realized

James F. Risoleo

     $ 900,000      $      $ 2,878,938      $ 844,702        $2,179,000        $195,350        $6,997,989

Michael D. Bluhm

       560,000        225,000  (4)         1,735,075        688,855        901,100        40,331        4,150,362

Nathan S. Tyrrell

       530,000               856,342        250,515        860,800        135,584        2,633,242

Elizabeth A. Abdoo

       566,500               997,802        297,664        903,100        106,876        2,871,942

Joanne Hamilton

 

      

 

425,000

 

 

      

 

 

 

      

 

460,895

 

 

      

 

145,627

 

 

      

 

657,700

 

 

      

 

80,059

 

 

      

 

1,769,280

 

 

 

(1)

Amounts shown for the “Salary”, “Bonus”, “Non-Equity Incentive Plan Compensation” and “All Other Compensation” columns equal the amounts reported in the Summary Compensation Table.

 

(2)

Amounts shown represent the value of the restricted stock unit awards that vested for performance year 2018. It excludes the value of awards that were forfeited. The value shown in this column is calculated by multiplying the number of shares vested by the closing price of the Company’s common stock on the vesting date of February 8, 2019, which was $17.97.

 

(3)

Amounts shown represent time-based restricted stock units that vested on February 8, 2019, February 13, 2019 and, for Michael Bluhm, November 6, 2018. We believe it is appropriate to include these amounts here because the awards each vested primarily because of the executive’s service during 2018.The value is calculated by the number of shares vested by the closing price of the Company’s common stock on the vesting dates, which were $17.97, $18.36 and $18.50, respectively.

 

(4)

Amount shown represents the final installment of Mr. Bluhm’s sign-on bonus and was paid in April 2018.

The difference between this supplemental table and the Summary Compensation Table primarily relate to the treatment of the long-term equity incentive awards, reflected in the “Stock Awards” column of the Summary Compensation Table and the “Equity Incentive Awards” and “All Other Equity Awards” columns of the Realized Pay Table above. In general, the amount of realized pay for the long-term equity incentive award was lower than the amounts reflected in the Summary Compensation Table because the amounts shown in the Summary Compensation Table for stock awards reflect the grant date fair value of entire stock awards at the time the stock awards were deemed to be granted for accounting purposes, which was February 8, 2018. In contrast, Realized Pay Table values the actual shares received based on fair market value of the Company’s common stock on the dates of vesting. It therefore excludes forfeitures and units that may vest in future years.

For a description of the grant date fair value of the stock unit awards, please see footnote 3 to the Summary Compensation Table. The Realized Pay Table above is not a substitute for the Summary Compensation Table and is intended to provide additional information that the Company believes is useful in facilitating an understanding of 2018 realized compensation amounts to named executive officers.

Salary

Base salary is set at an annual rate. Salary as a percentage of the named executive officers’ total target direct compensation ranged between 13% and 27% in 2018. Mr. Risoleo received a salary increase of 6% as part of the increase to his total target direct compensation, as discussed above under the section entitled “Target Compensation for 2018.” Ms. Hamilton also received a 6% salary increase reflective of her increased responsibilities on the Company’s corporate responsibility program and her oversight of the implementation of the Company’s new enterprise resource planning platform. Mr. Bluhm did not receive a salary increase in 2018 from his salary established at the time of his hiring in October 2017. Similarly, Mr. Tyrrell received a salary increase in connection with his promotion to Executive Vice President, Chief investment Officer in September 2017, and as a

 

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result did not receive a salary increase in 2018. Ms. Abdoo received a 3% salary increase, consistent with the standard increase for Company employees.

 

Name

 

  

Salary 2018

 

  

Salary 2017

 

  

Increase%

 

Mr. Risoleo

       $900,000        $850,000        6 %

Mr. Bluhm

       560,000        560,000       

Mr. Tyrrell

       530,000        530,000       

Ms. Abdoo

       566,500        550,000        3 %

Ms. Hamilton

       425,000        400,000        6 %

Annual Cash Incentive

All employees participate in the annual cash incentive program. Any awards earned are based on (1) the Company’s performance against two annual financial metrics, Adjusted FFO per diluted share (“Adjusted FFO”), and Return on Invested Capital (“ROIC”, defined below), and (2) performance on individual objectives. The annual cash incentive was weighted as follows for the named executive officers:

 

LOGO

The financial performance measures of Adjusted FFO and ROIC are key metrics for the Company and the most significant portion of executives’ annual cash bonus is tied to the Company’s financial performance for the year. FFO per diluted share is the predominant measure of operating performance used by real estate investment trusts and the Company uses the measure in accordance with NAREIT guidelines, with certain adjustments, as a supplemental measure of operating performance in its earnings releases and financial presentations and SEC filings. For more information on this measure and a reconciliation to the applicable GAAP measure, see the Company’s Annual Report on Form 10-K in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Host Inc. Reconciliation of Net Income to NAREIT and Adjusted Funds From Operations per Diluted Share” on page 80. ROIC provides an emphasis on investing capital effectively. In the cyclical real estate / hospitality market, this focus on using capital effectively enhances the opportunity for longer term stability and growth.

The individual performance goals create line of sight and motivate behaviors that support the Company’s annual business plan and long-term strategy. These goals represent the smallest component of the named executive officers’ annual incentive award opportunity, reflecting the Committee’s continued belief that the incentive emphasis for senior executives should be primarily based on Company performance.

In 2018, the target annual cash incentive represented between 19% and 27% of the named executive officers’ total target direct compensation. The total amount that a named executive officer may earn depends on: (1) salary or eligible earnings, because the award is calculated and paid as a percentage of the annual salary or amount

 

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earned, and (2) the level of performance achieved on Adjusted FFO and ROIC, and (3) the level of performance achieved on individual goals. Performance objectives were set early in 2018 at “threshold”, “target” and “high” levels and results are interpolated between these levels. There is no bonus if performance is below “threshold”, and bonuses are capped at the “high” level. The chart below shows the target annual incentive award as a percentage of salary for each named executive officer in 2018.

Target Annual Incentive

 

Name

 

  

Salary

 

  

Target

as % of

Salary

 

  

Target

Annual

Incentive

 

Mr. Risoleo

     $ 900,000        150  (1)       $ 1,350,000

Mr. Bluhm

       560,000        100        560,000

Mr. Tyrrell

       530,000        100        530,000

Ms. Abdoo

       566,500        100        566,500

Ms. Hamilton

       425,000        100        425,000

 

(1)

Mr. Risoleo’s target percentage of salary for his annual incentive was increased from 125% for 2017 to 150% for 2018 as part of the increase to his total target direct compensation, as discussed above in this CD&A under the section entitled “Target Compensation for 2018.”

2018 Results on Financial Measures. The “threshold”, “target” and “high” goals for Adjusted FFO and ROIC were established in February 2018 by the Compensation Committee based on, and subject to review and approval of, the Company’s 2018 business plan and budget by the Board of Directors. The chart below shows these measures and the Company’s actual results for 2018, which were determined by the Compensation Committee in February 2019.

