This excerpt taken from the WYN DEF 14A filed Mar 13, 2007.
Determining Executive Compensation
An important aspect of the Compensation Committees annual work relates to the determination of compensation for our senior executives.
Annual Evaluation. The Compensation Committee will meet each year to evaluate the performance of the named executive officers, to consider and review their base salaries for potential annual increases and to consider and approve any grants to them of long-term incentive compensation.
Performance Compensation and Objectives. Performance-based compensation for our named executive officers generally includes cash annual incentive compensation for achievement of specified performance objectives and stock-based compensation whose value is dependent upon long-term appreciation in stock price. The Non-Equity Incentive Plan column of the Summary Compensation Table below lists the annual incentive compensation we paid our named executive officers for 2006.
Performance objectives for 2006 annual incentive compensation paid in 2007 were established on the basis of corporate and/or business unit Earnings Before Interest and Taxes (EBIT), a measure of our profitability. The EBIT targets for 2006 were adjusted for separation and related costs and other special items. The 2006 adjusted EBIT targets and funding models for the corporation and business units were set by management based on approved operating budgets and represented a specified growth rate over the prior years EBIT consistent with our strategic plan. We used these operating budgets to set the ranges for our published 2006 earnings guidance.
An executives annual incentive compensation may be higher or lower than the target payment (down to zero) depending on corporate and business unit performance. For example, the annual incentive payment could be as high as 125% of the target if the operating unit results exceed 106% of the 2006 adjusted EBIT target or as low as zero if the operating unit results are less than 95% of the 2006 adjusted EBIT target.
For our CEO and CFO, the 2006 annual incentive payment was based on a corporate target. For our business unit chief executives other than Mr. Hanning, the 2006 annual incentive payment was weighted 50% for the corporate target and 50% for the business unit target. For Mr. Hanning, the 2006 annual incentive payment was weighted 100% for the business unit target.
We link performance to our long-term incentives by basing the size of the aggregate pool of shares available for grant on business unit and corporate performance and, for individual grants, on individual performance assessment and future potential. The long-term incentive awards we made to our named executive officers in 2006 are described below in the Grants of Plan-Based Awards Table.
Targeted Compensation Levels. We believe that information regarding compensation practices at other companies is useful in evaluating compensation of our named executive officers. We recognize that our compensation practices must be competitive in the market. In addition, this market information is a key factor that we consider in assessing the reasonableness of compensation. Accordingly, we review compensation levels for our CEO against compensation levels at the companies in the peer group deemed appropriate by our Compensation Committee for benchmarking purposes.
At the request of Cendants Compensation Committee, Cendants compensation consultant provided Cendant with information regarding CEO compensation levels at the 50th and 75th percentiles among a group of representative hospitality, travel and gaming companies.
For our 2007 compensation arrangements, our compensation consultant provided our Compensation Committee CEO compensation levels of base salary, annual incentive awards and long-term incentive awards at the 50th and 75th percentile among those companies that we consider to be our most directly comparable peer hospitality companies.
The Compensation Committee also reviewed general industry market survey data from the 2006 Hewitt Associates Total Compensation Measurement (TCM) database. The general industry peer group consists of 54 companies with revenues between $2.5 and $5 billion with a median of $3.3 billion.
We and Cendant used the comparable data to determine compensation levels for our CEO, and in turn, our other named executive officers as described below.
Policies and Practices for Pricing and Timing of Equity Grants. We expect to make equity grants to our named executive officers in May of each year. We expect to observe the following relating to the timing of equity grants: