DEF 14A 1 a2018chh_def14.htm DEF 14A Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant  ý
Filed by a Party other than the Registrant  ¨
Check the appropriate box:
¨
 
Preliminary Proxy Statement
¨
 
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
ý
 
Definitive Proxy Statement
¨
 
Definitive Additional Materials
¨
 
Soliciting Material Pursuant to §240.14a-12
 
Choice Hotels 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):
ý
No fee required.
o
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:
o
Fee paid previously with preliminary materials.
o
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:



a12wsexthoriznrml.jpg
CHOICE HOTELS INTERNATIONAL, INC.
1 CHOICE HOTELS CIRCLE, SUITE 400
ROCKVILLE, MARYLAND 20850
 
 NOTICE OF ANNUAL MEETING
TO BE HELD APRIL 20, 2018
 
To the shareholders of
CHOICE HOTELS INTERNATIONAL, INC.
You are cordially invited to attend the 2018 Annual Meeting of Shareholders (the "Annual Meeting") of Choice Hotels International, Inc., a Delaware corporation (the “Company”), to be held on April 20, 2018, at 9:00 a.m., Eastern Time at the Company's headquarters at 1 Choice Hotels Circle, Suite 400, Rockville, Maryland 20850, for the following purposes:
1
To elect the nine director nominees listed in the attached proxy statement to hold office for a term of one year ending at the 2019 Annual Meeting of Shareholders or until their successors are elected and qualified;
2
To hold an advisory vote to approve executive compensation;
3
To approve the material terms for payment of executive incentive compensation;
4
To ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2018; and
5
To transact other business properly coming before the Annual Meeting.
Shareholders who owned shares of the Company's common stock ("Common Stock") as of the close of business on the record date of February 22, 2018, are entitled to notice of, and to vote at, the Annual Meeting or any adjournment(s) or postponement(s) thereof. In order to have your shares represented at the meeting, you can vote your shares of Common Stock through any one of the following methods: (i) properly execute and return the enclosed proxy card; (ii) vote online; or (iii) vote by telephone.
A list of the Company’s shareholders will be available for inspection at the Annual Meeting and at the office of the Company located at 1 Choice Hotels Circle, Suite 400, Rockville, Maryland 20850, at least 10 days prior to the Annual Meeting.
 
By Order of the Board of Directors
 
 
 
CHOICE HOTELS INTERNATIONAL, INC.
 
simonewusignaturea04.jpg
 
Simone Wu
Senior Vice President, General Counsel, Corporate Secretary & External Affairs

March 26, 2018
Rockville, Maryland
PLEASE READ THIS ENTIRE PROXY STATEMENT CAREFULLY AND SUBMIT YOUR
PROXY BY COMPLETING AND MAILING THE ENCLOSED
PROXY CARD OR PROVIDE YOUR VOTING INSTRUCTIONS BY TELEPHONE OR ONLINE.



CHOICE HOTELS INTERNATIONAL, INC.
1 CHOICE HOTELS CIRCLE, SUITE 400
ROCKVILLE, MARYLAND 20850

 
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
April 20, 2018
 
GENERAL INFORMATION
The Board of Directors (the “Board”) is soliciting your proxy for the 2018 Annual Meeting of Shareholders (the “Annual Meeting”). As a shareholder of Choice Hotels International, Inc., you have a right to vote on certain matters affecting the Company. This proxy statement discusses the proposals on which you are being asked to vote this year. Please read it carefully because it contains important information for you to consider when deciding how to vote. Your vote is important.
In this proxy statement, we refer to Choice Hotels International, Inc., as “Choice,” “Choice Hotels” or the “Company.”
The Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 is being mailed with this proxy statement. The Annual Report on Form 10-K is not part of the proxy solicitation material.
The Board is sending proxy materials to you and all other shareholders on or about March 26, 2018. The Board is asking for you to vote your shares by completing and returning the proxy card, voting online or voting by telephone.
Shareholders who owned shares of the Company's common stock ("Common Stock") as of the close of business on February 22, 2018 are entitled to notice of, and to vote at, the Annual Meeting or any adjournment(s) or postponement(s) thereof. At the close of business on February 22, 2018, there were 56,922,660 outstanding shares of Common Stock.
Driving Directions to Choice’s Corporate Headquarters in Rockville, Maryland
GPS
For GPS driving directions, please use 1 Choice Hotels Circle, Suite 400, Rockville, Maryland 20850. For older GPS systems, please use 200 East Middle Lane, Rockville, Maryland, 20850 as our 1 Choice Hotels Circle, Suite 400, Rockville, Maryland 20850 address is not updated in all navigation systems. Choice is located on the corner of East Middle Lane and Hungerford Drive in Rockville, Maryland.
From Washington, DC and points south
Take the George Washington Memorial Parkway north to I-495 ramp towards Maryland. Continue on the I-270-Spur north toward Rockville/Frederick. Take the MD-189 exit 5 to Falls Road North/Rockville/Town Center. Keep right at the fork. This becomes Maryland Avenue. Turn right onto East Middle Lane. Choice is located on the corner of East Middle Lane and Hungerford Drive.
From Frederick, Maryland and points north
Take I-270 South towards Rockville. Bear right at I-270 Local south and head towards Shady Grove Road/Local Lanes. Take the MD-28 west exit 6-A toward Rockville Town Center. Turn left on West Montgomery Ave. Continue onto West Jefferson St. Turn Left on Maryland Avenue. Turn Right onto East Middle Lane. Choice is located on the corner of East Middle Lane and Hungerford Drive.

1



TABLE OF CONTENTS
 
 

2


PROXY SUMMARY

This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement carefully before voting. For more complete information regarding the Company’s 2017 performance, please review the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

2018 Annual Meeting of Shareholders
Date and Time:
April 20, 2018, 9:00 a.m. Eastern Time
Location:
1 Choice Hotels Circle, Rockville, Maryland 20850
Record Date:
February 22, 2018
Voting:
Shareholders as of the record date are entitled to vote by internet at www.envisionreports.com/chh; by telephone at 1-800-652-8683; by completing and returning their proxy card or voting instruction card; or in person at the Annual Meeting. If you hold your stock in street name, please see "Questions and Answers" for more information about voting.

Voting Matters and Board Recommendations
 
 
Board Recommendation
Proposal 1
Election of Directors
FOR each nominee
Proposal 2
Advisory Approval of the Compensation of the Company's Named Executive Officers
FOR
Proposal 3
Approval of the Material Terms for Payment of Executive Incentive Compensation

FOR
Proposal 4
Ratification of Ernst & Young as the Company's Independent Registered Public Accounting Firm
FOR

Governance Highlights
The Company is committed to maintaining good corporate governance as a critical component of our success in driving sustained shareholder value. With a focus on serving the interests of shareholders, the Board collaborates with the Company's senior management and external advisors to remain abreast of and evaluate corporate governance trends and best practices.
þ Annual election of directors by majority vote
þ Independent Board committees - The Compensation and Management Development Committee, Audit Committee and Corporate Governance and Nominating Committee are made up entirely of independent directors

þ Separate positions for Chairman of the Board and CEO
þ Annual report of succession planning and management development by CEO


þ The independent directors of the Board meet regularly in executive session. Four independent director executive sessions were held in 2017
þ Annual assessment of Board and committee effectiveness by the Corporate Governance and Nominating Committee

þ Lead independent director - In addition to chairing the executive sessions, the lead independent director manages the Board’s review of the CEO’s performance, coordinates activities of the independent directors and performs any other duties assigned by the Board

þ Hedging policy - The Company has a comprehensive insider trading policy and prohibits hedging by any Associates (employees, directors, contractor or consultants), other than Bainum family directors in relation to certain indirectly held shares
þ Stock ownership and holding requirements - Directors and executive officers have robust stock ownership and holding requirements
þ Pledging policy - The Company prohibits employees, including NEOs, from pledging shares

þ Clawback policy - Executives' incentives are subject to a clawback that applies in the event of certain financial restatements
þ Global hotline and web portal to encourage employees to report financial, ethics and employee relations issues
þ Board governance training program

þ Long-standing commitment to sustainability and environmentally friendly building and operating practices



3


Directors

You are being asked to vote for nine directors. Except for Mr. Bainum, Dr. Renschler and Mr. Pacious, all nominees meet the New York Stock Exchange (NYSE) listing standards for director independence.
Nominees
 
 
 
 
 
 
 
 
Name
Age
Director Since
Occupation
Independent
A
CMD
CGN
D
Barbara T. Alexander
69

2012
Independent Consultant, Former Senior Advisor for UBS
X
CH
 
 
M
Stewart W. Bainum, Jr.
71

1976, except 1996-1997
Chairman of the Board, Investor
 
 
 
 
 
William L. Jews
66

2000, except 2005-2006
Former President and Chief Executive Officer, CareFirst, Inc.
X
 
M
CH
M
Monte J. M. Koch
54

2014
Partner, BDT & Company; Co- Founder, Ten-X
X
M
 
M
 
Liza K. Landsman
48

2014
President, Jet.com
X
M
 
 
M
Patrick S. Pacious
52

2017
President and Chief Executive Officer
 
 
 
 
 
Scott A. Renschler, Psy.D.
48

2008
Clinical Psychologist in Private Practice
 
 
 
 
CH
Ervin R. Shames
77

2002
Lead Independent Director, Management Consultant, Former Chief Executive Officer of Borden, Inc.
X
M
CH
M
 
John P. Tague
55

2012
Former President and Chief Executive Officer, Hertz Global Holdings, Inc.
X
 
M
 
 
*A= Audit Committee, CMD = Compensation and Management Development Committee, CGN = Corporate Governance and Nominating
Committee, D = Diversity Committee, CH = Chair, M = Member
 

Board Composition and Tenure

The Company is committed to a Board comprised of diverse individuals and diverse thought.  Notably, the Board has two female directors, representing 22% of the Board seats.

The Company's Board has an average tenure of less than 12 years (excluding Mr. Bainum, one of the largest shareholders of our Company, average tenure is approximately eight years). In addition, the Company's Board has shown a healthy degree of refreshment, adding five new directors in the prior six years (four of whom are independent).


Corporate Social Responsibility

We strive to improve our communities and the world in which we live through activities of the Company's foundation, the Choice Hotels International Foundation, through recycling and conservation promotion and through ongoing corporate social responsibility efforts.

The mission of the Choice Hotels International Foundation is to enhance the communities in which Choice franchisees, associates and consumers live and serve through the power of human connection - enabling access to food, shelter and the tools for personal and professional advancement. To this end, the Company and its franchisees partner with Boys and Girls Clubs nationwide, and specifically in the under served Washington, DC and Phoenix, Arizona areas, to provide funding and volunteer hours. In 2017, the foundation gave $250,000 in funding and nearly 100 Choice Associates improved a Boys and Girls Club facility.

The Company has a "Room to be Green" program for its franchisees, which has a multi-tiered approach to increased recycling and conservation. All franchisees participate in Room to be Green, which focuses on energy conservation via replacing light bulbs with CFL or LED lighting; water conservation via linen and towel reuse programs; waste reduction via recycling programs in all hotels; and smart, safe & sustainable product usage via replacement of styrofoam with sustainable alternatives.

As an example of the ongoing corporate social responsibility efforts of the Company, to assist with recent hurricane disaster relief efforts, Choice customers donated $250,000 worth of Choice Privileges loyalty points, associates assembled hygiene kits and blankets that were donated by Choice vendors, and the Company donated 1,250 free room nights towards current and future disaster relief efforts for first responders, volunteers and/or displaced survivors.



4


2017 Business Performance Highlights
Hotel Development
Shareholder Return and Financial
Operational
Announced the acquisition of WoodSpring Suites, which added 239 hotels to the company’s system in the first quarter of 2018.


Total revenues increased 9% in 2017 to over $1 billion.
Domestic system-wide revenue per available room (RevPAR) increased 2.5% in 2017.

The Company executed 704 hotel franchise contracts in 2017, an increase of 9% over 2016.
Operating income increased 11% in 2017 to $264.4 million.

Effective royalty rate increased 19 basis points in 2017.
The new construction domestic pipeline totaled 607 hotels at December 31, 2017, a 23 percent increase from December 31, 2016.

The Company paid cash dividends totaling approximately $49 million and repurchased approximately $10 million worth of shares in 2017.
Reservation delivery through the Company's proprietary channels increased 430 basis points to nearly 60 percent in 2017.



Stock Performance Graph
This graph shows the cumulative total shareholder return for Choice’s Common Stock in each of the five years from December 31, 2012 to December 31, 2017. The graph also compares the cumulative total returns for the same five-year period with the S&P 500 Index and our performance peer group of companies, weighted according to the respective peer’s stock market capitalization at the beginning of each annual period. The comparison assumes $100 was invested on December 31, 2012, in Choice stock, the S&P 500 Index and Choice’s performance peer group and assumes that all dividends were reinvested.

linegraph2218.jpg
Five Years Ended December 31, 2017 (Initial Investment $100)
 
Initial
2013
2014
2015
2016
2017
Choice Hotels International, Inc.
100.00
148.6
172.06
157.12
177.62
249.09
NYSE Composite
100.00
126.28
134.81
129.29
144.73
171.83
S&P Hotels, Resorts & Cruise Lines
100.00
129.14
160.21
166.40
178.92
266.74
Performance Peer Index (2017 Peer Group)
100.00
140.48
163.48
163.75
174.17
212.77
Performance Peer Index - Boyd Gaming Corp., Brinker International Inc., Dunkin' Brands Group Inc., Expedia Inc., Host Hotels & Resorts Inc., Hyatt Hotels Corp., Intercontinental Hotels Group PLC, Marriott Vacations Worldwide Corp., Pinnacle Entertainment Inc., Starwood Hotels and Resorts Worldwide Inc., TripAdvisor Inc., Wyndham Worldwide Corp., the Wendy's Company and Vail Resorts, Inc. Pinnacle Entertainment Inc. and Starwood Hotels and Resorts Worldwide were included in the Company's peer group for 2017 decision making purposes but could not be included in the chart above, due to certain corporate transactions that limited stock data.


5


2017 Compensation Highlights
Choice’s executive compensation program links a substantial portion of each executive’s total compensation opportunity to achievement against performance metrics we believe drive shareholder value. In rewarding executives, the Company intends to continue its practice of providing direct accountability for individual, shared and organizational results, ensuring that rewards are commensurate with each executive's contributions to the results delivered for shareholders. Our performance measurement framework for incentive based pay for our NEOs is summarized below.
framework22118a01.jpg
*Mr. Pepper's short-term incentive may be leveraged up or down by the Company's actual operating income achievement.
**Mr. Oaksmith's long-term incentives were made up of restricted stock and PVRSUs.

Our executive compensation programs are designed to align pay with performance and to align the economic interests of executives and shareholders. The charts below show the mix of targeted total direct compensation (“TDC”) (base salary, target annual incentive and target long-term incentive) for the CEO and other NEOs in 2017. Consistent with our pay-for-performance philosophy, the largest portion of compensation (approximately 82% for our CEO and on average 69% for our other NEOs) is variable or performance-based annual and long-term incentives.
a2017tdccharta01.jpg
*The CEO pie chart excludes Mr. Joyce due to his departure in September 2017 and the Other NEOs pie chart excludes Mr. Oaksmith as he completed his interim duties in March 2017.

6


2017 Executive Compensation Summary
Set forth below is the 2017 compensation for our Named Executive Officers ("NEOs"):
Name and Principal  Position
 
Salary
($)
 
Bonus
($)
 
Stock
Awards
($)
 
Option
Awards
($)
 
Non-Equity
Incentive Plan
Compensation
($)
 
Change in Pension
Value and
Preferred
Non-Qualified
Deferred
Compensation
Earnings
($)
 
All Other
Compensation
($)
 
Total
($)
Patrick S. Pacious, President and Chief Executive Officer
 
793,269

 

 
1,595,437

 
531,698

 
961,210

 
5,037

 
117,414

 
4,004,065

Dominic Dragisich,
Chief Financial Officer***
 
312,308

 

 
1,100,144

 
150,008

 
285,600

 

 
46,160

 
1,894,220

David A. Pepper,
Chief Development Officer
 
502,801

 

 
817,053

 
188,956

 
593,652

 
90,162

 
100,341

 
2,292,965

Simone Wu,
Senior Vice President, General Counsel, Corporate Secretary & External Affairs
 
466,539

 

 
440,682

 
146,863

 
239,008

 

 
62,632

 
1,355,724

Patrick Cimerola,
Chief Human Resources Officer
 
396,154

 

 
490,111

 
79,990

 
203,232

 

 
70,876

 
1,240,363

Stephen P. Joyce,
Former Chief Executive Officer**
 
961,500

 

 
9,491,994

 
3,243,159

 
1,844,160

 
23,870

 
260,251

 
15,824,934

Scott Oaksmith,
Senior Vice President, Finance and Accounting Officer (Interim Principal Financial Officer)***
 
332,500

 

 
200,014

 

 
150,340

 

 
34,484

 
717,338

 *See all Summary Compensation Table and related footnotes beginning on page 51.
**As previously disclosed by the Company in its public filings, Mr. Joyce ceased serving as an executive officer and his employment with the Company ended on September 11, 2017. However, Mr. Joyce is considered an NEO for 2017 under SEC rules.
***Mr. Dominic Dragisich was appointed Chief Financial Officer effective March 6, 2017. Prior to that appointment, Scott Oaksmith served as interim principal financial officer.

