DEF 14A 1 d525199ddef14a.htm DEF 14A DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.    )

 

 

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

Check the appropriate box:

 

  Preliminary Proxy Statement
  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material Pursuant to §240.14a-12

HILTON WORLDWIDE HOLDINGS 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):

 

  No fee required.
  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  (1)  

Title of each class of securities to which transaction applies:

     

  (2)  

Aggregate number of securities to which transaction applies:

     

  (3)  

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

     

  (4)  

Proposed maximum aggregate value of transaction:

     

  (5)  

Total fee paid:

     

  Fee paid previously with preliminary materials.
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)  

Amount Previously Paid:

     

  (2)  

Form, Schedule or Registration Statement No.:

     

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Filing Party:

     

  (4)  

Date Filed:

     


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LOGO

2017 PROXY STATEMENT

for Annual Meeting of Stockholders

 

 

 

 

LOGO


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LOGO

April 13, 2017

Dear Stockholders:

Please join us for Hilton Worldwide Holdings Inc.’s Annual Meeting of Stockholders on Wednesday, May 24, 2017, at 10:00 a.m., Central time, at the Waldorf Astoria Chicago, 11 E. Walton, Chicago, Illinois 60611.

In accordance with the Securities and Exchange Commission rules allowing companies to furnish proxy materials to their stockholders over the Internet, we have sent stockholders of record at the close of business on March 31, 2017 a Notice of Internet Availability of Proxy Materials on or about April 13, 2017. The notice contains instructions on how to access our Proxy Statement and Annual Report and vote online. If you would like to receive a printed copy of our proxy materials from us instead of downloading a printable version from the Internet, please follow the instructions for requesting such materials included in the notice, as well as in the attached Proxy Statement.

Attached to this letter are a Notice of Annual Meeting of Stockholders and Proxy Statement, which describe the business to be conducted at the meeting. We also will report on matters of current interest to our stockholders.

Your vote is important to us. Whether you own a few shares or many, and whether or not you plan to attend the Annual Meeting in person, it is important that your shares be represented and voted at the meeting. You may vote your shares on the Internet, by telephone or by completing, signing and promptly returning a proxy card or you may vote in person at the Annual Meeting. Voting online, by telephone or by returning your proxy card does not deprive you of your right to attend the Annual Meeting. If you do attend the Annual Meeting and wish to vote your shares personally, you may revoke your proxy at or prior to the Annual Meeting.

Thank you for your continued support of Hilton Worldwide Holdings Inc.

Sincerely,

 

LOGO       LOGO
Jonathan D. Gray       Christopher J. Nassetta
Chairman of the Board of Directors       President and Chief Executive Officer

 

Hilton    PROXY STATEMENT   


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HILTON WORLDWIDE HOLDINGS INC.

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

TIME    10:00 a.m., Central time, on May 24, 2017
PLACE    The Waldorf Astoria Chicago, 11 E. Walton, Chicago, Illinois 60611
ITEMS OF BUSINESS    1.   To elect the director nominees listed in the Proxy Statement.
   2.   To approve the Hilton 2017 Omnibus Incentive Plan.
   3.   To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2017.
   4.   To approve, in a non-binding advisory vote, the compensation paid to our named executive officers.
   5.   To consider such other business as may properly come before the Annual Meeting and any adjournments or postponements thereof.
RECORD DATE    You may vote at the Annual Meeting if you were a stockholder of record at the close of business on March 31, 2017.
VOTING BY PROXY    To ensure your shares are voted, you may vote your shares over the Internet, by telephone or by requesting a proxy card to complete, sign and return by mail. Internet and telephone voting procedures are described on the following page, in the Questions and Answers section beginning on page 61 of the Proxy Statement and on the proxy card.

 

  By Order of the Board of Directors,
  LOGO
  Kristin A. Campbell
  Executive Vice President and General Counsel

This Notice of Annual Meeting and Proxy Statement are first being distributed or made available, as the case may be, on or about April 13, 2017.

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on May 24, 2017: This Proxy Statement and our Annual Report are available free of charge at www.proxyvote.com, a site that does not have “cookies” that identify visitors to the site.

 

Hilton    PROXY STATEMENT   


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VOTING INFORMATION

If at the close of business on March 31, 2017, you were a stockholder of record or held shares through a broker, bank or other nominee, you may vote your shares by proxy through the Internet, by telephone or by mail, or you may vote in person at the 2017 Annual Meeting of Stockholders (the “Annual Meeting”). For shares held through a broker, bank or other nominee, you may vote by submitting voting instructions to your broker, bank or other nominee. Please refer to information from your broker, bank or other nominee on how to submit voting instructions. To reduce our administrative costs and help the environment by conserving natural resources, we ask that you vote through the Internet or by telephone, both of which are available 24 hours a day. You may revoke your proxies at the times and in the manners described on page 63 of the Proxy Statement.

If you are a stockholder of record or hold shares through a broker, bank or other nominee and are voting by proxy, your vote must be received by 11:59 p.m., Eastern time, on May 23, 2017 to be counted.

To vote by proxy:

BY INTERNET

 

  ·    Go to the website www.proxyvote.com and follow the instructions, 24 hours a day, seven days a week.

 

  ·    You will need the 16-digit number included on your Notice of Internet Availability of Proxy Materials or proxy card to vote online.

BY TELEPHONE

 

  ·    From a touch-tone telephone, dial 1-800-690-6903 and follow the recorded instructions, 24 hours a day, seven days a week.

 

  ·    You will need the 16-digit number included on your Notice of Internet Availability of Proxy Materials or proxy card in order to vote by telephone.

BY MAIL

 

  ·    Request a proxy card from us by following the instructions on your Notice of Internet Availability of Proxy Materials.

 

  ·    When you receive the proxy card, mark your selections on the proxy card.

 

  ·    Date and sign your name exactly as it appears on your proxy card.

 

  ·    Mail the proxy card in the enclosed postage-paid envelope provided to you.

YOUR VOTE IS IMPORTANT TO US. THANK YOU FOR VOTING.

 

   PROXY STATEMENT    Hilton


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TABLE OF CONTENTS

 

Proposal No. 1 — Election of Directors

     01

Nominees for Election to the Board of Directors in 2017

     02  

The Board of Directors and Certain Governance Matters

     04

Director Independence and Independence Determinations

     04

Board Structure

     05

Board Committees and Meetings

     05

Committee Membership

     06

Oversight of Risk Management

     07

Executive Sessions

     07

Board and Committee Evaluations

     07

Committee Charters and Corporate Governance Guidelines

     07

Code of Conduct

     08

Director Nomination Process

     08

Communications with the Board

     08

Compensation of Directors

     09  

Annual Compensation Program

     09  

Special Committee

     09  

Stock Ownership Policy

     09  

Director Compensation for 2016

     10  

Executive Officers of the Company

     11

Proposal No. 2 — Approval of the Hilton 2017 Omnibus Incentive Plan

     13

Description and Purpose of the 2017 Omnibus Incentive Plan

     13

Highlights of the 2017 Omnibus Incentive Plan

     13

2017 Omnibus Incentive Plan Terms

     14  

Equity Award Information

     14  

Section 162(m)

     15

Summary of the 2017 Omnibus Incentive Plan

     16

Certain United States Federal Income Tax Consequences

     20

New Plan Benefits

     21

Equity Compensation Plan Information

     22

Registration with the Securities and Exchange Commission

     22

Proposal No. 3 — Ratification of Independent Registered Public Accounting Firm

     23

Audit and Non-Audit Fees

     23

Proposal No. 4 — Non-Binding Vote on Executive Compensation

     24

Report of the Audit Committee

     25

Report of the Compensation Committee

     26

Executive Compensation — Compensation Discussion and Analysis (“CD&A”)

