DEF 14A 1 d445347ddef14a.htm NOTICE AND PROXY STATEMENT Notice and Proxy Statement
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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

 

Filed by the Registrant    x

 

Filed by a Party other than the Registrant    ¨

 

Check the appropriate box:

 

¨    Preliminary Proxy Statement

x    Definitive Proxy Statement

 

¨    Confidential, For Use of the  Commission Only(as permitted by Rule 14a-6(e)(2))

¨    Definitive Additional Materials    
¨    Soliciting Material Under Rule 14a-12    

 

Marriott International, Inc.


(Name of Registrant as Specified in Its Charter)

 

  


(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

x    No fee required.

 

¨    Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

  1.   Title of each class of securities to which transaction applies:

 

  2.   Aggregate number of securities to which transaction applies:

 

  3.   Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

  4.   Proposed maximum aggregate value of transaction:

 

  5.   Total fee paid:

 

¨    Fee paid previously with preliminary materials:

 

  ¨   Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.

 

  1.   Amount previously paid:

 

  2.   Form, Schedule or Registration Statement No.:

 

  3.   Filing Party:

 

  4.   Date Filed:


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Corporate Headquarters and Mailing Address:

10400 Fernwood Road

Bethesda, Maryland 20817

 

LOGO

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD FRIDAY, MAY 10, 2013

 

 

 

To our Shareholders:

 

April 5, 2013

 

The 2013 annual meeting of shareholders of Marriott International, Inc. (the “Company”) will be held at the JW Marriott Hotel, 1331 Pennsylvania Avenue, N.W., Washington, D.C. 20004 on Friday, May 10, 2013, beginning at 10:30 a.m. Doors to the meeting will open at 9:30 a.m. At the meeting, shareholders will act on the following matters:

 

  1.   Election of the 12 director nominees named in the proxy statement;

 

  2.   Ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal 2013;

 

  3.   An advisory resolution to approve executive compensation; and

 

  4.   Any other matters that may properly be presented at the meeting.

 

Shareholders of record at the close of business on March 15, 2013, are entitled to notice of and to vote at this meeting.

 

For the convenience of our shareholders, proxies may be given either by telephone, electronically through the Internet, or by completing, signing, and returning the enclosed proxy card. In addition, shareholders may elect to receive future shareholder communications, including proxy materials, through the Internet. Instructions for each of these options can be found in the enclosed materials.

 

By order of the Board of Directors,

LOGO

Bancroft S. Gordon

Secretary

 

PLEASE REFER TO THE OUTSIDE BACK COVER FOR DIRECTIONS TO THE MEETING

AND INFORMATION ON PARKING, PUBLIC TRANSPORTATION AND LODGING.


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TABLE OF CONTENTS

 

     Page  

Questions and Answers About the Meeting

     1   

Proposals to be Voted On

     6   

Item 1—Election of Directors

     6   

Item 2—Ratification of Appointment of Independent Registered Public Accounting Firm

     6   

Item 3—Advisory Resolution Approving Executive Compensation

     7   

Corporate Governance

     8   

Board Leadership Structure

     8   

Selection of Director Nominees

     8   

Our Board of Directors

     9   

Governance Principles

     15   

Director Independence

     15   

Committees of the Board

     17   

Compensation Committee Interlocks and Insider Participation

     20   

Meetings of Independent Directors

     20   

Risk Oversight

     20   

Shareholder Communications with the Board

     21   

Code of Ethics and Business Conduct Guide

     21   

Audit Committee Report and Independent Auditor Fees

     22   

Report of the Audit Committee

     22   

Pre-Approval of Independent Auditor Fees and Services Policy

     22   

Independent Registered Public Accounting Firm Fee Disclosure

     23   

Executive and Director Compensation

     24   

Report of the Compensation Policy Committee

     24   

Compensation Discussion and Analysis

     24   

Executive Compensation Tables and Discussion

     46   

Director Compensation

     59   

Securities Authorized for Issuance under Equity Compensation Plans

     61   

Stock Ownership

     62   

Stock Ownership of our Directors, Executive Officers and Certain Beneficial Owners

     62   

Section 16(a) Beneficial Ownership Reporting Compliance

     65   

Transactions With Related Persons

     66   

Policy on Transactions and Arrangements with Related Persons

     67   

Householding

     69   

Other Matters

     69   

 

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LOGO

 

MARRIOTT INTERNATIONAL, INC.

10400 FERNWOOD ROAD, BETHESDA, MARYLAND 20817

 

 

 

PROXY STATEMENT

 

 

 

Our Board of Directors (the “Board”) solicits your proxy for the 2013 annual meeting of shareholders of Marriott International, Inc. (“we,” “us,” “Marriott” or the “Company”) to be held on Friday, May 10, 2013, beginning at 10:30 a.m., at the JW Marriott Hotel, 1331 Pennsylvania Avenue, N.W., Washington, D.C. 20004, and at any postponements or adjournments of the meeting. This proxy statement is first being released to shareholders by the Company on or about April 5, 2013.

 

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS

FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 10, 2013:

 

THE PROXY STATEMENT AND ANNUAL REPORT TO SHAREHOLDERS ARE

AVAILABLE AT www.envisionreports.com/MAR.

 

 

QUESTIONS AND ANSWERS ABOUT THE MEETING

 

What is the purpose of the annual meeting?

 

At our annual meeting, shareholders will act upon the matters described in the accompanying notice of meeting. These actions include the election of the 12 director nominees listed below, ratification of the appointment of the independent registered public accounting firm (sometimes referred to as the “independent auditor”), an advisory resolution approving executive compensation, and any other matters that may be properly presented at the meeting. In addition, our management will report on the Company’s performance during fiscal 2012 and respond to questions from shareholders.

 

Who is entitled to vote?

 

Only shareholders of record at the close of business on the record date, March 15, 2013, are entitled to receive notice of and to vote at the meeting, or any postponement or adjournment of the meeting. Each outstanding share of the Company’s Class A common stock entitles its holder to cast ten votes on each matter to be voted upon.

 

Who can attend the meeting?

 

All shareholders of record at the close of business on the record date, or their duly appointed proxies, may attend the meeting. Cameras, recording devices and other electronic devices will not be permitted at the meeting.

 

You will find directions to the meeting, and information on parking, public transportation and lodging, on the back cover of this proxy statement.


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What constitutes a quorum?

 

The presence at the meeting, in person or by proxy, of the holders of a majority of the shares of Class A common stock of the Company outstanding on the record date and entitled to vote will constitute a quorum. A quorum is required for business to be conducted at the meeting. As of the March 15, 2013 record date, 313,514,267 shares of our Class A common stock were outstanding and entitled to vote. If you submit a properly executed proxy card, even if you abstain from voting, you will be considered part of the quorum. Similarly, “broker non-votes” (described below) will be counted in determining whether there is a quorum.

 

How do I vote?

 

You may vote either by casting your vote in person at the meeting, or by marking, signing and dating each proxy card you receive and returning it in the prepaid envelope, by telephone, or electronically through the Internet by following the instructions included on your proxy card. Internet and telephone voting is available through 11:59 p.m. Eastern Time on Thursday, May 9, 2013. The telephone and Internet voting procedures are designed to authenticate votes cast by use of a personal identification number. The procedures, which are designed to comply with Delaware law, allow shareholders to appoint a proxy to vote their shares and to confirm that their instructions have been properly recorded.

 

If you hold your shares in “street name” through a broker or other nominee, you may be able to vote by telephone or electronically through the Internet in accordance with the voting instructions provided by that institution. You must obtain a legal proxy from the broker or other nominee that holds your shares if you wish to vote in person at the annual meeting. If you do not provide voting instructions to your broker in advance of the annual meeting, New York Stock Exchange (“NYSE”) rules grant your broker discretionary authority to vote on “routine matters.” The ratification of the appointment of the independent registered public accounting firm in Item 2 is the only item on the agenda for the annual meeting that is considered routine.

 

What does the Board recommend?

 

The Board’s recommendations are set forth after the description of each item in this proxy statement. In summary, the Board recommends a vote:

 

   

FOR election of the 12 director nominees (see Item 1 on page 6);

 

   

FOR ratification of the appointment of the independent auditor (see Item 2 on page 6); and

 

   

FOR the advisory resolution to approve executive compensation (see Item 3 on page 7);

 

How will my shares be voted?

 

Your shares will be voted as you indicate on the proxy card. If you return your signed proxy card but do not mark the boxes indicating how you wish to vote, your shares will be voted FOR the election of the 12 director nominees listed below; FOR the ratification of the appointment of Ernst & Young LLP as the Company’s independent auditor for 2013, and FOR the advisory resolution to approve executive compensation.

 

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Can I change my vote or revoke my proxy after I return my proxy card, or after I vote by telephone or electronically?

 

Yes. Even after you have submitted your proxy, you may change your vote at any time before the proxy is exercised at the meeting. Regardless of the way in which you submitted your original proxy, you may change it by:

 

  (1)   Returning a later-dated signed proxy card;

 

  (2)   Delivering a written notice of revocation to Computershare Shareowner Services, P.O. Box 43006, Providence, RI 02940-3006;

 

  (3)   Voting by telephone or the Internet until 11:59 p.m. Eastern Time on Thursday, May 9, 2013; or

 

  (4)   Voting in person at the meeting.

 

If your shares are held through a broker or other nominee, you will need to contact that institution if you wish to change your voting instructions.

 

How do I vote my 401(k) shares?

 

If you participate in the Company’s Employees’ Profit Sharing, Retirement and Savings Plan and Trust (the “401(k) Plan”), you may give voting instructions as to the number of share equivalents allocated to your account as of the record date. You may provide voting instructions to the trustee under the 401(k) Plan by completing and returning the proxy card accompanying this proxy statement. The trustee will vote your shares in accordance with your duly executed instructions if they are received by 11:59 p.m. Eastern Time, Tuesday, May 7, 2013. If you do not send instructions by this deadline or if you do not vote by proxy or return your proxy card with an unclear voting designation or no voting designation at all, the trustee will vote the number of shares equal to the share equivalents credited to your account in the same proportion that it votes shares for which it did receive timely instructions.

 

What vote is required to approve each item?

 

In the election of directors, each nominee must receive more “FOR” votes than “AGAINST” votes in order to be elected as a director. Instructions to “ABSTAIN” and broker non-votes will have no effect on the election of directors. Your broker or nominee will not be permitted to vote on the election of directors without instructions from the beneficial owner. As a result, if you hold your shares through a broker or nominee, they will not be voted in the election of directors, unless you affirmatively vote your shares in accordance with the voting instructions provided by that institution.

 

For ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm, the affirmative vote of the holders of a majority of the shares of Class A common stock represented in person or by proxy and entitled to vote on the item will be required for approval. Instructions to “ABSTAIN” with respect to this item will be counted for purposes of determining the number of shares represented and entitled to vote. Accordingly, an abstention will have the effect of a vote “AGAINST” this item. Broker non-votes will not have any effect on the outcome of votes for this item.

 

For approval of the advisory resolution to approve executive compensation, the affirmative vote of the holders of a majority of the shares of Class A common stock represented in person or by proxy and entitled to vote on the item will be required for approval. Your broker or nominee will not be

 

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permitted to vote on this advisory voting item without instructions from the beneficial owner. As a result, if you hold your shares through a broker or nominee, they will not be voted to approve on an advisory basis the Company’s executive compensation, unless you affirmatively vote your shares in accordance with the voting instructions provided by that institution. Instructions to “ABSTAIN” with respect to this advisory voting item will be counted for purposes of determining the number of shares represented and entitled to vote. Accordingly, an abstention will have the effect of a vote “AGAINST” this item. Broker non-votes will not have any effect on the outcome of votes for this item.

 

Who will count the vote?

 

Representatives of Computershare Shareowner Services, our independent stock transfer agent, will count the votes and act as the inspector of election.

 

What shares are included on my proxy card(s)?

 

The shares on your proxy card(s) represent ALL of your shares of Class A common stock that the Company’s stock transfer records indicate that you hold, including (i) any shares you may hold through the Computershare Shareowner Services Program for Marriott International, Inc. Shareholders administered by Computershare Shareowner Services; and (ii) if you are a current or former Marriott employee, any shares that may be held for your account by The Northern Trust Company as custodian for the 401(k) Plan. If you have shares in the 401(k) Plan and do not vote by proxy, or return your proxy card with an unclear voting designation or no voting designation at all, then Northern Trust will vote your shares in proportion to the way the other 401(k) Plan participants voted their shares. Shares that are held in “street name” through a broker or other nominee are not included on the proxy card(s) furnished by the Company, but the institution will provide you with a voting instruction form.

 

What does it mean if I receive more than one proxy card?

 

If your shares are registered under different names or are held in more than one account, you may receive more than one proxy card. To ensure that all your shares are voted, please sign and return all proxy cards, or if you choose, vote by telephone or through the Internet using the personal identification number printed on each proxy card. We encourage you to have all accounts registered in the same name and address (whenever possible). You can accomplish this by contacting our transfer agent, Computershare Shareowner Services, at (800) 311-4816.

 

How will voting on any other business be conducted?

 

Although we currently do not know of any business to be considered at the 2013 annual meeting other than the proposals described in this proxy statement, if any other business is properly presented at the annual meeting, your proxy gives authority to J.W. Marriott, Jr. and/or Arne M. Sorenson to vote on such matters at their discretion.

 

When are shareholder proposals for the 2014 annual meeting of shareholders due?

 

To be considered for inclusion in our proxy statement for the 2014 annual meeting of shareholders, shareholder proposals must be received at our offices no later than the close of business December 6, 2013. Proposals must comply with Rule 14a-8 under the Securities Exchange Act of 1934, and must be submitted in writing to the Corporate Secretary, Marriott International, Inc., Department 52/862, 10400 Fernwood Road, Bethesda, Maryland 20817.

 

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In addition, our bylaws require that, if a shareholder desires to introduce a shareholder proposal or nominate a director candidate from the floor of the 2014 annual meeting of shareholders, the shareholder must submit such proposal or nomination in writing to the Company’s Secretary at the above address no earlier than January 10, 2014 and no later than February 9, 2014. The written proposal or nomination must comply with our bylaws. The Chairman of the meeting may refuse to acknowledge or introduce any shareholder proposal or the nomination of any person made after February 9, 2014, or that does not comply with our bylaws. If a shareholder fails to meet these deadlines or satisfy the requirements of Rule 14a-4 under the Securities Exchange Act of 1934, the proxies we solicit allow us to vote on such proposals as we deem appropriate. You can find a copy of our bylaws in the Investor Relations section of the Company’s website (www.marriott.com/investor) by clicking on “Corporate Governance” and then “Governance Documents” or you may obtain a copy by submitting a request to the Corporate Secretary, Marriott International, Inc., Department 52/862, 10400 Fernwood Road, Bethesda, Maryland, 20817.

 

Will there be a sign language interpreter at the meeting?

 

If you would like to have a sign language interpreter at the annual meeting, please send your request in writing to the Corporate Secretary, Marriott International, Inc., Department 52/862, 10400 Fernwood Road, Bethesda, Maryland 20817. We must receive your request no later than May 2, 2013.

 

How much did this proxy solicitation cost and who paid that cost?

 

The Company paid for this proxy solicitation. We hired MacKenzie Partners, Inc. to assist in the distribution of proxy materials and solicitation of votes for an estimated fee of $8,500, plus reimbursement of certain out-of-pocket expenses. We also reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy and solicitation materials to shareholders. Proxies will be solicited by mail, telephone, or other means of communication. Our directors, officers and regular employees who are not specifically employed for proxy solicitation purposes and who will not receive any additional compensation for such activities may also solicit proxies.

 

Can I receive future shareholder communications electronically through the Internet?

 

Yes. You may elect to receive future notices of meetings, proxy materials and annual reports electronically through the Internet. If you have previously consented to electronic delivery, your consent will remain in effect until withdrawn. To consent to electronic delivery:

 

   

If your shares are registered in your own name, and not in “street name” through a broker or other nominee, simply log in to the Internet site maintained by our transfer agent, Computershare Shareowner Services, at www.computershare.com/investor and the step-by-step instructions will prompt you through enrollment.

 

   

If your shares are registered in “street name” through a broker or other nominee, you must first vote your shares using the Internet, at www.proxyvote.com, and immediately after voting, fill out the consent form that appears on-screen at the end of the Internet voting procedure.

 

You may withdraw this consent at any time and resume receiving shareholder communications in print form.

 

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PROPOSALS TO BE VOTED ON

 

ITEM 1—Election of Directors

 

All of our directors are standing for election at the 2013 annual meeting, and each director elected will hold office for a term expiring at the 2014 annual meeting of shareholders or until his or her successor is elected or appointed and qualified.

 

The following 11 current directors of the Company have been nominated for re-election as a director:

 

J.W. Marriott, Jr.    John W. Marriott III    Steven S Reinemund
Mary K. Bush    George Muñoz    Lawrence M. Small
Lawrence W. Kellner    Harry J. Pearce    Arne M. Sorenson
Debra L. Lee    W. Mitt Romney   

 

In addition, the Board will expand the size of the Board to 12 directors and appoint Frederick A. Henderson to the Board prior to the annual meeting, and he will then stand for re-election with the other directors at the annual meeting.

 

You can find information on the director nominees beginning on page 9.

 

We do not know of any reason why any of the nominees would be unable to serve. However, if any of the nominees should become unable to serve as a director, the Board may designate a substitute nominee or reduce the size of the Board. If the Board designates a substitute nominee, the persons named as proxies will vote “FOR” that substitute nominee.