Response to the 2017 Say on Pay Vote
In 2017, 99% of votes cast were in favor of our compensation proposal. In addition, 94% of votes were cast in favor of an annual frequency for say-on-pay voting, and the Company will continue holding annual advisory votes on compensation. The Compensation and Management Development Committee considers the results of the advisory vote during its annual review of the total compensation provided to our NEOs and other executives. Given the significant level of shareholder support, the Committee concluded that our shareholders agree that our compensation program continues to provide a competitive pay-for-performance alignment that effectively incentivizes our named executive officers to maximize shareholder value and encourages long-term retention. Accordingly, the Committee determined not to make significant changes in 2017 to the executive compensation program. The Committee engages in outreach with its largest shareholders each year regarding compensation as well as governance matters. This outreach utilizes investor conferences, in-person meetings at Company headquarters and telephone contact. The Committee will continue to consider the outcome of our say-on-pay votes and views of our shareholders when making future compensation decisions.


Changes to Executive Compensation Program in 2017
For 2017 executive officer compensation, PVRSUs made up half rather than a quarter of the annual long-term incentive. We believe this further enhanced our pay-for-performance policies. In addition, the Company has eliminated executive perquisites outside of the Flexible Perquisites Plan, including as of January 1, 2018, executive physicals and Company paid life insurance for incoming executives.


Important Dates for 2019 Annual Meeting of Shareholders
Shareholder proposals submitted for inclusion in our 2019 proxy statement pursuant to SEC Rule 14a-8 must be received by November 26, 2018.
Notice of shareholder proposals to nominate a person for election as a director or to introduce an item of business at the 2019 Annual Meeting of Shareholders outside Rule 14a-8 must be received no earlier than January 20, 2019 and no later than February 19, 2019.

7


QUESTIONS AND ANSWERS
Q.
Who can vote at the Annual Meeting?
A.
Shareholders who owned Common Stock as of the close of business on February 22, 2018 may attend and vote at the Annual Meeting. Each share of Common Stock is entitled to one vote. There were 56,922,660 shares of Common Stock outstanding on February 22, 2018.
Q.
Why am I receiving this proxy statement?
A.
This proxy statement describes proposals which are being submitted to shareholders. It gives you information on these proposals, as well as other information, so that you can make informed decisions.
Q.
What is the proxy card?
A.
The proxy card enables you to vote whether or not you attend the meeting. Even if you plan to attend the meeting, we encourage you to complete and return your proxy card before the meeting date in case your plans change. By completing and returning the proxy card, you are authorizing the designated proxies, Simone Wu (the Company's Senior Vice President, General Counsel, Corporate Secretary & External Affairs) and Dominic Dragisich (the Company's Chief Financial Officer) to vote your shares of Common Stock at the meeting, as you have instructed them on the proxy card, or in the absence of such instructions, in accordance with the recommendations of the Board. If a proposal is properly presented for a vote at the meeting that is not on the proxy card, Ms. Wu and Mr. Dragisich will vote your shares, under your proxy, at their discretion.
Q.
On what issues am I voting?
A.
We are asking you to vote on:
 
l
Proposal 1 - the election of the nine director nominees named in this proxy statement.
 
l
Proposal 2 - an advisory vote to approve executive compensation.
 
l
Proposal 3 - approval of the material terms for payment of executive incentive compensation.
 
l
Proposal 4 - the ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2018.
Q.
What is the difference between a record holder and a “street name” holder?
A.
If your shares of Common Stock are registered directly in your name, you are considered the holder of record with respect to those shares. If your shares of Common Stock are held in a brokerage account or by a bank, trust or other nominee, then the broker, bank, trust or other nominee is considered to be the holder of record with respect to those shares, while you are considered the beneficial owner of those shares. In that case, your shares are said to be held in “street name.” Street name holders generally cannot vote their shares directly and must instead instruct, or follow the procedures provided to you by, the broker, bank, trust or other nominee how to vote their shares using one of the methods described below.
Q.
How do I vote?
A.
If you are a record holder:
 
You may vote by mail: You may do this by completing and signing your proxy card and mailing it in the enclosed, prepaid and addressed envelope.
 
l
If you mark your voting instructions on the proxy card, your shares will be voted as you instruct.
 
l
If you sign, but do not mark your voting instructions on the proxy card, your shares will be voted in accordance with the Board's recommendations.
 
You may vote by telephone: You may do this by calling toll-free 1-800-652-8683 and following the instructions. You will need your proxy card available if you vote by telephone.
 
You may vote online: You may do this by accessing www.envisionreports.com/chh and following the instructions. You will need your proxy card available if you vote online.

8


 
You may vote in person at the meeting: We will pass out written ballots to anyone who wants to vote at the meeting. However, if you hold your shares in street name, you must request a legal proxy from your broker in order to vote at the meeting.
 
If you are a “street name” holder:
 
If you hold your shares of Common Stock in street name, you must vote your shares through the procedures prescribed by your broker, bank, trust or other nominee. Your broker, bank, trust or other nominee has enclosed or otherwise provided a voting instruction card for you to use in directing the broker, bank, trust or other nominee how to vote your shares. In many cases, you may be permitted to submit your voting instructions online or by telephone.
Q.
What does it mean if I receive more than one proxy card or voting instruction form?
A.
It means that you have multiple accounts at the transfer agent or with brokerage firms. Please complete and return all proxy cards or voting instruction forms you may receive, or otherwise vote your shares online or by telephone as described herein or on the voting instruction form, to ensure that all of your shares are voted.
Q.
What if I change my mind after I vote?
A.
If you are a holder of record, you may revoke your proxy by any of the following means:
 
l
signing or submitting another proxy before the Annual Meeting as provided herein with a later date,
 
l
sending us a written notice of revocation, which must be received prior to the Annual Meeting at the following address: Corporate Secretary, Choice Hotels International, Inc., 1 Choice Hotels Circle, Suite 400, Rockville, Maryland 20850, or
 
l
voting in person at the meeting.
 
If you are a street name holder, you may change your vote by complying with the procedures contained in the voting instructions provided to you by your broker, bank, trust or other nominee.
Q.
Will my shares be voted if I do not return my proxy card?
A.
If you are a record holder, your shares will not be voted. If you are a street name holder, your brokerage firm, under certain circumstances, may vote your shares.
 
Brokerage firms have authority under the NYSE rules to vote customers’ shares on certain “routine” matters if the customer has not provided the brokerage firm with voting instructions within a certain period of time before the meeting. A brokerage firm cannot vote customers’ unvoted shares on non-routine matters. Only Proposal Four is considered a routine matter under the NYSE rules.
 
Accordingly, if you do not instruct your brokerage firm how to vote your shares, your brokerage firm may not vote your shares on Proposals One, Two or Three. Likewise, your brokerage firm may either:
 
l
vote your shares on Proposal Four and any other routine matters that are properly presented at the meeting, or
 
l
leave your shares unvoted as to Proposal Four and any other routine matters that are properly presented at the meeting.
 
When a brokerage firm votes its customers’ unvoted shares on routine matters, these shares are counted to determine if a quorum exists to conduct business at the meeting. When a brokerage firm does not vote a customer’s unvoted shares, these shares are counted to determine if a quorum exists; however, they are not treated as voting on a matter.
 
We encourage you to provide instructions to your brokerage firm. This ensures your shares will be voted at the meeting.
Q.
How many shares must be present to hold the meeting?
A.
To hold the meeting and conduct business, a majority of the Company’s outstanding shares of Common Stock as of the close of business on February 22, 2018, must be present in person or represented by proxy at the meeting. This is called a quorum.
 
Shares are counted as present at the meeting if the shareholder either:
 
l
is present and votes in person at the meeting, or
 
l
has properly submitted a proxy card, or voted their shares by telephone or online.

9


Q.
What are my voting choices when voting on the election of directors? (Proposal 1)
A.
You may vote either “for” or “against” each nominee, or you may "abstain" from voting.
 
If you give your proxy without voting instructions, your shares will be counted as a vote for each nominee.
Q.
How many votes must the nominees have to be elected as directors?
A.
Directors are elected by a majority of votes cast in person or by proxy at the meeting. Abstentions and broker non-votes are treated as not voting on the matter.
Q.
What happens if a nominee is unable to stand for election?
A.
The Board expects that each of the nominees will be available for election and willing to serve. If any nominee is unable to serve at the time the election occurs, the Board may reduce the number of directors or select a substitute nominee. In the latter case, if you have completed and returned your proxy card or voted by telephone or online, Simone Wu or Dominic Dragisich can vote your shares for a substitute nominee. They cannot vote for more than nine nominees.
Q.
What are my voting choices when voting to approve the advisory vote to approve executive compensation? (Proposal 2)
A.
You may vote either “for” or “against” the approval of the proposal, or you may “abstain” from voting.
 
If you give your proxy without voting instructions, your shares will be voted for approval of executive compensation.
Q.
How many votes are needed to approve the advisory vote to approve executive compensation?
A.
The vote of a majority of the shares present in person or represented by proxy and voting on the matter is required to approve the proposal on executive compensation. The proposal is an advisory vote, which means that it is non-binding on the Company. However, the Compensation and Management Development Committee will take into account the outcome of the vote when considering future executive compensation decisions. Abstentions and broker non-votes are treated as not voting on the matter.
Q.
What are my voting choices when voting to approve the material terms for payment of executive incentive compensation? (Proposal 3)
A.
You may vote either “for” or “against” the approval of the proposal, or you may “abstain” from voting.
 
If you give your proxy without voting instructions, your shares will be voted for approval of the materials terms for payment of executive incentive compensation.
.
Q.
How many votes are needed to approve the materials terms for payment of executive incentive compensation?
A.
The vote of a majority of the shares present in person or represented by proxy and voting on the matter is required to approve the materials terms for payment of executive incentive compensation. Abstentions and broker non-votes are treated as not voting on the matter.
Q.
What are my voting choices when voting on the ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2018? (Proposal 4)
A.
You may vote either “for” or “against” the ratification, or you may “abstain” from voting.
 
If you give your proxy without voting instructions, your shares will be voted for the ratification.
Q.
How many votes are needed to ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2018?
A.
The vote of a majority of the shares present in person or by proxy and voting on the matter is required to ratify the appointment of Ernst & Young LLP. Abstentions and broker non-votes are treated as not voting on the matter.
Q.
What happens if Ernst & Young LLP is not ratified as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2018?

10


A.
Although ratification is not required by our Bylaws or otherwise, the Board is submitting this proposal as a matter of good corporate practice. If the selection is not ratified, the Audit Committee will consider whether it is appropriate to select another independent registered accounting firm. Even if the selection is ratified, the Committee may select a different independent registered accounting firm at any time during the year if it determines that this would be in the best interests of the Company and our share owners.
Q.
Is my vote kept confidential?
A.
Proxy cards, telephone and online voting reports, ballots and voting tabulations identifying shareholders are kept confidential and will not be disclosed by Choice Hotels except as required by law.
Q.
Where do I find voting results of the meeting?
A.
We will announce preliminary voting results at the Annual Meeting. We will publish the final results in a Form 8-K to be filed with the Securities and Exchange Commission (“SEC”) after the Annual Meeting.
Q.
How can I review the Company’s Annual Report on Form 10-K?
A.
The Annual Report of Choice Hotels on Form 10-K, including the financial statements and the schedules thereto, is being mailed to you together with this proxy statement. You may also view the Form 10-K, as well as the Company’s other proxy materials, on the website listed below. Click on the Investor Information link on the website. You may also view the Form 10-K through the SEC’s website at www.sec.gov. You may also obtain a copy of the Form 10-K free of charge by contacting the Company at (301) 592-5026.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDERS MEETING TO BE HELD ON APRIL 20, 2018.
 
The proxy statement and the Company’s Annual Report on Form 10-K are available at www.envisionreports.com/chh.

11


PROPOSAL 1—ELECTION OF NINE DIRECTORS
Nomination
Nine directors are nominated for election at the 2018 Annual Meeting, to hold office until the 2019 Annual Meeting of Shareholders, or until their successors are elected and qualified.
The Company’s Restated Certificate of Incorporation provides that the number of directors must be at least three but not more than 12. The exact number of directors within that range is determined from time to time by the Board. On February 25, 2017, the Board determined that as of April 21, 2017, the Board will consist of nine members.
All directors are elected annually. On April 24, 2015, the Board of the Company unanimously approved an amendment to the Company’s Bylaws, changing the voting standard for the election of nominees to the Board from a plurality vote to a majority vote, except in the case of a contested election, in which case directors will be elected by a plurality vote.
The Board has nominated nine individuals to serve as directors for terms of one year, expiring at the 2019 Annual Meeting of Shareholders, or until their successors are elected and qualified. The nine individuals consist of Barbara T. Alexander, Stewart W. Bainum, Jr., William L. Jews, Monte J. M. Koch, Liza K. Landsman, Patrick S. Pacious, Scott A. Renschler, Ervin R. Shames and John P. Tague. Each of the nominees is currently a member of our Board.
Family Relationships
The Chairman of the Board, Stewart Bainum, Jr., is the uncle of one of our directors, Scott A. Renschler. Other than the family relationship between Mr. Bainum and Dr. Renschler, there are no other familial relationships among our directors or executive officers.
Director Nominee Information and Qualifications
The Board requires that its members possess the highest personal and professional integrity and be positioned to contribute to the Board’s effectiveness through their experience. The Board’s Corporate Governance and Nominating Committee regularly reviews the experience, qualifications, attributes and skills of each of the Board’s director nominees.
The names of Choice's proposed director nominees, their respective ages, their positions with Choice, and other biographical information as of March 17, 2018, are set forth below. The Corporate Governance and Nominating Committee’s assessment of the qualifications of each Board member is also included below.