2018 Actual Results on Financial Measures

 

LOGO

 

(1)

ROIC is calculated as comparable property-level EBITDA divided by the invested capital for all comparable consolidated properties. Property-level EBITDA is defined as the earnings before interest, taxes, depreciation and amortization of our comparable, owned hotels after eliminating corporate-level costs and expenses related to our capital structure. Invested capital is defined as the purchase price of a property plus all capital expenditures, excluding the furniture, fixture and equipment reserve contributions, which are typically 5% of gross revenues.

 

42

High $1.84 Target $1.60 Threshold $1.36 2018 Goals $1.77 (Above Target) 2018 Actual Results Adjusted FFO Per Diluted Share High 11.19% Target 9.73% Threshold 8.27% 2018 Goals 10.14% (Above Target) 2018 Actual Results ROIC(1)


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2018 Results on Individual Performance Goals. At the beginning of each year, senior management drafts and proposes individual performance goals based on the annual business plan of the Company, long-term strategic objectives and individual department objectives. The Compensation Committee reviewed these proposed goals at its February 2018 meeting, adopted any revisions it deemed appropriate and approved the named executive officers’ goals. Since they are tied to the Company’s plans and strategy, the goals are designed to be attainable at a “target” level. The Compensation Committee also conducted a mid-year review of the personal goals at its July 2018 meeting to ensure that they were still appropriate. No changes were made at that time. The Compensation Committee discussed each executive’s performance at its February 2019 meeting. Its assessments of the named executive officers were based, in part, on each executive’s written assessment of his or her performance as well as discussions with Mr. Risoleo. The Committee discussed each of the named executive officer’s performance and its recommendations with the independent directors in an executive session.

Mr. Risoleo’s individual objectives for 2018 were to lead the implementation of the Company’s strategic initiatives; communicate, meet and engage with key external stakeholders and to articulate a focused strategy; implement activities to further align the executive team; develop a senior leader succession plan; and actively participate with trade associations such as NAREIT, AH&LA, and the Real Estate Roundtable to address issues of importance to the Company. Target for individual goals was 30% of base salary. Actual performance for individual goals was 52.5%. Mr. Risoleo did not participate in the Committee’s determination of his individual goal achievement.

Mr. Bluhm’s 2018 objectives were to enhance enterprise analytics tools used for investments and screening of acquisitions; develop Company strategic positioning and messaging; maintain and grow the Company’s banking relationships, both commercial and investment; monitor the Company’s liquidity position, and to develop a strategy for currency and interest rate exposure; build relationships with top stakeholders and analysts and conduct extensive stakeholder outreach; and continue to strengthen and build relationships with direct reports. Target for individual goals was 20% of base salary. Actual performance for individual goals was 34.5%

Mr. Tyrrell’s 2018 objectives were to pursue acquisitions consistent with the Company’s business strategy; complete the disposition plan, including the sale of the Company’s interests in its European joint venture and the sale of international assets; complete the deal with Marriott International to reposition selected hotels; pursue the extension and purchase of certain ground leases and excess land; pursue management contract initiatives and alternative use opportunities; complete the integration of asset management and investments; and actively participate in investor outreach initiatives. Target for individual goals was 20% of base salary. Actual performance for individual goals was 36%.

Ms. Abdoo’s objectives in 2018 were to assist in the executive and senior management transition and organizational changes; oversee and provide legal support and analyses of strategic portfolio initiatives such as exiting overseas investments; oversee the legal analysis and negotiation of key investment and operational matters with major operators including the capital expenditure program with Marriott International for repositioning selected hotels; and oversee regulatory, labor, claims and litigation matters. Target for individual goals was 20% of base salary. Actual performance for individual goals was 33%.

Ms. Hamilton’s 2018 objectives were to continue to modify the organizational model to align with Company strategy; drive activities to further align the executive team and foster a collaborative and results oriented culture; develop an executive team coaching program; co-lead the design and planning for future office space; oversee the corporate responsibility program, including publishing the Company’s first annual sustainability report; incorporate corporate responsibility strategy into Company strategy and messaging; oversee completion of the IT strategy project and oversee implementation of the new enterprise resource planning platform. Target for individual goals was 20% of base salary. Actual performance for individual goals was 35.5%.

 

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Summary of Annual Cash Incentive. Based on the Committee’s review and determinations discussed above, the named executive officers received the following annual cash incentive for 2018:

 

               Results 2018 Annual Incentive
Name   

Target as %

of Salary

  

Target

Annual
Incentive

  

FFO

Award

  

ROIC

Award

  

Individual

Performance

  

Total

Annual
Incentive (1)

Mr. Risoleo

 

 

      

 

150

 

 

     $

 

1,350,000

 

 

     $

 

1,291,500

 

 

     $

 

414,986

 

 

     $

 

472,500

 

 

     $

 

2,179,000

 

 

Mr. Bluhm

 

 

      

 

100

 

 

      

 

560,000

 

 

      

 

535,733

 

 

      

 

172,142

 

 

      

 

193,200

 

 

      

 

901,100

 

 

Mr. Tyrrell

 

 

      

 

100

 

 

      

 

530,000

 

 

      

 

507,033

 

 

      

 

162,920

 

 

      

 

190,800

 

 

      

 

860,800

 

 

Ms. Abdoo

 

 

      

 

100

 

 

      

 

566,500

 

 

      

 

541,951

 

 

      

 

174,140

 

 

      

 

186,945

 

 

      

 

903,100

 

 

Ms. Hamilton

       100        425,000        388,600        124,865        144,202        657,700

 

(1)

Total annual incentives amounts are rounded up to the nearest $100.

Long-Term Incentives

The long-term incentives are equity-based awards, which, in 2018, were made entirely in the form of restricted stock units. These awards represent the largest component of the named executive officers’ total target direct compensation, representing between 45% and 67% in 2018. Dividends accrue on unvested awards, but are paid only when, and if, the restrictions on the awards lapse.

 

 

The majority of our long-term incentive compensation is performance-based. Performance-based restricted stock units vest upon achievement of relative TSR and corporate performance goals. These measures provide a link to stockholder value, with recognition of the other companies against which Host may be competing against for capital.

 

Under the 2018 compensation program, awards of restricted stock units are eligible to vest based on the following:

 

   

Corporate strategic objectives (34% of the long-term incentive opportunity) that are drivers of long-term value. These annual objectives based on the Company’s budget and strategic plan are approved by the Compensation Committee at the beginning of the year;

 

   

Relative TSR measures (33% of the long-term incentive opportunity) that compare the Company’s three-year performance (2018-2020) to the performance of each of the following indices, equally weighted: NAREIT Equity Index; S&P 500 Index; and select hospitality companies against whom the Company competes for capital (the “Lodging Index”); and

 

   

Time-based (33% of the long-term incentive opportunity) restricted stock units that vest ratably over a three-year period.

Achievement levels for the corporate objectives and relative TSR measures are set for “threshold” at which 25% of shares may be earned, “target”, at which 50% of the shares may be earned and “high” performance, at which all shares are earned. No shares are earned if performance is below threshold, and results will be interpolated between the levels of threshold, target and high.