     27

Executive Summary

     27

Key 2016 Pay Decisions

     28

Say on Pay Vote

     28

2017 Pay Decisions

     29

Executive Compensation Framework

     30

Making Compensation Decisions

     30

 

Hilton    PROXY STATEMENT   


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Assessing Competitive Practice Through Peer Group Comparisons

     31

Pay for Performance

     32

2016 Executive Compensation Design and Decisions

     33

Base Salary

     33

Annual Cash Incentive Compensation

     34

Long-Term Incentive Awards

     37

Other Benefits and Perquisites

     40

Retirement Savings Benefits

     41

Pension Benefits

     41

Severance Plan

     41

Key Executive Compensation Practices

     42

Ownership Policy

     42

Clawback Policy

     43

Stock Award Granting Policy

     43

Risk Considerations

     43

Compliance with IRS Code Section 162(m)

     43

Summary Compensation Table

     44

2016 Grants of Plan-Based Awards

     46

Supplemental Table to 2016 Grants of Plan-Based Awards

     47

Outstanding Equity Awards at 2016 Fiscal Year-End

     48

Supplemental Table to Outstanding Equity Awards

     49

2016 Option Exercises and Stock Vested

     50

2016 Pension Benefits

     50

2016 Nonqualified Deferred Compensation

     51

Potential Payments Upon Termination or Change in Control

     52

Compensation Committee Interlocks and Insider Participation

     54

Ownership of Securities

     55

Section 16(a) Beneficial Ownership Reporting Compliance

     56

Transactions with Related Persons

     56

Questions and Answers

     61  

Stockholder Proposals for the 2018 Annual Meeting

     64  

Householding of Proxy Materials

     65  

Other Business

     65  

Appendix A — Hilton 2017 Omnibus Incentive Plan

     A-1  

 

   PROXY STATEMENT    Hilton


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HILTON WORLDWIDE HOLDINGS INC.

7930 Jones Branch Drive

Suite 1100

McLean, Virginia 22102

Telephone: (703) 883-1000

PROXY STATEMENT

Annual Meeting of Stockholders

May 24, 2017

 

VOTING ROADMAP    Our Board’s Recommendation    

 

   

Proposal No. 1: Election of All Director Nominees

 

 

FOR    

 

   

 

Our Board of Directors unanimously believes that all of the director nominees listed in this Proxy Statement have the requisite qualifications to provide effective oversight of the Company’s business and management.

     
        LOGO

 

   

Proposal No. 2: Approval of Hilton 2017 Omnibus Incentive Plan

 

  FOR    
   

 

Our Compensation Committee and Board of Directors believe that the approval of the Hilton 2017 Omnibus Incentive Plan is in the best interest of the Company and its stockholders.

     
        LOGO

 

   

Proposal No. 3: Ratification of the Appointment of Ernst & Young LLP as independent registered public accounting firm

 

  FOR    
   

 

Our Audit Committee and Board of Directors believe that the retention of Ernst & Young as the Company’s independent registered public accounting firm for 2017 is in the best interest of the Company and its stockholders.

       
        LOGO

 

   

Proposal No. 4: Advisory Vote on Executive Compensation

 

  FOR    
   

 

We are seeking a non-binding, advisory vote to approve the 2016 compensation paid to our named executive officers, which is described in the section of this Proxy Statement entitled “Executive Compensation.”

       
        LOGO

Proposal No. 1 — Election of Directors

Our Board of Directors (the “Board” or “Board of Directors”) has considered and nominated the following nominees for a one-year term expiring at the 2018 Annual Meeting of Stockholders or until his or her successor is duly elected and qualified: Christopher J. Nassetta; Jonathan D. Gray; Charlene T. Begley; Jon M. Huntsman, Jr.; Judith A. McHale; John G. Schreiber; Elizabeth A. Smith; Douglas M. Steenland; and William J. Stein. Action will be taken at the Annual Meeting for the election of these nominees.

Unless otherwise instructed, the persons named in the form of proxy card (the “proxyholders”) included with this Proxy Statement, as filed with the Securities and Exchange Commission (“SEC”), intend to vote the proxies held by them for the election of the director nominees. If any of these nominees ceases to be a candidate for election by the time of the Annual Meeting (a contingency that the Board does not expect to occur), such proxies may be voted by the proxyholders in accordance with the recommendation of the Board. Except where the context requires otherwise, references to the “Company,” “Hilton,” “we,” “us” and “our” refer to Hilton Worldwide Holdings Inc. References to the “spin-offs” refer to the Company’s January 2017 spin-offs of Park Hotels & Resorts Inc. (“Park”) and Hilton Grand Vacations Inc. (“HGV”).

 

Hilton    PROXY STATEMENT    1


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NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS IN 2017

The following information describes the offices held, other business directorships and the term of each director nominee as of February 28, 2017. Beneficial ownership of equity securities of the director nominees is shown under “Ownership of Securities” below.

Christopher J. Nassetta

 

Christopher J. Nassetta, 54, joined Hilton as President and Chief Executive Officer in December 2007 and has served as a director of Hilton since that time. Previously, he was President and Chief Executive Officer of Host Hotels and Resorts, Inc., a position he held from May 2000 until October 2007. He joined Host in 1995 as Executive Vice President and was elected Chief Operating Officer in 1997. Before joining Host, Mr. Nassetta co-founded Bailey Capital Corporation, a real estate investment and advisory firm, in 1991. Prior to this, he spent seven years at The Oliver Carr Company, a commercial real estate company, where he ultimately served as Chief Development Officer. Mr. Nassetta is an Advisory Board member for the McIntire School of Commerce at the University of Virginia and is Vice Chairman of the Corporate Fund for The John F. Kennedy Center for the Performing Arts. He is on the boards of the International Youth Foundation and the Wolf Trap Foundation for the Performing Arts. He is also a member of the board of directors, nominating and corporate governance committee and compensation committee of CoStar Group, Inc. He is also a member and a past Chairman of The Real Estate Roundtable, a Vice Chairman and Executive Committee member of the World Travel & Tourism Council, a member of the Economic Club of Washington, a member of Federal City Council, a member of the Steering Committee of Partners for a New Beginning, and has served in various positions at the Arlington Free Clinic. Mr. Nassetta graduated from the McIntire School of Commerce at the University of Virginia with a degree in Finance.

Qualifications, Attributes, Skills and Experience: experience as an executive in the hospitality industry, extensive financial background and experience with real estate investments; his role as our President and Chief Executive Officer brings management perspective to board deliberations and provides valuable information about the status of our day-to-day operations.

Jonathan D. Gray

 

Jonathan D. Gray, 47, is Chairman of our Board and has served as a director of Hilton since 2007. Mr. Gray has served as global head of real estate for The Blackstone Group L.P. (“Blackstone”) since January 2012 and a member of the board of directors of Blackstone since February 2012. He also sits on Blackstone’s management committee. Prior to being named global head of real estate at Blackstone, Mr. Gray served as a senior managing director and co-head of real estate from January 2005 to December 2011. Since joining Blackstone in 1992, Mr. Gray has helped build the largest private equity real estate platform in the world with over $102 billion in investor capital under management as of December 31, 2016. Mr. Gray received a B.S. in Economics from the Wharton School, as well as a B.A. in English from the College of Arts and Sciences at the University of Pennsylvania, where he graduated magna cum laude and was elected to Phi Beta Kappa. He currently serves as Chairman of the Board of Nevada Property 1 LLC (The Cosmopolitan of Las Vegas) and is a board member of Invitation Homes Inc. He also serves on the board of Harlem Village Academies and Trinity School. He previously served as a board member of Brixmor Property Group Inc. and La Quinta Holdings Inc. Mr. Gray and his wife, Mindy, have established the Basser Research Center at the University of Pennsylvania School of Medicine, which focuses on the prevention and treatment of certain genetically caused breast and ovarian cancers.