directorsba31718.jpg



12


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directorssb231718.jpg

13


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14


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15


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16


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17



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

18


CORPORATE GOVERNANCE
Board of Directors
The Board is responsible for overseeing the overall performance of the Company. Members of the Board are kept informed of the Company’s business primarily through discussions with the Chairman, the CEO and other members of the Company’s management, by reviewing materials provided to them and by participating in Board and committee meetings.
In 2017, the Board held eight meetings and each director attended at least 75% of all meetings of the Board and the standing committees of the Board on which he or she served. In 2017, all of the then current Board members attended the Annual Meeting. As stated in the Company's Corporate Governance Guidelines, the Company expects all directors to attend the Annual Meeting. The independent, non-management members of the Board are required to meet at least once a year in executive session without management. Mr. Shames, the lead independent director, chairs these meetings. Four such meetings were held in 2017.
The Board has adopted Corporate Governance Guidelines, a Corporate Ethics Policy and charters for each of its standing committees, including the Audit Committee, Compensation and Management Development Committee, Corporate Governance and Nominating Committee, and Diversity Committee, each of which is discussed further below. The Corporate Governance Guidelines and Corporate Ethics Policy are included in the investor relations section of the Company’s website at www.choicehotels.com.
Board Leadership Structure
The Board is led by the Chairman, Mr. Bainum, who has served in this role for more than 25 years. The benefits of Mr. Bainum’s leadership of the Board stem both from Mr. Bainum’s long-standing relationship and involvement with the Company, which provides a unique understanding of the Company’s culture and business, as well as his on-going role as the Board’s primary day-to-day contact with the Company’s senior management team, which ensures that a constant flow of Company-related information is available to the Board as a whole. This flow of communication enables Mr. Bainum to identify issues, proposals, strategies and other considerations for future Board discussions and informs his role as leader in many of the resulting discussions during Board meetings. Mr. Bainum also brings the perspective of a major shareholder to the Board.
The Company has elected to separate the positions of Chairman (held by Mr. Bainum) and CEO (held by Mr. Pacious). Although Mr. Pacious serves as a member of the Board, we believe that Mr. Bainum’s status as Chairman provides for a meaningful division of leadership between management and the Board.
In addition to this division of leadership between Chairman and Chief Executive Officer, leadership is further enhanced on the Board based on the Board’s annual election of a lead independent director. In light of the Company and Board leadership roles held by Mr. Bainum and Mr. Pacious, the Board believes that it is important to maintain a Board leadership position that is held by an independent director. Currently, Mr. Shames serves as the Board’s lead independent director. In his role as lead independent director, Mr. Shames serves as chairman of executive session meetings in which Mr. Bainum and Mr. Pacious (as well as Dr. Renschler) do not participate. The goal and purpose of these meetings chaired by Mr. Shames is to permit the non-management and independent members of the Board to freely discuss issues or concerns related to Company and Board performance, including issues or concerns related to Company or Board leadership. The Board meets regularly in executive session. Four such meetings were held in 2017. In addition to chairing the executive sessions, the lead independent director manages the Board’s review of the CEO’s performance, coordinates activities of the independent directors and performs any other duties assigned by the Board.
Board’s Role in Risk Oversight
The Board administers its risk oversight function through two primary mechanisms: (1) through the adoption and enforcement of Board policies and procedures intended to require the full Board to discuss, address and approve or disapprove certain items determined by their nature to involve various risks requiring Board consideration and (2) through the efforts of the Board’s Audit Committee, which focuses on the particular risks to the Company that arise out of financial reporting and other pertinent areas.
The Board’s primary role in risk oversight is to establish and maintain effective policies and procedures that serve to highlight or expose critical risks. The Board has adopted a set of Board policies applicable to various transactions involving the Company and its directors, officers and employees that the Board has determined are likely to involve a potentially higher degree of risk than ordinary course transactions and therefore are appropriately reviewable by the full Board. For these transactions, the Company is required to obtain Board approval, which provides the Board with an opportunity to discuss the transaction and attendant risk, prior to the transaction becoming binding on the Company. Those transactions requiring prior Board approval include transactions above certain limits, certain lending arrangements, certain litigation settlements, and certain related party transactions. In addition to the full Board’s role in risk oversight, different committees of the Board play a role in overseeing risks attendant to the committee’s particular area of focus. For instance, the Compensation and Management Development Committee assumes primary responsibility for risk oversight as it relates specifically to the Company’s compensation policies and practices and the Corporate Governance and Nominating Committee and Diversity Committee are empowered to raise risks or potential risks brought to such Committee’s attention to the full Board for discussion. In addition, as discussed below, the Board’s Audit Committee has specific functions and responsibilities that generally relate to the risk oversight function, including risks relating to financial reporting and cybersecurity.

19


The general functions of the Audit Committee are as set forth under the heading Committees of the BoardAudit Committee. As a result of the Audit Committee’s performance of these functions, it is often provided with access to reports and analysis (either internally generated or created by the Company’s independent registered public accounting firm) relating to issues or concerns that, because of the potential for exposure to risk, the Committee determines to be proper for additional review and discussion. Often, these discussions may remain within the Audit Committee, if, after discussions with the Company’s CEO, CFO, Chief Accounting Officer and other relevant Company employees, the result of the review is a determination by the Audit Committee that the identified potential for risk is being adequately addressed by the Company. In certain circumstances, the Audit Committee may determine (either initially after identification of the potential risk or after a preliminary review conducted by the Audit Committee) that certain risks or potential risks be referred to the full Board for discussion.
Director Independence
The Board currently has nine directors, a majority (six) of whom the Board has determined to be “independent” under the listing standards of the NYSE. The independent directors are Barbara T. Alexander, William L. Jews, Monte J. M. Koch, Liza K. Landsman, Ervin R. Shames and John P. Tague.
In determining director “independence,” the Board applies the standards as set forth in the listing standards of the NYSE and additional independence standards adopted by our Board as follows:
No director can be “independent” until five years following the termination or expiration of a director’s employment with the Company, rather than three years as currently required under the NYSE rules;
No director can be “independent” who is, or in the past five years has been, affiliated with or employed by a present or former outside auditor of the Company until five years after the end of either the affiliation or the auditing relationship, rather than three years as currently required under the NYSE rules; and
No director can be “independent” if he or she in the past five years has been part of an interlocking directorate, rather than three years as currently required under the NYSE rules.
Corporate Governance Guidelines
The Corporate Governance Guidelines, adopted by the Board, are a set of principles that provide a framework for the Company’s corporate governance. The main tenets of the Guidelines are:
Create value for shareholders by promoting their interests;
Focus on the future, formulate and evaluate corporate strategies;
Duty of loyalty to the Company by directors;
Annual CEO evaluation by independent directors;
Annual approval of three-year strategic plan and one-year operating plan or as the Board deems necessary in the event there are no material changes to the strategic and operating plans then in effect;
Annual assessment of Board and committee effectiveness by the Corporate Governance and Nominating Committee;
Directors are required to reach and maintain ownership of $300,000 of Company stock within five years of election to the Board;
Directors attendance expectations; and
Annual report of succession planning and management development by Chief Executive Officer.
Corporate Ethics Policy
The Board has established a Corporate Ethics Policy to aid each director, officer and employee of the Company (including the CEO, CFO and Chief Accounting Officer) and its subsidiaries in making ethical and legal decisions in his or her daily work. To the extent approved or granted, the Company will post amendments to or waivers from the Corporate Ethics Policy (to the extent applicable to the CEO, CFO and Chief Accounting Officer) on the Company’s website.
Committees of the Board
The standing committees of the Board are the Audit Committee, the Compensation and Management Development Committee, the Corporate Governance and Nominating Committee and the Diversity Committee. The charters for each of these committees are included in the investor relations section of the Company’s website at www.choicehotels.com. All of the current members of each of the Audit Committee, Compensation and Management Development Committee and Corporate Governance and Nominating Committee are independent, as required by the committee charters and the current listing standards of the NYSE and the rules of the SEC, as applicable.
The following provides a description of certain functions, current membership and meeting information for each of the Board committees for 2017.
Compensation and Management Development Committee
Under the terms of its charter, the Compensation and Management Development Committee discharges the Board’s responsibilities relating to compensation of the Company’s executives through the following functions, among others:
Overseeing the administration of the Company’s equity compensation plans and authorizing equity awards thereunder;
Establishing and updating the “peer group” used to compare the Company’s compensation practices;

20


Reviewing and approving the compensation of executive officers, in light of shareholder “Say on Pay” results and other relevant factors;
Setting the compensation for the non-employee members of the Board;
Reviewing bonus and incentive plans, pensions and retirement;
Reviewing other employee benefit plans and programs;
Reviewing the Company’s succession plan and management development;
Self-evaluating annually;
Setting criteria and guidelines for performance of the CEO;
Assessing performance of the CEO against performance objectives; and
Reviewing and discussing the Company’s Compensation Discussion and Analysis and producing the annual Compensation and Management Development Committee report for the Company’s proxy statement.
The Compensation and Management Development Committee discharges its responsibilities relating to executive management, talent development and succession planning of the Company’s executives by reviewing and discussing the Company’s management succession plan for the CEO and other key senior executives and by reviewing and discussing management development for key executives as part of the Company’s annual talent review process.
During 2017, at the direction of Mr. Shames, the Chairman of the Compensation and Management Development Committee, Mr. Joyce and Mr. Pacious (each of whom served as CEO during the period) prepared and distributed to Committee members meeting agendas, consultant-provided compensation related information, and Company reports and data in preparation for Committee meetings. Mr. Cimerola, our Chief Human Resources Officer, assisted with preparation of the materials. In conjunction with the Compensation and Management Development Committee Chairman, Messrs. Joyce, Pacious and Cimerola also prepared and presented specific compensation proposals to the Compensation and Management Development Committee, including Mr. Joyce’s and Mr. Pacious' assessment of individual executive officer performance and recommended compensation amounts for each officer other than himself. See the Compensation Discussion and Analysis section below for more information on Mr. Joyce’s and Mr. Pacious' role in recommending the compensation paid to our NEOs in 2017. None of our executive officers determined or recommended the amount or form of non-employee director compensation.
The Compensation and Management Development Committee has delegated limited authority to our Stock Compensation Committee, currently consisting of our CEO, to make equity awards to employees at the vice president level or lower solely for the purpose of promotion, retention, or new hire. No individual award may exceed $250,000 in value.
In accordance with its charter, the Compensation and Management Development Committee has the authority to retain, terminate and approve professional arrangements for outside compensation consultants to assist the Committee.

During 2017, the Compensation and Management Development Committee retained Mercer (US) Inc. (“Mercer”) a wholly-owned subsidiary of Marsh & McLennan Companies, Inc. ("MMC") to provide various compensation-related services and assistance. Mercer performed the following functions and services:

Attended Committee meetings;

Provided independent advice to the Committee on current trends and best practices in compensation design and program alternatives and advised on plans or practices that may improve effectiveness of our compensation program;

Provided and discussed peer group and various survey data; and, based on this information, offered independent recommendations on CEO and NEO compensation;

Advised on CEO pay ratio and related calculations;

Reviewed the CD&A, compensation tables and other compensation-related disclosures in our proxy statements;

Offered recommendations, insights and perspectives on compensation related matters;

Evaluated and advised the Committee regarding enterprise and related risks associated with executive compensation components, plans and structures; and

Supported the Committee to ensure executive compensation programs are competitive and align the interests of our executives with those of our shareholders.

In 2017, Mercer attended all Committee meetings in person or by telephone, including executive sessions as requested, and consulted frequently with the Committee Chairman between meetings. Mercer reviewed the CD&A and the executive compensation tables contained in this proxy statement.
The Company paid Mercer $328,818 in 2017 for services related to its engagement by the Compensation and Management Development Committee. See Compensation Discussion and Analysis below for additional information related to the role of Mercer in the Company’s 2017 executive compensation decisions.

21


The Committee has analyzed whether the work of Mercer as a compensation consultant has raised any conflict of interest, taking into consideration the following factors: (i) the provision of other services to the Company by Mercer or any of its affiliates; (ii) the amount of fees the Company paid to Mercer as a percentage of MMC’s total revenue; (iii) Mercer’s policies and procedures that are designed to prevent conflicts of interest; (iv) any business or personal relationship of Mercer or the individual compensation advisors employed by the firm with an executive officer of the Company; (v) any business or personal relationship of the individual compensation advisors with any member of the Committee; and (vi) any stock of the Company owned by Mercer or the individual compensation advisors whom it employs. The Committee has determined, based on its analysis of the above factors, that the work of Mercer and the individual compensation advisors employed by Mercer as compensation consultants to the Company has not created any conflict of interest.
In 2017, the Compensation and Management Development Committee met five times. The Chair of the Compensation and Management Development Committee was Ervin R. Shames and the other members were William L. Jews and John P. Tague. The Board determined that each member of the Compensation and Management Development Committee was independent under the listing standards of the NYSE applicable to Compensation Committee members.
While the charter authorizes the Compensation and Management Development Committee to delegate its responsibilities to subcommittees, to date, the Committee has not delegated any of its responsibilities in this manner, other than its delegation to the Stock Compensation Committee to make equity awards to employees at the vice president level or lower solely for the purpose of promotion, retention, or new hire.

Compensation Committee Interlocks and Insider Participation

No member of our Compensation and Management Development Committee is an officer, former officer, or employee of the Company. During 2017, no member of the Compensation and Management Development Committee had any relationship with the Company requiring disclosure under Item 404 of Regulation S-K. During 2017, no interlocking relationship existed between any of our executive officers or Compensation and Management Development Committee members, on the one hand, and the executive officers or Compensation Committee members of any other entity, on the other hand.
Audit Committee
Under the terms of its charter, the Audit Committee assists the Board to fulfill its oversight responsibilities with respect to the Company’s auditing, accounting and financial reporting processes generally. The Committee discharges these duties through the following functions, among others:
Conferring separately with the Company’s independent registered public accounting firm and internal auditors regarding their responsibilities;
Reviewing reports of the Company’s independent registered public accounting firm and internal auditors and annual and quarterly reports for filing with the SEC;
Reviewing reports of the Company’s independent registered public accounting firm concerning financial reporting processes and internal controls;
Establishing and monitoring an anonymous complaint hotline and other complaints procedures regarding accounting and auditing matters;
Pre-approving all audit and non-audit services provided by the Company’s independent registered public accounting firm;
Self-evaluating annually;
Determining the selection, compensation and appointment of the Company’s independent registered public accounting firm and overseeing their work;
Reviewing the Company’s policies with respect to risk management;
Reviewing with the CEO, CFO or Chief Accounting Officer, the Company’s disclosure controls and procedures; and
Overseeing the Company's cyber security and data security practices and procedures.
In 2017, the Audit Committee met eight times. Barbara T. Alexander served as Chair of the Committee. The other members of the Committee in 2017 were Ervin R. Shames, Monte J. M. Koch and Liza K. Landsman. The Board has determined that Ms. Alexander and Mr. Koch are qualified as audit committee financial experts within the meaning of the SEC’s regulations. Furthermore, each member of the Committee has accounting and related financial management expertise within the meaning of the listing standards of the NYSE. In addition, the Board also determined that each member of the Audit Committee was independent under SEC rules and the listing standards of the NYSE applicable to Audit Committee members.
Corporate Governance and Nominating Committee
Under the terms of its charter, the Corporate Governance and Nominating Committee identifies individuals qualified to become members of the Board; selects, or recommends that the Board selects, the director nominees for election or to fill vacancies; develops and recommends to the Board a set of Corporate Governance Guidelines applicable to the Company; and oversees the evaluation of the Board. The Committee also has the following functions, among others:

Establishing criteria for Board membership;

22


Conducting the appropriate and necessary inquiries into the backgrounds and qualifications of proposed Board candidates;
Reviewing and making recommendations to the Board on the size and composition of the Board and its committees;
Reviewing and making recommendations to the Board with respect to directors, if any, who are unable to perform their duties;
Reviewing and making recommendations to the Board with respect to the retirement of directors;
Reviewing and making recommendations to the Board with respect to the Company’s policies regarding director or senior executive conflict of interest matters;
Monitoring and making recommendations to the Board concerning matters of corporate governance; and
Reviewing the outside board service by senior executives.
In 2017, the Committee met three times. William L. Jews was the Chair of the Committee and the other members of the Committee were Ervin R. Shames and Monte J. M. Koch.
Diversity Committee
Under the terms of its charter, the Diversity Committee seeks to assist and advise management in developing a workplace culture that values working with diverse groups of people, offering diversity of thought and perspective. The Committee seeks to achieve its goals through the following functions, among others:

Review and evaluate diversity efforts in workforce development, franchise development, vendor relations, marketing and philanthropy;
Review the efforts by management to increase the diversity of the Company's workforce, including at management levels; and
Reporting to the Board on diversity matters.
In 2017, the Committee met three times. Scott A. Renschler was the Chair of the Committee and the other members of the Committee were Barbara T. Alexander, William L. Jews and Liza Landsman.
Contacting the Board of Directors
Shareholders or other interested parties may contact an individual director, the lead independent director of the Board, or the independent directors as a group by mail at the following address:
 
 
Mail:
Choice Hotels International, Inc.
 