 

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The vesting of the restricted stock units is summarized below:

2018 Restricted Stock Unit Vesting

 

LOGO

2018 Results on Corporate Performance Objectives. Corporate objectives represent 34% of the target stock award. These objectives are tied to the annual business plan and strategy of the Company with an emphasis on encouraging the objectives and results that the Company believes will ultimately drive long-term stockholder value creation and preservation. The objectives were reviewed and approved by the Compensation Committee in February 2018. Summarized below is an assessment of our Company’s performance against the corporate level objectives established for 2018, the indicated level of achievement, and the corresponding percentage of target award earned.

 

Investments & Dispositions

 

Weighting

 

 

Target

 

 

Achieved

 

 

Achievements

 

 

 

 

 

20

 

%     

   

 

 

 

6.8

 

%

   

 

 

 

13.6

 

%

 

 

The Company completed opportunistic acquisitions of the Andaz Maui, Grand Hyatt San Francisco, and Hyatt Regency Coconut Point Resort & Spa for $1 billion, and each is consistent with the Company’s strategy to acquire iconic and irreplaceable hotels. At the same time, the Company executed on its strategy to refocus on the U.S. through the sale of its interest in its European joint venture and the sale of the JW Marriott Hotel Mexico City. The Company also successfully executed on its strategy to reduce exposure to the profitability challenged New York market through sales of the W New York on Lexington Avenue, the W New York Union Square, the Westin Grand Central hotel (on January 9, 2019) and the sale of the New York Marriott Marquis retail, theater and signage. These acquisitions and sales collectively represented the strong execution of the Company’s capital recycling strategy.

 

Operations

 

Weighting

 

 

    Target

 

    

Achieved

 

    

Achievements

 

 

20%

 

 

 

 

6.8%

 

 

  

 

 

 

10.2%

 

 

  

 

The Company had a strong year operationally and exceeded performance targets established in February 2018 for its comparable hotels. The targets and performance were as follows:

                               Budget                    Actual        
        Comparable RevPAR growth    1.0%    2.0%
        Comparable food & beverage revenue growth    0.6%    2.5%
        Total comparable hotel revenue growth    1.6%    2.4%
        Comparable hotel EBITDA margin    (40) bps    59 bps
        Comparable hotel results are non-GAAP financial measures. For more information on these measures as well as reconciliations to the applicable GAAP measures, and a description of how we define our comparable hotels, see the Company’s Annual Report on Form 10-K in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures—Comparable Hotel Results” beginning on page 81 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Comparable Hotel Operating Statistics” beginning on page 73.

 

45

The Company’s relative TSR Performance is compared against the three indices over a forward looking three-year period (2018-2020). The Company is a constituent of the NAREIT Equity Index and the S&P 500 Index. NAREIT Equity Index S&P 500 Index Select hospitality companies that serve as relevant industry/asset-specific competitors for capital “Lodging Index” 11% 11% 11% 34% 33% Corporate Objectives Time-Based


Table of Contents

 

  COMPENSATION DISCUSSION AND ANALYSIS  

       

 

 

Finance & Corporate Strategy

 

Weighting

 

    

Target

 

    

Achieved

 

    

Achievements

 

 

 

 

20%    

 

 

  

 

 

 

6.8%

 

 

  

 

 

 

13.6%

 

 

  

 

The Company achieved the strongest balance sheet (in terms of leverage and interest coverage) in the Company’s history, maintaining the Company’s investment grade bond rating. The Company enhanced its investor outreach, successfully executing on a plan targeted to major institutional investors and research analysts. The Company also overhauled its investor presentation to provide a concise message about the Company’s strategy and competitive positioning and enhanced its supplemental financial information to provide property level results for its top hotels.

 

Organizational

 

Weighting

 

    

Target

 

    

Achieved

 

    

Achievements

 

 

 

 

20%    

 

 

  

 

 

 

6.8%

 

 

  

 

 

 

13.6%

 

 

  

 

The Company executed on organizational changes announced in 2017 and completed the integration of the asset management and investment functions under a new chief investment officer. The Company also continued to make progress on its IT strategy and implementation of a new enterprise resource planning platform.

 

Value Enhancement & Redevelopment

 

Weighting

 

    

Target

 

    

Achieved

 

    

Achievements

 

 

 

 

20%    

 

 

  

 

 

 

6.8%

 

 

  

 

 

 

10.2%

 

 

  

 

The Company completed its targeted capital expenditures deal with Marriott International to reposition 17 hotels over the next four years in exchange for operating performance guarantees and improved owners’ priority return. The Company also acquired the ground lease at the San Antonio Riverwalk in furtherance of its strategy to increase hotel value, and completed a management change at the Camby hotel.

Totals for All Corporate Objectives

 

Weighting

 

  

Target

 

  

Achieved

 

    

Equity as a Percentage of Target

 

         

 

100%

  

 

34%

  

 

 

 

61.2%

 

 

  

 

180%

     

The chart below shows, for each named executive officer, the total number of restricted stock units that were eligible to be earned on corporate objectives, the “target” level of such restricted stock units, the actual number of such restricted stock units earned and the number of such restricted stock units forfeited by each named executive officer.

 

     Corporate Performance Restricted Stock Units
     

Restricted
Stock Units

Granted

(High)

  

Restricted
Stock Units

(Target)

  

Restricted
Stock Units

Earned

  

Restricted
Stock Units

Forfeited

 

Mr. Risoleo

 

      

 

155,777

 

 

      

 

77,889

 

 

      

 

140,199

 

 

      

 

15,578

 

 

 

Mr. Bluhm

 

      

 

65,080

 

 

      

 

32,540

 

 

      

 

58,572

 

 

      

 

6,508

 

 

 

Mr. Tyrrell

 

      

 

46,387

 

 

      

 

23,194

 

 

      

 

41,748

 

 

      

 

4,639

 

 

 

Ms. Abdoo

 

      

 

53,656

 

 

      

 

26,828

 

 

      

 

48,290

 

 

      

 

5,366

 

 

 

Ms. Hamilton

 

      

 

24,232

 

 

      

 

12,116

 

 

      

 

21,809

 

 

      

 

2,423

 

 

2018 Results on Relative TSR Measures. The equity awards granted in 2018 will vest based on the Company’s relative TSR performance over the three-year period of 2018 – 2020 and therefore none of the awards were eligible to vest in 2018. In 2017, we transitioned to using a forward-looking relative TSR performance period to align the executives with future stockholder value creation and to better reflect best practices. This was a change from the prior program which used a mostly historical look back period for assessing relative TSR performance. As a result, 2017 was a transition year, and the restricted stock units granted in 2017 that vest based on relative TSR were divided into three separate tranches with one, two and three-year performance periods. By providing this

 

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transition, a certain number of relative TSR-vesting restricted stock units continued to be eligible to vest each year, albeit a smaller amount, subject to meeting the vesting requirements. Accordingly, the restricted stock units eligible to vest for 2018 reflect not the 2018 grant but one-third of the performance-based restricted stock unit awards that were granted in 2017 and which were eligible to vest based on the Company’s relative TSR (measured as a percentile) compared to the three market indices for the period January 1, 2017 through December 31, 2018. No restricted stock units are earned if performance is below “threshold”.