Qualifications, Attributes, Skills and Experience: affiliation with Blackstone, significant experience in working with companies controlled by private equity sponsors, particularly in the real estate and hospitality industry, experience in working with the management of various other companies owned by Blackstone’s funds, experience with real estate investing and extensive financial background.

Charlene T. Begley

 

Charlene T. Begley, 50, has served as a director of Hilton since April 2017. Ms. Begley served in various capacities at General Electric Company from 1988 through 2013. Most recently, she served in a dual role as Senior Vice President and Chief Information Officer, as well as the President and Chief Executive Officer of GE’s Home and Business Solutions business from January 2010 through December 2013. Ms. Begley served as President and Chief Executive Officer of GE Enterprise Solutions from August 2007 through December 2009. During her career at GE, she served as President and Chief Executive Officer of GE Plastics and GE Transportation, led GE’s Corporate Audit staff and served as the Chief Financial Officer for GE Transportation and GE Plastics Europe and India. Ms. Begley currently serves as a director and member of the audit committee of Nasdaq, Inc., and as a director and member of the audit and nominating committees of Red Hat, Inc. and WPP plc.

Qualifications, Attributes, Skills and Experience: extensive business and management expertise, including leading divisions of a global enterprise, significant experience in technology, finance and information security, and service as a director of several public companies.

Jon M. Huntsman, Jr.

 

Jon M. Huntsman, Jr., 56, has served as a director of Hilton since 2015. Mr. Huntsman has served as Chairman of the Atlantic Council, a non-partisan think tank promoting constructive leadership and engagement in international affairs, since January 2014. Mr. Huntsman was a candidate for the Republican nomination for President of the United States in the 2012 presidential election. From 2009 to 2011, he served as U.S. Ambassador to China and he served as Governor of the State of Utah from 2005 to 2009. Mr. Huntsman’s public service also includes appointments as U.S. Ambassador to Singapore, Deputy U.S. Trade Representative and Deputy Assistant Secretary of Commerce for East Asia & Pacific Affairs. He also serves as a director of Ford Motor Company, Caterpillar, Inc. and Chevron Corporation and previously served as a director of Huntsman Corporation.

Qualifications, Attributes, Skills and Experience: extensive international experience, including as U.S. ambassador to China, U.S. ambassador to Singapore and Deputy U.S. Trade Representative, public policy and government relations experience, including as the governor of the State of Utah, and executive and board experience as former Vice Chairman of Huntsman Corporation and a director of several public companies.

 

2    PROXY STATEMENT    Hilton


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Judith A. McHale

 

Judith A. McHale, 70, has served as a director of Hilton since 2013. Ms. McHale has served as President and Chief Executive Officer of Cane Investments, LLC since August 2011. From May 2009 to July 2011, Ms. McHale served as Under Secretary of State for Public Diplomacy and Public Affairs for the U.S. Department of State. From 2006 to March 2009, Ms. McHale served as a Managing Partner in the formation of GEF/ Africa Growth Fund. Prior to that, Ms. McHale served as the President and Chief Executive Officer of Discovery Communications. Ms. McHale currently serves on the board of directors of Ralph Lauren Corporation, SeaWorld Entertainment, Inc. and Viacom, Inc. Ms. McHale graduated from the University of Nottingham in England and Fordham University School of Law.

Qualifications, Attributes, Skills and Experience: extensive business and management expertise, including experience as a chief executive officer and director of several public companies, as well as prior service as a high-ranking official in the U.S. Department of State.

John G. Schreiber

 

John G. Schreiber, 70, has served as a director of Hilton since 2007. Mr. Schreiber is the President of Centaur Capital Partners, his family investment office, and a retired Partner and Co-Founder of Blackstone Real Estate Advisors (BREA). As Co-Chairman of the BREA Investment Committee, Mr. Schreiber oversaw all Blackstone real estate investments from 1992 to 2015. During that time, Blackstone invested over $75 billion of equity in a wide variety of real estate transactions. Mr. Schreiber is a past board member of Urban Shopping Centers, Inc., Host Hotels & Resorts, Inc., The Rouse Company, AMLI Residential Properties Trust, General Growth Properties, Inc., Blackstone Mortgage Trust Inc. and Hudson Pacific Properties, Inc. He currently serves on the board of JMB Realty Corp., Brixmor Property Group Inc. and Invitation Homes Inc. and is a director/trustee of a number of mutual funds managed by T. Rowe Price Associates and a Trustee of Loyola University of Chicago. Mr. Schreiber graduated from Loyola University of Chicago and received an M.B.A. from Harvard Business School.

Qualifications, Attributes, Skills and Experience: experience with real estate investing and extensive financial background, past affiliation with Blackstone, significant experience in working with companies controlled by private equity sponsors, particularly in the real estate industry, experience in working with the management of various other companies owned by Blackstone’s funds.

Elizabeth A. Smith

 

Elizabeth A. Smith, 53, has served as a director of Hilton since 2013. Ms. Smith has served as Chairman of the Board of Directors of Bloomin’ Brands, Inc. since January 2012 and has served as its Chief Executive Officer and a Director since November 2009. From September 2007 to October 2009, Ms. Smith was President of Avon Products, Inc., a global beauty products company, and was responsible for its worldwide product-to-market processes, infrastructure and systems, including Global Brand Marketing, Global Sales, Global Supply Chain and Global Information Technology. In January 2005, Ms. Smith joined Avon Products, Inc. as President, Global Brand, and was given the additional role of leading Avon North America in August 2005. From September 1990 to November 2004, Ms. Smith worked in various capacities at Kraft Foods Inc. Ms. Smith currently serves on the board of directors of U.S. Fund for UNICEF and H. Lee Moffitt Cancer Center & Research Institute (Tampa, Florida). Ms. Smith served as a member of the board of directors and audit committee member of Staples, Inc. from September 2008 to June 2014. Ms. Smith holds a bachelor’s degree, Phi Beta Kappa, from the University of Virginia and an M.B.A. from the Stanford Graduate School of Business.

Qualifications, Attributes, Skills and Experience: experience in strategy, brands, marketing and sales, as well as corporate finance and financial reporting developed in her executive level roles where her responsibilities have included direct financial oversight of multinational companies with multiple business units.

Douglas M. Steenland

 

Douglas M. Steenland, 65, has served as a director of Hilton since 2009. Mr. Steenland worked for Northwest Airlines Corporation from September 1991 to October 2008, serving as Chief Executive Officer from April 2004 to October 2008 and as President from February 2001 to April 2004. During his tenure at Northwest Airlines, he also served as Executive Vice President, Chief Corporate Officer and Senior Vice President and General Counsel. Mr. Steenland retired from Northwest Airlines upon its merger with Delta Air Lines, Inc. Prior to his time at Northwest Airlines, Mr. Steenland was a senior partner at a Washington, D.C. law firm that is now part of DLA Piper. Mr. Steenland is currently chairman of the board of directors of American International Group, Inc.; chairman of the board of directors of Travelport Worldwide Limited, where he also serves on the nominating and corporate governance committee; and chairman of the board of Performance Food Group Company, where he also serves on the audit committee. In the past five years, Mr. Steenland also served as a director of Digital River, Inc. Mr. Steenland received a B.A. from Calvin College and is a graduate from The George Washington University Law School.

Qualifications, Attributes, Skills and Experience: experience in managing large, complex, international institutions generally and experience as a member of global public company boards and an executive in the travel and hospitality industries in particular.