 
1 Choice Hotels Circle, Suite 400
 
 
Rockville, Maryland 20850
 
 
Attn: Board of Directors
Each communication should specify the applicable addressee or addressees to be contacted, as well as the general topic of the communication. The Company will initially receive and process communications before forwarding them to the addressee. The Company generally will not forward to the directors a shareholder communication that it determines to be primarily commercial in nature or relates to an improper or irrelevant topic, or that requests general information about the Company.
Consideration of Director Candidates
The Corporate Governance and Nominating Committee administers the process for nominating candidates to serve on the Company’s Board. The Committee recommends candidates for consideration by the Board as a whole, which is responsible for appointing candidates to fill any vacancy that may be created between meetings of the shareholders and for nominating candidates to be considered for election by shareholders at the Company’s Annual Meeting.
The Board has established selection criteria to be applied by the Corporate Governance and Nominating Committee and by the full Board in evaluating candidates for election to the Board. These criteria include: (i) independence, (ii) integrity, (iii) experience and sound judgment in areas relevant to the Company’s business, (iv) a proven record of accomplishment, (v) willingness to speak one’s mind, (vi) the ability to commit sufficient time to Board responsibilities, (vii) the ability to challenge and stimulate management and (viii) belief in and passion for the Company’s mission and vision. The Committee also periodically reviews with the Board the appropriate skills and characteristics required of Board members in the context of the current membership of the Board. This assessment includes considerations such as diversity, age and functional skills in relation to the perceived needs of the Board from time to time.
The Corporate Governance and Nominating Committee uses a variety of methods to identify potential nominees for election to the Board, including consideration of candidates recommended by directors, officers or shareholders of the Company. When reviewing and recommending candidates to join the Board, the Corporate Governance and Nominating Committee considers how each prospective new member’s unique background, experience and expertise will add to the Board’s overall perspective and ability to govern the Company. While the Committee has not established any formal diversity policy to be used to identify

23


director nominees, the Committee recognizes that a current strength of the Board stems from the diversity of perspective and understanding that arises from discussions involving individuals of diverse background and experience. When assessing a Board candidate’s background and experience, the Committee takes into consideration all relevant components, including, but not limited to, a candidate’s gender and cultural and ethnic status. The Committee may also use one or more professional search firms or other advisors to assist the Committee in identifying candidates for election to the Board.
The Corporate Governance and Nominating Committee will consider director candidates recommended by shareholders and evaluate them using the same criteria as applied to candidates identified through other means, as set forth above. Shareholders seeking to recommend a prospective candidate for the Committee’s consideration should submit the candidate’s name and qualifications, including the candidate’s consent to serve as a director of the Company if nominated by the Committee and so elected by mail to: Corporate Secretary, Choice Hotels International, Inc., 1 Choice Hotels Circle, Suite 400, Rockville, Maryland 20850.

24



SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This table shows how much Common Stock is beneficially owned by (i) each director of the Company, (ii) each of the Company’s NEOs, (iii) all executive officers and directors of the Company as a group and (iv) all persons who are known to own beneficially more than 5% of the Company’s Common Stock, as of February 22, 2018 (unless otherwise noted). Unless otherwise specified, the address for each such person as of February 22, 2018, was 1 Choice Hotels Circle, Suite 400, Rockville, Maryland 20850.
Name of Beneficial Owner
Common Stock
Beneficially Owned(1)
 
Right  to
Acquire(2)
 
Unvested
Restricted
Stock(3)
 
Percentage of Shares
Outstanding(4)
 
Stewart Bainum, Jr.
12,570,668

(5)(6) 

 

 
22.08
%(5)(6) 
Barbara T. Alexander
18,072

  

 
4,261

 
*
  
William L. Jews
30,288

  

 
4,261

 
*
  
Monte J. M. Koch
4,596

 

 
4,261

 
*
 
Liza K. Landsman
2,743

 

 
4,261

 
*
 
Patrick S. Pacious
100,373

   
194,696

 
17,314

 
*
 
Scott A. Renschler
322,734

(5)(7) 

 
4,261

 
*
 
Ervin R. Shames
65,871

  

 
4,261

 
*
  
John P. Tague
19,471

  

 
4,261

 
*
  
Patrick Cimerola
28,966

 
74,079

 
8,685

 
*
 
Dominic Dragisich

  
3,318

 
8,836

 
*
  
Scott E. Oaksmith
18,558

  
15,828

 
12,731

 
*
  
Stephen Joyce+
159,900

 

 

 
*
 
David A. Pepper
70,750

  
90,987

 
7,362

 
*
  
Simone Wu
16,267

  
65,157

 
5,369

 
*
  
All Directors and Executive Officers as a Group (16 persons)+
13,299,017

  
477,169

 
99,707

 
24.38
Principal Shareholders
 
 
 
 
 
 
 
 
Barbara J. Bainum
10,181,924

(5)(8) 

 

 
17.89
(5)(8)
Bruce D. Bainum
11,129,150

(5)(9) 

 

 
19.55
(5)(9)
Roberta D. Bainum
10,916,786

(5)(10) 

 

 
19.18
(5)(10)
Realty Investment Company, Inc.
6,821,574

(5)(14) 

 

 
11.98
(5)(14)
Ronald Baron
4,866,406

(11) 

 

 
8.60
(11)
The Vanguard Group
2,918,901

(12) 

 

 
5.15
% (12)
Wellington Group Holdings LLP

3,074,192

(13) 

 

 
5.43
% (13)
Christine A. Shreve
4,389,654

(5)(15) 

 

 
7.71
%(5)(15)
*
Less than 1%.
+ 
Mr. Joyce is not included in the total, as he departed from the Company September 11, 2017.
1
Includes shares: (i) for which the named person has sole voting and investment power and (ii) for which the named person has shared voting and investment power. Does not include: (i) shares that may be acquired through stock option exercises within 60 days or (ii) unvested restricted stock holdings which the holder maintains voting rights, each of which is set out in a separate column.
2
Shares that can be acquired through stock option exercises within 60 days of February 22, 2018.
3
Shares for which the holder maintains voting rights, but are subject to a vesting schedule, forfeiture risk and other restrictions.
4
For each beneficial owner, ownership percentage is based on (i) the sum of the number of shares listed under each of the column headings Common Stock Beneficially Owned, Right to Acquire and Unvested Restricted Stock and (ii) 56,922,660 shares outstanding on February 22, 2018.

25


5
Because of SEC reporting rules, shares held by Realty Investment Company, Inc. (“Realty”), a real estate management and investment company, and certain Bainum and Renschler family entities are attributed to Realty, Christine A. Shreve and more than one of the Bainums and Renschlers included in this table because Realty, Ms. Shreve and such named Bainums and Renschlers have shared voting or dispositive control. As of February 22, 2018, Realty, Ms. Shreve and members of the Bainum and Renschler families (including various partnerships, corporations and trusts established by members of the Bainum and Renschler families) in the aggregate have the right to vote 21,807,384 shares, approximately 38.31% of the shares of Common Stock outstanding as of February 22, 2018.
6
Includes 1,000,222 shares owned by the Stewart Bainum, Jr. Declaration of Trust of which Mr. Bainum, Jr. is the sole trustee and beneficiary. Also includes 1,417,056 shares owned by Leeds Creek Holdings, LLC whose only member is Mr. Bainum, Jr.’s trust; 978,482 shares owned by Mid Pines Associates Limited Partnership (“Mid Pines”), in which Mr. Bainum, Jr.’s trust is managing general partner and has shared voting authority; 6,821,574 shares owned by Realty in which Mr. Bainum, Jr.’s trust owns voting stock and has shared voting authority; 256,083 shares owned by the Foundation for the Greatest Good, a private foundation whose principal sponsor is Mr. Bainum, Jr.; and 2,097,251 shares owned by the Jane Bainum Declaration of Trust ("Jane Trust"), a trust for the benefit of his mother for which Mr. Bainum, Jr. is a co-trustee and has shared voting authority.
7
Includes 164,228 shares owned by the Scott Renschler Declaration of Trust, of which Dr. Renschler is the sole trustee and beneficiary; 120,849 shares owned by the BBB Trust J, a trust for the benefit of Dr. Renschler’s cousins for which he serves as trustee; and 7,296 shares owned by trusts for the benefit of Dr. Renschler's nephew and nieces for which Dr. Renschler is trustee. Also includes 30,361 shares Dr. Renschler is entitled to under the Company’s non-employee director plan.
8
Includes 1,030,836 shares owned by the Barbara Bainum Declaration of Trust of which Ms. Bainum is the sole trustee and beneficiary. Also includes 1,175,000 shares owned by Shadow Holdings, LLC for which she shares voting authority and whose sole members are Ms. Bainum and trusts for her benefit; 978,482 shares owned by Mid Pines, in which Ms. Bainum’s trust is a general partner and has shared voting authority; 6,821,574 shares owned by Realty, in which Ms. Bainum’s trust owns voting stock and has shared voting authority; and 163,000 shares owned by The Mental Wellness Foundation, Inc., a private foundation whose principal sponsor is Ms. Bainum. Also includes 13,032 shares owned by trusts for the benefit of Ms. Bainum’s nephews for which Ms. Bainum is the trustee. Ms. Bainum’s address is 8171 Maple Lawn Blvd., #375, Fulton, Maryland 20759.
9
Includes 1,474,438 shares owned by the Bruce Bainum Declaration of Trust of which Dr. Bainum is the sole trustee and beneficiary. Also includes 1,685,061 shares owned by Posadas Holdings, LLC for which he shares voting authority and whose sole members are Dr. Bainum, and various trusts for either his benefit or the benefit of his wife or adult children; 978,482 shares owned by Mid Pines, in which Dr. Bainum’s trust is a general partner and has shared voting authority; 6,821,574 shares owned by Realty, in which Dr. Bainum’s trust owns voting stock and has shared voting authority; 163,000 shares owned by Three Graces Foundation, Inc., a private foundation whose principal sponsor is Dr. Bainum; and 6,595 shares owned by a trust for the benefit of certain of Dr. Bainum's descendants for which Dr. Bainum is the trustee. Dr. Bainum’s address is 8171 Maple Lawn Blvd., #375, Fulton, Maryland 20759.
10
Includes 1,433,105 shares owned by the Roberta Bainum Declaration of Trust of which Ms. Bainum is the sole trustee and beneficiary. Also includes 1,520,625 shares owned by Sweetwater Holdings, LLC for which she shares voting authority and whose sole members are Ms. Bainum and various trusts for either her benefit or the benefit of her adult children; 978,482 shares owned by Mid Pines, in which Ms. Bainum’s trust is a general partner and has shared voting authority; 163,000 shares owned by Trisons Foundation inc., a private foundation whose principal sponsor is Ms. Bainum; and 6,821,574 shares owned by Realty, in which Ms. Bainum’s trust owns voting stock and has shared voting authority. Ms. Bainum’s address is 8171 Maple Lawn Blvd., #375, Fulton, Maryland 20759.
11
The Company is relying on the Schedule 13G/A, filed on February 14, 2018, by Baron Capital Group, Inc. (“BCG”), BAMCO, Inc., Baron Capital Management, Inc. (“BCM”), Ronald Baron and Baron Growth Fund (“BGF”). According to this filing, BCG beneficially owns 4,832,906 shares, BAMCO, Inc. beneficially owns 4,558,217 shares, BCM beneficially owns 274,689 shares, Ronald Baron beneficially owns 4,866,406 shares and BGF beneficially owns 3,007,500 shares. These reporting persons disclaim beneficial ownership to the extent these shares are held by their investment advisory clients and not directly by the reporting persons. The address for the reporting persons is 767 Fifth Avenue, 49th Floor, New York, New York 10153.
12
The Company is relying on the Schedule 13G, filed on February 8, 2018, by The Vanguard Group. According to this filing, The Vanguard Group beneficially owns 2,918,901 shares. These reporting persons disclaim beneficial ownership to the extent these shares are held by their investment advisory clients and not directly by the reporting persons. The address for the reporting persons is 100 Vanguard Blvd., Malvern, PA 19355.
13
The Company is relying on the Schedule 13G, filed on February 8, 2018, by Wellington Management Group LLP, Wellington Group Holdings LLP, Wellington Investment Advisors Holdings LLP, Wellington Management Company LLP and Wellington Group Holdings, LLP ("Wellington"). According to this filing, Wellington beneficially owns 3,074,192 shares. These reporting persons disclaim beneficial ownership to the extent these shares are held by their investment advisory clients and not directly by the reporting persons. The address for the reporting persons is 280 Congress Street, Boston, MA 02210.

26


14
Realty is controlled and owned by members of the Bainum family, including Stewart Bainum, Jr., Scott Renschler, Barbara Bainum, Bruce Bainum and Roberta Bainum. Realty’s address is 8171 Maple Lawn Blvd., #375, Fulton, Maryland 20759. Christine A. Shreve is an officer and director of Realty.
15
Includes 2,800 shares owned by Ms. Shreve jointly with her husband; 1,175,000 shares owned by Shadow Holdings, LLC, an LLC whose sole members are Barbara Bainum and trusts for her benefit, for which Ms. Shreve is manager and has shared voting authority; 1,685,061 shares owned by Posadas Holdings, LLC, an LLC whose sole members are Bruce Bainum and various trusts for either his benefit or the benefit of his wife or adult children for which Ms. Shreve is manager and has shared voting authority; 1,520,625 shares owned by Sweetwater Holdings, LLC, an LLC whose sole members are Roberta Bainum and various trusts for either her benefit or the benefit of her adult children for which Ms. Shreve is manager and has shared voting authority; and 6,168 shares owned by trusts for the benefit of Renschler family members for which Ms. Shreve is the trustee. Ms. Shreve’s address is 8171 Maple Lawn Blvd., #375, Fulton, Maryland 20759.



27



a12wsexthoriznrmla01.jpg



Dear Choice Hotels Shareholders:

Over the past year, several key factors contributed to the Company’s financial and operating performance: a successful CEO leadership transition, our key strategic decisions and a stable and expanding economy. We were also pleased to announce the acquisition of the WoodSpring Suites brand and franchising business, which was completed in February, 2018.

In 2017 we undertook and carried out a highly effective leadership transition process, which was positively received by the industry and you, our shareholders.The appointment of Mr. Patrick Pacious as President and CEO was the culmination of a thoughtful, deliberate, long-term succession planning process, focused on maintaining leadership continuity, while driving new ideas that result in continued positive business growth now and into the future. Our former CEO, Steve Joyce collaborated with the Board over the last several years to identify and prepare his successor, and we collectively identified Mr. Pacious as the right person to lead Choice into the future.

Consistent with our pay-for-performance philosophy, the year's successes were reflected in our executive pay outcomes and decisions for our NEOs as follows:

Short-term incentives on average paid out at 102% of target based primarily on performance at the following percentages of target for all NEOs other than Mr. Pepper: operating income: 100%, market share: 115%, and “likelihood to recommend”: 105%.
Long-term incentive performance was above the three-year EPS target.
704 domestic franchise agreements were executed in 2017, providing a franchise contract value that overachieved at 134% of goal.

Each year we hold a shareholder advisory vote on our executive pay program and reach out to our largest shareholders to better understand their perspectives and concerns. In 2017, 99% of shareholder votes cast were in favor of the "Say on Pay" proposal.

In further support of our pay-for-performance philosophy and alignment with shareholder interests, the Company maintains the following best pay and governance practices:
A significant majority of pay is performance-based or variable (approximately 82% for the CEO and 69% for the other executives)
Realizable pay for the CEO is below the 50th percentile of our peer group companies for the most recent three-year period
Pay is aligned with the market of peer group companies in the hospitality industry and companies with franchise business models
50% of annual long-term incentive awards for all NEOs were made up of PVRSUs
Pay design features are aimed at risk mitigation and ensuring that pay plans do not create material risks
Clawback policy requires recoupment of bonus and long-term incentive compensation paid in the event of certain subsequently restated financials
Guidelines require stock ownership by executives at a targeted multiple of pay
Policies generally restrict hedging and pledging
Pay plans include best practice provisions, such as:
No excise tax gross-ups on severance and change-in-control benefits
No single-trigger vesting of equity awards on a change in control
Dividends are paid on PVRSUs only to the extent the awards vest
Independent Compensation and Management Development Committee makes pay decisions and is advised by an independent compensation consultant

We value feedback from our shareholders, and we continue to consider shareholder input and market best practices as we design and review our executive pay program to ensure it is appropriate for Choice Hotels and our long-term strategy, and is in the best interests of shareholders.

Yours sincerely,
shamessiga02.jpg
Ervin R. Shames
Chair, Compensation and Management Development Committee
Lead Independent Director

28


COMPENSATION DISCUSSION AND ANALYSIS

This CD&A describes our executive compensation philosophy, summarizes the principles of our executive compensation program and analyzes our pay decisions for 2017. It also provides context for the data we present in the compensation tables below.
For purposes of this CD&A and the compensation tables, our NEOs for 2017 are:
Name
  
Title
 
Patrick S. Pacious
  
President and Chief Executive Officer ("CEO")
Dominic Dragisich**
 
Chief Financial Officer ("Principal Financial Officer")
David A. Pepper
  
Chief Development Officer ("CDO")
Simone Wu
 
Senior Vice President, General Counsel, Corporate Secretary & External Affairs
Patrick Cimerola
 
Chief Human Resources Officer ("CHRO")
 
 
 
Stephen P. Joyce*
  
Former Chief Executive Officer
Scott E. Oaksmith
 
Senior Vice President, Finance and Chief Accounting Officer (Interim Principal Financial Officer)
*As previously disclosed by the Company in its public filings, Mr. Joyce ceased serving as an executive officer and his employment with the Company ended on September 11, 2017. However, Mr. Joyce is considered an NEO for 2017 under SEC rules.
**Mr. Dominic Dragisich was appointed Chief Financial Officer effective March 6, 2017. Prior to that appointment, Scott Oaksmith served as interim principal financial officer.