2017 – 2018 Actual TSR Results (1)

 

LOGO

 

(1)

TSR is the increase in the price of the Company’s common stock at year-end December 2018 over the price at year-end December 2016, plus dividends paid on the Company’s common stock during each year. The stock price will be calculated, in each case, as the average of the closing price of the Company’s common stock on the NYSE on the last 60 calendar days of the year.

 

(2)

The Lodging Index is comprised of the following companies: Chesapeake Lodging Trust, Diamondrock Hospitality Co., LaSalle Hotel Properties, Park Hotels & Resorts, Inc., Pebblebrook Hotel Trust, RLJ Lodging Trust, Sunstone Hotel Investors, Inc. and Xenia Hotels & Resorts, Inc. Hyatt Hotels Corporation was removed from the index for 2018 because of its stated goal of selling hotel properties to become “asset-light” and primarily a hotel operator, which represents a different business model from the Company. Ryman Hospitality Properties was removed because it owns a very limited number of large group-oriented properties and has a different business model from the Company. The two companies removed by the Compensation Committee were replaced with Park Hotels & Resorts and Xenia Hotels & Resorts, both of which are real estate investment trusts, like the Company, with more comparable properties and business models.

The chart below shows for each named executive officer, the actual number of restricted stock units earned and forfeited by each named executive officer that were eligible to vest based on the Company’s relative TSR over the two-year period of 2017 and 2018. More restricted units were forfeited then vested for each of the named executive officers based on the Company’s overall slightly below “target” performance on relative TSR.

 

     2017 – 2018 TSR-Based Restricted Stock Units
     

Restricted
Stock Units

Granted
(High)

  

Restricted
Stock Units

Granted
(Target)

  

NAREIT
Index

Units
Earned

  

Lodging
Index

Units
Earned

  

S&P
Index

Units
Earned

   Total
   Restricted
Stock Units
Earned
   Restricted
Stock Units
Forfeited

Mr. Risoleo

 

      

 

42,687

 

 

      

 

21,344

 

 

      

 

8,944

 

 

      

 

4,698

 

 

      

 

6,367

 

 

      

 

20,009

 

 

      

 

22,678

 

 

 

Mr. Bluhm

 

      

 

81,036

 

 

      

 

40,518

 

 

      

 

16,979

 

 

      

 

8,918

 

 

      

 

12,085

 

 

      

 

37,982

 

 

      

 

43,054

 

 

 

Mr. Tyrrell

 

      

 

12,602

 

 

      

 

6,301

 

 

    

 

 

 

2,640

 

      

 

1,387

 

 

      

 

1,879

 

 

      

 

5,906

 

 

      

 

6,696

 

 

 

Ms. Abdoo

 

      

 

15,438

 

 

      

 

7,719

 

 

      

 

3,235

 

 

      

 

1,699

 

 

      

 

2,302

 

 

      

 

7,236

 

 

      

 

8,202

 

 

 

 

Ms. Hamilton

    

 

 

 

8,190

 

    

 

 

 

4,095

 

    

 

 

 

1,716

 

    

 

 

 

901

 

    

 

 

 

1,222

 

    

 

 

 

3,839

 

    

 

 

 

4,351

 

Summary of Performance-Based Restricted Stock Units Results. The chart below summarizes the number of performance-based restricted stock units that were eligible to vest for 2018 and the number of performance-based restricted stock units earned and forfeited by the named executive officers for 2018. The total number of performance-based restricted stock units earned was slightly above “target” due to the Company’s results on corporate performance objectives (close to “high”) and relative TSR measures for 2018 (slightly below “target”). A

 

47

High 75th Percentile Target 50th Percentile Threshold 30th Percentile 2018 Goals 56th Percentile (Above Target) 2018 Actual Results NAREIT TSR High 75th Percentile Target 50th Percentile Threshold 30th Percentile 2018 Goals 36th Percentile (Above Target) 2018 Actual Results Lodging Index TSR(2) High 75th Percentile Target 50th Percentile Threshold 30th Percentile 2018 Goals 46th Percentile (Above Target) 2018 Actual Results S&P Index TSR


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substantial portion of the award was nevertheless forfeited because performance was not at “high” for either of the corporate performance objectives or relative TSR measures for 2018.

 

     

Total Restricted

Stock Units

Eligible to Vest
For 2018

  

Total Restricted

Stock Units

Earned For
2018

  

Total Restricted

Stock Units

Forfeited For
2018

Mr. Risoleo

       198,464        160,208        38,256

Mr. Bluhm

       146,116        96,554        49,562

Mr. Tyrrell

       58,989        47,654        11,335

Ms. Abdoo

       69,094        55,526        13,568

Ms. Hamilton

 

      

 

32,422

 

 

      

 

25,648

 

 

      

 

6,774

 

 

Risk Considerations

Prior to adopting the annual compensation program in 2018 and making its determinations on results and payments under the program, the Compensation Committee considered whether the design and structure created incentives for senior management to engage in unnecessary or excessive risk taking. The executive compensation program is designed to compensate the named executive officers and other members of senior management for reaching or exceeding financial, personal and corporate goals approved by the Compensation Committee. The Committee considered the following factors:

 

   

the pay mix is weighted toward long-term incentives that align senior management interests with stockholders;

 

   

total pay is capped—including annual cash incentives and long-term incentives;

 

   

both annual incentives and long-term incentives have a formulaic framework with pre-established targets and pre-set formulas and limits for pay-outs;

 

   

“tally sheets” for the named executive officers, prepared by Pay Governance, are reviewed and address all elements of compensation and potential outcomes under a range of scenarios from low to high performance;

 

   

stock ownership and retention guidelines ensure that senior management will retain an ownership stake and prohibit sales that would allow executives to fall below the ownership requirements;

 

   

internal policies prohibit use of margin accounts, hedging or pledging of stock;

 

   

a recoupment policy is in effect (as described in more detail below);

 

   

performance metrics are tied to key measures of short-term business success (such as Adjusted FFO and ROIC) and long-term success (TSR measures);

 

   

individual performance is emphasized, allowing line-of-site with controllable results;

 

   

financial performance is reviewed with the Audit Committee; and

 

   

the financial measures of Adjusted FFO and ROIC are tied to the annual budget and business plan which the Board reviews, discusses and approves.

The Compensation Committee has full responsibility for approving the goals and the resulting payouts and retains the discretion to reduce awards as appropriate. Based on these factors, the Company believes that the program appropriately focuses on executive performance and does not create an incentive for management to engage in unnecessary and excessive risk taking.

Additional Policies and Benefits

While the key elements of the executive compensation program and compensation actions are described above, the named executive officers are also eligible to participate in the Company’s health and welfare programs, our tax-qualified Retirement and Savings Plan (401(k)), and other programs on the same basis as all other employees. There are also additional benefits and policies that apply only to the named executive officers and other senior executives, which are described here.