 

The Company’s bylaws prescribe the voting standard for election of directors as a majority of the votes cast in an uncontested election, such as this one, where the number of nominees does not exceed the number of directors to be elected. Under this standard, a nominee must receive more “FOR” votes than “AGAINST” votes in order to be elected as a director. In a contested election, where the number of nominees exceeds the number of directors to be elected (which is not the case at the 2013 annual meeting), the directors will be elected by a plurality of the shares present in person or by proxy and entitled to vote on the election of directors. Under the Company’s Governance Principles, if a nominee who already serves as a director is not elected, that nominee shall tender his or her resignation to the Board. The Nominating and Corporate Governance Committee will then recommend to the Board whether to accept or reject the resignation, or whether other action should be taken. Within 90 days of the certification of election results, the Board will determine whether to accept or reject the resignation and will publicly disclose its decision promptly thereafter.

 

The Board recommends a vote FOR each of the 12 director nominees.

 

ITEM 2—Ratification of Appointment of Independent Registered Public Accounting Firm

 

The Audit Committee of the Board has appointed Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal 2013. Ernst & Young LLP, a firm of registered public accountants, has served as the Company’s independent registered public accounting firm since May 3, 2002. Ernst & Young LLP will examine and report to shareholders on the consolidated financial statements of the Company and its subsidiaries.

 

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Representatives of Ernst & Young LLP are expected to be present at the annual meeting, will have an opportunity to make a statement if they so desire, and are expected to be available to respond to appropriate questions. You can find information on pre-approval of independent auditor fees and Ernst & Young LLP’s fiscal 2012 and 2011 fees beginning on page 22. Although the Audit Committee has discretionary authority to appoint the independent auditors, the Board is seeking shareholder ratification of the appointment of the independent auditors as a matter of good corporate governance. If the appointment of Ernst & Young LLP is not ratified by shareholders, the Audit Committee will take that into consideration when determining whether to continue the firm’s engagement.

 

The Board recommends a vote FOR ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal 2013.

 

ITEM 3—Advisory Resolution Approving Executive Compensation

 

We are asking shareholders to vote for a non-binding advisory resolution to approve the compensation of our Named Executive Officers, as disclosed in this proxy statement. Although the resolution, commonly referred to as a “say-on-pay” resolution, is non-binding, our Board of Directors and Compensation Policy Committee value your opinions and will consider the outcome of the vote when making future compensation decisions. The Board’s current policy is to hold an advisory vote on executive compensation on an annual basis and, accordingly, we expect that, after the 2013 annual meeting, the next advisory vote on the compensation of our named executive officers will take place at our 2014 annual meeting of shareholders.

 

We urge you to read the Compensation Discussion and Analysis (“CD&A”) beginning on page 24 of this proxy statement, which describes in detail how our executive compensation policies and procedures operate and are designed to achieve our compensation objectives, as well as the Summary Compensation Table and other related compensation tables and narrative, appearing on pages 46 through 58, which provide detailed information on the compensation of our Named Executive Officers.

 

The Board believes that our current executive compensation program achieves an appropriate balance of long- and short-term performance incentives, reinforces the link between executive pay and the Company’s long-term performance and stock value, and thereby aligns the interests of our Named Executive Officers with those of shareholders.

 

In accordance with Section 14A of the Exchange Act, and as a matter of good corporate governance, we are asking shareholders to approve the following advisory resolution at the 2013 annual meeting:

 

RESOLVED, that the shareholders of Marriott International, Inc. (the “Company”) approve, on an advisory basis, the compensation of the Company’s named executive officers disclosed in the Compensation Discussion and Analysis, the Summary Compensation Table and the related compensation tables, notes and narrative in the Proxy Statement for the Company’s 2013 Annual Meeting of Shareholders.

 

The Board recommends that you vote FOR the advisory resolution to approve executive compensation.

 

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CORPORATE GOVERNANCE

 

Board Leadership Structure

 

While the Board has not mandated a particular leadership structure, historically, the positions of Chairman of the Board and Chief Executive Officer (“CEO”) were held by the same person. In December 2011, as a result of J.W. Marriott, Jr.’s discussions with the Board about relinquishing the role of CEO and as part of its ongoing review of the Board leadership structure and succession planning process, the Board determined that, effective March 31, 2012, the two positions should be held by separate individuals. The Board elected J.W. Marriott, Jr., who had served as the Chairman and CEO of the Company and its predecessors since 1985, to the position of Executive Chairman and Chairman of the Board and Arne M. Sorenson, the former President and Chief Operating Officer, to the position of President and CEO. In his new role, Mr. Marriott continues to provide leadership to the Board by, among other things, working with the CEO, the Chairman of the Nominating and Corporate Governance Committee, and the Corporate Secretary to set Board calendars, determine agendas for Board meetings, ensure proper flow of information to Board members, facilitate effective operation of the Board and its Committees, help promote Board succession planning and the orientation of new directors, address issues of director performance, assist in consideration and Board adoption of the Company’s long-term and annual operating plans, and help promote senior management succession planning.

 

While the independent directors have not designated a lead independent director, the Chairman of our Nominating and Corporate Governance Committee fulfills the same responsibilities as the lead directors at many companies. These responsibilities include presiding over the meetings of the independent directors, coordinating the activities of the independent directors and facilitating communications between the Chairman of the Board and the other Board members. The Chairman of our Nominating and Corporate Governance Committee also is a standing member of the Company’s two-person Executive Committee along with the Chairman of the Board. The Chairman of the Nominating and Corporate Governance Committee also coordinates the evaluation of Board and Committee performance, the assessment and evaluation of Board candidates, and the monitoring of corporate governance developments and recommendations for changes to the Company’s governance practices. We believe that the role played by the Chairman of the Nominating and Corporate Governance Committee provides strong, independent Board leadership.

 

Eight of our 11 current directors are independent, and the Audit, Compensation Policy and Nominating and Corporate Governance committees are comprised solely of independent directors. Consequently, the independent directors directly oversee such critical items as the Company’s financial statements, executive compensation, the selection and evaluation of directors and the development and implementation of our corporate governance programs.

 

The Board will continue to review our Board leadership structure as part of the succession planning process that is described in our Governance Principles. We believe that our leadership structure, in which the roles of Chairman and CEO are separate, together with an experienced and engaged Chairman of the Nominating and Corporate Governance Committee (who plays a role similar to that of lead director at many companies) and independent key committees, will be effective and is the optimal structure for our Company and our shareholders at this time.

 

Selection of Director Nominees

 

The Nominating and Corporate Governance Committee will consider candidates for Board membership suggested by its members, other Board members, management and shareholders. As a

 

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shareholder, you may recommend any person for consideration as a nominee for director by writing to the Nominating and Corporate Governance Committee of the Board of Directors, c/o Marriott International, Inc., Department 52/862, 10400 Fernwood Road, Bethesda, Maryland 20817. Recommendations must include the name and address of the shareholder making the recommendation, a representation that the shareholder is a holder of record of Class A common stock, biographical information about the individual recommended and any other information the shareholder believes would be helpful to the Nominating and Corporate Governance Committee in evaluating the individual recommended.

 

Once the Nominating and Corporate Governance Committee has identified a candidate, the Committee evaluates the candidate against the qualifications set out in the Company’s Governance Principles, including:

 

   

character, judgment, personal and professional ethics, integrity, values, and familiarity with national and international issues affecting business;

 

   

depth of experience, skills, and knowledge complementary to the Board and the Company’s business; and

 

   

willingness to devote sufficient time to carry out the duties and responsibilities effectively.

 

The Committee makes a recommendation to the full Board as to any persons it believes should be nominated by the Board, and the Board determines the nominees after considering the recommendation and report of the Committee. The procedures for considering candidates recommended by a shareholder for Board membership are consistent with the procedures for candidates recommended by members of the Nominating and Corporate Governance Committee, other members of the Board or management.

 

Nominees to Our Board of Directors

 

Each of the following individuals presently serves on our Board, or (in the case of Frederick A. Henderson) will be appointed to the Board prior to the 2013 annual meeting, and has a term of office expiring at the 2013 annual meeting or until his or her successor is elected and qualified. The age shown below for each director nominee is as of May 10, 2013, which is the date of the annual meeting. Each director nominee has been nominated to serve until the 2014 annual meeting of shareholders and until his or her successor is elected and qualified, or until such nominee’s earlier death, resignation or removal. Set forth below is each director’s biography as well as the qualifications and experiences each director nominee brings to our Board, in addition to the general qualifications discussed above.

 

LOGO

J.W. Marriott, Jr. (Chairman of the Board), age: 81. Mr. Marriott was elected Executive Chairman effective March 31, 2012, having relinquished his position as Chief Executive Officer. He served as Chief Executive Officer of the Company and its predecessors since 1972. He continues to serve as Chairman of the Board, a position he has held since 1985. He joined Marriott Corporation in 1956, became President in 1964, Chief Executive Officer in 1972 and Chairman of the Board in 1985. He serves on the board of trustees of The J. Willard & Alice S. Marriott Foundation, is a member of the Executive Committee of the World Travel & Tourism Council, and is a member of the National Business Council. He is the father of John W. Marriott III, the Vice Chairman of the Company’s Board of Directors. Mr. Marriott has been a director of the Company and its predecessors since 1964.

 

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As a result of his service as CEO of the Company for 40 years, Mr. Marriott brings to the Board extensive leadership experience with, and knowledge of, the Company’s business and strategy as well as a historical perspective on the Company’s growth and operations. Mr. Marriott’s iconic status in the hospitality industry provides a unique advantage to the Company.

 

LOGO

John W. Marriott III (Vice Chairman of the Board), age: 51. Mr. Marriott is Chief Executive Officer of JWM Family Enterprises, L.P., a private partnership which develops and owns hotels. He was appointed Vice Chairman of the Company’s Board of Directors in October 2005. Until December 30, 2005, Mr. Marriott was the Company’s Executive Vice President-Lodging and President of North American Lodging. Over the past 30 years, Mr. Marriott also served in a number of other positions with the Company and its predecessors, including Executive Vice President of Sales & Marketing, Brand Management, and Operations Planning and Support, Senior Vice President for Marriott’s Mid-Atlantic Region, Vice President of Development, Director of Finance, General Manager, Director of Food & Beverage, restaurant manager and cook. In April 2002, Mr. Marriott was named by the U.S. Department of Commerce and the Japanese government to co-chair a special task force to promote travel between the United States and Japan. In January 2004, he was named one of the most influential executives by Business Travel News. Mr. Marriott serves as Chairman of the Board of the National Zoo and is a director of the board of the Washington Airport Task Force. He is the son of J.W. Marriott, Jr. Mr. Marriott has been a director of the Company since 2002.

 

Mr. Marriott provides the Board with extensive executive and operations experience with the Company, international experience that provides insight into countries in which the Company operates, and significant knowledge of the Company’s industry given his ongoing role as a CEO in the lodging sector of the hospitality industry.

 

LOGO

Mary K. Bush, age: 64. The Honorable Mary K. Bush has served as President of Bush International, LLC, an advisor to U.S. corporations and foreign governments on international capital markets, strategic business and economic matters, since 1991. She has held several Presidential appointments including the U.S. Government’s representative on the IMF Board and Director of Sallie Mae. She also was head of the Federal Home Loan Bank System during the aftermath of the Savings and Loan crisis and was advisor to the Deputy Secretary of the U.S. Treasury Department. Earlier in her career, she managed global banking and corporate finance relationships at New York money center banks including Citibank, Banker’s Trust, and Chase. In 2006, President Bush appointed her Chairman of the Congressionally chartered HELP Commission on reforming foreign aid. In 2007, she was appointed by the Secretary of the Treasury to the U.S. Treasury Advisory Committee on the Auditing Profession. She is a member of the board of directors of Discover Financial Services, ManTech International Corporation, and T. Rowe Price Group, Inc. Ms. Bush also was a director of Briggs & Stratton, Inc. from 2004 to April 2009, of United Airlines from 2006 to 2010 and of the Pioneer Family of Mutual Funds from 1997 to 2012. She serves on the Kennedy Center’s Community Advisory Board and on the U.S. Advisory Board of the Global Leadership Foundation. Ms. Bush has been a director of the Company since May 2008.

 

Ms. Bush brings to the Board extensive financial and governmental affairs experience, her knowledge of corporate governance and financial oversight gained from her membership on the boards of other public companies, knowledge of public policy matters and her significant experience providing strategic advisory services in the political and international arenas.

 

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LOGO

Lawrence W. Kellner, age: 54. Mr. Kellner is President of Emerald Creek Group LLC, a private equity firm. He served as Chairman and Chief Executive Officer of Continental Airlines, Inc., an international airline company, from December 2004 through December 2009. He served as President and Chief Operating Officer of Continental Airlines from March 2003 to December 2004, as President from May 2001 to March 2003 and was a member of Continental Airlines’ board of directors from May 2001 to December 2009. Mr. Kellner serves on the board of directors for The Boeing Company and The Chubb Corporation. He is active in numerous community and civic organizations and currently serves on a number of boards including the Greater Houston Partnership, the Rice University Board of Trustees, the National Executive Board of the Boy Scouts of America and the board of directors for The Methodist Hospital. Mr. Kellner has been a director of the Company since 2002.

 

Mr. Kellner brings to the Board and our Nominating and Corporate Governance Committee, of which he is Chairman, experience as CEO of one of the largest airline companies in the world with significant management, strategic and operational responsibilities in the travel and leisure industry. He also provides extensive knowledge in the fields of finance and accounting gained from his background as Chief Financial Officer at Continental and other companies.

 

LOGO

Frederick A. “Fritz” Henderson, age: 54. Frederick A. “Fritz” Henderson has been Chairman and CEO of SunCoke Energy, Inc., the largest U.S. independent producer of metallurgical coke for the steel industry, since December 2010. Since July 2012, he also has been Chairman and CEO of SunCoke Energy Partners GP LLC, the general partner of SunCoke Energy Partners, L.P., a publicly traded master limited partnership, that manufactures metallurgical coke for the steel industry. He also served as a Senior Vice President of Sunoco, Inc., a petroleum refiner and chemicals manufacturer with interests in logistics, from September 2010 until the completion of SunCoke Energy, Inc’s initial public offering and separation from Sunoco in July 2011. Prior to that, Mr. Henderson served as President and CEO of General Motors Corporation (“GM”) from March 2009 until December 2009. He held a number of other senior management positions during his more than 25 years with GM, including President and Chief Operating Officer from March 2008 until March 2009, Vice Chairman and Chief Financial Officer, Chairman of GM Europe, President of GM Asia Pacific and President of GM Latin America, Africa and Middle East, and served as a consultant for GM from February 2010 to until September 2010 before joining Sunoco. Mr. Henderson also served as a consultant for AlixPartners LLC, a business consulting firm, from March 2010 until August 2010. Mr. Henderson serves on the board of directors of Compuware Corporation and is a Trustee of the Alfred P. Sloan Foundation. Mr. Henderson is a certified public accountant.

 

Mr. Henderson’s significant accounting skills, experience in leading the initial public offering of a subsidiary of a public company, and expertise in large organization management and emerging markets, will make him a valuable member of the Board. Mr. Henderson was recommended to the Nominating and Corporate Governance Committee as a potential director candidate by the Chairman of that committee, Lawrence W. Kellner. During his tenure as President and CEO of GM, that Company filed for reorganization under Chapter 11 of the US Bankruptcy Code. The Nominating and Corporate Governance Committee does not believe that this proceeding is material to an evaluation of Mr. Henderson’s ability to serve as a director.

 

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LOGO

Debra L. Lee, age: 58. Ms. Lee is Chairman and Chief Executive Officer of BET Networks, a media and entertainment subsidiary of Viacom, Inc. that owns and operates BET Networks and several other ventures. She joined BET in 1986 and served in a number of executive posts before ascending to her present position in January 2006, including President and Chief Executive Officer from June 2005, President and Chief Operating Officer from 1995 to May 2005, Executive Vice President and General Counsel, and Vice President and General Counsel. Prior to joining BET, Ms. Lee was an attorney with Washington, D.C.-based law firm Steptoe & Johnson. She serves on the boards of directors of WGL Holdings, Inc., and Revlon, Inc. She also was a director of Eastman Kodak Company from 1999 to May 2011. She also serves on the board of a number of professional and civic organizations including The Grammy Foundation Board, Vice-Chair of the Advisory Council and a trustee of the Alvin Ailey Dance Theater. She also is a Trustee Emeritus at Brown University. Ms. Lee has been a director of the Company since 2004.

 

Ms. Lee provides our Board and our Committee for Excellence, which she chairs, with proven leadership and business experience as the CEO of a major media and entertainment company, extensive management and corporate governance experience gained from that role as well as from her membership on the boards of other public companies, her legal experience, and insights gained from her extensive involvement in civic, community and charitable activities.

 

LOGO

George Muñoz, age: 61. Mr. Muñoz has been a principal in the Washington, D.C.-based investment banking firm Muñoz Investment Banking Group, LLC since 2001. He has also been a partner in the Chicago-based law firm Tobin, Petkus & Muñoz LLC (now Tobin & Muñoz) since 2002. He served as President and Chief Executive Officer of Overseas Private Investment Corporation from 1997 to January 2001. Mr. Muñoz was Chief Financial Officer and Assistant Secretary of the U.S. Treasury Department from 1993 until 1997. Mr. Muñoz is a certified public accountant and an attorney. He is a director of Altria Group, Inc. and Anixter International, Inc. He also serves on the board of trustees of the National Geographic Society. He was also a director of Esmark, Inc. from December 2006 to August 2008. Mr. Muñoz has been a director of the Company since 2002.

 

Mr. Muñoz’s provides our Board and our Audit Committee, of which he is Chairman, with extensive knowledge in the fields of finance and accounting, his knowledge of investment banking, legal experience, corporate governance experience and audit oversight experience gained from his membership on the boards and audit committees of other public companies.