29


EXECUTIVE SUMMARY
Choice is committed to delivering shareholder value. The core principle of our executive compensation program is pay for performance, which guides our executive compensation decisions. Choice uses a combination of fixed and variable compensation to incentivize and reward strong performance and to align the interests of our executives with those of the Company’s shareholders. This executive summary provides an overview of our governance practices, 2017 Company performance, pay-for-performance alignment, incentive compensation framework, targeted total direct compensation, and say-on-pay feedback from shareholders.


Pay and Governance Practices

The Company has the following pay and governance practices that reinforce the soundness of our compensation programs:
whatwedo3218.jpg

30


2017 Company Performance
The Company delivered strong financial and operational performance in 2017. We believe our pay-for-performance philosophy, key strategic efforts and a stable economic environment were primary drivers of our success. Our performance reflects the strength of our executive team and employees and their ability to successfully manage a complex and dynamic business. 2017 highlights include:

Compensation-Related Performance
Our focus on key brand and operational initiatives within a stable business environment enabled us to achieve the following performance goals that were specifically linked to executive compensation:
Operating Income: Achieved operating income of $264.4 million ($282.8 million as adjusted by the Committee for certain items as discussed on page 40), exceeding our 2017 corporate operating income target and resulting in a 15.1% increase over 2016 operating income, as adjusted by the Committee for certain items.
Market Share: Achieved 135 basis points above industry average, against a goal of 68 basis points above industry average.
Likelihood-to-Recommend (LTR): Achieved a score of 8.63 - 8.68 against the LTR goal of 8.33 - 8.66.
Franchise Contract Value and Executed Franchise Contracts (in relation to Mr. Pepper's compensation): Exceeded our target franchise contract value at 134% against our 2017 franchise contract value goal and significantly overachieved at 704 executed domestic franchise contracts against our 2017 goal of 670 contracts. Franchise contract value reflects investment in the Choice pipeline and is a positive indicator for our franchises and for our shareholders.
Acquisition: Announced acquisition of WoodSpring Hotels on December 18, 2017 and closed on February 1, 2018.
As a result, short-term incentive payouts to our executives were 2% above target, based on operating income achievement at target, and market share and LTR achievement above target. Mr. Pepper's short-term incentive payout exceeded the target for franchise contract value and for number of executed franchise contracts. See “Short-Term Incentive Compensation” below for more details.


31



CEO Compensation and Pay-for-Performance Alignment

Each year, the Committee evaluates our CEO’s compensation relative to Company performance. The following graph shows the relationship of our CEO’s realizable pay (including actual total cash compensation and the realizable value of equity awards granted during the three-year period valued at December 31, 2017) and our cumulative shareholder return for the last three years relative to our 2017 peer group companies (see "Compensation Competitive Analysis" below). As illustrated, total shareholder return ("TSR") and the Company's CEO pay are aligned within the band relative to the peer group. Note that the Company's CEO compensation is calculated based on the compensation paid to our former CEO for the two preceding years and for our current CEO on an annualized basis.

mercerscattergraph29.jpg

*The Cumulative Total Shareholder Return numbers assume that the value of the investment in the Company's Common Stock was $100 on December 31, 2014 and track the investment through December 31, 2017.
**Based on availability of information, the above chart uses the time period of 2015 – 2017 for the Company and 2014 – 2016 for the peer group.
*** Host Hotels & Resorts Inc's Chief Executive Officer, Mr. Risoleo, began the role effective January 2017 and is thus excluded from this realizable analysis.
**** Wendy's Co's Chief Executive Officer, Mr. Penegor, began the role effective May 2016 and is thus excluded from this realizable analysis.



The Committee also assesses the pay positioning of our NEOs as a whole. We have found that the NEO pay rankings align with our one- and three-year TSR percentile rankings as set forth below.

Performance Period
 
Choice TSR
Performance
 
Choice’s TSR
Percentile Rank
Among 2017 Peer Group
One-Year
 
40%
 
57%
Three-Year
 
13%
 
31%



32


Prior CEO Compensation

On September 11, 2017, Stephen Joyce stepped down after nearly ten years as our CEO and was replaced by Patrick Pacious, who had most recently served as the Company’s President and Chief Operating Officer.

The appointment of Mr. Pacious as President and CEO was the culmination of a thoughtful, deliberate, long-term succession planning process, focused on maintaining leadership continuity, while driving new ideas that result in continued positive business growth now and into the future. Mr. Joyce collaborated with the Board over the last several years to identify and prepare his successor. The Board and Mr. Joyce identified Mr. Pacious as the right person to lead Choice into the future.
The Company made the leadership change at a time best aligned with the needs of the business instead of at the time of the expiration of Mr. Joyce's employment contract in April 2018. As a result, the Board accelerated the vesting of Mr. Joyce's long-term incentive awards, including PVRSUs, RSs and options, and provided for an annual bonus, all of which would have been due had Mr. Joyce completed his term in April 2018. This amendment to Mr. Joyce's employment contract also reinforced collaboration between the outgoing and incoming CEO, and ensured that Mr. Joyce would be treated fairly.

For a discussion of payments in connection with Mr. Joyce's termination please see Potential Payments upon Termination or Change in Control on page 63.

For purposes of this document, "CEO" refers to Mr. Pacious unless otherwise stated.
2017 Actual Compensation Realized - CEO and Former CEO

The supplemental table below sets forth what we refer to as total actual compensation realized by Messrs. Pacious and Joyce during 2017. Mr. Joyce served as CEO for the period from January 1, 2017, until September 11, 2017, during which time Mr. Pacious served as President and Chief Operating Officer. Mr. Pacious assumed the role of CEO on September 12, 2017. This table is not a substitute for the Summary Compensation Table below. “Total Actual Compensation Realized” differs substantially from “Total Compensation” as set forth in the Summary Compensation Table. The principal differences between the tables are that the table below does not include “Change in Pension Value” or “All Other Compensation” and reports the actual value realized on equity compensation, including exercises of stock options granted in prior years, during the year in lieu of the grant date fair market value of awards that were granted in that year. For additional information regarding 2017 targeted compensation for Messrs. Pacious and Joyce during their respective periods of service as CEO, see Fiscal Year Compensation below.
 
Name
Salary(1)
Annual
Incentive
Award(2)
Long-Term
Incentive Plan
Performance
Award  Payout(3)
Equity Compensation
Total Actual
Compensation
Realized
Stock Option
Exercises (4)
Stock Award
Vesting(5)
 
 
 
 
 
 
 
 
 
 
 
 
 
Patrick Pacious
 
$
793,269

 
$
707,327

 
$—
 
$
707,651

 
$
1,825,144

 
$
4,033,391

Stephen Joyce
 
$
961,500

 
$
1,085,526

 
$—
 
$
3,525,756

 
$
3,585,181

 
$
9,157,963

 

1.
The Board set Mr. Pacious’ annual base salary at $925,000 upon his promotion to CEO. Mr. Joyce’s annual base salary was $1,130,000, however, his realized salary was less due to his September 11, 2017 termination date. Mr. Joyce's realized salary includes payout of terminal paid time off benefits of $130,385.
2.
Represents the 2016 Management Incentive Plan payments made in 2017.
3.
There were no PVRSU grants that vested in 2017.
4.
Amount based on the actual realized value of stock options exercised in 2017.
5.
Amount based on the fair market value of restricted stock that vested during 2017.




33



2017 Incentive Compensation Framework

Choice’s executive compensation program links a substantial portion of each executive’s total compensation opportunity to achievement of performance metrics we believe drive shareholder value. In rewarding executives, the Company provides direct accountability for individual, shared and organizational results, ensuring that rewards are commensurate with each executive's contributions to shareholder value. Our performance measurement framework for incentive based pay for our NEOs is summarized below.
framework22118.jpg
*Mr. Pepper's short-term incentive may be leveraged up or down by the Company's actual operating income achievement.
**Mr. Oaksmith's long-term incentive was made up of restricted stock and PVRSU.


34


2017 Targeted Total Direct Compensation Mix
 
The charts below show the mix of targeted total direct compensation (“TDC”) (base salary, target annual incentive and target long-term incentive) for the CEO and other NEOs in 2017. Consistent with our pay-for-performance philosophy, the largest portion of compensation (approximately 82%) for our CEO and on average 69% for our other NEOs is variable or performance-based annual and long-term incentives.


2017 Targeted Total Direct Compensation*
a2016chh_defxchart-51021a02.jpga2016chh_defxchart-52012a02.jpg
*The CEO pie chart excludes Mr. Joyce due to his departure in September 2017 and the Other NEOs pie chart excludes Mr. Oaksmith as he completed his interim duties in March 2017.

The Committee determined, based on market data and advice from its independent compensation consultant, Mercer, that the appropriate targeted TDC for our CEO in 2017 was $5,318,750 (base salary: $925,000 target annual incentive: $1,387,500 and target long-term incentive: $3,006,250. As shown below, Mr. Pacious’ actual TDC $3,881,614 was significantly lower than targeted TDC due to serving as CEO for only a portion of the year. Mr. Pacious became CEO on September 12, 2017.
CEO Total Direct Compensation
 
 
 
 
Target
 
Actual
Salary
$
925,000

 
$
793,269

Annual Incentive
$
1,387,500

 
$
961,210

Long-Term Incentive
$
3,006,250

 
$
2,127,135

Total
$
5,318,750

 
$
3,881,614


Say-on-Pay Feedback from Shareholders

We conduct an annual shareholder advisory vote on the compensation of our executive officers. In 2017, 99% of cast votes were in favor of this proposal. In addition, 94% of votes were cast in favor of an annual frequency for say-on-pay voting, and the Company will continue holding annual advisory votes on compensation.

The Committee considers the results of the advisory vote during its annual review of executive compensation. Given the significant level of shareholder support, the Committee concluded that our compensation program continues to
 
provide a competitive pay-for-performance alignment that incentivizes our NEOs to maximize shareholder value and encourages long-term retention.

The Company reaches out to its largest shareholders each year regarding compensation, as well as governance matters. The Committee will continue to consider the outcome of our say-on-pay votes and our shareholder views when making future NEO compensation decisions.

35


COMPENSATION PHILOSOPHY AND OBJECTIVES

Compensation Philosophy

Our executive compensation program and pay decisions are based on the following philosophy established by the Committee:
Emphasize pay for performance, pay competitively and focus on long-term shareholder value creation.

Emphasize Pay for Performance by aligning incentives with short- and long-term strategic objectives. We reward executives who achieve or exceed Company and individual objectives that are designed to drive the organization to execute on our strategy and deliver value to shareholders.

Pay Competitively by ensuring TDC for each executive is aligned with the appropriate competitive market. The compensation opportunity is designed to be competitive with other corporations of similar complexity and global scale in terms of system-wide revenue and market capitalization. Because the executive team is responsible for managing in an extensive system-wide gross room revenue and rapidly changing distribution and e-business environment, paying competitively to similarly complex organizations is of critical importance to recruiting and retaining strong talent.
                                                                                 
Focus on Long-Term Shareholder Value by linking executive pay opportunity to the Company's share value. This fosters the long-term focus required for premier performance in the hospitality industry and encourages continued investment in growth. The Company believes that shareholder value will increase through continued growth in the core business, investments in growth opportunities beyond the core, optimization of balance sheet debt levels and risk-adjusted returns of excess capital to shareholders. The execution of this strategy will be achieved through Choice's strong cultural values which drive results through leadership, performance excellence and enterprise-wide accountability.

Compensation Objectives

The Committee considers the following objectives in making compensation decisions for our NEOs and other executives:

Objective
Description
Pay for Performance
Link pay through short- and long-term incentives to corporate, team and individual performance to encourage and reward excellence and outcomes that further the Company's results and enhance shareholder value
Encourage Growth
Encourage the exploration of opportunities in business areas that are complementary to our core hotel franchising business, leverage core competencies and / or add to our franchising business model
Competitive Pay
Assure that compensation relates to performance relative to companies of similar complexity and global scale in terms of system-wide gross room revenue and market capitalization to provide effective incentives and encourage retention
Shareholder Alignment
Align the interests of executives with those of our shareholders through grants of equity-based compensation that, coupled with our stock ownership requirements, encourage significant ongoing equity ownership
Long-Term Focus
Foster long-term focus and continued investment in growth required for premier performance in the hospitality industry through equity incentives that vest over time
Internal Pay Equity
Consider internal pay equity so that the relationship between internal executive pay levels is appropriate
Recruitment and Retention
Enable the recruitment and retention of highly qualified executives able to excel within a complex organization that manages extensive system-wide gross room revenues in a rapidly changing, disruptive distribution environment







36


COMPENSATION COMPETITIVE ANALYSIS
The Committee considers many factors in determining NEO compensation, including the following:

Company culture and philosophy
Historical performance of the individual and executive team
Importance of the executive’s role in the execution of the Company’s short- and long-term strategic objectives
Executive compensation market trends of peer companies in the hospitality, franchise and other related market sectors.
 
The Committee reviews competitive market data of companies with which we compete in business and/or for talent. Specifically, the Committee reviews data from companies with
1. Revenue comparability (considering franchise system-wide gross room revenue)
 
2. Business complexity
3. International presence
4. Status as a peer amongst peers (a leader to peers)
5. Franchising focus
6. Technology focus

Technology focus is particularly relevant to our business as we seek to drive business through our distribution channels thus strengthening our propriety contribution and the value of our brands. This market data gives the Committee insight into the range of compensation in the competitive market and a general understanding of marketplace compensation practices and policies. However, the Committee does not use comparative market data to “benchmark” the amount of total compensation or any specific element of compensation.

2017 Peer Group

Choice reevaluates its peer group annually with Mercer's assistance. In 2015, to better reflect the complexity of Choice's business, Mercer assisted the Committee with revising the peer group. For 2016 and 2017, Choice's peer group was updated to reflect market transactions including company mergers. TripAdvisor, Inc. was added to the peer group for 2016 and The Wendy's Company and Vail Resorts, Inc. were added to the peer group for 2017. The Committee believes that this peer group, consisting of a diverse set of companies, including those with a technology focus, suitably matches the Company's increasingly complex business model and business mix, and exemplifies the incentives that the Company plans to use in driving future performance outcomes. Information from the peer group is used as a general reference in evaluating the Company's compensation practices.


peergroupbubbles21418.jpg

*The Wendy's Company and Vail Resorts Inc. were added to the peer group for 2017.
** Given earlier acquisitions, Strategic Hotels and Orbitz were removed from the peer group for 2017 compensation decisions. Even though subsequently acquired, Starwood was included in the peer group for 2017 compensation decisions but will not be included for 2018 decisions.


37


2017 COMPENSATION
The Company’s executive compensation program consists of four primary components: base salary; short-term cash incentives; long-term equity incentives; and perquisites and other benefits. The table below summarizes the elements of our incentive compensation program.

Incentive Program
Description
Key Features
Short-Term Incentive (Cash)
Motivates and rewards executives for achievement of Company annual financial and operational goals and/or other strategic objectives measured over the fiscal year.
Cash incentive based on achieving annual operating income, market share, LTR and individual performance goals. Total potential payout ranges from 0% - 200% of target.
Long-Term Incentive (Equity)
Through a combination of equity vehicles, creates linkage to share value appreciation and alignment with shareholders.

Motivates and rewards executives for sustaining long-term financial and operational performance that increases the value of our brands and shareholder value.

Encourages continued employment through multi-year overlapping vesting periods.

Share ownership and holding requirements align the financial interests of our executives with the financial interests of our shareholders.

Grants may vary from annual guidelines based on several factors including, among other things, individual performance, retention, competitive market, and strategic alignment.

Stock Options: Option awards vest ratably over 4 years and expire 7 years from the grant date. The exercise price is equal to the closing price of Choice Common Stock on the date of grant.