 

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Stock Ownership and Retention Policy

All members of senior management must comply with the Company’s equity ownership and retention policy, which ensures that senior executives have a meaningful economic stake in the Company, while allowing for appropriate portfolio diversification. The policy, which was amended effective May 16, 2018, provides that members of senior management should own and retain stock equal to the following respective multiple of their annual salary rate:

 

LOGO

Members of senior management are expected to satisfy the minimum stock ownership levels required by the policy and, once achieved, remain at, or above, their required ownership level as long as they remain employed by the Company. In order to progress toward the stock ownership requirement, employees must retain 75% of “Covered Shares” until the equity ownership level is attained. For the purposes of the policy, “Covered Shares” are the net after-tax shares received upon the vesting of each stock award under any Company equity compensation plan or other written compensation arrangement. Only certain types of equity are counted when determining compliance with the policy: (a) stock owned directly; (b) stock purchased through the Company’s stock purchase or deferred stock plans; and (c) stock acquired as a result of vesting of stock under the Company’s equity compensation program. Vested and unvested stock options or stock options exercised and held are not included in the calculation.

Senior management is prohibited from selling more than 25% of Covered Shares if they are not in compliance with the applicable minimum ownership levels or if the sale would result in holdings below the guidelines. None of senior management has a plan in place by which they sell Company stock on a periodic basis (referred to as a 10b5-1 plan). The Compensation Committee reviews compliance with the policy, and all named executive officers complied with the policy in 2018. All named executive officers have met the required stock ownership levels except for Mr. Bluhm, who was hired in the fall of 2017. Pursuant to the policy, therefore, Mr. Bluhm may not currently sell more than 25% of his Covered Shares.

Recoupment Policy

The Company adopted a policy, effective January 1, 2012, that requires the reimbursement of excess incentive compensation payments in the event that the Company is required to make a material restatement of its financial statements. The policy applies to all members of senior management and ensures that any fraud, intentional misconduct or illegal behavior leading to a restatement of the Company’s financial result would be properly addressed. Under the policy, the Board would review all incentive plan compensation that was paid on the basis of having met or exceeded specific performance targets for performance periods in question. If the cash incentive awards or stock compensation received under the program would have been lower had they been calculated based on such restated results, it is the general policy of our Board to seek to recoup, for the benefit of the Company, the portion of the excess compensation that was received by any individual who engaged in fraud, intentional misconduct or illegal behavior in connection with the financial results that were restated. The Board will,

 

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in its reasonable business judgment, decide whether to pursue such recoupment from an individual based on those factors that our Board believes to be reasonable. The policy will be revised under the Dodd-Frank Act once regulations implementing the recoupment policy requirements of that law are finalized.

Insider Trading Controls, Hedging, Short Sales and Pledging

Because we believe it is improper and inappropriate for any Company personnel to engage in short-term or speculative transactions involving our stock, the Company’s Insider Trading Policy Statement, which was adopted in 2001, provides that directors, officers and employees, and family members sharing the same household, abide by the following policies with respect to Company securities:

 

   

No “in and out” trading in Company securities; Company securities purchased in the open market must be held for a minimum of six months and ideally longer;

 

   

No short sales; these sales, including “selling against the box” transactions, are prohibited;

 

   

No buying or selling puts or calls; options or other derivatives on our stock or other securities or entering into hedging transactions on Company securities are prohibited; and

 

   

No Margin Accounts or Stock Pledges; the Company prohibits employees and directors from purchasing Company securities on margin or holding Company securities in a margin account or otherwise pledging Company securities as collateral for loans.

Executives and directors annually certify that they have complied with the policy, and no Company securities are currently pledged nor will executives and directors be permitted to pledge them in the future.

Perquisites and Other Personal Benefits

We provide executive officers with perquisites that we believe to be fair, reasonable and primarily based on our business. They consist of (1) dining, complimentary rooms and other hotel services when on personal travel at hotels that we own or that are managed by our major operators, (2) financial planning and tax services, and (3) reimbursement for taxes associated with these benefits. We are in the lodging industry and we believe that it is appropriate to encourage our executives to continually enhance their understanding of our properties and the operations of our key managers at our properties and other hotels in the same class as our portfolio. This assists in portfolio development and improvements. In addition, we believe that offering financial planning and tax services represents a minimal cost while ensuring that executives are in compliance with tax requirements. Since we encourage our executives to use these perquisites and the Company gains benefits from their knowledge and feedback on our managers and properties, we feel that it is appropriate to reimburse them for the taxes incurred upon such benefits.

Executive Deferred Compensation Plan

Our Executive Deferred Compensation Plan allows participants to save for retirement in excess of the limits applicable under our Retirement and Savings Plan. It is not a tax qualified plan. Eligible employees, including the named executive officers, may defer up to 100% of their cash compensation (that is, salary and bonus) in excess of the amounts first deferred into the Retirement and Savings Plan. We provide a match of $.50 for each $1.00 deferred under the plan, up to a maximum of 8% of the participant’s compensation less the amount credited to the Retirement and Savings Plan. In addition, we may make a discretionary matching contribution of up to $.50 on each $1.00 up to 8% of the participant’s compensation. This is the only non-qualified retirement plan offered to senior executives. The Company does not have a pension plan and does not have a supplemental executive retirement program.

Severance Plan

The Company has a severance plan that has been in effect since 2003 and applies to employees at the level of senior vice president and above. The Compensation Committee believes that a severance plan allows the Company to provide properly designed severance benefits on a consistent basis, which promotes stability and continuity of senior management. The Committee annually reviews the terms of the severance plan. The provision of severance upon a change in control aligns the Company’s interests with its stockholders by eliminating

 

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distractions that arise with the uncertainty of these transactions and avoiding the loss of key members of management during a critical period. The severance plan requires a “double trigger” for payment in the context of a change in control, that is, there must be both a change in control and a termination by the Company without “cause” or by the executive for “good reason” in the period beginning 30 days prior to the change in control and ending one year after the change in control. The severance plan does not provide for tax gross-ups on any payments made in connection with a termination or a change in control. The cost of any excise tax that a member of senior management might incur related to a payment under the plan would be borne by the individual. The Company believes the severance plan is appropriate, and the Compensation Committee reviews annually trends in severance practices for executives. In addition, prior to its annual compensation determinations, the Compensation Committee reviews the level of severance pay and benefits that the named executive officers would receive under the plan and under stock and option agreements. Under the restricted stock unit agreements a change in control coupled with a triggering event would result in the acceleration and vesting of all long-term incentive awards.

For additional information regarding the severance plan, including an estimate of payments the named executive officers would have been entitled to receive on December 31, 2018 upon various termination events, see “Executive Officer Compensation—Severance and Change in Control Payments.”

Tax and Accounting

Section 162(m) of the Internal Revenue Code (“Section 162(m)”) provides that a publicly held corporation may not claim a deduction for compensation in excess of $1 million paid to its principal executive officer, its principal financial officer and its three other highest paid officers. Effective for tax years beginning after December 31, 2017, there generally is no longer an exception from this rule for performance-based compensation. Our executives, and all other employees, are employed by Host Hotels & Resorts, L.P., the operating partnership through which we conduct all operations, and its subsidiaries, and not directly by the Company. As a result, we believe that none of our employees are subject to the $1 million compensation deduction limit under Section 162(m).