 

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LOGO

Harry J. Pearce, age: 70. Mr. Pearce served as Chairman of Nortel Networks Corporation, a telecommunications company, from 2005 to 2009 and has served as Chairman of MDU Resources Group, Inc., an electronic and natural gas utility distribution company, since 2006. Mr. Pearce was a director of GM from 1996 to 2001 and served as Chairman of Hughes Electronics Corporation, a subsidiary of GM, from May 2001 until the sale by GM of its interest in Hughes in December 2003. He had served on the Hughes Electronics Corporation board since 1992. Mr. Pearce was General Counsel of GM from 1987 to 1994 and is a fellow of the American College of Trial Lawyers and International Society of Barristers. Mr. Pearce served as Chairman of the board of directors of The National Defense University Foundation. He also serves on the board of trustees of Northwestern University and The United States Air Force Academy Endowment. Mr. Pearce has been a director of the Company or its predecessors since 1995.

 

Mr. Pearce brings to the Board operating, business and management experience as Chairman of two major public companies, extensive management and corporate governance experience gained from those roles and membership on the boards of those and other public companies, and legal experience.

 

LOGO

Steven S Reinemund, age: 65. Mr. Reinemund has served as the Dean of Business and Professor of Leadership Strategy at Wake Forest University since July 2008. In 2007, Mr. Reinemund retired from PepsiCo, Inc. a multinational food and beverage company, where he served as Chairman and Chief Executive Officer from 2001 until 2006 and Chairman until May 2007. He joined PepsiCo in 1984 and held the positions of President and Chief Executive Officer Pizza Hut, Chairman and Chief Executive Officer Frito-Lay and President and Chief Operating Officer PepsiCo. He was a director of PepsiCo from 1996 until May 2007. He is a director of American Express Company, ExxonMobil Corp., and Wal-Mart Stores, Inc. Mr. Reinemund was formerly a director of Johnson & Johnson from 2003 to 2008. He is also a member of the board of directors of the Cooper Clinic Institute. Mr. Reinemund has been a director of the Company since 2007.

 

As a result of his background as Chairman and CEO of PepsiCo, a Fortune 500 company, Mr. Reinemund brings to the Board and our Compensation Policy Committee, of which he is Chairman, demonstrated leadership capability and extensive knowledge of complex financial and operational issues facing large branded companies, as well as extensive management and corporate governance experience gained from that role and from membership on the boards of other public companies.

 

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LOGO

W. Mitt Romney, age: 66. Governor Romney most recently was the Republican candidate for the office of President of the United States. He also was a candidate for the 2008 Republican presidential nomination. Before that, he served as the Governor of the Commonwealth of Massachusetts from 2003 through 2007. Prior to his time as Governor, he was President and Chief Executive Officer of the 2002 Winter Olympic Games in Salt Lake City. Gov. Romney started his career in business in 1978 as a Vice President of Bain & Company, Inc., a management consulting firm based in Boston, Massachusetts. In 1984, he left Bain & Company, Inc. to co-found a spin-off private equity investment company, Bain Capital, where he worked until 1998. Gov. Romney served as a director of the Company or its predecessors from 1993 through 2002 and again from January 2009 through January 2011. He rejoined the Board in December 2012. Gov. Romney was suggested to the Nominating and Corporate Governance Committee as a potential director candidate by the Chairman of the Board, J.W. Marriott, Jr.

 

Gov. Romney brings to our Board and our Finance Committee, his unique blend of management experience in both the corporate and government sectors, knowledge of public policy matters as a result of his service as the Governor of the Commonwealth of Massachusetts and financial services experience from his positions with Bain & Company and Bain Capital.

 

LOGO

Lawrence M. Small, age: 71. Mr. Small is the former Secretary of the Smithsonian Institution (the world’s largest museum and research complex), a position he held from January 2000 to March 2007. Mr. Small previously had been President and Chief Operating Officer of Fannie Mae from 1991 to 2000. Before joining Fannie Mae, he served as Vice Chairman and Chairman of the executive committee of the boards of directors of Citicorp and Citibank, where he worked for 27 years. He currently also serves as a director on the boards of The Chubb Corporation and New York City’s Spanish Repertory Theatre Company. Mr. Small has been a director of the Company or its predecessors since 1995.

 

Mr. Small provides the Board with extensive management experience, which includes his former role as President and COO of a large financial services company, and his extensive management, finance and corporate governance experience gained from that role as well as from membership on the boards of other public companies.

 

LOGO

Arne M. Sorenson, age: 54. Mr. Sorenson became President and Chief Executive Officer of the Company on March 31, 2012. Prior to that, he was President and Chief Operating Officer of the Company since May 2009. Mr. Sorenson joined Marriott in 1996 as Senior Vice President of Business Development and was appointed Executive Vice President and Chief Financial Officer in 1998 and assumed the additional title of President, Continental European Lodging, in January 2003. Prior to joining Marriott, he was a Partner in the law firm of Latham & Watkins in Washington, D.C. Mr. Sorenson serves on the board of directors of Wal-Mart Stores, Inc. He also serves on the board of regents of Luther College. Mr. Sorenson was appointed to the Board of Directors in February 2011.

 

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Mr. Sorenson brings to the Board extensive management experience with the Company, his prominent status in the hospitality industry and a wealth of knowledge in dealing with financial and accounting matters as a result of his prior service as the Company’s Chief Financial Officer.

 

Sterling D. Colton, a former director of the Company’s predecessors, and William J. Shaw, a former director and Vice Chairman of the Company, both hold the title of director emeritus, but do not vote at or attend Board meetings and are not nominees for election.

 

The Board met five times in fiscal 2012. The Company encourages all directors to attend the annual meeting of shareholders. All 10 directors who were nominated for election at the Company’s 2012 annual meeting attended the meeting. During fiscal 2012, no director attended fewer than 75% of the total number of meetings of the Board and Committees on which such director served (held during the period that such director served).

 

Governance Principles

 

The Board has adopted Governance Principles that meet or exceed the NYSE Listing Standards. The portion of our Governance Principles addressing director independence appears below, and the full text of the Governance Principles can be found in the Investor Relations section of the Company’s website (www.marriott.com/investor) by clicking on “Corporate Governance” and then “Governance Documents.” A copy may also be obtained upon request from the Company’s Corporate Secretary. Our Governance Principles establish the limit on the number of board memberships for the Company’s directors at three, including Marriott, for directors who are chief executive officers of public companies, and five for other directors.

 

Director Independence

 

Our Governance Principles include the following standards for director independence:

 

5. Independence of Directors. At least two-thirds of the directors shall be independent, provided that having fewer independent directors due to the departure, addition or change in independent status of one or more directors is permissible temporarily, so long as the two-thirds requirement is again satisfied by the later of the next annual meeting of shareholders or nine months. To be considered “independent,” the board must determine that a director has no direct or indirect material relationship with Marriott. The board has established the guidelines set forth below to assist it in determining director independence. For the purpose of this section 5, references to “Marriott” include any of Marriott’s consolidated subsidiaries.

 

a. A director is not independent if (i) the director is, or has been within the preceding three years, employed by Marriott; (ii) the director is a current partner or employee of Marriott’s independent auditor, or was within the preceding three years a partner or employee of Marriott’s independent auditor and personally worked on the audit of Marriott within that time; (iii) an immediate family member of the director is, or has been within the preceding three years, employed by Marriott as an executive officer; (iv) an immediate family member of the director is a current partner of Marriott’s independent auditor, or is a current employee of Marriott’s independent auditor and personally works on the audit of Marriott; (v) an immediate family member of the director was within the preceding three years a partner or employee of Marriott’s independent auditor and personally worked on the audit of Marriott within that time; (vi) the director or an immediate family member is, or has

 

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been within the preceding three years, part of an interlocking directorate in which the director or an immediate family member is employed as an executive officer of another company for which a present executive officer of Marriott at the same time serves on the compensation committee of that other company; (vii) the director has received, or an immediate family member has received, during any 12-month period within the preceding three years, more than $120,000 in direct compensation from Marriott, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service); or (viii) the director is a current employee, or an immediate family member is a current executive officer, of another company that does business with Marriott where the annual sales to, or purchases from, Marriott are in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million or two percent of the consolidated gross annual revenues of that other company.

 

b. The following commercial or charitable relationships are not material relationships that would impair a Marriott director’s independence: (i) service as an executive officer of another company which is indebted to Marriott, or to which Marriott is indebted, where the total amount of either company’s indebtedness to the other is less than two percent of the total consolidated assets of the other company; and (ii) service by a Marriott director or his or her immediate family member as an officer, director or trustee of a charitable organization, where Marriott’s discretionary charitable contributions to that organization are in an amount equal to or less than the greater of $1 million or two percent of that organization’s consolidated gross annual revenues. The board annually reviews all commercial and charitable relationships of directors, and publishes whether directors previously identified as independent continue to satisfy the foregoing tests.

 

c. For relationships not covered by the guidelines in paragraph (b) above, the determination of whether the relationship is material or not, and therefore whether the director would be independent or not, shall be made by the directors who satisfy the independence guidelines set forth in paragraphs (a) and (b) above.

 

The Board undertook its annual review of director independence in February 2013. As provided in the Governance Principles, the purpose of these reviews is to determine whether any relationships or transactions are inconsistent with a determination that the director or nominee is independent. During these reviews, the Board recognized the current or recent employment of J.W. Marriott, Jr., John W. Marriott III, and Arne M. Sorenson and the family relationships of J.W. Marriott, Jr. and John W. Marriott III with other Company executives. The Board considered that Ms. Bush, Mr. Kellner, Ms. Lee, Mr. Muñoz, Mr. Pearce, Mr. Reinemund and Mr. Small each serve, or recently served, as directors or executive officers of companies that do business with Marriott and that in each case the payments to and from Marriott were significantly less than the two percent threshold in Marriott’s Governance Principles. The Board also considered that Gov. Romney’s presidential campaign purchased hotel room and services from the Company for amounts that were significantly less than the two percent threshold in Marriott’s Governance Principles. The Board further considered that Ms. Bush and Ms. Lee are affiliated with charitable organizations that received contributions from Marriott and/or the J. Willard and Alice S. Marriott Foundation and that the contribution amounts were significantly below the charitable contribution threshold set forth in Marriott’s Governance Principles. The Board also conducted an analysis of any potential impact on the independence of Gov. Romney of contributions to his presidential campaign by some executive officers of the Company and determined that the contribution amounts would not affect his ability to act as an independent director.

 

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Based on the standards set forth in the Governance Principles and after reviewing the relationships described above, the Board affirmatively determined that Mary K. Bush, Frederick A. Henderson, Lawrence W. Kellner, Debra L. Lee, George Muñoz, Harry J. Pearce, W. Mitt Romney, Steven S Reinemund, and Lawrence M. Small are each independent of the Company and its management. J.W. Marriott, Jr., John W. Marriott III, and Arne M. Sorenson are considered not independent as a result of their employment with the Company and/or family relationships.

 

Committees of the Board

 

The Board has six standing committees: Audit, Compensation Policy, Finance, Nominating and Corporate Governance, Committee for Excellence, and Executive. The Board has adopted a written charter for each committee, and those charters are available on the Investor Relations section of our website (www.marriott.com/investor) by clicking on “Corporate Governance” and then “Governance Documents.” Copies of the committee charters also may be obtained upon request from the Company’s Corporate Secretary.

 

Audit Committee

 

Members:    George Muñoz (Chair), Mary K. Bush and Lawrence W. Kellner.

 

   

The members of the Committee are not employees of the Company. The Board of Directors has determined that the members of the Committee are independent as defined under our Governance Principles, the NYSE Listing Standards and applicable U.S. Securities and Exchange Commission (“SEC”) rules.

 

   

The Audit Committee met seven times in 2012.

 

   

There is unrestricted access between the Audit Committee and the independent auditor and internal auditors.

 

   

The Board of Directors has determined that all current members of the Audit Committee (George Muñoz, Mary K. Bush and Lawrence W. Kellner) are financial experts as defined in SEC rules.

 

Responsibilities include:

 

   

Representing and assisting the Board in overseeing the accounting, reporting, and financial practices of the Company and its subsidiaries, including the integrity of the Company’s financial statements.

 

   

Representing and assisting the Board in overseeing the Company’s internal control environment and compliance with legal and regulatory requirements.

 

   

Appointing, retaining, overseeing, and determining the compensation and services of the Company’s independent auditors.

 

   

Pre-approving the terms of all audit services, and any permissible non-audit services, to be provided by the Company’s independent auditors.

 

   

Representing and assisting the Board in overseeing the independent auditor’s qualifications and independence, including considering whether any circumstance, including the performance of any permissible non-audit services, would impair the independence of the Company’s independent auditors.

 

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Representing and assisting the Board in overseeing the performance of the Company’s internal audit function and independent auditors.

 

Compensation Policy Committee

 

Members:    Steven S Reinemund (Chair), Mary K. Bush, Harry J. Pearce and Lawrence M. Small.

 

   

The members of the Committee are not employees of the Company. The Board has determined that the members of the Committee are independent as defined under our Governance Principles and the NYSE Listing Standards.

 

   

The Compensation Policy Committee met five times in 2012.

 

Responsibilities include:

 

   

Establishing the principles related to the compensation programs of the Company.

 

   

Designing and recommending to the Board policies and procedures relating to senior officers’ compensation and employee benefit plans.

 

   

Setting the annual compensation for the Executive Chairman and Chairman of the Board and the President and Chief Executive Officer, including salary, bonus and incentive and equity compensation, subject to approval by the Board.

 

   

Approving executive officer and senior management salary adjustments, incentive compensation payments and stock awards.

 

   

Approving and recommending to the Board the annual compensation of non-employee directors.

 

Finance Committee

 

Members:    Lawrence M. Small (Chair), Lawrence W. Kellner (through February 8, 2013), John W.
Marriott III, Harry J. Pearce, and W. Mitt Romney (as of February 8, 2013).

 

   

The members of the Committee are not employees of the Company. The Board has determined that the members of the Committee other than John W. Marriott III are independent as defined under our Governance Principles and the NYSE Listing Standards.

 

   

The Finance Committee met four times in 2012.

 

Responsibilities include:

 

   

Making recommendations to the Board for approval of an annual consolidated budget and reviewing the Company’s performance against such budget.

 

   

Providing guidance to the Board and management on proposed mergers, acquisitions, divestitures and other significant transactions and investments that are required to be submitted for Board approval.

 

   

Providing guidance to the Board and management on the Company’s capital adequacy, credit rating, borrowing needs and proposed debt and equity programs.

 

   

Providing guidance to the Board and management on the Company’s shareholder distribution activities including dividend payments, share repurchases and similar activities.

 

   

Providing guidance to the Board and management on the Company’s corporate insurance coverage.

 

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Nominating and Corporate Governance Committee

 

Members:    Lawrence W. Kellner (Chair), Debra L. Lee, and Steven S Reinemund.

 

   

The members of the Committee are not employees of the Company. The Board has determined that the members of the Committee are independent as defined under our Governance Principles and the NYSE Listing Standards.

 

   

The Nominating and Corporate Governance Committee met twice in 2012.

 

Responsibilities include:

 

   

Making recommendations to the Board regarding corporate governance matters and updates to the Governance Principles.

 

   

Reviewing qualifications of candidates for Board membership.

 

   

Advising the Board on a range of matters affecting the Board and its committees, including making recommendations with respect to qualifications of director candidates, selection of committee chairs, committee assignments and related matters affecting the functioning of the Board.

 

   

Reviewing the Company’s conflict of interest and related party transactions policies, and approving certain related party transactions as provided for in those policies.

 

   

Resolving conflict of interest questions involving directors and senior executive officers.

 

Committee for Excellence

 

Members:    Board members include Debra L. Lee (Chair), George Muñoz, Harry J. Pearce and Arne M. Sorenson. Company officer members include Anthony G. Capuano, Executive Vice President and Chief Development Officer, Stephanie C. Linnartz, Executive Vice President and Chief Marketing and Commercial Officer; Kathleen Matthews, Executive Vice President and Chief Communications and Public Affairs Officer; Robert J. McCarthy, Chief Operations Officer; Kenneth R. Rehmann, Chief Financial Officer, Asia Pacific, David A. Rodriguez, Executive Vice President and Chief Human Resources Officer; Tim Sheldon, Global Officer, Hospitality Design and Marketing Operations Services, and Susan Thronson, Senior Vice President, Marketing.

 

   

The members of the Committee consist of at least three members of the Board. The Committee may also consist of officers and employees of the Company who are not directors. At least one member of the Committee must be independent as defined under our Corporate Governance Principles and the NYSE Listing Standards. The Committee’s charter provides that an independent director will always be the Chairman of the Committee.

 

   

The Committee for Excellence met twice in 2012.

 

Responsibilities include:

 

   

Identifying and encouraging efforts undertaken by the Company to promote and leverage the recruitment, retention, and advancement of women and minorities as employees of the Company.

 

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Identifying and evaluating efforts undertaken by the Company to promote and leverage an increasingly diverse ownership, franchisee, customer, and vendor base of the Company.

 

   

Enhancing the public’s recognition of the Company’s efforts and successes to promote diversity and value people of different backgrounds, experiences, and cultures to benefit Marriott’s strategic competitive advantage.

 

Executive Committee

 

Members:    J.W. Marriott, Jr. (Chair) and Lawrence W. Kellner.

 

   

The Executive Committee did not meet in 2012.

 

Responsibilities include:

 

   

Exercising the powers of the Board when the Board is not in session, subject to specific restrictions as to powers retained by the full Board. Powers retained by the full Board include those relating to amendments to the certificate of incorporation and bylaws, mergers, consolidations, sales or exchanges involving substantially all of the Company’s assets, dissolution and, unless specifically delegated by the Board to the Executive Committee, those powers relating to declarations of dividends and issuances of stock.

 

Compensation 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 party.

 

Meetings of Independent Directors

 

Company policy requires that the independent directors meet without management present at least twice a year. In 2012, the independent directors met three times without management present. The Chairman of the Nominating and Corporate Governance Committee, currently Mr. Kellner, presides at the meetings of the independent directors.