William J. Stein

 

William J. Stein, 54, has served as a director of Hilton since 2007. Mr. Stein has been a senior managing director of Blackstone since January 2006 and serves as global co-head of asset management in Blackstone’s real estate group. Since joining Blackstone in 1997, Mr. Stein has been involved in the direct asset management and asset management oversight of Blackstone’s global real estate assets. Mr. Stein also serves as a director of Nevada Property 1 LLC (The Cosmopolitan of Las Vegas), where he serves on the audit committee, Invitation Homes Inc., where he serves on the compensation committee and nominating and corporate governance committee, and Extended Stay America, Inc. He previously served as a board member of Brixmor Property Group Inc. and La Quinta Holdings Inc. Before joining Blackstone, Mr. Stein was a Vice President at Heitman Real Estate Advisors and JMB Realty Corp. Mr. Stein received a B.B.A. from the University of Michigan and an M.B.A. from the University of Chicago.

Qualifications, Attributes, Skills and Experience: tenure with Blackstone involving the direct asset management and asset management oversight of Blackstone’s global real estate assets, extensive financial background and experience as an asset manager focusing on real estate and hospitality investments.

YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF EACH OF THE DIRECTOR NOMINEES NAMED ABOVE.

 

Hilton    PROXY STATEMENT    3


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THE BOARD OF DIRECTORS AND

CERTAIN GOVERNANCE MATTERS

Our Board manages or directs our business and affairs, as provided by Delaware law, and conducts its business through meetings of the Board and three standing committees: the Audit Committee; the Compensation Committee; and the Nominating and Corporate Governance Committee. Our Board has a majority of independent directors, and all of our Board’s committees are fully independent.

We have structured our corporate governance in a manner we believe closely aligns our interests with those of our stockholders. Notable features of our corporate governance include:

 

  ·    each of our directors is subject to re-election annually;

 

  ·    under our by-laws and our Corporate Governance Guidelines, directors (other than directors designated pursuant to our stockholders agreements) who fail to receive a majority of the votes cast in uncontested elections are required to submit their resignation to our Board of Directors;

 

  ·    our independent directors meet regularly in executive sessions;

 

  ·    we do not have a stockholder rights plan, and if our Board were ever to adopt a stockholder rights plan in the future without prior stockholder approval, our Board would either submit the plan to stockholders for ratification or cause the rights plan to expire within one year; and

 

  ·    a range of other corporate governance best practices, including limits on the number of directorships held by our directors to prevent “overboarding,” a robust director education program, regular Board and committee evaluations, a commitment to Board refreshment and diversity, and an extensive director nominee selection process.

We have a stockholders agreement with Blackstone, which is described below under “Transactions with Related Persons — Blackstone — Stockholders Agreement” and provides that Blackstone has the right to nominate to our Board a number of designees based on its percentage ownership of our common stock. Currently, Blackstone has the right to designate two directors and has nominated Messrs. Gray and Stein. The provisions of the stockholders agreement with Blackstone regarding the nomination of directors will remain in effect until Blackstone is no longer entitled to nominate a director to our Board, unless Blackstone requests that they terminate at an earlier date.

We also have a stockholders agreement with HNA Tourism Group Co., Ltd. and certain of its affiliates (collectively, “HNA”), which is described below under “Transactions with Related Persons — HNA — Stockholders Agreement” and took effect upon the March 15, 2017 closing of Blackstone’s previously announced sale of approximately 25% of our common stock to HNA. The stockholders agreement with HNA provides that, among other things, for so long as HNA owns at least 15% of our outstanding common stock, HNA will have the right to designate two directors to our Board, one of whom may be affiliated with HNA (but not its hospitality business), the other of whom must be independent under New York Stock Exchange (“NYSE”) standards and each of whom must be reasonably satisfactory to our Nominating and Corporate Governance Committee. HNA’s director designation rights are subject to change based on their ownership of our common stock and cease once HNA owns less than 5%. In addition, the stockholders agreement with HNA requires HNA in uncontested director elections to either vote all of its shares in favor of the director nominees or vote all such shares in the same proportion the shares owned by the other stockholders are voted and, as to other proposals, except in specified circumstances, generally requires HNA to vote its holdings in excess of 15% of the outstanding shares in the same proportion as the shares owned by other stockholders are voted, and permits HNA to vote its holdings of 15% of the outstanding shares at its sole discretion. HNA has not yet identified potential director nominees.

DIRECTOR INDEPENDENCE AND INDEPENDENCE DETERMINATIONS

Under our Corporate Governance Guidelines and NYSE rules, a director is not independent unless the Board affirmatively determines that he or she does not have a direct or indirect material relationship with us or any of our subsidiaries. In addition, the director must meet the bright-line tests for independence set forth by the NYSE rules.

Our Corporate Governance Guidelines define independence in accordance with the independence definition in the current NYSE corporate governance rules for listed companies. Our Corporate Governance Guidelines require the Board to review the independence of all directors at least annually.

In the event a director has a relationship with the Company that is relevant to his or her independence and is not addressed by the objective tests set forth in the NYSE independence definition, the Board will determine, considering all relevant facts and circumstances, whether that relationship is material.

Our Board has affirmatively determined that each of Ms. Begley, Mr. Huntsman, Ms. McHale, Mr. Schreiber, Ms. Smith and Mr. Steenland is independent under the guidelines for director independence set forth in our Corporate Governance Guidelines and under all applicable NYSE guidelines, including with respect to committee membership. Our Board also has determined that each of Ms. McHale, Ms. Smith and Mr. Steenland is “independent” for purposes of Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

In making its independence determinations, the Board considered and reviewed all information known to it (including information identified through annual directors’ questionnaires).

 

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BOARD STRUCTURE

Our Board of Directors is led by Mr. Gray, our Non-Executive Chairman. The Chief Executive Officer position is separate from the Chairman position. Although we believe that the separation of the Chairman and Chief Executive Officer positions is appropriate corporate governance for us at this time, our Board believes that the Company and stockholders are best served by maintaining flexibility to determine whether and when the Chairperson and CEO positions should be separate or combined to provide the appropriate leadership.

BOARD COMMITTEES AND MEETINGS

The following table summarizes the current membership of each of the Board’s standing committees.

 

Name

   Audit Committee    Compensation Committee   

Nominating and Corporate

Governance Committee

Christopher J. Nassetta

              

Jonathan D. Gray

              

Charlene T. Begley

              

Jon M. Huntsman, Jr.

        X    Chair

Judith A. McHale

   X    X     

John G. Schreiber

        Chair     

Elizabeth A. Smith

   X         X

Douglas M. Steenland

   Chair         X

William J. Stein

              

We expect all directors to attend all meetings of the Board, meetings of the committees of which they are members and the annual meeting of stockholders. During the year ended December 31, 2016, the Board held seven meetings, the Audit Committee held nine meetings, the Compensation Committee held six meetings and the Nominating and Corporate Governance Committee held four meetings. In July 2016, the Board established a special committee consisting of Mr. Huntsman and Ms. Smith to review HNA’s investment in the Company; the special committee met 17 times during 2016. In 2016, all of our director nominees attended at least 75% of the meetings of the Board and committees on which he or she served as a member. We expect all directors to attend any meeting of stockholders. All of our directors attended the 2016 Annual Meeting of Stockholders.

 

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COMMITTEE MEMBERSHIP

AUDIT COMMITTEE

All members of the Audit Committee have been determined to be “independent,” as defined by our Corporate Governance Guidelines and the NYSE listing standards applicable to boards of directors generally and audit committees in particular. Our Board also has determined that each of the members of the Audit Committee is “financially literate” within the meaning of the listing standards of the NYSE. In addition, our Board has determined that Mr. Steenland qualifies as an audit committee financial expert as defined by applicable SEC regulations.