RSs: Service-based Restricted Stock (“RS”) generally vests 25% per year over 4 years.

PVRSUs: PVRSU grants focus executives on achieving specific targeted objectives. PVRSUs are payable in stock and vest based on the achievement of performance goals over a 3-year period.


Base Salary

We believe the primary purpose of base salaries is to provide a level of fixed compensation that is competitive to attract and retain highly qualified executives. The table below reflects the change in each NEO’s salary from 2016 to 2017:
 
NEO
 
2017
Increase
 
Base Salary as
of 12/31/17
($)
Pacious
 
32.1
%
 
925,000

Pepper
 
3.0
%
 
503,930

Wu
 
10.6
%
 
470,000

Cimerola
 
14.3
%
 
400,000

Joyce
 
9.7
%
 
1,130,000

Oaksmith
 
3.0
%
 
334,750

The Committee believes that each of these increases was consistent with the performance results the executive
 
delivered to Choice as well as the competitive environment for executive talent as follows:
Mr. Pacious' salary was increased in recognition of his promotion to President and CEO.
Mr. Cimerola's 14.3% increase reflects his performance and the Company's view on the criticality of talent in driving the Company's financial and strategic objectives as well as the ongoing preparation of the next generation of leaders.
Mr. Joyce's 9.7% increase and Ms. Wu's 10.6% increase were primarily reflective of competitive positioning in the industry.
Mr. Dragisich is not included in this table since he was hired in 2017.










38


Short-Term Incentive Compensation

The Company previously established the Choice Hotels International, Inc. Executive Incentive Compensation Plan (the “EICP”), an umbrella plan establishing the maximum performance-based incentive payout for tax purposes. The Company's Management Incentive Plan (“MIP”) is a cash bonus program through which operating and individual objectives are set.

The Company's Recoupment Policy (the “Clawback Policy”) gives the Committee the right to require the Company’s senior executives, including the NEOs, to pay back previously distributed incentive compensation in the event that the Company materially restates its financial results as a consequence of significant noncompliance with financial reporting requirements.

Short-Term Incentive Target Opportunities
Under these plans, each NEO has a target incentive opportunity equal to a percentage of the NEO’s base salary. The target percentage remained the same compared to 2016 for all NEOs other than Mr. Pacious, Mr. Joyce and Mr. Oaksmith. For Mr. Pacious, the percentage change (from 100% to 150%) reflected his promotion to President
 
and CEO and is in line with the target market. For Mr. Joyce, the change from 100% to 160% reflected the target market for the CEO position. For Mr. Oaksmith, the change from 40% to 50% reflected his increased responsibility in the interim principal financial officer role.
The threshold, target and maximum incentive levels for each of the NEOs for 2017 were:

Bonus as a Percentage of Salary
NEO
 
Threshold
 
Target
 
Maximum
Pacious
 
75.0
%
 
150.0
%
 
300.0
%
Dragisich
 
35.0
%
 
70.0
%
 
140.0
%
Pepper
 
48.4
%
 
65.0
%
 
238.1
%
Wu
 
25.0
%
 
50.0
%
 
100.0
%
Cimerola
 
25.0
%
 
50.0
%
 
100.0
%
Joyce
 
80.0
%
 
160.0
%
 
320.0
%
Oaksmith
 
25.0
%
 
50.0
%
 
100.0
%


Short-Term Incentive Performance Goals
Performance Metric
Why Goal is Used
Operating Income
Operating income heightens the focus on driving profitable operational revenue growth.                                                                                                            
Market Share
Market share is the primary measure of how the Company is performing against competitors in growing our system size as well as our growth relative to our competitive index. Increasing market share drives financial performance.
Likelihood to Recommend (LTR)
LTR is the primary measure of customer satisfaction. LTR demonstrates value to our customers and allows us to demonstrate the value proposition of our brands to our franchisees to sell more franchises.
Individual Performance
Individual performance goals allow us to measure performance against strategic goals and departmental objectives of the executive and the executive's team.
Executed Franchise Agreements
Executed franchise agreements is the primary measure of growth of the Choice system size and market share.

Franchise Contract Value
Franchise contract value drives the value to the Company over the term of each new franchise contract which impacts operating income today and in the future.

39


Performance Measure Weightings
NEO
Operating Income
Market Share
Likelihood to Recommend (LTR)
Individual Performance
Executed Franchise Agreements
Franchise Contract Value
Pacious*
80%
10%
10%
 
 
 
Dragisich
70%
10%
10%
10%
 
 
Pepper
 
 
 
 
70%
30%
Wu
70%
10%
10%
10%
 
 
Cimerola
70%
10%
10%
10%
 
 
Joyce
80%
10%
10%
 
 
 
Oaksmith
60%
 
 
40%
 
 
*For the portion of the year prior to assuming the CEO role, Mr. Pacious' performance measure weightings were: 70% operating income; 10% market share; 10% LTR; and 10% individual performance.
Operating Income
In February 2017, Mr. Joyce recommended, and the Committee approved, using operating income of $282.7 million as a performance metric target for the annual incentive plan. The 2017 MIP was structured to pay the target bonus for each NEO upon achievement of the operating income target for the year and to pay a corresponding percentage of the target incentive for operating income performance above or below the target. For purposes of our incentive compensation, operating income is calculated in accordance with generally accepted accounting principles ("GAAP"), then adjusted by the Committee based on approved exceptions, as noted below.
Because the operating income objective was the most heavily weighted factor for determining the actual MIP payout, the level of achievement against the operating income target relative to the NEO's target incentive opportunity was the primary driver of their annual incentive payout for the year. This is true for all NEOs other than Mr. Pepper, whose MIP payout is based primarily on the number of executed franchise contracts and the cumulative franchise contract value of these contracts, leveraged by operating income.
Operating Income Results
The Company achieved operating income of $264.4 million in 2017. Under the MIP, operating income achievement may be adjusted at the discretion of the Committee for certain non-recurring items. After the adjustments discussed below, operating income for purposes of determining 2017 incentives was $282.8 million. The resulting payout was 100% of the target.
Operating Income Adjustments
In December 2017, the Committee approved three adjustments in calculating operating income for purposes of 2017 MIP. Operating income was increased by $3.4 million and $3.0 million related to mark-to-market gains from non-qualified deferred compensation plan assets resulting from financial market performance outside of management's control and merger and acquisition related due diligence and transaction costs in excess of the estimates included in the Company's 2017 MIP target, respectively. Operating income was decreased by $1.1 million for impairment of leasehold intangibles related to an office building in Columbus, OH owned by the Company. Furthermore, the
 
Committee approved excluding the mark-to-market gains or losses from non-qualified deferred compensation plan assets as a standing MIP adjustment for 2018 and future years.
In addition, in December 2008, the Committee approved standing MIP adjustments related to costs required to be accounted for in accordance with (i) Accounting Standards Codification (“ASC”) No. 712–“Compensation – Nonretirement Postemployment Benefits” and (ii) ASC No. 420–“Exit or Disposal Cost Obligations.” For 2017, the benefit to operating income attributable to the MIP standing adjustments was approximately $13.0 million. The majority of these charges relate to the acceleration of the Company’s CEO transition plan. For a more detailed discussion of the CEO transition, see the Prior CEO Compensation section above or Potential Payments Upon Termination or Change of Control section below.
Market Share and LTR
For 2017, the NEOs (other than Mr. Pepper and Mr. Oaksmith as discussed below) and other senior executives received two shared performance objectives associated with goals related to the Company’s market share and LTR (likelihood to recommend) ratings of the Company’s hotel portfolio. These objectives were also used in prior years and are a reflection of overall performance of the Company. Mr. Pacious' and Mr. Joyce’s performance objectives for 2017 consisted exclusively of the executive team’s shared objectives. For the other NEOs (other than Mr. Pepper and Mr. Oaksmith), the shared objectives were accompanied by specific individual or department objectives.
For 2017 annual incentive payments, the shared objectives related to:
Market share: Market share achievement was measured versus the projected total lodging industry supply growth.
LTR: LTR for equity brands was measured as the average ratings provided on the 10-point scale via the Guest Insight Systems survey administered by a third-party vendor.
Performance in 2017 against operating income, market share and LTR is captured in the chart below:

40


Criteria
 
Operating Income
 
Market Share*
 
Likelihood to Recommend
(LTR)
Target
 
$282.7M
 
Grow domestic unit market share by +68 basis points in comparison to industry growth
 
8.33 - 8.66
Actual
 
$282.8M as adjusted
 
2.59% net unit growth for Choice vs. 1.24% net unit growth for the U.S.
 
8.63 - 8.68
Achievement
 
100%
 
Over-performed; +135 basis points faster than the industry average
 
Above plan on average
Payout Percentage
 
100%
 
115%
 
105%
*To arrive at market share for the Company and industry, Choice calculates the net number of hotel properties added to the Choice Hotels system at year-end 2017 compared to the total number of units at year-end 2016 as reported in the Choice Hotels Inns & Operating Report and the total number of open hotel units in the U.S. at year-end December 2017 versus the reported number of open units at year-end December 2016 as measured by the third-party firm Smith Travel Research.
Individual / Department Performance
For Mr. Dragisich, Mr. Cimerola, Mr. Oaksmith and Ms. Wu, a component of their short-term payout reflects individual and / or department objectives and their short-term incentive may be adjusted based on an assessment of their performance against pre-determined individual and / or department objectives. These performance objectives, where applicable, are based in part on a qualitative evaluation of performance, but also include quantifiable measures such as RevPAR (revenue per available room)
 
improvement, CRS (central reservation system) contribution, Choice Privileges contribution, corporate room nights, or other relevant measures.
Performance objectives are determined at the beginning of the year based on the role of the individual in the organization and each component is assigned a weighting. The Committee assesses performance against objectives and assigns payouts.

Short-Term Incentive Payouts
The following table details the weightings and 2017 payouts attributed to each performance measure for each NEO.
NEO
 
Operating Income
($)
 
Market Share ($)
 
Likelihood to
Recommend (LTR) ($)
 
Individual /Department
Objectives
($)
 
Franchise Agreements /
Franchise Contract Value ($)
Pacious*
 
80%
 
701,850

 
10%
 
108,371

 
10%
 
98,948

 
—%
 
52,041

 
—%
 
Dragisich
 
70%
 
196,000

 
10%
 
32,200

 
10%
 
29,400

 
10%
 
28,000

 
—%
 
Pepper **
 
—%
 

 
—%
 

 
—%
 

 
—%
 

 
100%
 
585,433
Wu
 
70%
 
164,025

 
10%
 
26,947

 
10%
 
24,604

 
10%
 
23,432

 
—%
 
Cimerola
 
70%
 
139,473

 
10%
 
22,913

 
10%
 
20,921

 
10%
 
19,925

 
 
 
 
Joyce
 
80%
 
1,446,400

 
10%
 
207,920

 
10%
 
189,840

 
—%
 

 
—%
 
Oaksmith
 
60%
 
85,909

 
—%
 

 
—%
 

 
40%
 
64,431

 
—%
 

* For the period prior to assuming the role of CEO, Mr. Pacious' performance weightings included 10% individual / department objectives.
* Mr. Pepper's short-term incentive payout was 70% weighted based on achievement of executed franchise sales contracts in 2017; subject to operating income leverage up to the target incentive opportunity; and 30% weighted based on franchise contract values; see further description below.

Franchise Agreements and Franchise Contract Value - Pepper
Mr. Pepper is covered under an Executive Sales MIP intended to drive high-value franchise contract sales. The plan was designed to deliver his target MIP payment (65% of base salary) upon achievement of a targeted number of executed franchise agreements and aggregate franchise contract value during 2017. The amount payable under the MIP is leveraged to increase performance payout for results above the sales targets and decrease payout for results below the sales targets. The target payout may be further adjusted up or down based on overall Company operating income performance, similar to the other executive officers.
 
The Company is not disclosing the executed franchise agreements and the cumulative franchise contract value targets because we believe such disclosure would cause us competitive harm. As a franchise company focused on growing our brands in a very competitive market, revealing targets and comparing them year over year would give competitors great insight into the Company’s growth strategy.

During 2017, the development team, under the leadership of Mr. Pepper, delivered 704 executed "domestic" franchise agreements covering the U.S., the Caribbean, and for certain brands, Canada, against a goal of 670 executed contracts. Further, within the franchise agreement goal, Mr.

41


Pepper had minimum goals for certain Choice brands. Mr. Pepper over delivered on total franchise contract value at 134% against our 2017 plan franchise contract value goal. Mr. Pepper's actual incentive is also leveraged based on
 
the Company's operating income performance (100%). Based on overall achievement, Mr. Pepper earned a total short-term incentive payment of $585,433.

Long-Term Incentive Compensation

Long-term equity incentive compensation is the largest component of total compensation for our NEOs. Linking the greatest portion of total compensation to long-term objectives aligns executives’ interests with the interests of shareholders. Also, the Committee believes this strategy focuses executives on addressing the potential risks facing the business through managing with a long-term perspective. To strengthen the tie between executive compensation and the Company’s performance, each executive’s targeted and actual pay mix may vary by position, with those having a greater impact on performance / operations generally having more pay at risk in the form of long-term incentives.
To further enhance our performance-based pay, for 2017 50% of annual long-term incentive awards for all NEOs were made up of PVRSUs.

Long-Term Incentive Target Opportunity
For all NEOs other than Mr. Oaksmith, the Committee approved awards of PVRSUs, stock options and service-based RS, at 50%, 25% and 25% of the total value of the grant, respectively. This mix provides 75% performance-based alignment through stock options and PVRSUs. The RS ensures that 25% of the award is focused on retention. For Mr. Oaksmith, the Committee approved an award of PVRSU and RS; stock options were not awarded under his LTI program because the percentage of at-risk compensation is lower for his executive level.
Equity Grant Policies
The value of the long-term incentive opportunity granted to each NEO in 2017 was determined based on an established multiple of the NEO’s base salary. Each NEO’s multiple was established based on a combination of the executive's performance, the criticality of the role within the organization in achieving the long-term strategic plan of the organization and the competitive market.
 
The Committee uses discretion to determine the value of the equity award to be granted within a target range. The following table sets forth the equity award grant value and base salary for each NEO as of December 31, 2017:
NEO
 
Base
Salary
($)
 
Target Range Grant Value Multiple as a Percentage of Salary
 
2017 Equity
Award Grant Date Fair Value
($)
 
Pacious*
 
925,000

 
260% - 390%
 
2,127,135

 
Dragisich*
 
400,000

 
120% - 180%
 
1,250,152

 
Pepper*
 
503,930

 
120% - 180%
 
1,006,009

 
Wu
 
470,000

 
100% - 150%
 
587,545

 
Cimerola*
 
400,000

 
100% - 150%
 
570,101

 
Joyce
 
1,130,000

 
288% - 432%
 
4,067,889

 
Oaksmith
 
334,750

 
25% - 75%
 
200,014

 
* The 2017 Equity Award Grant Date Fair Value includes an additional one-time grant described under the "Strategic Stretch Objective and One-Time Grants - 2017" section.
Mr. Pacious' target range award value for 2017 compensation increased from 160% - 240% to 260% - 390% in conjunction with Mr. Pacious' promotion to CEO.