 

Risk Oversight

 

The Board of Directors is responsible for overseeing the Company’s processes for assessing and managing risk. The Board considers our risk profile when reviewing our annual business plan and incorporates risk assessment into its decisions impacting the Company. In performing its oversight responsibilities, the Board receives an annual risk assessment report from the Chief Financial Officer and discusses the most significant risks facing the Company.

 

The Board also has delegated certain risk oversight functions to the Audit Committee. In accordance with NYSE requirements and as set forth in its charter, the Audit Committee periodically reviews and discusses the Company’s business and financial risk management and risk assessment policies and procedures with senior management, the Company’s independent auditor and the Chief Audit Executive. The Audit Committee incorporates its risk oversight function into its regular reports to the Board.

 

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In addition, the Compensation Policy Committee reviewed a risk assessment to determine whether the amount and components of compensation for the Company’s employees and the design of compensation programs might create incentives for excessive risk-taking by the Company’s employees. As explained in the CD&A below, the Compensation Policy Committee believes that our compensation programs encourage employees, including our executives, to remain focused on a balance of the short- and long-term operational and financial goals of the Company, and thereby reduces the potential for actions that involve an excessive level of risk.

 

Shareholder Communications with the Board

 

Shareholders and others interested in communicating with the Chair of the Nominating and Corporate Governance Committee, the Audit Committee, the non-employee directors, or any of the employee directors may do so by e-mail to business.ethics@marriott.com or in writing to the Business Ethics Department, Department 52/924.09,10400 Fernwood Road, Bethesda, Maryland 20817. All communications are forwarded to the appropriate directors for their review, except that the Board has instructed the Company not to forward solicitations, bulk mail or communications that do not address Company-related issues. The Company reports to the directors on the status of all outstanding concerns addressed to the non-employee directors, the Chair of the Nominating and Corporate Governance Committee, or the Audit Committee on a quarterly basis. The non-employee directors, the Chair of the Nominating and Corporate Governance Committee, or the Audit Committee may direct special procedures, including the retention of outside advisors or counsel, for any concern addressed to them.

 

Code of Ethics and Business Conduct Guide

 

The Company has long maintained and enforced a Code of Ethics that applies to all Marriott associates, including our Chairman of the Board, Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer and to each member of the Board. The Code of Ethics is encompassed in our Business Conduct Guide, which is available in the Investor Relations section of our website (www.marriott.com/investor) by clicking on “Corporate Governance” and then “Governance Documents.” Any future changes or amendments to our Code of Ethics, and any waiver of our Code of Ethics that applies to our Chairman of the Board, Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer or a member of our Board, will promptly be posted to our Investor Relations website. A copy of the Business Conduct Guide, which incorporates the Code of Ethics, may also be obtained upon request from the Company’s Corporate Secretary.

 

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AUDIT COMMITTEE REPORT AND INDEPENDENT AUDITOR FEES

 

Report of the Audit Committee

 

The Audit Committee reviews the Company’s financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements, the reporting process, and maintaining an effective system of internal controls over financial reporting. The Company’s independent auditors are engaged to audit and express opinions on the conformity of the Company’s financial statements to accounting principles generally accepted in the United States and the effectiveness of the Company’s internal control over financial reporting.

 

In this context, the Audit Committee has reviewed and discussed the audited financial statements together with the results of management’s assessment of the internal controls over financial reporting with management and the Company’s independent auditor. The Audit Committee also discussed with the independent auditors those matters required to be discussed by the independent auditors with the Audit Committee under the rules adopted by the Public Company Accounting Oversight Board (“ PCAOB”). The Audit Committee has received the written disclosures and the letter from the independent auditors required by applicable requirements of the PCAOB, regarding the independent auditors’ communications with the audit committee concerning independence, and has discussed with the independent auditors the independent auditors’ independence.

 

Relying on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors and, on February 14, 2013, the Board approved, that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 28, 2012, which was filed with the SEC on February 20, 2013.

 

Members of the Audit Committee:

 

George Muñoz, Chair

Mary K. Bush

Lawrence W. Kellner

 

Pre-Approval of Independent Auditor Fees and Services Policy

 

The Audit Committee’s Pre-Approval of Independent Auditor Fees and Services Policy provides for pre-approval of all audit, audit-related, tax and other permissible non-audit services provided by our principal independent auditor on an annual basis and additional services as needed. The policy also requires additional approval of any engagements that were previously approved but are anticipated to exceed pre-approved fee levels. The policy permits the Audit Committee Chair to pre-approve principal independent auditor services with estimated fees up to $100,000 (provided that the Audit Committee Chair report to the full Audit Committee at the next meeting on any pre-approval determinations).

 

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Independent Registered Public Accounting Firm Fee Disclosure

 

The following table presents fees billed for professional services rendered by our independent registered public accounting firm for the audit of our annual financial statements for fiscal 2012 and fiscal 2011 and fees billed for audit-related services, tax services and all other services rendered by our independent registered public accounting firm for fiscal 2012 and fiscal 2011. The Audit Committee approved all of the fees presented in the table below.

 

     Independent Registered Public
Accounting Firm

Fees for Fiscal 2012
     Independent Registered Public
Accounting Firm

Fees for Fiscal 2011
 
     Ernst & Young LLP      Ernst & Young LLP  

Audit Fees:

     

Consolidated Audit(1)

   $ 3,633,840       $ 6,315,800   

International Statutory Audits(2)

     2,027,800         2,077,910   
  

 

 

    

 

 

 
     5,661,640         8,393,710   
  

 

 

    

 

 

 

Audit-Related Fees(3)

     653,380         886,100   

Tax Fees(4)

     874,265         765,568   
  

 

 

    

 

 

 

Total Fees

   $ 7,189,285       $ 10,045,378   
  

 

 

    

 

 

 

 

(1)   Principally fees for the audit of the Company’s annual financial statements, the audit of the effectiveness of the Company’s internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, the auditors’ review of the Company’s quarterly financial statements, and services provided in connection with the Company’s regulatory filings. For fiscal 2011, these fees also include $2,820,000 related to the audit of the Company’s spun-off subsidiary Marriott Vacations Worldwide Corporation’s (“MVW”) historic financial statements.
(2)   Fees for statutory audits of our international subsidiaries.
(3)   Principally audits as required under our agreements with our hotel owners. In 2011 these fees also included $280,000 related to filings required for the MVW spin-off.
(4)   Principally tax compliance services related to our international entities.

 

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EXECUTIVE AND DIRECTOR COMPENSATION

 

Report of the Compensation Policy Committee

 

The Compensation Policy Committee (the “Committee”), which is composed solely of independent members of the Board, assists the Board in fulfilling its responsibilities relating to executive compensation. The Committee is responsible for overseeing compensation programs that enable the Company to attract, retain and motivate executives capable of establishing and implementing business plans in the best interests of the shareholders. The Committee, on behalf of and in certain instances subject to the approval of the Board, reviews and approves compensation programs for certain senior officer positions. In this context, the Committee reviewed and discussed with management the Company’s CD&A required by Item 402(b) of SEC Regulation S-K. Following the reviews and discussions referred to above, the Committee recommended to the Board that the CD&A be included in the Company’s annual report on Form 10-K and this proxy statement.

 

Members of the Compensation Policy Committee:

 

Steven S Reinemund, Chair

Mary K. Bush

Harry J. Pearce

Lawrence M. Small

 

Compensation Discussion and Analysis

 

This section explains the Company’s executive compensation program for the following “Named Executive Officers” (“NEOs”) for 2012:

 

J.W. Marriott, Jr.

   Executive Chairman and Chairman of the Board

Arne M. Sorenson

   President and Chief Executive Officer

Robert J. McCarthy

   Chief Operations Officer

Anthony G. Capuano

   Executive Vice President and Chief Development Officer

Carl T. Berquist

   Executive Vice President and Chief Financial Officer

David J. Grissen

  

President, The Americas

 

Executive Summary

 

Background

 

Marriott is consistently recognized as a global hospitality leader. In 2012, as the Company celebrated its 85th anniversary, the board elected Mr. Marriott executive chairman and chairman of the board, and named Mr. Sorenson president and chief executive officer, making him the third chief executive officer in the Company’s history. In addition, the board appointed Mr. McCarthy as chief operations officer. All three appointments were effective March 31, 2012.

 

Each of the NEOs is a longstanding member of our senior management team. For example, J.W. Marriott, Jr., has over 60 years of hospitality experience with the Company and has led the Company’s growth from a family restaurant business to a global lodging company with more than 3,800 properties in 74 countries. In addition, our other NEOs collectively have over 100 years of hospitality experience with the Company.

 

Our executive compensation program has remained substantially the same for many years and we believe that this consistency in driving performance through a combination of near-term financial and

 

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operational objectives and long-term focus on our stock price performance has proven to be an important factor in the Company’s long-term success in the highly cyclical hospitality industry. As explained further in the Philosophy section below, the Company continues to emphasize equity compensation as the most significant component of the NEOs’ total pay opportunity.

 

Company Performance in 2012

 

The Company exceeded its earnings, growth and RevPAR Index goals for fiscal year 2012 as described below. The Company also had strong Associate Engagement survey results for the year. Actual revenues for 2012 were $11.8 billion and diluted earnings per share totaled $1.72. The Company also completed the $210 million acquisition of the Gaylord brand and hotel management company and, with the Gaylord acquisition and other development activities, added 125 properties and over 27,000 rooms to its worldwide system.

 

Compensation Actions in 2012

 

As indicated above, the Company had a strong 2012 based on a number of important performance measures. Given these achievements, and promotions and new responsibilities as described above, the Committee made the following key compensation decisions for 2012:

 

   

Promotions: The Committee increased Messrs. Sorenson and McCarthy’s base salaries and annual incentive opportunities effective March 31, 2012, and granted annual stock awards commensurate with their new responsibilities and external market data.

 

   

Base Salary: The Committee determined NEO salary adjustments in February 2012. Messrs. Sorenson and McCarthy received base salary increases commensurate with their new responsibilities effective March 31, 2012. Mr. Capuano received a 7.1% annual salary increase based on a review of external market data. Messrs. Berquist and Grissen received increases of 3.2% and 3.7% respectively which were consistent with increases for all eligible management associates and with salary increases in the marketplace.

 

   

Annual Incentive: Payments under the Company’s annual incentive program are based on actual performance measured against pre-established targets for (i) diluted earnings per share, and (ii) a combination of financial and operational performance measurers tailored for each executive’s area of responsibility. Achievement of these pre-established targets under the program for 2012 were as follows:

 

  Diluted Earnings Per Share (“EPS”) Incentive Component: The Committee determined that the Company achieved an adjusted diluted EPS of $1.64, which resulted in a maximum achievement level for the EPS component and corresponding payments. In assessing performance under the annual incentive program, the Committee reduced diluted EPS determined under GAAP of $1.72 by the $0.08 per diluted share gain on the sale of a joint venture interest in a portfolio of hotels. The adjustment is described in the discussion of the Annual Incentive below.

 

  Individual Performance Incentive Component: This component measures performance against a combination of pre-established individual financial and operational performance measures. The Committee approved varying payouts that generally were above target for 2012 based on: (i) each NEO’s achieving certain key individual objectives; (ii) room growth and associate engagement at maximum achievement level; (iii) guest satisfaction below target achievement level, and (iv) RevPAR Index above target achievement level.

 

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On a combined basis, the annual incentive program resulted in an above target but less than maximum payout for each NEO for 2012. The Committee believes that by maintaining focus on a set of objectives that are largely consistent throughout the business cycle, the annual incentive program lays the foundation for the Company’s long-term operational and financial success. The following graph illustrates how the total amount of annual incentive paid to the NEOs has varied with changes in the Company’s annual diluted EPS results over the past ten years.

 

LOGO

 

   

Equity Compensation: Consistent with general market practices and the Company’s philosophy that the primary component of NEO compensation should be in the form of long-term equity awards, the Committee awarded the majority of each NEO’s total pay opportunity in the form of stock awards. Annual stock awards for 2012 generally represented a mix of stock-settled stock appreciation rights (“SARs”) and restricted stock units (“RSUs”), with a four-year pro rata vesting schedule. The grant date fair values of these awards were set at approximately the 50th percentile of the peer group, except that Mr. Sorenson’s awards were below the 50th percentile in recognition of 2012 being his first year in the role of President and Chief Executive Officer and to reflect that he served in that role for only three-fourths of the year.

 

   

Other Compensation: The Company offers limited perquisites and personal benefits that make up a very small portion of each NEO’s total compensation. In 2012, the Company eliminated company-paid financial planning and the annual company-paid physical examination.

 

   

Mr. Marriott: In light of the change in Mr. Marriott’s responsibilities, the Committee determined that he should be compensated primarily through his annual salary, and that his 2012 compensation would not include annual cash incentives or equity awards. Because of this special arrangement, references to the NEOs’ compensation programs in the remainder of this CD&A do not pertain to Mr. Marriott unless specifically stated otherwise.

 

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Pay Mix

 

The Company emphasizes at-risk incentive pay and particularly equity compensation. The mix of each NEO’s total pay opportunity for 2012 is shown below.

 

Compensation Components for 2012

 

LOGO

 

Corporate Governance and Best Practices

 

Consistent with the Company’s commitment to executive compensation best practices, the Company continued the following NEO compensation practices for 2012:

 

  The Company does not have employment contracts.

 

  The Company does not offer a defined benefit pension plan.

 

  The Company does not offer a supplemental executive retirement plan.

 

  The Company does not provide tax gross-ups.

 

  The Company does not have a severance plan for executives.

 

  The Company does not provide “single trigger” change in control benefits.

 

  The NEOs are subject to stock ownership guidelines.

 

  The NEOs are subject to clawback requirements.

 

  All associates and directors are prohibited from engaging in hedging or derivative transactions related to Marriott stock or securities.

 

  The NEOs are prohibited from holding Company stock in margin accounts or pledging such stock as collateral for loans.

 

  The Committee retains an independent compensation consultant.

 

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Philosophy

 

The Company believes that strong and consistent leadership is the key to long-term success in the hospitality industry. Marriott has a long history of delivering results for shareholders by relying on talented, hard-working employees (“associates”) who uphold the Company’s ideals and unique culture. Therefore, in designing and implementing its executive compensation program, the Company emphasizes the following three principles.

 

   

NEOs should be paid in a manner that contributes to long-term shareholder value. Therefore, equity compensation should be the most significant component of total pay opportunity for the NEOs.

 

   

Compensation should be designed to motivate the NEOs to perform their duties in ways that will help the Company achieve its short- and long-term objectives. This is achieved by offering an appropriate mix of cash and non-cash elements of pay.

 

   

The NEO compensation program must be competitive so that the Company can attract key talent from within and outside of our industry and retain key talent at costs consistent with market practice.

 

In setting NEO pay, the Committee recognizes that the Company’s annual financial results can fluctuate dramatically given the cyclical nature of the hospitality business and its sensitivity to the global economy. Therefore, the Committee emphasizes a long-term perspective when determining the appropriate total pay level and mix of pay. Consistent with this long-term perspective, the Committee retains the discretion to make adjustments to NEO pay.

 

The Company reinforces this long-term philosophy through its stock ownership guidelines which prescribe that each executive own Company stock with total value equal to a multiple of between one to four times (depending upon the executive’s position) his or her individual salary grade midpoint within five years of becoming subject to the guidelines. As of December 28, 2012, each NEO met these guidelines. Furthermore, consistent with the purposes of the stock ownership guidelines, the Company prohibits all associates and directors from engaging in short sale transactions or entering into any other hedging or derivative transaction related to Marriott stock or securities. Further, as indicated in the discussion of Grants of Plan-Based Awards for Fiscal 2012 below, RSUs do not provide for accelerated distribution of shares upon retirement. As a result, executives have a continuing stake in the Company’s performance beyond the end of their employment, thereby strengthening their interest in the Company’s long-term success.

 

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Alignment Between Executive Pay and Company Performance

 

The Committee believes that there should be a strong correlation between executive pay and Company performance. As indicated above, the Company’s executive compensation program includes many features designed to maintain this alignment, while also protecting the Company against inappropriate risk-taking and conflicts among the interests of the Company, its stockholders and its executives. The following chart graphically shows the historical alignment between Company performance and average annual Realizable Pay of the CEO over 3-year rolling periods. The Company believes that this analysis helps to demonstrate that, in addition to aligning pay for performance with respect to the compensation opportunity that is awarded each year, the Company’s executive compensation program also has been effective in creating close long-term alignment between performance and the value of compensation that may actually be realized by the NEOs.

 

LOGO

 

Realizable Pay is the sum of salary paid, annual incentive earned and balances of stock awards granted over each 3-year period. Stock award balances are valued at the end of the 3-year period and include the “in-the-money” value of options, SARs and RSUs granted during the 3-year period. The 3-year total shareholder return (“TSR”) rolling percentage is determined using 60-day average opening and closing prices.

 

2012 “Say-on-Pay” Advisory Vote on Executive Compensation

 

The Company provided shareholders a “say-on-pay” advisory vote on its executive compensation in 2012 in accordance with Section 14A of the Exchange Act. At the Company’s 2012 Annual Meeting, shareholders expressed substantial support for the compensation of our NEOs with approximately 87% of the votes cast for approval of the “say-on-pay” advisory vote. The Committee carefully evaluated the results of the 2012 advisory vote as well as feedback and comments received in connection with the Company’s outreach efforts with shareholders as a result of the annual “say-on-pay” advisory vote. The Committee, with input and guidance from its independent compensation consultant, Pearl Meyer & Partners (the “Compensation Consultant”), engaged in a comprehensive review of the elements and mix of annual and long-term executive officer compensation, the peer group selection and evaluation process, and the long-term effectiveness of the Company’s compensation programs. The Committee also sought comments from some of its largest institutional shareholders. Based on the foregoing, the Committee determined to maintain the basic structure of the executive compensation program, but determined to refine and clarify its peer group methodology, to discontinue certain perquisites and to make other refinements in the operation of the Company’s executive compensation program and policies, as

 

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discussed in this CD&A. In implementing the Company’s executive compensation program, the Committee considers many factors, including the cyclical nature of the hospitality business, the advice of the Compensation Consultant, internal pay equity among executives, and positioning of the Company’s total pay opportunity at a level that is competitive in light of external data.