The duties and responsibilities of the Audit Committee are set forth in its charter, which may be found at www.ir.hilton.com under Investors: Corporate Governance: Governance Documents: Audit Committee Charter, and include among others:

 

  ·    assisting the Board with its oversight of our accounting and financial reporting process and financial statement audits;

 

  ·    assisting the Board with its oversight of our disclosure controls procedures and our internal control over financial reporting;

 

  ·    assessing the independent registered public accounting firm’s qualifications and independence;

 

  ·    engaging the independent registered public accounting firm;

 

  ·    overseeing the performance of our internal audit function and independent registered public accounting firm;

 

  ·    assisting with our compliance with legal and regulatory requirements in connection with the foregoing;

 

  ·    overseeing our exposure to risk, including, but not limited to, data privacy and security, business continuity and operational risks;

 

  ·    reviewing related party transactions; and

 

  ·    overseeing compliance with our Code of Conduct.

With respect to our reporting and disclosure matters, the responsibilities and duties of the Audit Committee include reviewing and discussing with management and the independent registered public accounting firm our annual audited financial statements and quarterly financial statements prior to inclusion in our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q or other public filings in accordance with applicable rules and regulations of the SEC.

On behalf of the Board, the Audit Committee plays a key role in the oversight of our risk management policies and procedures. See “Oversight of Risk Management” below.

COMPENSATION COMMITTEE

All members of the Compensation Committee have been determined to be “independent” as defined by our Corporate Governance Guidelines and the NYSE listing standards applicable to boards of directors generally, and compensation committees in particular. In addition, all members qualify as “non-employee directors” for purposes of Rule 16b-3 of the Exchange Act and as “outside directors” for purposes of Section 162(m) (“Section 162(m)”) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”).

The duties and responsibilities of the Compensation Committee are set forth in its charter, which may be found at www.ir.hilton.com under Investors: Corporate Governance: Governance Documents: Compensation Committee Charter, and include among others:

 

  ·    establishing, maintaining and administering compensation and benefit policies designed to attract, motivate and retain personnel with the requisite skills and abilities to contribute to our long term success;

 

  ·    overseeing the goals, objectives and compensation of our President and Chief Executive Officer, including evaluating the performance of the President and Chief Executive Officer in light of those goals;

 

  ·    overseeing the goals, objectives and compensation of our other executives and directors;

 

  ·    assisting with our compliance with the compensation rules, regulations and guidelines promulgated by the NYSE, the SEC and other law, as applicable; and

 

  ·    issuing a report on executive compensation for inclusion in our annual proxy statement and annual report.

With respect to our reporting and disclosure matters, the responsibilities and duties of the Compensation Committee include overseeing the preparation of the Compensation Discussion and Analysis for inclusion in our annual proxy statement and Annual Report on Form 10-K in accordance with applicable rules and regulations of the SEC. The charter of the Compensation Committee permits the committee to delegate any or all of its authority to one or more subcommittees and to delegate to one or more of our officers the authority to make awards to employees other than any Section 16 officer under our incentive compensation or other equity-based plan, subject to compliance with the plan and the laws of our state of jurisdiction.

The Compensation Committee has the authority under its charter to retain outside consultants or advisors, as it deems necessary or advisable. In accordance with this authority, the Compensation Committee has engaged the services of Exequity LLP (“Exequity”) as its independent outside compensation consultant since 2012.

All executive compensation services provided by Exequity were conducted under the direction or authority of the Compensation Committee, and all work performed by Exequity was pre-approved by the Compensation Committee. Neither Exequity nor any of its affiliates maintains any other direct or indirect business relationships with us or any of our subsidiaries. The Compensation Committee evaluated whether any work provided by Exequity raised any conflict of interest for services performed during 2016 and determined that it did not.

 

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As requested by the Compensation Committee, in 2016, Exequity’s services to the Compensation Committee included, among other things, providing perspective on current trends and developments in executive and director compensation as well as analysis of benchmarking data and confirmation of our peer group composition.

NOMINATING AND CORPORATE GOVERNANCE COMMITTEE

All members of the Nominating and Corporate Governance Committee have been determined to be “independent” as defined by our Corporate Governance Guidelines and the NYSE listing standards.

The duties and responsibilities of the Nominating and Corporate Governance Committee are set forth in its charter, which may be found at www.ir.hilton.com under Investors: Corporate Governance: Governance Documents: Nominating and Corporate Governance Committee Charter, and include among others:

 

  ·    advising the Board concerning the appropriate composition and qualifications of the Board and its committees;

 

  ·    identifying individuals qualified to become Board members;

 

  ·    recommending to the Board the persons to be nominated by the Board for election as directors at any meeting of stockholders;

 

  ·    recommending to the Board the members of the Board to serve on the various committees;

 

  ·    developing and recommending to the Board a set of corporate governance guidelines and assisting the Board in complying with them; and

 

  ·    overseeing the evaluation of the Board and the Board’s committees.

OVERSIGHT OF RISK MANAGEMENT

The Board of Directors has overall responsibility for risk oversight, including, as part of regular Board and committee meetings, general oversight of executives’ management of risks relevant to the Company. A fundamental part of risk oversight is not only understanding the material risks a company faces and the steps management is taking to manage those risks, but also understanding what level of risk is appropriate for the Company. The involvement of the Board of Directors in reviewing our business strategy is an integral aspect of the Board’s assessment of management’s tolerance for risk and its determination of what constitutes an appropriate level of risk for the Company. While the full Board has overall responsibility for risk oversight, it is supported in this function by its Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. Each of the committees regularly reports to the Board.

The Audit Committee assists the Board in fulfilling its risk oversight responsibilities by periodically reviewing our accounting, reporting and financial practices, including the integrity of our financial statements, the surveillance of administrative and financial controls, our compliance with legal and regulatory requirements and our enterprise risk management program. Through its regular meetings with management, including the finance, legal and internal audit functions, the Audit Committee reviews and discusses all significant areas of our business and summarizes for the Board all areas of risk and the appropriate mitigating factors. The Compensation Committee assists the Board by overseeing and evaluating risks related to the Company’s compensation structure and compensation programs, including the formulation, administration and regulatory compliance with respect to compensation matters. The Nominating and Corporate Governance Committee assists the Board by overseeing and evaluating programs and risks associated with Board organization, membership and structure, succession planning and corporate governance. In addition, our Board receives periodic detailed operating performance reviews from management. Our chief risk officer updates the Audit Committee on a quarterly basis and the full Board on an annual basis and as needed.

EXECUTIVE SESSIONS

Executive sessions, which are meetings of the non-management members of the Board, are regularly scheduled throughout the year. In addition, at least once a year, the independent directors meet in a private session that excludes management. At each of these meetings, the non-management and independent directors in attendance, as applicable, will determine which member will preside at such session.

BOARD AND COMMITTEE EVALUATIONS

The Board and its committees conduct annual self-evaluations to assess the effectiveness of the Board and committees. The self-assessments focus on the Board’s and each committee’s and their respective members’ performance and contribution to the Company as well as provide constructive feedback.

COMMITTEE CHARTERS AND CORPORATE GOVERNANCE GUIDELINES

Our commitment to good corporate governance is reflected in our Corporate Governance Guidelines, which describe the Board’s views on a wide range of governance topics. These Corporate Governance Guidelines and committee charters are reviewed from time to time by the Nominating and Corporate Governance Committee and, to the extent deemed appropriate in light of emerging practices, revised accordingly, upon recommendation to and approval by the Board.

Our Corporate Governance Guidelines, our Audit, Compensation and Nominating and Corporate Governance Committee charters and other corporate governance information are available on the Corporate Governance page of the Investors section on our website at www.ir.hilton.com. Any stockholder also may request them in print, without charge, by contacting the Office of the Corporate Secretary at Hilton Worldwide Holdings Inc., 7930 Jones Branch Drive, Suite 1100, McLean, Virginia 22102.