However, in the event that some portion of employee compensation is subject to Section 162(m) and is not deductible, our taxable income would increase to the extent of the disallowed deduction and we could be required to make additional dividend distributions to our stockholders or to pay tax on the undistributed income provided that we have distributed at least 90% of our adjusted taxable income. In such event, the Compensation Committee may consider the anticipated tax treatment to the Company and the executive officers in its review and establishment of compensation programs and payments. However, the deductibility of some types of compensation payments can depend upon the timing of an executive’s vesting or exercise of previously granted rights. Interpretations of, and changes in, applicable tax laws and regulations as well as other factors beyond the Committee’s control also may affect deductibility of compensation. Accordingly, the Committee may determine that it is appropriate to structure compensation packages in a manner that may not be deductible under Section 162(m).

All restricted stock unit awards to senior executives have been classified as equity awards for accounting purposes and the Company recognizes compensation expense based on the fair value of the award as of the grant date. The Committee makes its assessments on the appropriate value of the restricted stock unit awards for target compensation based on the fair market value of the common stock using a 60 day calendar average of closing stock prices of the Company’s common stock on the New York Stock Exchange and also considers the closing price of the stock on the date of grant. The Committee believes that an average price over a period of time is a better gauge of value as it mitigates volatility.

The grant date fair value of the awards is calculated in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures, which is the methodology the Company uses to expense the awards for accounting purposes on its financial statements and is also the methodology used for valuing the awards on the Summary Compensation Table that follows. These values are based, in part, on the grant date stock price. Because the Compensation Committee typically uses a 60-day average in determining the fair market value of the restricted stock unit award, and did so in 2018, differences between the grant date stock price value and the 60-day average price will result in differing valuations. For that reason, the values reflected in the 2018 Target Compensation Table may be higher or lower than the grant date fair value of the award for accounting purposes and as reflected on the Summary Compensation Table.

 

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EXECUTIVE OFFICER COMPENSATION

Summary Compensation Table for Fiscal Year 2018

 

Name

 

  

Year

 

   Salary (1)    Bonus (2)   

Stock

Awards (3)

  

Option

Awards (4)

  

Non-Equity

Incentive Plan

Compensation (5)

  

All Other

Compensation (6)

   Total

Richard E. Marriott (*)

Chairman of the Board

 

 

 

 

      

 

2018

 

 

     $

 

396,777

 

 

     $

 

 

 

     $      $        $    435,700        $    70,527      $ 903,004
      

 

2017

 

 

      

 

396,777

 

 

                            381,800        93,918        872,495
      

 

2016

 

 

      

 

396,777

 

 

                            316,800        45,124        758,701

 

James F. Risoleo

President and Chief Executive Officer

 

 

 

       2018        900,000               4,706,825               2,179,000        195,350        7,981,174
       2017        850,000               3,831,102               1,427,000        116,163        6,224,265
       2016        576,800               485,792        70,903        637,100        92,997        1,863,591

 

Michael D. Bluhm

Executive Vice President, Chief Financial Officer

 

 

       2018          560,000          225,000          1,966,392                   901,100          40,331          3,692,823  
       2017          107,397          225,000          3,635,586                                     3,967,983  

 

Nathan S. Tyrrell

Executive Vice President, Chief Investment Officer

 

 

 

       2018          530,000                   1,401,609                   860,800          135,584          2,927,993  
       2017          509,205                   1,130,949                   686,500          65,801          2,392,455  

 

Elizabeth A. Abdoo

Executive Vice President, General Counsel

 

 

      

 

2018

 

 

       566,500               1,621,214               903,100        106,876        3,197,690
      

 

2017

 

 

       550,000               1,385,413               757,900        62,650        2,755,963
      

 

2016

 

 

       488,050               573,585        83,714        548,800        60,318        1,754,468

 

Joanne Hamilton

Executive Vice President, Human Resources

 

 

 

      

 

2018

 

 

      

 

425,000

 

 

              732,189               657,700        80,059        1,894,947
        

 

2017

 

 

      

 

400,000

 

 

      

 

 

 

      

 

735,113

 

 

      

 

 

 

      

 

559,200

 

 

      

 

109,444

 

 

      

 

1,803,757

 

 

 

*

Mr. Marriott is not a named executive officer under the SEC rules, but summary compensation information is provided in the interest of full disclosure.

Salary (1)

 

  

Salary is established at an annual rate, determined on the basis of a 52-week year, and is paid bi-weekly. The amount listed in the salary column includes amounts deferred at the election of the named executive officer under our Executive Deferred Compensation Plan in any such year. Mr. Bluhm’s 2017 salary amount reflects his prorated annual salary of $560,000 from his date of hire, October 23, 2017. Mr. Tyrrell’s 2017 salary amount reflects his prorated salary increase to $530,000 effective September 11, 2017 in connection with his promotion to Executive Vice President, Chief Investment Officer.

Bonus (2)

 

  

The only amounts in this column are a sign-on bonus paid to Mr. Bluhm in two equal installments.

 

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Stock Awards (3)

 

  

The amounts in this column reflect the aggregate grant date fair value of restricted stock unit awards calculated in accordance with FASB ASC Topic 718, based upon the probable outcome of the performance conditions as of the grant date, excluding the effect of estimated forfeitures, which is the methodology that the Company uses to expense the awards for accounting purposes. These amounts do not reflect the number or value of the common shares that were actually earned. For a chart of 2018 realized pay for each of the named executive officers, see page 40 of the Compensation Discussion & Analysis (“CD&A”).

 

  

The CD&A explains the conditions for vesting of the restricted stock units, which for 2018 are: (i) the satisfaction of annual corporate performance objectives (“Performance-based Awards”), (ii) the results of the Company’s total stockholder return (“Market-based Awards”) compared against three indices, the NAREIT Equity Index, a lodging index of eight companies (“Lodging Index”), and the S&P 500 Index (“S&P Index”), with the Company’s total stockholder return compared against each of the three indices over a three year performance period, and (iii) time based, with restricted stock units vesting over a three-year period in substantially equal installments (“Time-based Awards”).

 

  

Assuming the highest level of performance is achieved and all restricted stock units vest, the fair value of the 2018 restricted stock unit awards based on the grant date stock price would be as follows: Mr. Risoleo $6,167,225; Mr. Bluhm $2,576,517; Mr. Tyrrell $1,836,478; Ms. Abdoo $2,124,239; and Ms. Hamilton $959,364.

 

  

For information on the assumptions and methodology used in calculating the grant date fair values based on the probability of achievement at “target” as reflected in the table, see “Note 9—Employee Stock Plans—Senior Executive Plan” in the Notes to Condensed Consolidated Financial Statements in our 2018 Annual Report on Form 10-K.

Option Awards (4)

 

  

No options were granted in 2017 or 2018. The amounts in this column for 2016 reflect the grant date fair values of stock options computed in accordance with FASB ASC Topic 718.

Non-Equity Incentive Plan Compensation (5)

 

  

These amounts reflect the annual cash incentive awards paid to each named executive officer, or deferred under the Executive Deferred Compensation Plan.