 

2012 Compensation

 

In designing and determining 2012 NEO pay, the Committee considered recommendations of the Company’s EVP, Chief Human Resources Officer, as well as the advice and recommendations of the Compensation Consultant (see the discussion of the Independent Compensation Consultant below). The Committee also sought input from Mr. Marriott regarding internal pay equity among the NEOs and his general knowledge of industry practice and trends. The Committee obtained input and approval from the full Board with regard to the compensation package for Messrs. Marriott and Sorenson (Messrs. Marriott, Sorenson and John Marriott III abstained from Board votes on these compensation decisions).

 

In its determinations, the Committee does not set rigid, categorical guidelines or formulae to determine the mix or levels of compensation for the NEOs. Rather, it relies upon its collective judgment as applied to the challenges confronting the Company as well as subjective factors such as leadership ability, individual performance, retention needs and future potential as part of the Company’s management development and succession planning process.

 

Total Pay

 

As one consideration for setting NEO total pay opportunity, the Committee focuses its review of total pay for executives at the 50th percentile of a broad-based and select group of companies described in the discussion of Market Data below. This review of total compensation is designed to align the range of compensation opportunities with our long-term performance expectations and to attract and retain key executive talent. However, the Committee does not use this as a rigid standard, but carefully reviews Company and individual performance, competitive recruiting and retention pressures, internal equity and succession plans. For example, although performance comparisons are difficult given the difference in size, customer distribution, global geographic exposure and price tier distribution, the Committee considers historical, annual, and forecasted business results relative to other individual lodging companies to provide additional context for evaluating annual compensation actions. In addition, in reviewing relevant market data, the Committee may utilize discretion in determining the relevance of each survey. The Committee also reviews historical financial, business and total shareholder return results prior to determining final pay amounts. For 2012, because the surveys do not reflect a comparable position for Mr. Capuano, our Executive Vice President, Global Development, the Committee considered multiple factors, including a review of publicly disclosed compensation data for development and real estate executives at other hotel companies, internal pay equity and Mr. Capuano’s historical contributions to the Company and his experience in the Marriott development organization.

 

Base Salary

 

The Committee reviews individual base salaries for the NEOs each February for the current fiscal year. As a part of this review, the Committee considers whether base salary levels are commensurate with the executives’ responsibilities and the external market. For 2012, the Human Resources Department presented market data on base salary levels to the Committee for each new position and recommended base salary increases for Messrs. Marriott, Sorenson and McCarthy as a result of their

 

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significant promotions or new responsibilities. The Committee approved and adjusted individual base salaries for these executives effective March 31, 2012. As noted above, Mr. Marriott’s salary increase reflects the Committee’s determination that he would not participate in the annual incentive program or receive equity grants for 2012, and thus that his total pay opportunity would decrease significantly. For Mr. Capuano, management recommended a 7.1% salary increase based on a review of market data. The increases for Messrs. Berquist and Grissen, as shown in the table below, were consistent with the increases for all eligible management associates and with salary increases in the marketplace. The Compensation Consultant reviewed and supported the recommendation which was approved by the Committee and, with respect to Messrs. Marriott and Sorenson, by the Board.

 

    2012 Base Salary ($)      2011 Base Salary ($)      2011 to 2012
Increase (%)
 

J.W. Marriott, Jr (effective March 31, 2012).

  $ 3,000,000       $ 1,304,876         129.9

Arne M. Sorenson (effective March 31, 2012)

  $ 1,200,000       $ 1,007,831         19.1   

Robert J. McCarthy (effective March 31, 2012)

  $ 825,000       $ 742,613         11.1   

Anthony G. Capuano

  $ 625,000       $ 583,481         7.1   

Carl T. Berquist

  $ 700,000       $ 678,038         3.2   

David J. Grissen

  $ 550,000       $ 530,438         3.7   

 

Annual Incentives

 

To promote growth and profitability, the Company’s annual cash incentive program consists of two components under which payments are based on actual performance measured against pre-established financial or operational targets: the Marriott International, Inc. Executive Officer Incentive Plan (“Incentive Plan”), which focuses on a diluted EPS objective, and the Marriott International, Inc. Executive Officer Individual Performance Plan (“Individual Plan”), which focuses on other financial, operational and human capital objectives for the year. This program is designed to provide executives with appropriate compensation incentives to achieve identified annual corporate and individual performance objectives that are designed to contribute to the long-term financial and operational success of the Company.

 

At its February 2012 meeting, the Committee approved specific performance objectives and targets under each incentive plan component for 2012. In February 2013, after the release of the 2012 fiscal year audited financial results, the Committee reviewed each NEO’s performance against the pre-established performance objectives to determine the actual cash incentive payments, as discussed below. All of the Committee’s decisions regarding annual cash incentives for Mr. Sorenson were subject to and received Board approval.

 

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As reflected in the following table, target awards under the annual cash incentive program range from 125% of salary for Mr. Sorenson (for the period after his promotion) to 60% for Mr. Grissen. The Committee determined the differences in the target award percentages between NEOs primarily by considering internal factors, including pay equity with other executives, differences in responsibilities, significant promotions and future potential. The Committee also reviewed market data for each position to confirm that the incentive amounts payable upon achievement of target performance levels would result in total cash compensation (base salary plus annual incentive) that would be at or near the 50th percentile.

 

Name

   Target Award as a
% of Salary
 

J.W. Marriott, Jr.

     n/a   

Arne M. Sorenson

  

(Dec 31 – Mar. 31)

     90   

(Apr.1 – Dec. 28)

     125   

Robert J. McCarthy

  

(Dec 31 – Mar. 31)

     75   

(Apr.1 – Dec. 28)

     90   

Anthony G. Capuano

     75   

Carl T. Berquist

     75   

David J. Grissen

     60   

 

The Incentive Plan rewards executives for the Company’s achievement of pre-established Company financial goals. The Incentive Plan payout represents 60% of the total annual incentive opportunity under the annual incentive program for all NEOs other than Mr. Capuano and Mr. Grissen, for whom it represents 10% and 40% respectively. For Mr. Capuano, the largest relative component of his annual incentive opportunity is room growth and, for Mr. Grissen, the largest relative component of his annual incentive opportunity is Americas operating profit, consistent with their primary areas of responsibility. The Individual Plan emphasizes individual executive performance based on pre-established objectives as well as goals based on business/operating unit financial and operational performance such as revenue growth relating to newly developed rooms, RevPAR Index, associate engagement and guest satisfaction. The table below displays the respective weightings of the relevant performance measures and the aggregate actual payments for 2012 under the annual incentive program.

 

Name

      Incentive Plan     Individual Plan with EBITDA Performance Threshold        
      Operating
Profit -
Americas
    Earnings
Per Share
    Individual
Achievement
    Room
Growth  (1)
    RevPAR
Index  (1)
    Associate
Engagement  (1)
    Guest
Satisfaction  (1)
    Total  

J.W. Marriott, Jr.

  Weight of Total Award (%)     n/a        n/a        n/a        n/a        n/a        n/a        n/a        n/a   
  Actual Payout as % of Salary     n/a        n/a        n/a        n/a        n/a        n/a        n/a        n/a   

Arne M. Sorenson

  Weight of Total Award (%)     n/a        60.0        10.0        10.0        10.0        5.0        5.0        100   
  Actual Payout as % of Salary     n/a        106.78        16.8        17.8        14.4        8.9        4.39        169.07   

Robert J. McCarthy

  Weight of Total Award (%)     n/a        60.0        10.0        10.0        10.0        5.0        5.0        100   
  Actual Payout as % of Salary     n/a        78.23        12.04        13.04        10.58        6.52        3.24        123.65   

Anthony G. Capuano

  Weight of Total Award (%)     n/a        10.0        5.0        75.0        5.0        5.0        n/a        100   
  Actual Payout as % of Salary     n/a        15.0        7.50        112.50        5.4        7.5        n/a        147.9   

Carl T. Berquist

  Weight of Total Award (%)     n/a        60.0        10.0        10.0        10.0        5.0        5.0        100   
  Actual Payout as % of Salary     n/a        69.0        10.5        11.5        9.26        5.75        2.81        108.82   

David J. Grissen

  Weight of Total Award (%)     40.0        n/a        10.0        15.0        15.0        5.0        15.0        100   
  Actual Payout as % of Salary     34.15        n/a        8.0        48.5        9.27        4.5        7.58        112.0   

 

(1)  

Each of the components under the Individual Plan is measured against Company-wide results except that Mr. Grissen’s components are measured against The Americas division, his primary area of responsibility.

 

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We report the potential awards under the Incentive Plan and Individual Plan for 2012 in dollars in the Grants of Plan-Based Awards for Fiscal 2012 table, and the actual award amounts earned under the Incentive Plan and Individual Plan for 2012 in dollars in the Summary Compensation Table following the CD&A.

 

Incentive Plan

 

In 2012, the Incentive Plan awards for NEOs focused entirely on diluted EPS performance, except that Mr. Grissen’s objective focused on operating profit from the Americas division, his primary area of responsibility. The Company places a heavy emphasis on diluted EPS as a performance measure because diluted EPS is an important indicator of Company profitability and aligns the interests of management with those of shareholders. For the purpose of the Incentive Plan, the Company uses diluted EPS as reported under U.S. GAAP, as may be modified during the target-setting process for items that are not expected to have a direct impact on the business going forward, although no such adjustments were made for 2012 diluted EPS targets.

 

For 2012, the Company established the diluted EPS target primarily through an extensive annual budgeting process whereby each hotel and individual corporate unit developed and submitted a budget. The Company then developed a consolidated Company budget considering external market factors such as global and domestic economic forecasts and lodging industry outlook, as well as internal factors such as current revenue from group bookings, expected unit growth for the year, and expected capital needs. The Board reviewed and approved the budget in February 2012. Considering these factors, the Committee set the diluted EPS target for 2012 at a level that the Committee believed was achievable but not certain to be met, which was $1.53. This target was higher than the Company’s reported GAAP diluted EPS for 2011 of $0.55 and the Company’s 2011 adjusted diluted EPS of $1.36, which reflected adjustments for costs and charges recorded when preparing the Company’s timeshare business for the spin-off (see page 31 of the proxy statement filed with the SEC on March 30, 2012, for a reconciliation of adjusted EPS for 2011). Mr. Grissen’s 2012 Americas operating profit target was $972 million.

 

For 2012, each NEO, other than Mr. Grissen, was eligible to receive an annual cash incentive based on the Company’s achieved level of diluted EPS performance, as follows:

 

          Diluted EPS

Achievement vs. Target

   Incentive Award    Payout as % of Target  

Below 87%

   No Payment      0

87%

   Threshold Payment      25

100%

   Target Payment      100

107% and Above

   Maximum Payment      150 to 200

 

If the achievement falls between two of the stated performance achievement levels, the Incentive payment is interpolated between the corresponding incentive levels. The specific performance level percentages were set by the Committee in consultation with the Compensation Consultant based on external market data as well as the Committee’s subjective judgment.

 

For 2012, the Company’s diluted EPS as reported under GAAP was $1.72. However, in determining the Incentive Plan payouts, the Committee reduced this result by $0.08 per diluted share to exclude the gain recorded on the sale of a joint venture interest in a portfolio of hotels. The Committee approved this reduction because the gain was not taken into account at the time of the 2012 budget-setting process and determined that it would be inappropriate to measure the NEOs’ achievement with

 

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respect to diluted EPS on the basis of diluted EPS results that benefitted from an item that does not reflect the Company’s ongoing operations. The Company’s adjusted diluted EPS was $1.64, as shown below, which resulted in a maximum achievement level. Consequently for 2012, each of the NEOs received a maximum payout under the Incentive Plan. The following table reconciles the Company’s 2012 diluted EPS as reported under GAAP to diluted EPS as adjusted.

 

     As Reported      Impact of Gain (net of tax)
on the Sale of Joint
Venture Interest in a

Portfolio of Hotels
     As Adjusted  

Net income (in millions)

   $ 571       $ 25       $ 546   

Diluted shares (in millions)

     332.9         332.9         332.9   

Earnings per share–diluted

   $ 1.72       $ 0.08       $ 1.64   

 

For Mr. Grissen, the Americas operating profit was $1,009 million, which exceeded the target but was below the maximum achievement level. Consequently for 2012, Mr. Grissen received an above target but below maximum payout under the Incentive Plan for 2012.

 

Individual Plan

 

As noted above, the Individual Plan emphasizes individual executive performance as well as measures of business/operating unit financial and operational performance such as new room signings, RevPAR Index, associate engagement and guest satisfaction. In addition, the Individual Plan conditions payment on achieving earnings before interest, taxes, depreciation and amortization (“EBITDA”) of $879 million for 2012, a threshold established to ensure all incentive payments are supported by a meaningful level of cash flow even if individual performance objectives are met. Actual 2012 EBITDA of $1,146 million (or $1,105 million when adjusted for the $41 million gain ($25 million net of tax) recorded on the sale of a joint venture interest in a portfolio of hotels as discussed above), exceeded the threshold. (See the section of the Company’s Annual Report on Form 10-K for fiscal year 2012 entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a reconciliation of 2012 EBITDA.)

 

The Committee evaluates Individual Plan performance factors that, like the diluted EPS and Americas operating profit targets, are intended to establish high standards consistent with the Company’s quality goals, which are achievable but not certain to be met. The Company believes that these factors are critical to achieving success within the hospitality and service industry. The Individual Plan payout represents 40% (and for reasons described above, 90% for Mr. Capuano and 60% for Mr. Grissen) of the executives’ total annual incentive opportunity, and the weighting of each performance factor varies slightly among the NEOs by position due to differences in responsibility. The threshold award for each component, other than Room Growth as discussed below, is equal to 25% of the target award. The maximum award for each component is between 150% and 200% of the target award. The Committee establishes the goals and weighting at the beginning of the year. After the end of the year, the Committee assesses each individual’s achievement of Individual Plan components and determines whether it is appropriate to pay out at or in between the threshold, target or maximum award levels or not to pay out at all under the Individual Plan.

 

The performance components for each NEO under the Individual Plan for 2012 were:

 

   

Individual Achievement: Each year the Company sets specific management objectives for the NEOs. Each NEO has a different set of objectives that is aligned to his unique responsibilities and role within the Company. The objectives are developed by the Chief Executive Officer and

 

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members of his executive team, and reviewed, modified as necessary and approved by the Committee (or the Board in the case of Mr. Sorenson’s management objectives). The management objectives generally are difficult to accomplish and relate to key duties of the positions. Examples of the types of management objectives are:

 

  Develop the second phase of the global restructuring with a focus on global-local resource placement;

 

  Execute agreements in support of continued growth;

 

  Execute a CEO transition plan to ensure management continuity and business performance; and

 

  Optimize the benefits of the Company’s major infrastructure initiatives.

 

The Committee applies a rigorous and largely subjective assessment of each NEO’s qualitative performance relative to the management objectives. The management objectives are not assigned specific weightings and may be modified by the Committee if a change in business circumstances warrants. The actual payments relating to management objectives are determined by the Committee based on its subjective assessment of each NEO’s job performance for the year. Maximum or above target payouts typically occur if the Committee views the NEO’s overall performance to have been superior after its review of the achievement levels for each of the objectives. For each of the five years preceding 2012, the NEOs received award levels varying from zero (in 2009 when the Committee and Board decided not to pay the portion of annual incentives relating to individual performance, notwithstanding strong individual performance) to a maximum payout for the individual achievement portion of the Individual Plan. For 2012, each NEO achieved key individual objectives, including operational objectives such as the initiatives identified above.

 

   

Room Growth: Assessment of room growth was based on the number of rooms signed (and expected to open in the future) and a net present value estimate/calculation utilized by our management and Board in evaluating the potential performance of completed development projects. For 2012, the Company established the room growth target primarily through an extensive annual budgeting process whereby a budget was developed and submitted for each geographic region that was identified for potential growth. The Company’s Lodging Development Department consolidated the individual budgets and considered external market factors such as global and domestic economic forecasts and lodging industry outlook, as well as internal factors such as existing development resources. For each NEO except Mr. Grissen, the room growth target for 2012, as reviewed and approved by the Board in February 2012, was 38,500 rooms approved for development and $483 million net present value, higher than the room growth target for 2011. For Mr. Grissen, the room growth target for the Americas division was 20,230 rooms approved for development and $242 million net present value.

 

For each NEO except Mr. Capuano and Mr. Grissen, achievement of at least 118% of the room growth target results in a maximum component payout; achievement of the target results in a threshold/target component payout (the target is also the threshold level); and achievement of less than the target results in no component payout. For Mr. Capuano, achievement of at least 176% of the target results in a maximum component payout; achievement of the target results in a target component payout; and achievement of 59% of the target results in a threshold component payout. For Mr. Grissen, achievement of at least 200% of the target results in a maximum component payout; achievement of the target results in a threshold/target component payout. The Committee established wider performance and payout

 

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ranges for Mr. Capuano and Mr. Grissen to more accurately measure and incentivize them for achieving growth goals. For 2012, the Company exceeded the maximum target for the number and net present value of rooms approved for development for all of the NEOs.