 

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CODE OF CONDUCT

We maintain a Code of Conduct that is applicable to all of our directors, officers and employees, including our Chairman, Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and other senior financial officers. The Code of Conduct sets forth our policies and expectations on a number of topics, including conflicts of interest, compliance with laws, human rights, use of our assets and business conduct and fair dealing. This Code of Conduct also satisfies the requirements for a code of ethics, as defined by Item 406 of Regulation S-K promulgated by the SEC. We will disclose within four business days any substantive changes in or waivers of the Code of Conduct granted to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, by posting such information on our website as set forth above rather than by filing a Form 8-K. In the case of a waiver for an executive officer or a director, the required disclosure also will be made available on our website within four business days of the date of such waiver.

The Code of Conduct may be found on our website at www.ir.hilton.com under Investors: Corporate Governance: Governance Documents: Code of Conduct.

DIRECTOR NOMINATION PROCESS

The Nominating and Corporate Governance Committee weighs the characteristics, experience, independence and skills of potential candidates for election to the Board and recommends nominees for director to the Board for election. In considering candidates for the Board, the Nominating and Corporate Governance Committee also assesses the size, composition and combined expertise of the Board. As the application of these factors involves the exercise of judgment, the Nominating and Corporate Governance Committee does not have a standard set of fixed qualifications that is applicable to all director candidates. At a minimum, the Nominating and Corporate Governance Committee assesses each candidate’s strength of character, judgment, industry knowledge or experience, his or her ability to work collegially with the other members of the Board and his or her ability to satisfy any applicable legal requirements or listing standards. In addition, although the Board considers diversity of viewpoints, background and experiences, the Board does not have a formal diversity policy. In identifying prospective director candidates, the Nominating and Corporate Governance Committee may seek referrals from other members of the Board, management, stockholders and other sources, including third party recommendations. The Nominating and Corporate Governance Committee also may, but need not, retain a search firm in order to assist it in identifying candidates to serve as directors of the Company and has previously consulted with the firms of Spencer Stuart and Heidrick & Struggles regarding board member recruiting. The Nominating and Corporate Governance Committee uses the same criteria for evaluating candidates regardless of the source of the referral or recommendation. When considering director candidates, the Nominating and Corporate Governance Committee seeks individuals with backgrounds and qualities that, when combined with those of our incumbent directors, provide a blend of skills and experience to further enhance the Board’s effectiveness.

In connection with its annual recommendation of a slate of nominees, the Nominating and Corporate Governance Committee also may assess the contributions of those directors recommended for re-election in the context of the Board evaluation process and other perceived needs of the Board. After working with an independent search firm to identify potential candidates, the Nominating and Corporate Governance Committee recommended and on April 10, 2017 the Board appointed Ms. Begley to serve on our Board effective April 13, 2017. Ms. Begley is expected to be appointed to one or more committees at a later date.

When considering whether the directors and nominees have the experience, qualifications, attributes and skills, taken as a whole, to enable the Board to satisfy its oversight responsibilities effectively in light of our business and structure, the Board focused primarily on the information discussed in each of the board member’s biographical information set forth above. We believe that our directors provide an appropriate mix of experience and skills relevant to the size and nature of our business. This process resulted in the Board’s nomination of the incumbent directors named in this Proxy Statement and proposed for election by you at the upcoming Annual Meeting.

The Nominating and Corporate Governance Committee will consider director candidates recommended by stockholders. Any recommendation submitted to the Secretary of the Company should be in writing and should include any supporting material the stockholder considers appropriate in support of that recommendation, but must include information that would be required under the rules of the SEC to be included in a proxy statement soliciting proxies for the election of such candidate and a written consent of the candidate to serve as one of our directors if elected. Stockholders wishing to propose a candidate for consideration may do so by submitting the above information to the attention of the Office of the Corporate Secretary, Hilton Worldwide Holdings Inc., 7930 Jones Branch Drive, Suite 1100, McLean, Virginia 22102. All recommendations for nomination received by the Secretary that satisfy our by-law requirements relating to such director nominations will be presented to the Nominating and Corporate Governance Committee for its consideration. Stockholders also must satisfy the notification, timeliness, consent and information requirements set forth in our by-laws. These requirements are also described under the caption “Stockholder Proposals for the 2018 Annual Meeting.”

COMMUNICATIONS WITH THE BOARD

As described in the Corporate Governance Guidelines, stockholders and other interested parties who wish to communicate with a member or members of the Board, including the chairperson of the Audit, Compensation, or Nominating and Corporate Governance Committees, or to the non-management or independent directors as a group, may do so by addressing such communications or concerns to the Office of the Corporate Secretary, 7930 Jones Branch Drive, Suite 1100, McLean, Virginia 22102, who will forward such communication to the appropriate party.

 

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COMPENSATION OF DIRECTORS

We use a combination of cash and equity-based compensation to attract and retain qualified candidates to serve on our Board. Our employee directors and directors affiliated with Blackstone receive no compensation for serving on the Board or committees thereof.

ANNUAL COMPENSATION PROGRAM

Each non-employee director (other than the directors affiliated with Blackstone) was entitled to annual compensation for the period from our 2016 annual meeting until our 2017 annual meeting, as follows:

 

BOARD RETAINER (1)

Role

   Cash Compensation (2)        Equity-Based Compensation  

Non-Employee Directors

     $85,000          $140,000  

 

COMMITTEE CASH RETAINER (1)(2)

Role

     Audit        Compensation        Nominating and Corporate Governance  

Committee Chair

       $25,000          $20,000          $20,000  

Other Committee Members

       $7,500          $7,500          $7,500  

 

(1)  All of our directors are reimbursed for reasonable travel and related expenses associated with attendance at Board or committee meetings. In addition, our independent directors are reimbursed for reasonable personal hotel costs when they stay at Company-branded hotels.

 

(2)  Cash compensation is payable on a semi-annual basis.

Equity awards are granted to our eligible non-employee directors annually, upon his or her election or reelection at our annual meeting of stockholders, in an amount valued at approximately $140,000 in the form of deferred share units (“DSUs”), where the number of DSUs awarded is equal to $140,000 divided by the closing price of our common stock on the grant date. The equity currently held by our directors was awarded under the Company’s 2013 Omnibus Incentive Plan (the “Incentive Plan”) and the material terms thereof are outlined in the table below.

 

Award Type

  Vesting   Dividend Equivalents   Termination or Change in Control

DSUs (1)

Granted in 2015

and 2016

  Fully vested at the time of grant and settle in shares of common stock upon the earlier of termination of service for any reason or a change in control   Accrue in the form of additional DSUs in an amount equal to the fair market value of the dividend payment as of the dividend payment date, payable at settlement  

Termination of service for any reason: Immediately settle

 

Change in control: Immediately settle

 

(1)  In connection with the spin-offs in January 2017, the number of outstanding DSUs was adjusted in a manner intended to preserve the value of the awards, but otherwise remained outstanding and subject to unchanged terms and conditions.

SPECIAL COMMITTEE

In addition to the three above-referenced standing Board committees, in July 2016, the Board established a special committee to review and provide oversight of specific transactions related to HNA’s investment in the Company. During 2016, the members of the special committee were Mr. Huntsman and Ms. Smith. Each member earned a $10,000 cash retainer plus a $500 cash payment for each meeting attended or workday spent regarding these transactions. During 2016, the special committee met 17 times.

STOCK OWNERSHIP POLICY

We have a stock ownership policy for our non-employee directors. Each of our non-employee directors (other than the directors affiliated with Blackstone) is required to own our stock in an amount equal to five times his or her regular annual cash retainer, provided that a non-employee director who is affiliated with a stockholder of the Company that meets the ownership requirements for a non-employee director shall be exempt from such requirement. For purposes of this requirement, a director’s holdings include shares held directly or indirectly, individually or jointly, shares underlying vested options and shares held under a deferral or similar plan. Non-employee directors are expected to meet this ownership requirement within five years from the later of (1) December 11, 2013 and (2) the date he or she first becomes subject to the stock ownership policy.