Long-Term Incentive Grant
After reviewing the target range for each executive, Mr. Joyce recommended that each of the NEOs (other than himself) should receive 2017 equity awards valued at or above the midpoint level of the range of potential grant values for each type of award. He recommended this to achieve the targeted level of total compensation and align the leadership team's interests with long-term growth.
The following chart shows the actual PVRSUs, stock options and RS granted to each NEO as part of the Company’s annual equity grant process:
Name
 
# of Options (1)
 
# of PVRSU (2)
 
# of Restricted Stock (3)
 
 
 
Grant Based on Black Scholes of
 
Grant Based on FMV of
 
Grant Based on FMV of
 
TOTAL
GRANT*
 
$10.76
 
$60.50
 
$60.50
 
 
 
 
 
 
 
 
 
Value
($)
 
Shares
 
Value
($)
 
Shares
 
Value
($)
 
Shares
 
Value
($)
 
Pacious, Patrick S
 
49,228

 
531,698

 
17,492

 
1,063,584

 
8,747

 
531,853

 
2,127,135

Dragisich, Dominic
 
13,275

 
150,008

 
8,837

 
550,103

 
8,836

 
550,041

 
1,250,152

Pepper, David A
 
17,561

 
188,956

 
10,381

 
628,051

 
3,124

 
189,002

 
1,006,009

Wu, Simone
 
13,649

 
146,863

 
4,856

 
293,788

 
2,428

 
146,894

 
587,545

Cimerola, Patrick
 
7,434

 
79,990

 
2,645

 
160,023

 
5,456

 
330,088

 
570,101

Joyce, Stephen P
 
94,505

 
1,016,874

 
33,620

 
2,034,010

 
16,810

 
1,017,005

 
4,067,889

Oaksmith, Scott
 

 

 
1,653

 
100,007

 
1,653

 
100,007

 
200,014


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(1) Mr. Pacious received two Option grants in 2017: 39,203 shares at a Black Scholes value of $10.76 on February 24, 2017 and 10,025 shares at a Black Scholes value of $10.96 on September 14, 2017. Mr. Dragisich's award was granted on March 6, 2017 and valued at a Black Scholes value of $11.30.
(2) Mr. Pacious received two PVRSU grants in 2017: 13,947 shares at a FMV of $60.50 on February 24, 2017 and 3,545 shares at a FMV of $62.00 on September 14, 2017. Mr. Dragisich's PVRSUs were granted on March 6, 2017 at a fair market value of $62.25.
(3) Mr. Pacious received two RS grants in 2017: 6,974 shares at a FMV of $60.50 on February 24, 2017 and 1,773 shares at a FMV of $62.00 on September 14, 2017. Mr. Dragisich's RS awards were granted on March 6, 2017 at a fair market value of $62.25.

*For additional information on equity award values for each NEO in 2017, see the Grants of Plan-Based Awards Table.

The number of shares subject to the stock option portion of the equity award granted to each officer is based on the Black Scholes option-pricing model. See the preamble to the Grants of Plan-Based Awards Table for more information on how the Company determines the actual number of shares subject to each type of equity award.


Strategic Stretch Objective and One-Time Grants - 2017
We leverage long-term targeted strategic performance awards, or "strategic stretch objective grants", to drive our strategic business outcomes. The underlying targets set for each of the grants focused on strategic and financial goals and objectives related to a stretch over and above our five-year plan. The value attributed to each year of the performance period underlying strategic stretch objective grants is considered when reviewing the total direct compensation for each executive.
The following strategic stretch objective grants were made in 2017:
On March 6, 2017 Mr. Dragisich was awarded a strategic stretch objective PVRSU grant of $250,000 focused on three-year long term strategic and finance goals and objectives.
On February 24, 2017, Mr. Pepper was awarded a strategic stretch objective PVRSU grant of $250,000 focused on three-year long term strategic and finance goals and objectives.

The following one-time grants were made in 2017:
On March 6, 2017, Mr. Dragisich was awarded a one-time RS grant of $400,000 in connection with his hiring as the Company's CFO. These shares promote retention and will vest 100% on the third anniversary of the grant date.
On February 24, 2017, Mr. Cimerola was awarded a one-time RS grant of $250,000 in recognition of his contributions while serving as Chief Human Resources Officer. These shares promote retention and will vest 100% on the third anniversary of the grant date.
On September 14, 2017, Mr. Pacious was awarded one-time PVRSU, RS and stock option grants in the amount of $219,790, $109,926, and $109,874, respectively as a true-up to his compensation in connection with his promotion to CEO.

Grants - PVRSUs
In relation to PVRSUs previously awarded under the long-term incentive program, performance achievement levels relative to threshold, target and maximum are established
 
at the beginning of the performance period, as well as the corresponding percentage of the target grant that will be earned at each achievement level. As a result, the number of PVRSUs that actually vest during any performance period may range from 0% to 200% of the initial grant, based on cumulative EPS performance as compared to targeted EPS for the period as well as certain other measures. The charts below provide the performance achievement levels and the corresponding vesting percent at that achievement level. 


Grants - 2017, 2016 and 2015 PVRSU Grants (For 2017, all NEOs; for 2016 and 2015, all NEOs except Mr. Oaksmith and Mr. Dragisich)
The chart below provides the performance achievement levels and the corresponding vesting percent, applicable at that achievement level. 
Criteria
 
Below
Threshold
 
Threshold
 
Target
 
Maximum
Performance Achievement
 
<90%
 
90%
 
100%
 
120%
Corresponding Vesting Result
 
0%
 
50%
 
100%
 
200%
The February 2017 PVRSUs granted to all NEOs cover the three year performance period of 2017 through 2019 and will vest, if earned, on February 24, 2020. Mr. Dragisich's March 2017 PVRSU grants are based on the three year performance period of 2017 through 2019 and will vest, if earned, on March 6, 2020. Mr. Pacious' September 2017 PVRSU grant is based on the two and a one-half year performance period of July 2017 through December 2019 and will vest, if earned, on January 1, 2020.
The 2016 PVRSUs granted to all NEOs other than Mr. Oaksmith and Mr. Dragisich cover the performance period of 2016 through 2018 and will vest, if earned, on February 26, 2019, except for Mr. Pacious' May 19, 2016 grant which vests 50% on January 1, 2019 and 50% on January 1, 2020.
The 2015 PVRSUs granted to all NEOs other than Mr Oaksmith and Mr. Dragisich cover the performance period of 2015 through 2017 and vested at 100% on February 27, 2018.


Grants - Pepper 2015 PVRSU

In addition to the PVRSU grants awarded to the NEOs in February, the Company granted a PVRSU in May 2015 to Mr. Pepper in connection with his promotion to Chief Development Officer. This PVRSU grant was focused on achieving certain strategic objectives related to cumulative

43


sales growth for the performance period of 2015 through 2017 and will vest, if earned, on January 2, 2019.
The chart below provides the performance achievement levels and the corresponding vesting percent, applicable at that achievement level. 
Pepper May 2015 PVRSU (2015-2017, vesting in 2019)

As of December 31, 2017, performance conditions on this grant were met at 100%.

Long-Term Incentive Performance Results
Performance Results - PVRSUs Vested in 2017
Mr. Pepper's 2014 PVRSU I and PVRSU II grants for the performance period 2014 - 2016 were scheduled to vest in March 2017. The minimum threshold goal, in excess of 7% three-year compounded annual growth rate for PVRSU I in
 
relation to royalties, was significantly exceeded, and PVRSU I vested with 175% leveraging. The minimum threshold goal, of 6,000 rooms open and operating as of December 31, 2016 in relation to Cambria Suites, was not met for PVRSU II, so no PVRSUs vested for that grant.
Performance Results - PVRSUs Vested in 2018
PVRSUs granted in February 2015 to all NEOs, other than Mr. Oaksmith and Mr. Dragisich, paid out at target as a result of meeting cumulative EPS goals for the performance period 2015 - 2017. The cumulative EPS target was $7.64 for the performance period 2015 - 2017.
The actual three-year cumulative EPS applicable to these PVRSUs was $7.70, reflecting 100.8% of target and a payout of 100% of target. These awards vested on February 27, 2018.



44


OTHER BENEFIT PROGRAMS AND POLICIES

Other Executive Benefits

Perquisite Allowance
The Company maintains a Flexible Perquisites Plan to enhance our ability to recruit and retain key executives. The plan design and prevalence of benefits are reviewed annually against our peer group and are consistent with market practice within the peer group.
Under the Company’s Flexible Perquisites Plan, each NEO and certain other executives are eligible to receive an aggregate amount that may be used by the executive officer for reimbursement for any of the following benefits: financial and estate planning, legal services, supplemental life insurance premiums, club membership dues, certain health care and fitness expenses and child care expenses. The reimbursement amount for each NEO is based on the executive’s title, role within the organization and scope of responsibilities. These reimbursements represent taxable income to the executive. The executive is responsible for paying any associated tax on amounts reimbursed under the Flexible Perquisites Plan and no tax gross-up is provided. If an executive incurs reimbursable costs that are less than the aggregate reimbursable amount, any remaining allowance is forfeited and cannot be carried forward to the next year. We believe the Company's cost to provide this Plan is minimal compared to the recruitment and retention value the program offers in competing for talent.
In 2017, the aggregate amount of reimbursement available to each NEO under the Flexible Perquisites Plan was as set forth below. For actual amounts reimbursed to each NEO, see the All Other Compensation column of the Summary Compensation Table.
Pacious*
$20,594
Dragisich
$15,000
Pepper
$15,000
Wu
$15,000
Cimerola
$15,000
Joyce
$31,800
Oaksmith
$8,000
*Prorated for assumption of CEO role as of September 12, 2017.
 

Stay at Choice and Other Benefits

Through the Stay at Choice program, the Company seeks to further our senior executives' use of our hotels when traveling on personal matters. The Company offers officers and directors reimbursements for nightly room charges when staying at the Company’s franchised properties for non-business related travel. There is no limit on an executive’s use of this plan during the year as they are a valuable source of input and feedback with regard to the value and consistency of our product. The Company pays the tax and gross-up associated with reimbursements under the Stay at Choice program.

Under his employment agreement, Mr. Joyce was eligible for the personal use of the Company aircraft for up to 40 flight hours per year. The Company does not provide a tax gross-up on this benefit.

The Company has historically reimbursed certain executives for the cost associated with an annual executive physical and an executive individual life insurance policy with coverage in the amount of $1,000,000. Premiums on the life insurance policy are added to each executive’s taxable income for the year. Effective January 1, 2018, the Company is eliminating these perquisites for incoming executives.
For the aggregate cost to the Company of each of the perquisites or other benefits described above, see the All Other Compensation column of the Summary Compensation Table.






Non-Qualified Deferred Compensation Plan

NEOs are eligible to defer their base salary, annual cash incentive and long-term incentive plan distribution. Deferrals are always 100% vested. The non-qualified plan provides the NEOs with a long-term capital accumulation opportunity through a range of investment opportunities designed to comply with section 409A of the Internal Revenue Code (the "Code").
We provide the non-qualified plans due to the regulatory limits on the amount of compensation that can be contributed to qualified retirement plans in any given year. We believe these limits leave higher-paid executives without competitive retirement income replacement and that non-qualified plans are a vital part of an executive’s
 
financial planning to bridge the divide between Social Security and retirement income.
For more information on these plans, see the All Other Compensation column of the Summary Compensation Table below, and the Non-Qualified Deferred Compensation Table below.

45



Executive Share Ownership and Holding Requirements

Our Executive Share Ownership Guidelines are intended to align the interests and actions of executives with the interests of shareholders and promote our longstanding commitment to sound corporate governance.
Under the guidelines, each NEO must attain ownership of qualifying shares with a market value equal to a multiple of the executive’s then-current base salary within five years after first becoming a covered executive.
As of December 31, 2017, each then employed NEO holds more than the required share ownership. While Mr. Joyce was CEO, he too held more than his required level of share ownership.
The chart below details the required market value for each category of executive officer:
Category
 
Required Ownership as a Multiple of Salary
Actual Ownership as a Multiple of Salary
Chief Executive Officer - Pacious
 
5.0x
16.0x
Category 1 - Dragisich
 
3.0x
3.4x
Category 2 - Pepper
 
2.0x
17.3x
Category 2 -
Wu
 
2.0x
4.9x
Category 2 - Cimerola
 
2.0x
7.8x
Category 3 - Oaksmith
 
1.5x
7.6x


 
Stock ownership counting toward satisfaction of the guidelines includes:
Stock purchased on the open market;
Stock obtained through stock option exercises;
Restricted stock issued by Choice, including time-based restricted stock, performance vested restricted stock and performance-based restricted stock, as long as the stock is continuously held; and
Stock beneficially owned in trust or by immediate family members residing in the same household.
If an executive does not attain the ownership levels within the five-year period, and thereafter maintain the ownership levels, the Committee may:
Require that the transfer or payout of up to fifty percent (50%) of the executive’s MIP be paid in the form of Choice stock and/or adjust the amount or composition of any future cash or equity compensation;
Restrict the executive from selling or otherwise disposing of Choice stock;
Forego the future grant of any equity awards to the executive; or
Take any other actions reasonably designed to assist or enable the executive to satisfy the guidelines.
In addition, the NEOs must meet specified exemption criteria or obtain permission before selling stock that would result in their holdings dropping below the guideline requirements.

Hedging and Pledging Transactions

In February 2017, the Board amended the Company’s Insider Trading Policy to prohibit all Associates (which includes all Choice employees, directors, contract staff and consultants) from engaging in hedging transactions involving Company stock, such as prepaid variable forwards, equity swaps, collars and exchange funds.
In December 2017, the Board further updated the Insider Trading Policy to prohibit all Associates, other than directors, from holding shares in a margin account or pledging shares as collateral for a loan.
In connection with the hedging policy, there is a limited exception for certain shares owned by directors that are members of the Bainum family - the Company’s founding family who currently collectively beneficially own approximately 38.31% of the Company’s outstanding shares. The exception provides that Choice securities indirectly held by a director that is a Bainum family member are not subject to the hedging policy so long as the relevant Choice securities (1) were not received as compensation by an individual director and (2) are held by an entity in
 
which the Bainum family director does not own a majority of the overall economic interest.
In approving the limited exceptions to the hedging and pledging policies, the Board took into account the purpose of the Insider Trading Policy (which includes the hedging and pledging policies), namely, to govern actions of the Company employees, officers and directors, while recognizing the multiple existing ownership structures and vehicles (such as holding companies and trusts) pursuant to which one or more members of the Bainum family, the significant majority of whom are not directors of the Company, indirectly own shares of the Company.
Directors are permitted to pledge only with Company approval. No directors currently pledge shares. The possibility of approval is intended primarily to recognize that the Bainum family directors hold significant personal wealth in Choice stock and the long-term interests of the Company are served by their long-term view tied to their holdings. It is thus possible that there may be instances where the Company would approve a request for a pledging type.

46


Executive Compensation Recovery "Clawback" Policy

The Company's Recoupment Policy (the “Clawback Policy”) gives the Committee the right to require the Company’s senior executives, including the NEOs, to pay back previously distributed incentive compensation in the event
 
that the Company materially restates its financial results as a consequence of significant noncompliance with financial reporting requirements.

Severance and Change in Control Arrangements

All provisions granting severance payments upon termination following a change in control were adopted to ensure that these executives will not be tempted to act in their own interests rather than the interests of the Company’s shareholders in the event the Company is considering a change in control transaction. These executives may lose their ability to influence the Company’s performance after a change in control and may not be in a position to earn incentive awards or vest in equity awards, and thus might be biased against such a transaction. The Committee believes these provisions ensure executives who are unexpectedly terminated for reasons outside of their control are appropriately compensated for a limited period of time following termination.

Each of the NEOs is entitled to receive various payments and continued benefits upon certain triggering events. For Mr. Joyce, these arrangements were set forth in an employment agreement and for each of Messrs. Pacious, Dragisich and Cimerola and Ms. Wu, they are set forth in a non-competition, non-solicitation and severance benefit agreement. For Mr. Pepper and Mr. Oaksmith, these arrangements are prescribed by the Choice Hotels International Severance Benefit Plan that is generally applicable to all of the Company’s employees who do not otherwise have an employment agreement or severance agreement with the Company.
The terms of the severance provisions and benefits in each of these agreements and the Choice Severance Benefit Plan were based on what the Committee believed was competitive with market at the time of adoption. In addition, Mr. Joyce’s employment agreement was based on contract renewal negotiation, with the Committee giving due consideration to market terms.
In May 2012, the Company entered into an amended and restated employment agreement with Mr. Joyce, the terms of which were based on arms-length negotiations.  Mr. Joyce’s employment agreement contained severance benefits following constructive termination and termination following a change in control.
The Company made the leadership change and completed the CEO transition at a time best aligned with the needs of the business instead of at the time of the expiration of Mr. Joyce's employment contract in April 2018. As a result, in August 2017, the Company further amended Mr. Joyce's amended and restated employment agreement to provide for a termination date of September 11, 2017, as well as (i) effective as of that date, a lapse of all restrictions on previously granted restricted stock awards, the immediate vesting of all previously granted stock option awards and the deemed satisfaction of the service component of previously granted PVRSUs; (ii) continued eligibility to earn
 
a target bonus of 160% of Mr. Joyce’s deemed full year base salary for fiscal year 2017 in accordance with the Company’s bonus plans; (iii) payments equivalent to the cost of health insurance in certain circumstances; and (iv) continued eligibility to participate in the Stay at Choice program.
The amendment to Mr. Joyce's employment contract also encouraged collaboration between the outgoing and incoming CEO, and ensured that Mr. Joyce would be treated fairly.
The Company and each of Messrs. Pacious, Dragisich and Cimerola and Ms. Wu are parties to an executive non-competition, non-solicitation and severance benefit agreement. The Committee believes that the severance, non-competition and non-solicitation provisions are typical within the hospitality and franchise industry and are reasonable and enforceable. 
Mr. Pacious's agreement provides for, in the event of termination without cause or constructive termination, a lump sum payment of 200% of his base salary and bonus opportunity and up to two years of termination benefits. Mr. Pacious's agreement further provides for, upon termination following a change in control (based on a “double trigger”), a lump sum payment of 250% of his base salary plus 250% of his annual bonus.
Each of Mr. Dragisich's, Mr. Cimerola's and Ms. Wu's agreements provide for 70 weeks of severance and termination benefits in the event of termination without cause or constructive termination, or for severance payments upon termination of the executive following a change in control (based on a “double trigger”) equal to a lump sum payment of 200% of the executive's base salary plus 200% of the executive's annual bonus.
These agreements do not provide for gross-up payments for excise tax.
For Mr. Pepper and Mr. Oaksmith, who do not have a severance agreement or a written employment agreement that contains a severance provision, severance is determined in accordance with the Choice Severance Benefit Plan that is generally applicable to all employees of the Company. The Severance Benefit Plan provides Mr. Pepper and Mr. Oaksmith with five weeks of severance pay for each year of service, subject to a minimum of 26 weeks and a cap of 70 weeks, where the termination is not in connection with a change in control. For a termination following a change in control, the plan provides for severance payments equal to 200% of the executive’s base salary plus 200% of his annual bonus.
For a more detailed discussion of the arrangements applicable to each NEO, including an estimated

47


quantification of the benefits payable to each officer assuming a termination event as of December 31, 2017, see the Potential Payments Upon Termination or Change of Control section below.