 

   

Associate Engagement: Assessment of associate engagement is measured by the results of the Company’s annual associate engagement survey (conducted by a third party) as compared against external benchmark results provided by the third party company. Specifically, a maximum component payout is provided for results that exceed the “Best Employer” benchmark; a threshold payout occurs for results that meet or exceed the “Professional Services” benchmark (a payout is interpolated for results between the two benchmarks); and no payout occurs for achievement of less than the “Professional Services” benchmark. For 2012, the Company and the Americas division exceeded the “Best Employer” benchmark, which demonstrated considerable leadership and commitment in a challenging economic environment. Consequently for 2012, each of the NEOs received a maximum payout for this incentive component.

 

   

Guest Satisfaction: Assessment of Guest Satisfaction is based on Company-wide satisfaction survey results for the year, or the Americas division for Mr. Grissen, compared with pre-established goals, which are based on a compilation of survey results from numerous satisfaction surveys across the company’s brands. For 2012, achievement of 101% of the target results in a maximum component payout: achievement of 100% of the target results in a target component payout; achievement of 98% of the target (97% for Mr. Grissen based on results of the Americas division) results in a threshold component payout (a payout is interpolated for results between threshold and maximum); and achievement of less than 98% (or 97% for Mr. Grissen) of the target results in no payout under this component. The narrow ranges reflect the compressed scale under this measure where a slight difference in results indicates a significant variance in performance. The annual goals are difficult to accomplish and not certain to be met. For 2012, each of the NEOs achieved guest satisfaction scores that correspond with an above threshold but below target payout.

 

   

RevPAR Index: The Company retains a third party to collect and compile the data used to calculate a worldwide RevPAR Index, or Americas RevPAR Index for Mr. Grissen. RevPAR Index is calculated for each hotel by comparing the hotel’s RevPAR to the aggregate RevPAR of a group of comparable hotels generally in the same market and lodging segment, stated as a percentage; worldwide (or Americas) RevPAR Index is a weighted average of the individual property results. In order for any payout to occur for the RevPAR Index portion, the Company’s worldwide (or Americas) RevPAR Index score must exceed 100.0, which indicates the Company has a premium RevPAR relative to its competitors. Once this baseline requirement is met, achievement of 1% increase over prior year RevPAR Index results in a maximum component payout; achievement of 0% increase over prior year results in a target component payout; achievement of 0.3% compared with prior year results in a threshold component payout; and payouts are interpolated between these performance achievement levels. The narrow ranges reflect the compressed scale under this measure where a slight difference in results indicates a significant variance in performance. For 2012, the Company achieved an overall RevPAR Index score above 100.0 and a year-over-year increase of 0.44% resulting in an above target but below maximum payout for this component. For the Americas, the Company achieved a RevPAR Index score above 100.0 and a year-over-year increase of 0.06% resulting in an above target but below maximum payout for this component.

 

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Stock Awards

 

Annual Stock Awards

 

The Company grants equity compensation awards to the NEOs under the Marriott International, Inc. Stock and Cash Incentive Plan (the “Stock Plan”) on an annual basis. With four-year vesting conditions and the opportunity for long-term capital appreciation, the annual stock awards help link NEO pay to long-term Company performance, align the interests of NEOs with those of shareholders and help the Company achieve its objectives of attracting and retaining key executive talent.

 

The NEOs’ stock awards for 2012 were granted on February 21, 2012, in an equal mix (based on grant date fair value) of RSUs and SARs, with the exception of Mr. Capuano and Mr. Grissen as discussed below. The Committee believes that awarding an equal mix of RSUs and SARs achieves a balance between the significant upside potential of SARs, which have an exercise price equal to the Company’s stock price at grant and are strongly aligned with stock price changes, and RSUs which increase or decrease in value in substantially the same manner as does Company stock held by shareholders and thereby encourage NEOs to focus on sustained stock price performance. Mr. Grissen received a combination of RSUs and SARs through his supplemental award as discussed below.

 

The chart below shows how granting a mix of SARs and RSUs creates future alignment between executive pay and shareholder value and how this value compares to the grant date fair value of the awards as reported in the Summary Compensation Table. The chart assumes that an equal mix (based on grant date fair value) of SARs and RSUs is granted at a $35 stock price with an approximate grant date value of $2 million (81,169 SARs and 28,571 RSUs.) As shown in the chart, the Company’s stock price would have to increase by approximately 26% (from $35 to $44.11) in order for the awards to have a realizable value for the executive equal to their grant date fair value as reported in the Summary Compensation Table.

 

LOGO

 

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For each NEO, except Mr. Capuano, the Committee set the annual stock award values for 2012 by reference to the 50th percentile of the external market data, subject to discretionary adjustments as explained earlier in the discussion of “Total Pay,” as follows:

 

     50th Percentile
Market Data
     2012 Stock
Award Values
 

Arne M. Sorenson

   $ 6,269,300       $ 5,500,000   

Robert J. McCarthy

   $ 2,537,100       $ 2,500,000   

Carl T. Berquist

   $ 1,811,800       $ 1,750,000   

David J. Grissen

   $ 1,560,700       $ 1,500,000   

 

Mr. Sorenson’s annual stock award for 2012 was set at below the 50th percentile in recognition of 2012 being his first year in the role of President and Chief Executive Officer and to reflect that he served in that role for only three-fourths of the year. Mr. Capuano’s annual stock award for 2012 consisted of two parts. On February 21, 2012, he received a grant of RSUs and SARs in the same form and manner as the other NEOs, having an aggregate grant date value of $1,600,000. Because limited market data was available for Mr. Capuano’s position, the value of this award was determined based on the Committee’s consideration of internal pay equity and individual responsibility, in addition to the compensation of other lodging company development executives. In addition, on the same day, Mr. Capuano received a separate grant of RSUs which remain unvested until the third anniversary of the grant date, at which time they vest in full assuming Mr. Capuano remains continuously employed during that period (other than in the case of death, disability or approved retirement which result in immediate vesting.) The amount of this award was intended to be approximately the same as the annual cash incentive that Mr. Capuano earned for fiscal year 2011. The Committee established the separate RSU award based on the most recent annual cash incentive in order to further the objective of compensating Mr. Capuano primarily in recognition of his development activities. In addition, by imposing three-year, time-based cliff vesting, this grant offers additional retention value and further links Mr. Capuano’s pay with the long-term interests of shareholders. As described in the discussion of Total Pay above, the Committee determined, in consultation with the Compensation Consultant, that Mr. Capuano’s total equity compensation (including SARs, RSUs and the separate RSU award), as well as his total pay, are commensurate with the equity pay and total pay, respectively, of other development executives. The actual award values for 2012 are also reported in the Grants of Plan Based Awards for Fiscal 2012 Table below in the section entitled “Executive Compensation Tables and Discussion”.

 

Beginning with RSUs granted in 2012, vesting is further conditioned upon achieving a threshold of $879 million of EBITDA during any fiscal year occurring while the grants are outstanding. Actual 2012 EBITDA of $1,146 million (or $1,105 million when adjusted for the $41 million gain ($25 million net of tax) recorded on the sale of a joint venture interest in a portfolio of hotels as discussed above) exceeded the threshold. This additional condition was introduced for tax purposes. See Tax Considerations below.

 

Supplemental Stock Awards

 

Supplemental stock awards (typically RSUs or SARs) tend to be infrequent. Supplemental awards may be presented for consideration at quarterly Board meetings in recognition of special performance, promotions, assumption of additional responsibilities, to retain key talent or as a sign-on employment inducement. For 2012, Mr. Grissen received a SAR award with a grant date value of $450,000 with 100%

vesting on the third anniversary of the grant date. The purpose of the award was for retention, to recognize

 

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Mr. Grissen’s future potential within the Company and to provide an enhanced incentive to increase future stock price performance. None of the other NEOs received a supplemental stock award in 2012.

 

Potential Shareholder Dilution

 

When the Committee establishes stock award values each year, it reviews the potential impact of such awards on share utilization and potential shareholder dilution. The Committee believes that while stock awards are critical to aligning executives’ interests with those of shareholders, particularly for NEOs, it is also important to manage the potential shareholder dilution that results from stock awards and from management incentive plans overall. Prior to 2000, the Company granted stock options with a term of up to 15 years. These awards tend to remain outstanding for many years as executives often have held the options for all or much of their term. Outstanding but unexercised options will continue to contribute to potential shareholder dilution until they are exercised or until they expire. In recent years, the Company has typically sought to align compensation with stock performance by offering SARs with a 10-year term and RSUs that vest over four years. The Committee believes that these types of stock awards appropriately balance the impact on annual share utilization and the goal of providing an appropriate incentive for executive performance and retention, and are consistent with market practice.

 

Grant Timing and Pricing

 

The Company typically grants annual stock awards in February each year on the second business day following the release of its prior fiscal year annual earnings. This timing is designed to avoid the possibility that the Company could grant stock awards prior to the release of material, non-public information that may result in an increase or decrease in its stock price. Similarly, supplemental stock awards may be granted throughout the year, but not during any period beginning at 5:00 p.m. on the last day of a fiscal quarter and ending at 5:00 p.m. on the day following the Company’s earnings announcement for such quarter, or during any other black-out period.

 

Executives derive value from their options (granted prior to 2006) and stock-settled SARs based on the appreciation in the value of the underlying shares of Company stock. For purposes of measuring this appreciation, the Company sets the exercise or base price as the average of the high and low prices of the Company stock on the NYSE on the date the awards are granted. This average price valuation is common practice and offers no inherent pricing advantage to the executive or the Company.

 

Other Compensation

 

Perquisites

 

The Company offers limited perquisites to its executives that make up a very small portion of total compensation for NEOs. One benefit that is consistent with practices within the hospitality industry is complimentary rooms, food and beverages at Company-owned, operated or franchised hotels and the use of hotel-related services such as Marriott-managed golf and spa facilities while on personal travel. These benefits are offered to encourage executive officers to visit and personally evaluate our properties. In addition, to enhance their efficiency and maximize the time that they can devote to Company business, NEOs are entitled to the use of the company jet for personal travel in limited circumstances. The value of these benefits is included in the executives’ wages for tax purposes, and the Company does not provide tax gross-ups to the executives with respect to these benefits. Based upon the Committee’s review of the Company’s compensation program, for 2012 the Committee decided to discontinue providing company-paid financial planning and an annual company-paid physical examination.

 

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Other Benefits

 

Executives also may participate in the same Company-wide plans and programs offered to all eligible employees. Some of these benefits are paid for by the executives such as 401(k) plan elective deferrals, vision coverage, long- and short-term disability, group life and accidental death and dismemberment insurance, and health care and dependent care spending accounts. Other benefits are paid for or subsidized by the Company for all eligible employees such as the 401(k) Company match, certain group medical and dental benefits, $50,000 free life insurance, business travel accident insurance and tuition reimbursement.

 

Nonqualified Deferred Compensation Plan

 

In addition to a tax-qualified 401(k) plan, the Company offers the NEOs and other senior management the opportunity to supplement their retirement and other tax-deferred savings under the Marriott International, Inc. Executive Deferred Compensation Plan (“EDC”). The Committee believes that offering this plan to executives is critical to achieve the objectives of attracting and retaining talent, particularly because the Company does not offer a defined benefit pension plan.

 

Under the EDC, NEOs may defer payment and income taxation of a portion of their salary and annual cash incentive. The plan also provides participants the opportunity for long-term capital appreciation by crediting their accounts with notional earnings (at a fixed annual rate of return of 5.4% for 2012), which is explained in the discussion of Nonqualified Deferred Compensation for Fiscal Year 2012 below.

 

The Company also may make a discretionary matching contribution to participants’ (including the NEOs’) EDC accounts for each fiscal year. The match is designed to make up for the approximate amount of matching contributions that would have been made under the Company’s tax-qualified section 401(k) plan but for the application of certain nondiscrimination testing and annual compensation limitations under the Internal Revenue Code. For 2012, the Board approved a match, in two parts. The first part is a basic match equal to 50% of the first 2% of eligible compensation (as defined in the EDC up to $250,000) deferred by the NEO under the EDC for 2012. The second part is a supplemental match equal to 50% on the first 6% of eligible compensation deferred for 2012. The Board has discretion to adjust the actual match allocation based on fiscal year financial results, but did not make an adjustment for 2012.

 

The Company also may make an additional discretionary contribution to the NEOs’ EDC accounts based on subjective factors such as individual performance, key contributions and retention needs. There were no additional discretionary contributions for the NEOs in 2012.

 

Change in Control

 

The Company provides limited “double trigger” change in control benefits under the Stock Plan and the EDC. The Committee believes that, with these carefully structured benefits, the NEOs would be better able to perform their duties with respect to any potential proposed corporate transaction without the influence of or distraction by concerns about how their personal employment or financial status will be affected. In addition, the Committee believes that shareholder interests are protected and enhanced by providing greater certainty regarding executive pay obligations in the context of planning and negotiating any potential corporate transactions.

 

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Under these arrangements, in the event that a NEO is terminated by the Company other than for the executive’s misconduct or the executive resigns for good reason (as defined under the Stock Plan) during the period beginning three months before and ending 12 months following a change in control (as defined under the Stock Plan) of the Company, the NEO will immediately vest in all unvested equity awards and EDC balances. In those circumstances, all options and SARs will be exercisable until the earlier of the original expiration date of the awards or twelve months (or in the case of an approved retiree, five years) following the termination of employment, and all other stock awards shall be immediately distributed following the later of the termination of employment or the change in control event. In addition, any cash incentive payments under the Incentive Plan and Individual Plan will be made immediately based on the target performance level, pro-rated based on the days worked during the year until the NEO’s date of termination in connection with or following a change in control.

 

The Company does not provide for tax gross-ups on these benefits, but instead limits the benefits to avoid adverse tax consequences to the Company. Specifically, each of these benefits is subject to a cut-back, so that the benefit will not be provided to the extent it would result in the loss of a tax deduction by the Company or imposition of excise taxes under the “golden parachute” excess parachute payment provisions of the Internal Revenue Code. The discussion of Payments Upon Termination or Change in Control below includes a table that reflects the year-end intrinsic value of unvested stock awards, unvested EDC accounts and cash incentive payments under the Incentive Plan that each NEO would receive due to an involuntary termination of employment in connection with a change in control.

 

Clawbacks

 

In addition to the clawback provisions of the Sarbanes-Oxley Act that apply to the Chief Executive Officer and Chief Financial Officer, the Company’s Stock Plan includes a separate clawback provision that applies to all equity awards issued to all of the NEOs. Under the Stock Plan, the Company has the authority to limit or eliminate the ability of any executive to exercise options and SARs or to receive a distribution of Company stock under RSUs or other stock awards if the executive engages in criminal or tortious conduct that is injurious to the Company or engages in competition with the Company.

 

The Committee has discretion to require reimbursement of any annual cash incentive payment awarded to an NEO if the amount of such incentive payment is calculated based upon the achievement of certain financial results that are required to be restated, provided that such discretion may only be exercised if the NEO has engaged in intentional misconduct that caused or partially caused the need for the restatement. The amount of the reimbursement would be the difference in the amount determined before and after the restatement. The Company continues to monitor new guidance as it becomes available with respect to the clawback requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act and will modify its executive compensation program accordingly when they go into effect.

 

Independent Compensation Consultant

 

As noted above, the Committee selected and retained the Compensation Consultant to assist the Committee in establishing and implementing executive and director compensation strategy. The Compensation Consultant reports to and is instructed in its duties by the Committee and carries out its responsibilities in coordination with the Human Resources Department. Other than providing executive

 

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compensation survey data to the Company as described below, the Compensation Consultant performs no other services for the Company. Based on materials presented by management and the Compensation Consultant and the factors set forth in the SEC’s Exchange Act Rule 10C-1, the Committee determined that the Compensation Consultant is independent and that the Compensation Consultant’s engagement did not raise any conflicts of interest.

 

Market Data

 

The external market data utilized by the Company for 2012 includes several broad, revenue-based surveys as well as a custom survey of companies specifically selected by the Committee. The Committee believes, based on the advice of the Compensation Consultant, that the similarly-sized companies participating in the revenue-based surveys and the companies selected for the custom survey represent the broad pool of executive talent for which the Company competes. To avoid over-emphasizing the results of one or more surveys, the Company gives equal weight to the results of the revenue-based surveys (which are themselves equally weighted) versus those of the custom survey, in terms of total pay and each component of pay. This process for identifying relevant market data is used consistently for all senior executives of the Company, not just the NEOs.

 

Revenue-Based Survey

 

In general, the revenue-based surveys used as a market reference for NEO pay include companies with annual revenue ranging from $10 billion to $20 billion. For 2012, the surveys were the CHiPS Executive & Senior Management Total Compensation Survey, the Hewitt TCM General Industry Executive Total Compensation Survey, the Towers Watson CDB Executive Compensation Database, and the Fred Cook Survey of Long-Term Incentives. The Committee did not consider the individual companies in the revenue-based surveys when making compensation decisions.

 

Custom Survey

 

There are a limited number of U.S. publicly traded lodging companies similar to our size. Therefore, in 2012, in consultation with the Compensation Consultant, the Committee developed a methodology for determining appropriate comparator group companies based on the following principles:

 

   

Identify a broad universe and select those companies that:

 

  Compete with Marriott for executive talent

 

  Have a similar focus on consumers and brand image

 

   

Exclude companies that are not similar in size

 

   

Test the final comparator group to ensure that:

 

  Marriott is positioned near the median on key size metrics

 

  Our key lodging industry competitors are included (even if smaller)

 

  The mix of non-lodging industries is well-balanced

 

  There is a robust number of companies (about 15 – 20) without extending to include companies that are not a strong match

 

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The details of the comparator group selection process are described below.

 

Step 1: Begin with a broad database consisting of U.S. publicly traded companies.

 

Step 2: Select companies similar to Marriott

•    Screen 1: Companies in the hotels, resorts, cruise line industries

 

•    Screen 2: Add competitors for talent in related industries (e.g. restaurants, casinos, real estate, etc.)