 

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DIRECTOR COMPENSATION FOR 2016

The table below sets forth information regarding non-employee director compensation for the fiscal year ended December 31, 2016.

 

Name

   Fees Earned or
Paid in Cash
($)
     Stock
Awards (1)
($)
     All Other
Compensation (2)
($)
     Total
($)
 

Jonathan D. Gray

                           

Charlene T. Begley (3)

                           

Jon M. Huntsman, Jr.

     $121,000        $139,998               $260,998  

Judith A. McHale

     $100,000        $139,998        $911        $240,909  

John G. Schreiber (4)

     $87,500        $186,657               $274,157  

Elizabeth A. Smith

     $118,500        $139,998        $911        $259,409  

Douglas M. Steenland

     $117,500        $139,998        $911        $258,409  

William J. Stein

                           

 

(1)  Represents the grant date fair value of DSUs computed in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, without taking into account estimated forfeitures, based on the closing price on the NYSE of our common stock on the grant date. Each eligible non-employee director (other than Mr. Schreiber) was granted 6,352 DSUs on May 5, 2016, representing the director’s annual equity award for the annual period from the 2016 annual meeting to the 2017 annual meeting. Mr. Schreiber was granted an additional 2,117 DSUs, which represented a prorated equity award for his service from January 1, 2016, when he was determined to be independent, to the May 2016 annual meeting. In accordance with the SEC’s rules, dividend equivalents that accrued on the directors’ 2016 DSU awards are not reported above because dividends were factored into the grant date fair value of these awards.

 

   In connection with the spin-offs, the number of shares underlying the directors’ outstanding DSUs was adjusted in a manner intended to preserve the value of the awards. Other than these adjustments, the terms of the directors’ DSUs following the spin-offs remain subject to the same terms and conditions as prior to the spin-offs. The unadjusted number of DSUs granted in 2016 are reflected in the table above.

 

   For details regarding the director’s beneficial ownership of equity securities, including their outstanding DSUs, see “Ownership of Securities” below.

 

(2)  Represents the fair market value of dividend equivalents accrued on RSUs granted prior to 2016, where dividends were not factored into the grant date fair value of such previously disclosed awards.

 

(3)  Ms. Begley was appointed to the Board in April 2017.

 

(4)  Mr. Schreiber was determined to be independent on January 1, 2016. Amounts reflected in the table also include a prorated portion of his annual compensation for the period from January 1, 2016 until our May 2016 annual meeting.

 

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EXECUTIVE OFFICERS OF THE COMPANY

Set forth below is certain information regarding each of our current executive officers as of February 28, 2017, other than Mr. Nassetta, whose biographical information is presented under “Nominees for Election to the Board of Directors in 2017.”

Kristin A. Campbell

 

Kristin A. Campbell, 55, joined Hilton as Executive Vice President and General Counsel in June 2011. She is responsible for leading Hilton’s global legal and compliance functions. Ms. Campbell also is a director of Office Depot, Inc. and a member of its audit committee. Prior to Hilton, Ms. Campbell was Senior Vice President, General Counsel and Corporate Secretary of Staples, Inc., an international office products company from May 2007 to June 2011. Before joining Staples, Inc. in 1993, Ms. Campbell worked at the law firms Goodwin Procter LLP and Rackemann, Sawyer & Brewster. Ms. Campbell graduated summa cum laude from Arizona State University and received a J.D. from Cornell University Law School.

Ian R. Carter

 

Ian R. Carter, 55, has served as Executive Vice President and President, Global Development, Architecture and Construction for Hilton since October 2012 and previously oversaw Operations for Hilton since August 2009. He previously served as Chief Executive Officer of Hilton International Co. prior to its re-acquisition by Hilton in February 2006. Prior to joining Hilton International in January 2005, Mr. Carter served as Officer and President of Black & Decker Corporation, Middle East, Africa and Asia. Prior to Black & Decker, Mr. Carter spent more than a decade with General Electric Plastics, ultimately serving as President of General Electric Specialty Chemical. Mr. Carter serves as a non-Executive Director on the Board of Burberry Group plc, where he serves as chairman of the compensation committee, and is President of the Dame Maureen Thomas Foundation for Young People. He serves on the board of advisors of the Boston University School of Hospitality Administration and on the board of directors of Visit Florida. Mr. Carter is non-executive chairman of the board of Del Frisco’s Restaurant Group, Inc. Mr. Carter is a graduate of the University of West London, School of Business and Management, and received an honorary doctorate from the university.

James E. Holthouser

 

James E. Holthouser, 57, has served as Hilton’s Executive Vice President, Brands & Marketing since November 2012. In this role, he serves as our global leader for brand management, marketing and the Honors loyalty program. Mr. Holthouser also oversees the Product Management group and the Global Brands Strategy group. The Product Management group is responsible for the development and management of products for Food & Beverage, Meetings & Events, Spa, Fitness, Guest Technology and Sustainability. The Global Brands Strategy group is responsible for developing strategies for all brand and product groups across the enterprise. With more than 25 years of experience in the lodging, restaurant and gaming industries, Mr. Holthouser has held a series of senior management positions within Hilton in the branding, franchising and marketing arenas. Most recently, he was Global Head of Full Service Brands and Global Head of Embassy Suites Hotels from June 2009 to November 2012, overseeing all aspects of brand management. From October 2005 to June 2009, Mr. Holthouser was Senior Vice President of Brand Management for Embassy Suites. From February 1999 to October 2005, Mr. Holthouser served as Senior Vice President of Brand Management for Homewood Suites by Hilton. His career with the Company began in 1989 in Market Research for Promus. Mr. Holthouser received his M.A. in Political Science from the University of Louisville and his international M.B.A. from the American Graduate School of International Management. He received undergraduate degrees from the University of Louisville in Political Science and Foreign Languages.

Kevin J. Jacobs

 

Kevin J. Jacobs, 44, serves as Executive Vice President and Chief Financial Officer of Hilton and is responsible for the oversight of all of our global finance, information technology and real estate functions. He joined Hilton as Senior Vice President, Corporate Strategy in June 2008, was elected Treasurer in May 2009, became Executive Vice President and Chief of Staff in September 2012 and assumed his current role in August 2013. Previously, from July 2007 to June 2008 he was Senior Vice President, Mergers & Acquisitions and Treasurer of Fairmont Raffles Hotels International. Prior to joining Fairmont Raffles, Mr. Jacobs spent seven years with Host Hotels and Resorts, Inc., most recently as Vice President, Corporate Finance & Investor Relations. Prior to joining Host, Mr. Jacobs held various roles in the Hospitality Consulting practice of PricewaterhouseCoopers LLP and the Hospitality Valuation Group at Cushman & Wakefield, Inc. Mr. Jacobs is a member of the Dean’s Advisory Board for the School of Hotel Administration at Cornell University and a member of the Hotel Development Council of the Urban Land Institute. He is a graduate of the Cornell University School of Hotel Administration.

Matthew W. Schuyler

 

Matthew W. Schuyler, 51, has served as our Executive Vice President and Chief Human Resources Officer since June 2009 and leads the Company’s global human resources organization. Mr. Schuyler was previously Chief Human Resources Officer at Capital One Financial Corporation from April 2002 to June 2009. Prior to Capital One, Mr. Schuyler served as Vice President of Human Resources with Cisco Systems, Inc. and as a Partner with PricewaterhouseCoopers in the Global Human Resources Group. He serves on the board of the Make-A-Wish Foundation of America, where he serves as chairman of the compensation committee, and is a member of the Penn State University Board of Trustees and the Business School Board of Visitors and Penn State’s College of Information Sciences and Technology Advisory Board. Mr. Schuyler holds a B.S. from Penn State University and an M.B.A. from the University of Michigan.