All Other Compensation (6)

 

  

All Other Compensation consists of: Company contributions to the Retirement and Savings Plan (“401(k) Plan”), which is available to all employees, and the Executive Deferred Compensation Plan; perquisites and other personal benefits; and tax reimbursements. The amounts are as follows:

 

   

Matching contributions of $9,250 made under the 401(k) Plan to each of Mr. Marriott, Mr. Risoleo, Mr. Bluhm, Mr. Tyrrell, Ms. Abdoo and Ms. Hamilton.

 

   

Discretionary matching contributions of $9,250 made under the 401(k) Plan to each of Mr. Marriott, Mr. Risoleo, Mr. Bluhm, Mr. Tyrrell, Ms. Abdoo and Ms. Hamilton.

 

   

Matching contributions made under the Executive Deferred Compensation Plan as follows: Mr. Marriott, $21,893; Mr. Risoleo, $70,459; Mr. Tyrrell, $29,558; Ms. Abdoo, $43,713; and Ms. Hamilton $25,418.

 

   

Discretionary match made under the Executive Deferred Compensation Plan as follows: Mr. Marriott, $21,893; Mr. Risoleo, $70,459; Mr. Tyrrell, $29,558; Ms. Abdoo, $43,713; and Ms. Hamilton $25,418.

 

   

Total cost of perquisites that executive officers are eligible to receive. These perquisites consisted of financial planning and tax services, dining, complimentary rooms and other hotel services when on personal travel at hotels owned by us or managed by our major operators. The cost of each of these benefits is as follows:

 

     Mr. Marriott   Mr. Risoleo   Mr. Bluhm   Mr. Tyrrell   Ms. Abdoo   Ms. Hamilton

Financial and Tax Planning

 

    $     $ 2,000     $     $     $ 950     $

Dining, rooms & hotel services

 

     

 

4,261

 

 

     

 

17,960

 

 

     

 

11,287

 

 

     

 

29,970

 

 

     

 

 

 

     

 

5,544

 

 

 

   

Tax reimbursements to each of the named executive officers associated with the perquisites: Mr. Marriott, $3,980; Mr. Risoleo, $15,972; Mr. Bluhm, $10,544; Mr. Tyrrell, $27,999; and Ms. Hamilton $5,179. Ms. Abdoo elected not to gross up her perquisites.

 

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Grants of Plan-Based Awards in Fiscal Year 2018

The following table provides information about the possible payments under our annual cash incentive award in 2018 and the awards of restricted stock units in 2018.

 

          Estimated Possible Payments
Under Non-Equity Incentive
Plan Awards (1)
    Estimated Future Payments
Under Equity Incentive
Plan Awards (2)
   

All Other

Stock

Awards (3)

#

   

Full

Grant

Date Fair

Value (4)

 
Name  

Grant

Date

   

Threshold

$

   

Target

$

   

Maximum

$

   

Threshold

#

   

Target

#

    

Maximum

#

 
                   

Richard E. Marriott

    8-Feb-18       148,791       297,583       595,166             

James F. Risoleo

    8-Feb-18       675,000       1,350,000       2,700,000             
    8-Feb-18             76,743       153,486        306,971       $ 3,289,362  
    8-Feb-18                    75,598     $ 1,417,463  

Michael D. Bluhm

    8-Feb-18       280,000       560,000       1,120,000             
    8-Feb-18             32,061       64,123        128,245       $ 1,374,211  
    8-Feb-18                    31,583     $ 592,181  

Nathan S. Tyrrell

    8-Feb-18       265,000       530,000       1,060,000             
    8-Feb-18             22,853       45,706        91,411       $ 979,528  
    8-Feb-18                    22,511     $ 422,081  

Elizabeth A. Abdoo

    8-Feb-18       283,250       566,500       1,133,000             
    8-Feb-18             26,433       52,867        105,733       $ 1,132,983  
    8-Feb-18                    26,039     $ 488,231  

Joanne Hamilton

    8-Feb-18       212,500       425,000       850,000             
    8-Feb-18             11,938       23,876        47,752       $ 511,689  
     

 

8-Feb-18

 

 

 

                                                    

 

11,760

 

 

 

  $

 

220,500

 

 

 

 

(1)

As described under “Annual Cash Incentive” in the CD&A, these are amounts that may be earned based on the financial performance of the Company, which is measured by Adjusted FFO and ROIC, and on the personal performance by each executive on objectives approved by the Compensation Policy Committee. The Chief Executive Officer has an incentive target of 150% of base salary earned in the calendar year and the other named executive officers have an incentive target of 100% of base salary earned in the calendar year. The actual amounts earned by the named executive officers in 2018 are reflected in the Summary Compensation Table under the column “Non-Equity Incentive Plan Compensation” and are described in the CD&A under “2018 Compensation Results—Annual Cash Incentive.”

 

(2)

Under our 2018 compensation program, senior management received a restricted stock unit award on February 8, 2018, which was eligible to vest subject to performance conditions. The performance conditions are the satisfaction of annual corporate performance objectives and the results of the Company’s annual total stockholder return compared against three indices, the NAREIT Equity Index, the Lodging Index, and the S&P Index over a three year performance period. Dividends accrue on the restricted stock units, but are not paid unless the restricted stock units vest.

 

(3)

Under our 2018 compensation program, senior management received a time-based restricted stock unit award on February 8, 2018, with restricted stock units vesting annually over a three-year period in substantially equal installments provided the executive remains employed by the Company at the time of vesting. The full number of restricted stock units that could vest during the three-year period is shown, even though the executive will not fully vest in these units until the third anniversary of the grant date.

 

(4)

The amounts reflect the grant date fair value of restricted stock unit awards calculated in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures. See “Note 9—Employee Stock Plans & Senior Executive Plan” in the Notes to Condensed Consolidated Financial Statements in our 2018 Annual Report on Form 10-K for information on the assumptions and methodology used in calculating the grant date fair values.

 

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  EXECUTIVE OFFICER COMPENSATION  

 

Outstanding Equity Awards at 2018 Fiscal Year End

The following table summarizes all the equity awards made to the named executive officers that were outstanding as of December 31, 2018.