 

•    Screen 3: Add other companies with business-to-business, business-to-consumer or brand focus

  LOGO
 
 

Step 3: Exclude companies based on size

•    Screen 4: Remove companies not within 0.33x – 3x our revenues Exception: Retained Hyatt despite its smaller revenue size as it is a direct competitor in the lodging industry.

 

•    Screen 5: Remove Companies not within 0.5x – 2x our revenues Exception: Retained Hyatt, Starwood and Wyndham despite their smaller revenue size as they are competitors in the lodging industry. Retained Delta despite its larger size because it competes in the travel industry.

 

Step 4: Select 15 – 20 comparator group companies remaining from Step 3 which include all lodging industry companies, several travel industry related companies, and certain non-travel related companies selected based on their shared emphasis on customer service and brand image. Finally, the Committee reviews the comparator group to ensure that no single industry (such as airline, casino, etc.) outside of the lodging industry is over-represented. For 2012, AMR, FedEx, H.J. Heinz, J.C. Penney, Kimberly-Clark, McDonalds and Walt Disney were removed from the prior comparator group.

 

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The final list of 19 comparator group companies is shown below along with select financial and non-financial metrics the Committee considered and Marriott’s percentile ranking on each of these metrics.

 

     2012  Revenues(1)
as of the Fiscal
Year-End
    Market  Capitalization(1)
as of December 31, 2012
    Enterprise Value(1) as
of December 31, 2012
    Number of
Employees
 

Lodging Companies

        

Hyatt Hotels

   $ 3,949      $ 6,358      $ 6,544        50,000   

Starwood Hotels & Resorts

     6,321        11,239        12,494        160,000   

Wyndham

     4,534        7,479        11,698        27,800   

Travel Industry Related Companies

        

Carnival

     15,382        28,534        36,971        91,300   

Delta Air Lines

     36,670        10,095        19,118        78,392   

Las Vegas Sands

     11,131        38,010        43,756        40,000   

Hertz Global

     9,021        6,847        18,738        23,900   

MGM Resorts International

     9,161        5,591        17,074        66,800   

Royal Caribbean Cruises

     7,688        7,415        14,952        61,040   

Southwest Airlines

     17,088        7,557        7,548        45,392   

Other Consumer or Brand Focus Companies

        

Campbell Soup

     7,707        10,921        15,007        17,700   

Colgate-Palmolive

     17,085        49,393        53,649        38,600   

Darden Restaurants

     7,999        5,830        8,702        181,468   

General Mills

     16,658        26,107        33,705        35,000   

Kellogg

     14,197        19,994        27,626        30,671   

Nike

     24,128        46,497        43,300        44,000   

Nordstrom

     12,148        10,737        12,714        56,500   

Starbucks

     13,300        40,185        38,698        154,000   

Yum! Brands

     13,633        30,013        32,092        466,000   

Marriott International 2

     11,814        11,703        14,098        127,000   

Percentile Rank

     48 th      55 th      31 st      80 th 

 

(1)  

Amounts are reported in millions. Enterprise Value is the sum of market capitalization, debt, and current and preferred stock, less cash and cash equivalents.

 

(2)  

Revenue amount for the Company is shown as reflected in our financial statements. However, system-wide revenues, including revenues of our franchisees, are much higher. Similarly, the number of employees is shown as reflected in our annual report. Including franchised hotel employees, our system has about 325,000 employees.

 

The Committee believes that a rigorous comparator group selection process is the foundation for understanding the competitive compensation marketplace. The Committee reviews the comparator group annually for potential changes (e.g. due to mergers and acquisition activity or changes in company size and business mix), but does not anticipate making significant changes every year, in order to allow for consistency and comparability of market data from year-to-year.

 

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Risk Considerations

 

The Committee considered risk in determining 2012 NEO compensation and believes that the following aspects of NEO pay discourage unreasonable or excessive risk-taking by executives:

 

   

Base salary levels are commensurate with the executives’ responsibilities (and the external market) so that the executives are not motivated to take excessive risks to achieve an appropriate level of financial security.

 

   

Annual cash incentive plans include a diverse mix of corporate and individual performance metrics.

 

   

Annual cash incentive opportunities are capped so that no payout exceeds a specified percentage of salary, thereby moderating the impact of short-term incentives.

 

   

The Committee and the Board have discretion to decrease annual cash incentive payouts, for example, if they believe the operational or financial results giving rise to those payouts are unsustainable or if they believe the payout would unfairly reward the NEOs for events that are unrelated to their performance.

 

   

The mix of short—and long-term incentives is balanced so that at least 50% of total pay opportunity is in the form of long-term equity awards.

 

   

Annual stock awards are generally granted as an equal mix of SARs and RSUs that generally vest over 4 years which together encourage the NEOs to focus on sustained stock price performance.

 

   

The Committee reviews and compares total compensation and each element of compensation to external market data to confirm that compensation is within an acceptable range relative to the external market.

 

   

The NEOs are subject to clawback provisions (as discussed above).

 

   

Stock ownership guidelines align the long-term interests of NEOs with the interests of shareholders.

 

   

All associates and directors are prohibited from engaging in hedging or derivative transactions related to Marriott stock or securities.

 

   

The NEOs are prohibited from holding Company stock in margin accounts or pledging such stock as collateral for loans.

 

Tax Considerations

 

Internal Revenue Code Section 162(m) limits the Company’s federal income tax deduction for compensation in excess of one million dollars paid to NEOs except for the Chief Financial Officer. However, performance-based compensation can be excluded from the limitation so long as it meets certain requirements. The Committee has taken steps that are designed to conform with the requirements under Section 162(m) so that payments under the annual incentive program and compensation attributable to SARs and RSUs granted in 2012 may qualify as deductible compensation under Section 162(m). Although the Committee designed certain awards to satisfy those requirements, because deductibility under section 162(m) is determined under a set of standards which may be subject to different interpretations in application, we cannot be certain that compensation intended by the Committee to satisfy the deductibility requirements under Section 162(m) will in fact be deductible.

 

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RSUs vested in 2012 did not meet the requirements for exemption as performance-based compensation under Section 162(m). The Committee believes that the value of preserving the ability to structure compensation programs to meet a variety of corporate objectives, such as equity dilution management, workforce planning, customer satisfaction and other non-financial business requirements, justifies the cost of potentially being unable to deduct a portion of the executives’ compensation.

 

Executive Compensation Tables and Discussion

 

Summary Compensation Table

 

The following Summary Compensation Table shows the compensation we paid in fiscal years 2010, 2011 and 2012 to our Executive Chairman, Chief Executive Officer, our Chief Financial Officer and our other three most highly compensated executive officers.

 

Name and

Principal Position

  Fiscal
Year
    Salary
($)(1)
    Bonus
($)
    Stock
Awards
($)(2)
    Option/
SAR
Awards
($)(2)
    Non-Equity
Incentive Plan
Compensation
($)(3)
    Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)(4)
    All Other
Compensation
($)(5)
    Total
($)
 

J.W. Marriott, Jr.

    2012        2,576,319          0        0        0        459,119        248,598        3,284,036   

Executive Chairman

    2011        1,304,876          2,920,770        3,000,022        2,290,578        198,667        379,600        10,094,513   
    2010        1,253,063          2,875,083        2,875,300        2,268,419        137,247        349,004        9,758,116   

Arne M. Sorenson

    2012        1,151,958          2,634,217        2,750,034        1,947,618        59,915        92,659        8,636,401   

President and Chief Executive Officer

   

 

2011

2010

  

  

   

 

1,007,831

967,813

  

  

     

 

1,947,127

1,600,075

  

  

   

 

2,000,014

1,600,164

  

  

   

 

1,253,540

1,243,059

  

  

   

 

24,764

16,203

  

  

   

 

94,765

34,346

  

  

   

 

6,328,041

5,461,660

  

  

Robert J. McCarthy

    2012        804,403          1,197,420        1,250,011        994,647        69,892        58,128        4,374,501   

Chief Operations Officer

    2011        742,613          973,643        1,000,007        782,192        27,962        56,007        3,582,424   
    2010        713,125          875,016        875,095        778,162        18,017        12,580        3,271,995   

Anthony G. Capuano

    2012        625,000          1,563,413        800,048        924,375        13,383        37,311        3,963,530   

Executive Vice President and Chief Development Officer

    2011        583,481          1,363,211        625,060        839,396        5,684        53,296        3,470,128   

Carl T. Berquist

    2012        700,000          838,220        875,017        761,740        41,285        53,432        3,269,694   

Executive Vice President and Chief Financial Officer

   

 

2011

2010

  

  

   

 

678,038

641,812

  

  

    250,000       

 

851,977

750,106

  

  

   

 

875,046

750,087

  

  

   

 

727,739

700,345

  

  

   

 

16,093

9,641

  

  

   

 

51,727

12,580

  

  

   

 

3,450,620

2,864,571

  

  

David J. Grissen

    2012        550,064          1,436,930        450,010        616,072        76,593        37,395        3,167,064   

President, The Americas

                 

 

  (1)   This column reports all amounts earned as salary during the fiscal year, whether paid or deferred under certain Company employee benefit plans.
  (2)   The value reported for Stock Awards and Option/SAR awards is the aggregate grant date fair value of the awards granted in the fiscal year as determined in accordance with accounting guidance for share-based payments, although the Company recognizes the value of the awards for financial reporting purposes over the service period of the awards. The assumptions for making the valuation determinations are set forth in the footnotes captioned “Share-Based Compensation” to our financial statements in each of the Company’s Forms 10-K for fiscal years 2010 through 2012. The figures presented for fiscal year 2010 report the value of RSUs without a reduction for dividends and dividend equivalents that are not payable on those RSUs. For additional information on 2012 awards, see the Grants of Plan-Based Awards for Fiscal 2012 table, below.
  (3)   This column reports all amounts earned under the Company’s Incentive Plan and Individual Plan during the fiscal year, which were paid in February of the following fiscal year unless deferred under certain Company employee benefit plans.
  (4)  

The values reported equal the earnings credited to accounts in the EDC to the extent they were credited at a rate of interest exceeding 120% of the applicable federal long-term rate, as discussed below under “Nonqualified Deferred Compensation for Fiscal year 2012.”

 

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  (5)   All Other Compensation consists of the following:

 

   

Company contributions to the Company’s qualified 401(k) plan

 

   

Company contributions to the Company’s non-qualified Executive Deferred Compensation Plan

 

   

Perquisites and personal benefits including:

 

    Personal use of the Company jet

 

    Spousal accompaniment while on business travel

 

    Rooms, food and beverages at Company-owned, operated or franchised hotels while on personal travel and use of other hotel-related services such as golf and spa facilities at Company-managed properties.

 

The values in this column do not include perquisites and personal benefits that were less than $10,000 in aggregate for each NEO for the fiscal year. The following table identifies the total amount the Company contributed to each NEO’s qualified 401(k) plan and non-qualified EDC for fiscal year 2012. It also specifies values for perquisites and personal benefits for each NEO that comprise more than the greater of a) 10% of his aggregate perquisites or personal benefits or b) $25,000.

 

Name

   Company
Contributions
to  the 401(k) Plan

($)
     Company
Contributions
to the Executive
Deferred Compensation
Plan ($)
     Personal Use
of the
Company Jet
($)
     Other
($)
 

Mr. Marriott

     8,125         146,551         93,922         —     

Mr. Sorenson

     8,125         74,443         —           10,091   

Mr. McCarthy

     8,125         50,003         —           —     

Mr. Capuano

     8,125         10,949         —           18,237   

Mr. Berquist

     8,125         45,307         —           —     

Mr. Grissen

     8,125         29,270         —           —     

 

The value of the personal use of the Company jet is the sum of:

   

allocable flight-specific costs of the personal flights (including, where applicable, return flights with no passengers) such as landing fees, crew costs and other related items, and

   

the product of (i) all other costs of maintaining and flying the jet for the billable year other than certain fixed expenses such as pilot compensation, management fee and hangar rental costs, multiplied by (ii) a fraction the numerator of which is the individual’s personal flight hours on the jet for the billable year and the denominator of which is the total flight hours of the jet for the billable year.

Although amounts are reported for aircraft use during the Company’s fiscal year, incremental cost is calculated on the basis of a December 1 through November 30 billable year, which reflects the contract service period used for billing by a third-party aircraft management company.

 

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Grants of Plan-Based Awards for Fiscal 2012

 

The following table shows the plan-based awards granted to the NEOs in 2012.

 

Name

  Award
Type
  Grant
Date(1)
    Approval
Date(1)
    Estimated Possible Payouts Under
Non-Equity Incentive Plan  Awards(2)
    All Other
Stock
Awards:
(Number
of Shares
of Stock
or Units)
(#)
    All Other
Option/
SAR
Awards:
(Number
of
Securities
Underlying
Options/
SARs) (#)
    Exercise
or Base
Price

($/sh)
    Closing
Price on
Grant Date
($/sh)(3)
    Grant Date Fair
Value of
Stock/Option/
SAR Awards ($)(4)
 
        Threshold ($)     Target ($)     Maximum ($)            

Mr. Marriott

  Incentive Plan         n/a        n/a        n/a        —          —          —          —          —     
  Individual Plan         n/a        n/a        n/a        —          —          —          —          —     
  RSU         —          —          —          —          —          —          —          —     
  SAR         —          —          —          —          —          —          —          —     

Mr. Sorenson

  Incentive Plan         34,014        136,057        204,086        —          —          —          —          —     
  (Dec. 31 – Mar. 31)                    
  Individual Plan         17,007        90,705        136,057        —          —          —          —          —     
  (Dec. 31 – Mar. 31)                    
  Incentive Plan         168,750        675,000        1,026,000        —          —          —          —          —     
  (Apr.1 – Dec. 28)                    
  Individual Plan         84,375        450,000        684,000        —          —          —          —          —     
  (Apr.1 – Dec. 28)                    
  RSU     2/21/12        2/9/12        —          —          —          79,320        —          —          —          2,634,217   
  SAR     2/21/12        2/9/12        —          —          —          —          225,228        34.67        34.32        2,750,034   

Mr. McCarthy

  Incentive Plan         20,886        83,544        128,101        —          —          —          —          —     
  (Dec. 31 – Mar. 31)                    
  Individual Plan         10,443        55,696        85,400        —          —          —          —          —     
  (Dec. 31 – Mar. 31)                    
  Incentive Plan         83,531        334,125        501,188        —          —          —          —          —     
  (Apr. 1 – Dec. 28)                    
  Individual Plan         41,766        222,750        334,125        —          —          —          —          —     
  (Apr. 1 – Dec. 28)                    
  RSU     2/21/12        2/9/12        —          —          —          36,056        —          —          —          1,197,420   
  SAR     2/21/12        2/9/12        —          —          —          —          102,376        34.67        34.32        1,250,011   

Mr. Capuano

  Incentive Plan         11,719        46,875        93,750        —          —          —          —          —     
  Individual Plan         251,953        421,875        843,750        —          —          —          —          —     
  RSU     2/21/12        2/9/12        —          —          —          23,076        —          —          —          766,354   
  RSU (5)     2/21/12        2/9/12        —          —          —          24,212        —          —          —          797,059   
  SAR     2/21/12        2/9/12        —          —          —          —          65,524        34.67        34.32        800,048   

Mr. Berquist

  Incentive Plan         78,750        315,000        483,000        —          —          —          —          —     
  Individual Plan         39,375        210,000        322,000        —          —          —          —          —     
  RSU     2/21/12        2/9/12        —          —          —          25,240        —          —          —          838,220   
  SAR     2/21/12        2/9/12        —          —          —          —          71,664        34.67        34.32        875,017   

Mr. Grissen

  Incentive Plan         33,004        132,015        198,023        —          —          —          —          —     
  Individual Plan         33,004        198,023        489,557        —          —          —          —          —     
  RSU     2/21/12        2/9/12        —          —          —          43,268        —          —          —          1,436,930   
  SAR (5)     2/21/12        2/9/12        —          —          —          —          35,972        34.67        34.32        450,010   

 

  (1)   “Grant Date” applies to equity awards reported in the All Other Stock Awards and All Other Option/SAR Awards columns. The Board approved the annual stock awards at its February 9, 2012 meeting. Pursuant to the Company’s equity compensation grant procedures described in the CD&A, the grant date of these awards was February 21, 2012, the second trading day following the release of the Company’s 2011 earnings.
  (2)   The amounts reported in these columns include potential payouts corresponding to achievement of the threshold, target and maximum performance objectives under the Company’s annual cash incentive plans.
  (3)   This column represents the final closing price of the Company’s Class A common stock on the NYSE on the date of grant. However, pursuant to the Company’s equity compensation grant procedures, the awards were granted with an exercise or base price equal to the average of the high and low stock price of the Company’s Class A common stock on the NYSE on the date of grant.
  (4)   The value reported for Stock Awards and Option/SAR awards is the aggregate grant date fair value of the awards granted in 2012 as determined in accordance with accounting standards for share-based payments, although the Company recognizes the value of the awards for financial reporting purposes over the service period of the awards. The assumptions for making the valuation determinations are set forth in the footnotes captioned “Share-Based Compensation” to our financial statements in each of the Company’s Forms 10-K for the fiscal year 2012.
  (5)   These awards vest in full following the completion of three years of service or upon death or disability.

 

The Grants of Plan-Based Awards table reports the dollar value of cash-based annual incentive program awards, including both Incentive Plan and Individual Plan awards, (at their threshold, target and maximum achievement levels) and the number and grant date fair value of RSUs and SARs granted under the Stock Plan to each NEO during the 2012 fiscal year. With regard to cash incentives, this table reports the range of potential

 

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amounts that could have been earned by the executive under the Incentive Plan and the Individual Plan for 2012, whereas the Non-Equity Incentive Plan Compensation column in the Summary Compensation Table reports the actual value earned by the executive for 2012 under both plans.