Compensation Risk Mitigation

In 2017, the Committee reviewed the Company’s incentive plans, compensation programs and practices, and the processes for implementing these programs to determine whether any risks arising from our compensation policies and practices for our NEOs and other employees could create risks that are reasonably likely to have a material adverse effect on the Company. In conducting this review, the Committee considered analysis performed by Mercer, an independent compensation consulting firm, with regard to the Company’s compensation policies and practices.

The factors considered by the Committee include:

the general design philosophy of our compensation policies and practices for employees whose behavior would be most affected by the incentives, as such policies and practices relate to or affect risk taking by employees on our behalf, and the manner of their implementation;

our risk assessment and incentive considerations in structuring our compensation policies and practices or in awarding and paying compensation;

how our compensation policies and practices relate to the realization of risks resulting from the
 
actions of employees in both the short and long term;

our policies regarding adjustments to our compensation programs and practices to address changes in our risk profile; and

material adjustments, if any, that we have made to our compensation policies and practices as a result of changes in our risk profile.

The Company fosters a culture of compliance and the Committee believes that it has mitigated unnecessary risk taking in both the design of the compensation plans and the controls placed upon them because (i) the performance goals relate directly to the business plan approved by the Board, (ii) the Company has ownership requirements, restrictions on hedging, restrictions on pledging of securities and a clawback policy and (iii) there is an appropriate balance between our annual incentives and long-term incentives, with a particular emphasis on long-term value creation for our executives that aligns with shareholder value creation.

Based on this review, the Committee determined that the risks arising from the Company’s compensation practices and policies are not reasonably likely to have a material adverse effect on the Company.


48


COMPENSATION DECISION-MAKING PROCESS


Role of the Compensation and Management Development Committee

The Committee establishes the Company’s compensation principles that guide the design of compensation plans and programs for our executive officers. The Committee is charged with setting and implementing the compensation of the Company's executive officers as well as monitoring their development and succession planning. To this end, the Committee conducts an extensive talent review. In carrying out its responsibilities, the Committee endeavors to achieve and maintain an executive compensation package that is both fair and competitive in furtherance of the Company’s goals, including increasing shareholder value.
As part of its responsibility and oversight, the Committee reviews corporate goals and objectives relevant to CEO compensation, evaluates performance in light of those goals and objectives and recommends CEO compensation based on this evaluation to the Board for approval. With regard to the other NEOs, the Committee reviews and
 
approves changes to base salary, annual and long-term incentive plan performance targets and the achievement against those goals, and equity-based compensation design, delivery and value. In addition, the Committee reviews and approves all compensation-related agreements, including employment agreements, severance and change-of-control arrangements and any other special supplemental compensation and/or benefits for executive officers, except for the CEO for which the Committee makes a recommendation to the Board for approval. The Committee also engages in a risk assessment.
The Compensation and Management Development Committee has delegated limited authority to our Stock Compensation Committee, currently consisting of Mr. Pacious, to make equity awards to employees at the vice president level or lower solely for the purpose of promotion, retention, or new hire. No individual award may exceed $250,000 in value.
Role of the Independent Compensation Consultant

The Committee has authority to retain outside compensation consultants and advisors to assist the Committee. The Committee is directly responsible for the appointment, compensation and oversight of the Compensation Consultant. The Compensation Consultant reports directly to the Committee and pursuant to the Committee's instructions, works with management to compile information and gain an understanding of the
 
Company and any issues for consideration by the Committee.
The Committee currently retains Mercer to review market trends and advise the Committee regarding executive compensation matters. For a full description of Mercer's role in advising the Committee, see Committees of the Board above.
Role of Management

In conjunction with the Committee Chairman, management prepares and presents specific compensation proposals to the Committee for consideration as follows:
The CEO may make recommendations to the Committee with regard to the assessment of individual executive officer performance (other than his own) and corresponding compensation actions.
The CEO and Chief Human Resources Officer may make recommendations with regard to compensation, including incentive and other benefits plan design and delivery.
 
The CEO and Chief Human Resources Officer may make recommendations with regard to financial and non-financial targets under our annual incentive plan and our PVRSU awards.
At the direction of the Chairman of the Committee, management prepares and distributes to Committee members agendas, meeting materials and Company data in preparation for Committee meetings. The NEOs do not play a role in their own individual compensation determinations, other than discussing individual performance objectives with the CEO.


49



BOARD COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
Recommendation
The Compensation and Management Development Committee of the Company has reviewed and discussed the foregoing Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based upon such review and discussions, the Compensation and Management Development Committee recommended to the Board that the Compensation Discussion and Analysis be included in the Company’s proxy statement.
THE COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE
Ervin R. Shames, Chairman
William L. Jews
John P. Tague







50


SUMMARY COMPENSATION TABLE
The following table summarizes total compensation paid or earned by each of the Named Executive Officers for the years ended December 31, 2017, 2016 and 2015:
Name and 
Principal Position
Year
 
Salary(1)
($)
 
Bonus(2)
($)
 
Stock
Awards(3)
($)
 
Option
Awards(4)
($)
 
Non-Equity
Incentive Plan
Compensation(5)($)
 
Change in Pension
Value and
Preferred
Non-Qualified
Deferred
Compensation
Earnings(6)
($)
 
All Other
Compensation(7)
($)
 
Total
($)
Patrick Pacious
2017
 
793,269

 

 
1,595,437

 
531,698

 
961,210

 
5,037

 
117,414

 
4,004,065

President and Chief Executive Officer
2016
 
662,531

 

 
2,625,106

 
625,007

 
707,327

 
6,304

 
128,958

 
4,755,233

2015
 
549,142

 
67,498

 
577,578

 
577,510

 
450,984

 
7,433

 
136,186

 
2,366,331

Dominic Dragisich (8)
2017
 
312,308

 

 
1,100,144

 
150,008

 
285,600

 

 
46,160

 
1,894,220

Chief Financial Officer
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
David A. Pepper
2017
 
502,801

 

 
817,053

 
188,956

 
593,652

 
90,162

 
100,341

 
2,292,965

Chief Development Officer
2016
 
488,154

 

 
356,002

 
356,004

 
379,346

 
112,847

 
62,659

 
1,755,012

2015
 
432,231

 
32,992

 
1,250,124

 
250,005

 
275,391

 
133,061

 
53,908

 
2,427,712

Simone Wu
2017
 
466,539

 

 
440,682

 
146,863

 
239,008

 

 
62,632

 
1,355,724

Senior Vice President, General Counsel, Corporate Secretary & External Affairs
2016
 
422,308

 

 
195,044

 
195,002

 
224,485

 

 
53,036

 
1,089,875

2015
 
389,038

 
32,992

 
200,058

 
200,012

 
211,088

 

 
64,049

 
1,097,237

Patrick Cimerola (8)
2017
 
396,154

 

 
490,111

 
79,990

 
203,232

 

 
70,876

 
1,240,363

Chief Human Resources Officer
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stephen P. Joyce (9)
2017
 
961,500

 

 
9,491,994

 
3,243,159

 
1,844,160

 
23,870

 
260,251

 
15,824,934

Former Chief Executive Officer
2016
 
1,027,692

 

 
1,854,052

 
1,854,002

 
1,085,526

 
29,875

 
167,202

 
6,018,349

2015
 
998,462

 
249,970

 
1,600,078

 
1,600,007

 
1,065,000

 
35,227

 
158,083

 
5,706,827

Scott Oaksmith (10)
2017
 
332,500

 

 
200,014

 

 
150,340

 

 
34,484

 
717,338

Senior Vice President, Finance and
Accounting Officer,
(Interim Principal Financial Officer)
2016
 
305,008

 

 
575,044

 
75,005

 
138,195

 

 
33,970

 
1,127,222

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(1)
Values reflect base salary actually received by each NEO in the years presented, which depending on the position of pay periods within a calendar year, may not equal a NEO’s stated annual salary.
(2)
In addition to the cash awards described in footnote 4, the amounts under 2015 Management Incentive Plan include cash payments to compensate executive officers who would have received higher PVRSU distributions had the SkyTouch investment been included in target EPS at the time of the grant in 2013 (the "SkyTouch Adjustment Award"). There were no Skytouch Adjustment Awards for 2016 or 2017. In 2015 the total value of the NEO SkyTouch Adjustment Award covering the PVRSU performance period of 2013 through 2015 was $428,465. Mr. Joyce received $249,970, Mr. Pacious received $67,498, Mr. Pepper received $32,992 and Ms. Wu received $32,992.
(3)
For each of the NEOs, amounts shown in the Stock Awards column for 2015, 2016 and 2017 include the grant date fair values for RS and PVRSUs. For Mr. Joyce, per the August 9, 2017 amendment to his second amended and restated employment agreement, his 2017 amount also includes restricted stock whose restrictions lapsed on his separation date and unvested PVRSUs (as of Mr. Joyce's separation date) at target leverage. The amounts are shown in the Potential Payments upon Termination or Change in Control - Mr. Joyce Employment Agreement section.
The values included for PVRSUs are based on the probable outcome of the performance goals on the grant date (100% of the performance target), computed in accordance with FASB ASC Topic 718. Assumptions used to calculate fair value for Stock and Option Awards for 2017 are discussed in Note 18 to the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2017. The actual value realized by each individual with respect to PVRSU awards will depend on the Company’s actual performance relative to the performance goals, with vesting of actual shares ranging from 0% to 200% for PVRSUs based on actual performance against the performance target established at the time of grant.
The grant date fair value based on the probable outcome for the 2017 PVRSU awards was $1,063,584 for Mr. Pacious, $550,103 for Mr. Dragisich, $628,051 for Mr. Pepper, $293,788 for Ms. Wu, $160,023 for Mr. Cimerola, $2,034,010 for Mr. Joyce, and $100,007 for Mr. Oaksmith. The grant date fair value based on the maximum outcome for the 2017 PVRSU awards was

51


$2,127,168 for Mr. Pacious, $1,100,206 for Mr. Dragisich, $1,256,102 for Mr. Pepper, $587,576 for Ms. Wu, $320,046 for Mr. Cimerola, $4,068,020 for Mr. Joyce and $200,014 for Mr. Oaksmith.
The grant date fair value based on the probable outcome for the 2016 PVRSU awards was $2,312,562 for Mr. Pacious, $178,001 for Mr. Pepper, $97,522 for Ms. Wu and $927,026 for Mr. Joyce. The grant date fair value based on the maximum outcome for the 2016 PVRSU awards was $4,625,124 for Mr. Pacious, $356,002 for Mr. Pepper, $195,044 for Ms. Wu and $1,854,052 for Mr. Joyce. Mr. Oaksmith did not receive a PVRSU grant in 2016. Mr. Dragisich and Mr. Cimerola were not NEOs in 2016.
The grant date fair value based on the probable outcome for the 2015 PVRSU awards was $288,789 for Mr. Pacious, $1,125,088 for Mr. Pepper, $100,029 for Ms. Wu, and $800,039 for Mr. Joyce. The grant date fair value based on the maximum outcome for the 2015 PVRSU awards was $577,578 for Mr. Pacious, $1,850,155 for Mr. Pepper, $200,058 for Ms. Wu and $1,600,078 for Mr. Joyce. Mr. Dragisich, Mr. Cimerola and Mr. Oaksmith were not NEOs in 2015.
(4)
For all NEOs, except Mr. Joyce, the amounts shown under the Option Awards column for 2017, 2016 and 2015 are valued based on the grant date fair value utilizing the Black-Scholes Option Pricing model. For Mr. Joyce, the amount shown for 2017 is based on the grant date fair value of his 2017 option award plus the intrinsic value of all outstanding stock option awards that immediately vested upon his separation date per the August 9, 2017 amendment to his second amended and restated employment agreement. The intrinsic value is shown in the Potential Payments upon Termination or Change in Control - Mr. Joyce Employment Agreement section. For 2016 and 2015, the amounts shown for Mr. Joyce are valued based on the grant date fair value utilizing the Black-Scholes Option Pricing model.
(5)
Values reflect the cash awards earned by each of the NEO under the 2017 Management Incentive Plan. For a discussion of the performance targets under the 2017 Management Incentive Plan, see the description under the heading Short-Term Incentives above. For a discussion of the potential amounts payable to each NEO under the 2017 Management Incentive Plan, see the Grants of Plan-Based Awards for 2017 table below.
Mr. Pepper's 2017 MIP amount includes $8,219 in contingent payments earned by him for completing certain outstanding items associated with 19 of the franchise agreements executed in 2016; the remaining contingent balance was forfeited due to non-completion of the franchise agreement process. Furthermore, Mr. Pepper’s 2017 amount does not include payment of $303,600 that is pending for 23 of the executed franchise agreements that are subject to satisfying certain outstanding items with them during 2018.
The 2016 and 2015 amounts for Mr. Pepper includes $13,200 and $5,292, respectively, in contingent payments earned by him for satisfying certain outstanding items associated with franchise agreements executed in the previous years.
(6)
Values reflect the preferential earnings on non-qualified deferred compensation under the Executive Deferred Compensation Plan (“EDCP”). The values reported are based on the excess of the return on amounts credited to accounts in the EDCP at the annually designated rate of return over 120% of the applicable federal long-term rate.
(7)
See the All Other Compensation table below for additional information on the amounts included for each NEO in the 2017 All Other Compensation column.
(8)
Mr. Dragisich and Mr. Cimerola were not NEOs previously; only the current year's information is presented for them.
(9)
Mr. Joyce ceased serving as an executive officer of the Company effective September 11, 2017.
(10)
Scott Oaksmith, Senior Vice President, Finance and Chief Accounting Officer, became the interim principal financial officer for the Company on June 3, 2016 and served in that role until Mr. Dominic Dragisich was appointed Chief Financial Officer effective March 6, 2017. Only the periods that Mr. Oaksmith served as an NEO (2016 and 2017) are shown.

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ALL OTHER COMPENSATION
The following table further illustrates the components of the 2017 All Other Compensation column in the Summary Compensation Table above:

 
 
Company
EDCP/Non-
Qualified
Match
($)
 
Company
401(k)
Match
($)
 
Other  Benefits(a)
($)
 
Tax  Payments(b)
($)
 
Total
($)
Pacious
 
47,596

 
10,800

 
36,047

 
22,971

 
117,414

Dragisich
 
14,700

 

 
26,256

 
5,204

 
46,160

Pepper
 
27,494

 
10,800

 
42,149

 
19,898

 
100,341

Wu
 
24,190

 
10,800

 
21,773

 
5,869

 
62,632

Cimerola
 
18,912

 
10,800

 
28,583

 
12,581

 
70,876

Joyce
 
62,498

 
10,800

 
186,800

 
153

 
260,251