 

        Option Awards (1)   Stock Awards
Name   Grant
Date
 

Number of

Shares

Underlying

Unexercised

Options

Exercisable

#

 

Number of

Shares

Underlying

Unexercised

Options

Unexercisable

#

 

Option

Exercise

Price

$

 

Option

Expiration

Date

 

Number of
Shares

or Units of
Stock that
have not
Vested (2)

#

 

Market
Value of
Shares

or Units of
Stock that
have not
Vested (2)

$

 

Equity

Incentive

Plan Awards:

Number of

Unearned

Shares,

Units

or Other

Rights that

Have not
Vested (3)

#

 

Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares,
Units
or Other
Rights  that
Have Not
Vested (4)

$

 

James F. Risoleo

     

 

20-Jan-12

 

 

     

 

7,110

 

 

     

 

 

 

     

 

$16.23

 

 

     

 

20-Jan-22

 

 

     

 

 

 

     

 

 

 

     

 

 

 

     

 

 

 

     

 

5-Feb-13

 

 

     

 

12,467

 

 

     

 

 

 

     

 

16.55

 

 

     

 

05-Feb-23

 

 

     

 

 

 

     

 

 

 

     

 

 

 

     

 

 

 

     

 

22-Jan-14

 

 

     

 

11,668

 

 

     

 

 

 

     

 

19.57

 

 

     

 

22-Jan-24

 

 

     

 

 

 

     

 

 

 

     

 

 

 

     

 

 

 

     

 

15-Jan-15

 

 

     

 

10,543

 

 

     

 

 

 

     

 

23.76

 

 

     

 

15-Jan-25

 

 

     

 

 

 

     

 

 

 

     

 

 

 

     

 

 

 

     

 

15-Apr-15

 

 

     

 

4,128

 

 

     

 

 

 

     

 

19.93

 

 

     

 

15-Apr-25

 

 

     

 

 

 

     

 

 

 

     

 

 

 

     

 

 

 

     

 

4-Feb-16

 

 

     

 

28,136

 

 

     

 

 

 

     

 

14.20

 

 

     

 

4-Feb-26

 

 

     

 

 

 

     

 

 

 

     

 

 

 

     

 

 

 

     

 

13-Feb-17

 

 

                     

 

42,688

 

 

    $

 

711,609

 

 

     

 

85,376

 

 

    $

 

1,423,218

 

 

     

 

8-Feb-18

 

 

                     

 

75,598

 

 

     

 

1,260,219

 

 

     

 

306,971

 

 

     

 

5,117,207

 

 

Michael D. Bluhm

     

 

6-Nov-17

 

 

                     

 

54,022

 

 

     

 

900,547

 

 

     

 

162,072

 

 

     

 

2,701,740

 

 

     

 

8-Feb-18

 

 

                     

 

31,583

 

 

     

 

526,489

 

 

     

 

128,245

 

 

     

 

2,137,844

 

 

Nathan S. Tyrrell

     

 

15-Jan-15

 

 

     

 

6,069

 

 

     

 

 

 

     

 

23.76

 

 

     

 

15-Jan-25

 

 

     

 

 

 

     

 

 

 

     

 

 

 

     

 

 

 

     

 

15-Apr-15

 

 

     

 

817

 

 

     

 

 

 

     

 

19.93

 

 

     

 

15-Apr-25

 

 

     

 

 

 

     

 

 

 

     

 

 

 

     

 

 

 

     

 

13-Feb-17

 

 

                     

 

12,602

 

 

     

 

210,075

 

 

     

 

25,204

 

 

     

 

420,151

 

 

     

 

8-Feb-18

 

 

                     

 

22,511

 

 

     

 

375,258

 

 

     

 

91,411

 

 

     

 

1,523,821

 

 

Elizabeth A. Abdoo

     

 

22-Jan-14

 

 

     

 

20,896

 

 

     

 

 

 

     

 

19.57

 

 

     

 

22-Jan-24

 

 

     

 

 

 

     

 

 

 

     

 

 

 

     

 

 

 

     

 

15-Jan-15

 

 

     

 

18,882

 

 

     

 

 

 

     

 

23.76

 

 

     

 

15-Jan-25

 

 

     

 

 

 

     

 

 

 

     

 

 

 

     

 

 

 

     

 

13-Feb-17

 

 

                     

 

15,437

 

 

     

 

257,335

 

 

     

 

30,876

 

 

     

 

514,703

 

 

     

 

8-Feb-18

 

 

                     

 

26,039

 

 

     

 

434,070

 

 

     

 

105,733

 

 

     

 

1,762,569

 

 

Joanne Hamilton

     

 

22-Jan-14

 

 

     

 

7,249

 

 

     

 

 

 

     

 

19.57

 

 

     

 

22-Jan-24

 

 

     

 

 

 

     

 

 

 

     

 

 

 

     

 

 

 

     

 

15-Jan-15

 

 

     

 

6,551

 

 

     

 

 

 

     

 

23.76

 

 

     

 

15-Jan-25

 

 

     

 

 

 

     

 

 

 

     

 

 

 

     

 

 

 

     

 

13-Feb-17

 

 

                     

 

8,191

 

 

     

 

136,544

 

 

     

 

16,383

 

 

     

 

273,105

 

 

       

 

8-Feb-18

 

 

                                             

 

11,760

 

 

     

 

196,039

 

 

     

 

47,752

 

 

     

 

796,026

 

 

 

(1)

All option awards vest based on continued service with the Company and have a 10-year life from the date of grant. Options vest on December 31 in the year in which they are granted. For example, options granted in 2016 vested on December 31, 2016.

 

(2)

These columns reflect the number and value of time-based restricted stock units awarded under our 2017 and 2018 compensation programs. The restricted stock units vest annually over a three-year period in substantially equal installments provided the executive remains employed by the Company at the time of vesting. For the 2018 award, the full three-year number of restricted stock units are shown, even though the executive will not fully vest in these restricted stock units until the third anniversary of the grant date. For the 2017 award, the remaining two-thirds of the unvested award is shown. The value is based on the closing price of our stock on December 31, 2018 of $16.67 multiplied by the number of restricted stock units.

 

(3)

The number of shares under this column includes restricted stock units awarded under our 2017 and 2018 compensation programs which are eligible to vest subject to performance conditions. The performance conditions are the satisfaction of annual corporate performance objectives and the results of the Company’s total stockholder return compared against three indices, the NAREIT Equity Index, the Lodging Index, and the S&P Index over a three-year performance period (for 2018 awards) or a one year, two year and three year performance period (for 2017 awards). For the portions of the awards eligible to vest for 2018, the determination of whether and to what extent those measures were satisfied was made by the Compensation Policy Committee in February 2019. The number of shares shown assumes “maximum” performance and includes shares that were later forfeited under the program.

 

(4)

The value is calculated based on the closing price of our stock on December 31, 2018 of $16.67 multiplied by all Performance-based Awards and Market-based Awards assuming “maximum” performance. Because a significant number of shares were later forfeited or were not eligible to vest for 2018, the amount does not reflect what was actually earned. For a chart of 2018 realized pay for each of the named executive officers, see page 40.

 

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Table of Contents

 

  EXECUTIVE OFFICER COMPENSATION  

       

 

Option Exercises and Stock Vested in Fiscal Year 2018

The chart below shows option awards that were exercised in 2018 and stock awards that vested in 2018. The stock awards shown are from performance year 2017, which vested when the Compensation Committee made its determinations in February 2018. Restricted stock units which vested based on performance during 2017-2018 or during 2018 did not vest until February 2019 when the Compensation Policy Committee met and made its determinations on performance measures.

 

     Option Awards    Stock Awards

Name

 

  

Number of

Shares

Acquired on

Exercise

#

   Value Realized
on Exercise (1)
  

Number of

Shares

Acquired on

Vesting (2)

#

   Value Realized
on Vesting (3)

 

James F. Risoleo

 

    

 

 

 

 

    

 

 

 

 

    

 

 

 

138,182

 

    

 

 

 

$2,607,347

 

 

Michael D. Bluhm