 

Annual SAR and RSU grants under the Stock Plan typically vest 25% on each of the first four anniversaries of their grant date, contingent on continued employment with the Company. As described in the discussion of Stock Awards in the CD&A, Mr. Capuano and Mr. Grissen received an additional grant of RSUs and SARs respectively, with 3-year cliff-vesting based on continued employment. Even when vested, an executive may lose the right to exercise or receive a distribution of any outstanding stock awards if the executive terminates employment due to serious misconduct as defined in the Stock Plan, or if the Committee determines that the executive has engaged in competition with the Company or has engaged in criminal conduct or other behavior that is actually or potentially harmful to the Company. In addition, under the terms of their RSU awards, NEOs do not receive an accelerated distribution of shares upon retirement from the Company, but must continue to wait for the scheduled distribution dates following retirement as specified in their awards. The Company believes that these provisions serve its objectives of retention and aligning the executives’ long-term interests to those of the Company. These awards do not offer dividend or voting rights until they vest (in the case of RSUs) or are exercised (in the case of SARs) and shares are issued to the grantee.

 

Outstanding Equity Awards at 2012 Fiscal Year-End

 

The following table shows information about outstanding Company options, SARs, RSUs and deferred stock bonus (“DSB”) awards at December 28, 2012, our fiscal year-end. This table also includes MVW stock awards resulting from adjustments to the Company stock awards for the spin-off of the timeshare business in 2011, and reflects adjustments to the Exercise Price of options and SARs resulting from the spin-off. The Intrinsic Value and Market Value figures for the Company stock awards are based on the closing price as of December 28, 2012 of the Company’s Class A common stock, which was $36.48. The Intrinsic Value and Market Value figures for the MVW stock awards are based on the closing price of MVW’s common stock (traded on the NYSE under ticker symbol VAC) as of December 28, 2012, which was $40.83. The reported Grant Dates for the MVW stock awards are the same as the grant dates for the related Company stock awards, as explained in the CD&A above.

 

Name

  Grant
Date
   

Award
Type

  Option/SAR Awards     Stock Awards  
      Number of
Securities
Underlying
Unexercised
Options/SARs:
Exercisable/
Unexercisable (#)
    Option/
SAR
Exercise
Price
($)
    Option/
SAR
Expiration
Date
    Option/SAR
Intrinsic Value:
($) Exercisable/
Unexercisable
    Number of
Shares or
Units of Stock
That Have
Not Vested
(#)
    Market Value
of Shares or Units
of Stock
That Have
Not Vested ($)
 

Mr. Marriott

    2/5/04      MAR Options     658,800        —          21.4998        2/5/14        9,868,956        —          —          —     
    11/4/99      MAR Options     600,000        —          15.6259        11/4/14        12,512,460        —          —          —     
    11/4/99      MVW Options     60,000        —          9.5225        11/4/14        1,878,450        —          —          —     
    2/10/05      MAR Options     246,000        —          30.3127        2/10/15        1,517,156        —          —          —     
    2/10/05      MVW Options     24,600        —          18.4727        2/10/15        549,990        —          —          —     
    2/19/08      MAR SARs     447,304        —          33.4986        2/19/18        1,333,592        —          —          —     
    2/19/08      MVW SARs     44,730        —          20.4142        2/19/18        913,199        —          —          —     
    2/16/10      MAR SARs     139,294        139,294 (1)      25.4397        2/16/20        1,537,848        1,537,848        —          —     
    2/16/10      MVW SARs     13,928        13,930 (1)      15.5031        2/16/20        352,753        352,804        —          —     
    2/17/11      MAR SARs     47,559       142,677 (1)      38.4942        2/17/21        —          —          —          —     
    2/17/11      MVW SARs     4,755       14,268 (1)      23.4585        2/17/21        82,601        247,857       —          —     
    MAR RSUs     —          —          —            —          —          108,357 (2)      3,952,863   
    MVW RSUs     —          —          —            —          —          10,835.7 (2)      442,422   

Mr. Sorenson

    2/6/03      MAR Options     320,000        —          14.2374        2/6/13        7,117,632        —          —          —     
    11/5/98      MAR Options     90,000        —          13.299        11/5/13        2,086,290        —          —          —     
    11/5/98      MVW Options     9,000        —          8.1044        11/5/13        294,530        —          —          —     
    2/5/04      MAR Options     197,640        —          21.4998        2/5/14        2,960,687        —          —          —     
    2/5/04      MVW Options     19,764        —          13.1021        2/5/14        548,014        —          —          —     
    4/29/04      MAR Options     300,000        —          22.4329        4/29/14        4,214,130        —          —          —     
    4/29/04      MVW Options     30,000        —          13.6707        4/29/14        814,779        —          —          —     

 

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Name

  Grant
Date
   

Award
Type

  Option/SAR Awards     Stock Awards  
      Number of
Securities
Underlying
Unexercised
Options/SARs:
Exercisable/
Unexercisable (#)
    Option/
SAR
Exercise
Price
($)
    Option/
SAR
Expiration
Date
    Option/SAR
Intrinsic Value:
($) Exercisable/
Unexercisable
    Number of
Shares or
Units of Stock
That Have
Not Vested
(#)
    Market Value
of Shares or Units
of Stock
That Have
Not Vested ($)
 
    11/4/99      MAR Options     150,000        —          15.6259        11/4/14        3,128,115        —          —          —     
    11/4/99      MVW Options     15,000        —          9.5225        11/4/14        469,613        —          —          —     
    2/10/05      MAR Options     147,600        —          30.3127        2/10/15        910,293        —          —          —     
    2/10/05      MVW Options     14,760        —          18.4727        2/10/15        329,994        —          —          —     
    2/13/06      MAR SARs     133,600        —          32.4853        2/13/16        533,692        —          —          —     
    2/13/06      MVW SARs     13,360        —          19.7967        2/13/16        281,005        —          —          —     
    2/12/07      MAR SARs     88,400        —          46.2137        2/12/17        —          —          —          —     
    2/12/07      MVW SARs     8,840        —          28.1628        2/12/17        111,978        —          —          —     
    2/19/08      MAR SARs     143,916        —          33.4986        2/19/18        429,071        —          —          —     
    2/19/08      MVW SARs     14,391        —          20.4142        2/19/18        293,804        —          —          —     
    2/17/09      MAR SARs     140,256        46,752 (1)      13.8085        2/17/19        3,179,814        1,059,938        —          —     
    2/17/09      MVW SARs     14,025        4,675 (1)      8.415        2/17/19        454,620        151,540        —          —     
    2/16/10      MAR SARs     77,520        77,520 (1)      25.4397        2/16/20        855,844        855,844        —          —     
    2/16/10      MVW SARs     7,752        7,752 (1)      15.5031        2/16/20        196,334        196,334        —          —     
    2/17/11      MAR SARs     31,706       95,118 (1)      38.4942        2/17/21        —          —          —          —     
    2/17/11      MVW SARs     3,170       9,512 (1)      23.4585        2/17/21        55,068        165,238        —          —     
    2/21/12      MAR SARs     —          225,228 (1)      34.67        2/21/22        —          407,663        —          —     
    MAR RSUs     —          —          —            —          —          178,151 (3)      6,498,948   
    MVW RSUs     —          —          —            —          —          9,883.1 (3)      403,527   

Mr. McCarthy

    2/5/04      MAR Options     65,880        —          21.4998        2/5/14        986,896        —          —          —     
    2/5/04      MVW Options     6,588        —          13.1021        2/5/14        182,671        —          —          —     
    2/10/05      MAR Options     25,720        —          30.3127        2/10/15        158,623        —          —          —     
    2/10/05      MVW Options     2,572        —          18.4727        2/10/15        57,503        —          —          —     
    2/13/06      MAR SARs     57,192        —          32.4853        2/13/16        228,465        —          —          —     
    2/13/06      MVW SARs     5,719        —          19.7967        2/13/16        120,289        —          —          —     
    2/12/07      MAR SARs     37,300        —          46.2137        2/12/17        —          —          —          —     
    2/12/07      MVW SARs     3,730        —          28.1628        2/12/17        47,249        —          —          —     
    2/19/08      MAR SARs     62,236        —          33.4986        2/19/18        185,550        —          —          —     
    2/19/08      MVW SARs     6,223        —          20.4142        2/19/18        127,048        —          —          —     
    2/17/09      MAR SARs     59,058        19,686 (1)      13.8085        2/17/19        1,338,933        446,311        —          —     
    2/17/09      MVW SARs     —          1,970 (1)      8.415        2/17/19        —          63,858        —          —     
    2/16/10      MAR SARs     42,394        42,394 (1)      25.4397        2/16/20        468,042        468,042        —          —     
    2/16/10      MVW SARs     —          4,240 (1)      15.5031        2/16/20        —          107,386        —          —     
    2/17/11      MAR SARs     15,853       47,559 (1)      38.4942        2/17/21        —          —          —          —     
    2/17/11      MVW SARs     1,585        4,756 (1)      23.4585        2/17/21        27,534        82,619        —          —     
    2/21/12      MAR SARs     —          102,376 (1)      34.67        2/21/22        —          185,301        —          —     
    MAR DSB     —          —          —          —          —          —          305 (4)      11,126   
    MVW DSB     —          —          —          —          —          —          30.5 (4)      1,245   
    MAR RSUs     —          —          —          —          —          —          85,582 (5)      3,122,031   
    MVW RSUs     —          —          —          —          —          —          4,952.6 (5)      202,215   

Mr. Capuano

    2/19/08      MAR SARs     25,300        —          33.4986        2/19/18        75,429        —          —          —     
    8/7/08      MAR SARs     18,069        6,023 (1)      25.8827        8/7/18        191,483        63,828        —          —     
    8/7/08      MVW SARs     —          603 (1)      15.773        8/7/18        —          15,109        —          —     
    2/17/11      MAR SARs     9,909       29,727 (1)      38.4942        2/17/21        —          —          —          —     
    2/17/11      MVW SARs     —          2,973 (1)      23.4585        2/17/21        —          51,645        —          —     
    2/21/12      MAR SARs     —          65,524 (1)      34.67        2/21/22        —          118,598        —          —     
    MAR RSUs     —          —          —          —          —          —          120,760 (6)      4,405,325   
    MVW RSUs     —          —          —          —          —          —          7,347.2 (6)      299,986   

Mr. Berquist

    2/5/04      MAR Options     59,320        —          21.4998        2/5/14        888,625        —          —          —     
    2/5/04      MVW Options     5,932        —          13.1021        2/5/14        164,482        —          —          —     
    2/10/05      MAR Options     40,240        —          30.3127        2/10/15        248,172        —          —          —     
    2/10/05      MVW Options     4,024        —          18.4727        2/10/15        89,966        —          —          —     
    2/13/06      MAR SARs     18,112        —          32.4853        2/13/16        72,352        —          —          —     
    2/13/06      MVW SARs     1,811        —          19.7967        2/13/16        38,091        —          —          —     
    2/12/07      MAR SARs     11,976        —          46.2137        2/12/17        —          —          —          —     
    2/12/07      MVW SARs     1,197        —          28.1628        2/12/17        15,163        —          —          —     
    2/19/08      MAR SARs     35,008        —          33.4986        2/19/18        104,373        —          —          —     
    2/19/08      MVW SARs     3,500        —          20.4142        2/19/18        71,455        —          —          —     
    3/3/08      MAR SARs     14,188        —          32.1507        3/3/18        61,424        —          —          —     
    3/3/08      MVW SARs     1,418        —          19.5928        3/3/18        30,114        —          —          —     
    8/7/08      MAR SARs     45,174        15,058 (1)      25.8827        8/7/18        478,722        159,574        —          —     
    8/7/08      MVW SARs     4,515        1,508 (1)      15.773        8/7/18        113,132        37,786        —          —     
    2/16/10      MAR SARs     36,338        36,338 (1)      25.4397        2/16/20        401,182        401,182        —          —     
    2/16/10      MVW SARs     3,632        3,635 (1)      15.5031        2/16/20        91,987        92,063        —          —     
    2/17/11      MAR SARs     13,872        41,616 (1)      38.4942        2/17/21        —          —          —          —     

 

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Table of Contents

Name

  Grant
Date
   

Award
Type

  Option/SAR Awards     Stock Awards  
      Number of
Securities
Underlying
Unexercised
Options/
SARs:
Exercisable/
Unexercisable (#)
    Option/
SAR
Exercise
Price
($)
    Option/
SAR
Expiration
Date
    Option/SAR
Intrinsic
Value:
($) Exercisable/
Unexercisable
    Number of
Shares or
Units of Stock
That Have
Not Vested
(#)
    Market Value
of Shares or Units
of Stock
That Have
Not Vested ($)
 
    2/17/11      MVW SARs     1,387        4,161 (1)      23.4585        2/17/21        24,094        72,283        —          —     
    2/21/12      MAR SARs     —          71,664 (1)      34.67        2/21/22        —          129,712        —          —     
    MAR RSUs     —          —          —            —          —          60,623 (7)      2,211,527   
    MVW RSUs     —          —          —            —          —          3,538.3 (7)      144,469   

Mr. Grissen

    11/5/98      MAR Options     30,000        —          13.299        11/5/13        695,430        —          —          —     
    11/5/98      MVW Options     3,000        —          8.1044        11/5/13        98,177        —          —          —     
    2/5/04      MAR Options     26,360        —          21.4998        2/5/14        394,878        —          —          —     
    2/5/04      MVW Options     2,636        —          13.1021        2/5/14        73,091        —          —          —     
    11/4/99      MAR Options     22,400        —          15.6259        11/4/14        467,132        —          —          —     
    11/4/99      MVW Options     2,240        —          9.5225        11/4/14        70,129        —          —          —     
    2/10/05      MAR Options     9,840        —          30.3127        2/10/15        60,686        —          —          —     
    2/10/05      MVW Options     984        —          18.4727        2/10/15        22,000        —          —          —     
    4/27/00      MAR Options     16,000        —          15.0024        4/27/15        343,642        —          —          —     
    4/27/00      MVW Options     1,600        —          9.1426        4/27/15        50,700        —          —          —     
    2/12/07      MAR SARs     14,640        —          46.2137        2/12/17        —          —          —          —     
    2/12/07      MVW SARs     1,464        —          28.1628        2/12/17        18,545        —          —          —     
    2/19/08      MAR SARs     23,360        —          33.4986        2/19/18        69,646        —          —          —     
    2/19/08      MVW SARs     2,336        —          20.4142        2/19/18        47,691        —          —          —     
    8/7/08      MAR SARs     21,684        7,228 (1)      25.8827        8/7/18        229,792        76,597        —          —     
    8/7/08      MVW SARs     2,166        725 (1)      15.773        8/7/18        54,273        18,166        —          —     
    2/16/10      MAR SARs     48,450        48,450 (1)      25.4397        2/16/20        534,903        534,903        —          —     
    2/16/10      MVW SARs     4,844        4,846 (1)      15.5031        2/16/20        122,684        122,734        —          —     
    2/17/11      MAR SARs     9,909       29,727 (1)      38.4942        2/17/21        —          —          —          —     
    2/17/11      MVW SARs     990       2,973 (1)      23.4585        2/17/21        17,198        51,645        —          —     
    2/21/12      MAR SARs     —          35,972 (8)      34.67        2/21/22        —          65,109        —          —     
    MAR RSUs     —          —          —            —          —          64,727 (9)      2,361,241   
    MVW RSUs     —          —          —            —          —          2,145.9 (9)      87,617   

 

(1)   The SARs are exercisable in 25% annual increments beginning one year from the grant date.

 

(2)   These 44,996 MAR RSUs and 4,499.6 MVW RSUs are scheduled to vest on February 15, 2013 and February 15, 2014; 18,365 MAR RSUs and 1,836.5 MVW RSUs vest on February 15, 2015.

 

(3)   These RSUs are scheduled to vest as follows:

 

   

63,106 MAR and 4,327.6 MVW on February 15, 2013.

   

46,894 MAR and 2,706.4 MVW on February 15, 2014.

   

32,073 MAR and 1,224.3 MVW on February 15, 2015.

   

19,830 MAR on February 15, 2016.

   

16,248 MAR and 1,624.8 MVW on May 15, 2013.

 

(4)   These DSB units are scheduled to vest as follows:

 

   

39 MAR and 3.9 MVW on January 2, 2013.

   

37 MAR and 3.7 MVW on January 2, 2014.

   

38 MAR and 3.8 MVW on each of January 2, 2015, January 2, 2016, January 2, 2017, January 2, 2018 and January 2, 2019.

   

39 MAR and 3.9 MVW on January 2, 2020.

 

(5)   These RSUs are scheduled to vest as follows:

 

   

30,067 MAR and 2,105.3 MVW on February 15, 2013.

   

23,241 MAR and 1,422.7 MVW on February 15, 2014.

   

15,136 MAR and 612.2 MVW on February 15, 2015.

   

9,014 MAR on February 15, 2016.

   

8,124 MAR and 812.4 MVW on May 15, 2013.

 

(6)   These RSUs are scheduled to vest as follows:

 

   

35,612 MAR and 2,984.3 MVW on February 15, 2013.

   

40,156 MAR and 3,438.7 MVW on February 15, 2014.

   

33,807 MAR and 382.6 MVW on February 15, 2015.

   

5,769 MAR on February 15, 2016.

   

5,416 MAR and 541.6 MVW on May 15, 2013.

 

(7)   These RSUs are scheduled to vest as follows:

 

   

18,615 MAR and 1,230.5 MVW on each of February 15, 2013 and February 15, 2014.

   

11,667 MAR and 535.7 MVW on February 15, 2015.

   

6,310 MAR on February 15, 2016.

   

5,416 MAR and 541.6 MVW on May 15, 2013.

 

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(8)   The SARs become 100% exercisable on February 21, 2015.

 

(9)   These RSUs are scheduled to vest as follows:

 

   

14,643 MAR and 382.6 MVW on each of February 15, 2013, February 15, 2014 and February 15, 2015.

   

10,817 MAR on February 15, 2016.