 

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Christopher W. Silcock

 

Christopher W. Silcock, 45, has served as Executive Vice President and Chief Commercial Officer since September 2015 and oversees Revenue Management, Sales, Hilton Reservations & Customer Care, E-Commerce and Regional Marketing. Mr. Silcock previously served as our Head of Sales and Revenue Management from September 2014 and Senior Vice President Revenue Management and Online from January 2013. Prior to that he was Senior Vice President Revenue Management since March 2009. Mr. Silcock holds a bachelor’s of science degree in Computer Studies from University of Essex and studied music prior to his hospitality career.

 

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PROPOSAL NO. 2 — APPROVAL OF

THE HILTON 2017 OMNIBUS INCENTIVE PLAN

In April 2017, upon the recommendation of the Compensation Committee, our Board unanimously approved the Hilton 2017 Omnibus Incentive Plan (the “2017 Omnibus Incentive Plan”), subject to stockholder approval. The 2017 Omnibus Incentive Plan allows us to grant equity-based and certain cash-based awards that are intended to qualify as “performance-based compensation” that are both integral elements of our compensation program. Upon approval by stockholders, the Plan will replace the Company’s 2013 Omnibus Incentive Plan (the “Incentive Plan”) with respect to any future equity-based awards.

DESCRIPTION AND PURPOSE OF THE 2017 OMNIBUS INCENTIVE PLAN

 

The 2017 Omnibus Incentive Plan design allows the Company to

 

•Align employee and stockholder interests to create stockholder value

 

•Attract, retain and motivate highly qualified employees and non-employee directors to ensure the Company’s continued success

 

•Drive long-term financial and operational performance

 

•Adapt to evolving best practices in compensation

   

•Grant qualifying performance-based compensation for purposes of tax deductibility

 

HIGHLIGHTS OF THE 2017 OMNIBUS INCENTIVE PLAN

The 2017 Omnibus Incentive Plan continues many of the key corporate governance features that are currently included in the Incentive Plan, but these existing features have been refined to reflect market and evolving corporate governance best practices. New features include a one year minimum vesting condition and the ability to grant cash-based awards intended to qualify under Section 162(m) of the Internal Revenue Code and the regulations thereunder (“Section 162(m)”) as “qualified performance-based compensation”. Key features of the 2017 Omnibus Incentive Plan are highlighted below and are substantially similar to the Incentive Plan.

 

 

The 2017 Omnibus Incentive Plan does:

LOGO

  Provide for a minimum one year vesting period subject to a 5% carve-out

LOGO

  Contain limits on the number of shares subject to awards under the plan, shares subject to options or stock appreciation rights, and shares subject to performance awards, and cash amounts that may be granted to any individual employee in a fiscal year

LOGO

  Contain a limit on the value of cash and equity-based awards that may be granted to individual non-employee directors in a year

LOGO

  Provide for forfeiture or clawback of awards under certain circumstances

LOGO

  Provide the opportunity for awards to qualify as “performance-based compensation” under Section 162(m)

LOGO

  Provide for administration by a committee of the Board consisting entirely of independent directors

 

 

The 2017 Omnibus Incentive Plan does not:

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  Permit direct or indirect repricing of underwater stock options without stockholder approval

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  Permit the grant of options with below-market exercise prices other than in connection with substitute awards

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  Contain any “evergreen” provisions that automatically add additional shares to the plan pool

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  Permit the grant of reload options

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  Provide for loans to pay exercise prices or taxes

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  Permit us to pay and deliver dividends or dividend equivalents for unvested equity awards

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Permit us to pay dividends or dividend equivalents on outstanding stock options or stock appreciation rights

 

 

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2017 OMNIBUS INCENTIVE PLAN TERMS

Upon approval by stockholders, the 2017 Omnibus Incentive Plan will replace our Incentive Plan with respect to any future equity-based awards and, following the Annual Meeting, no new awards will be granted under the Incentive Plan. We are seeking approval of the 2017 Omnibus Incentive Plan, among other reasons, due to the fact that following the Annual Meeting, we will be subject to Section 162(m) and we desire to have the 2017 Omnibus Incentive Plan approved by stockholders to benefit from the provisions of Section 162(m). We are also seeking approval of the 2017 Omnibus Incentive Plan in order to qualify certain stock options authorized under the 2017 Omnibus Incentive Plan for treatment as incentive stock options for purposes of Section 422 of the Internal Revenue Code.

 

 

2017 Omnibus Incentive Plan

 

 

Incentive Plan

 

•  Pool of 15 million new shares available for grant plus the number of shares of common stock underlying any award previously granted under the Incentive Plan that expires, terminates, is cancelled or is forfeited for any reason under the terms of the Incentive Plan

 

 

•  As of March 31, 2017, there were approximately 5.7 million shares(1) subject to outstanding awards

 

 

•  As of March 31, 2017, approximately 29 million shares(2) remained eligible for grant

 

 

•  No more than 300,000 shares are expected to be granted between March 31, 2017 and the date of the Annual Meeting

 

 

•  Upon stockholder approval of the 2017 Omnibus Incentive Plan, no additional awards will be granted under the Incentive Plan

 

 

(1) All outstanding equity awards were adjusted to reflect the spin-offs. Any awards previously granted under the Incentive Plan will remain outstanding in accordance with their terms, and the shares underlying any such awards will be issued pursuant to the terms of the Incentive Plan.

 

(2) The remaining share pool under the Incentive Plan was adjusted to reflect the spin-offs.

We believe that the number of shares of our common stock requested to be reserved for equity-based awards under the 2017 Omnibus Incentive Plan represents a reasonable amount of potential equity dilution and will allow us to continue granting equity-based awards, which are an important component of our overall compensation program. Shares of common stock issued under the 2017 Omnibus Incentive Plan may come from newly issued, treasury or reacquired shares, or any combination thereof.

EQUITY AWARD INFORMATION

In reaching our conclusion as to the appropriateness of the number of shares of common stock requested to be reserved for equity-based awards under the 2017 Omnibus Incentive Plan, we reviewed key metrics that are typically used to evaluate such recommendations including run rate and dilution.

The table below illustrates our historical grant practices under the Incentive Plan.

 

Incentive Plan Grant Details for Prior 3 Years  

Year

  Stock
Options
    RSUs Granted
(Stock-Settled)
   

 Performance Based 
RSUs Earned

(Stock-Settled)

    Total Granted
(Stock-Settled)
     Common Shares 
Outstanding
    Run Rate (1) = Total
Granted/Common
Shares
Outstanding
 

2014

    334,530       1,883,454             2,217,984       328,207,954       0.68

2015

    309,528       679,546             989,074       329,152,787       0.30

2016

    503,150       1,169,238       305,670       1,978,058       329,341,992       0.60

3-Year Average

                                            0.53 % 

 

(1)  Run rate measures how rapidly we are using the share pool under an incentive plan before taking into account shares returned to the share pool. For purposes of this calculation, the number of shares of common stock outstanding was based on the amount reported on the Company’s balance sheet for the respective fiscal year ended.

 

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The information reported in Note 20 (“Share-Based Compensation”) of the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (the “Annual Report on Form 10-K”) reflects information as of December 31, 2016. At December 31, 2016, the total number of shares underlying outstanding equity awards granted under the Incentive Plan was 3,389,863 (which amount adjusts to give effect to the 1-for-3 reverse stock split effected in January 2017 (the “reverse stock split”). Subsequent to December 31, 2016, among other actions taken in connection with the spin-offs, we adjusted all of our outstanding equity-based awards and the number of shares authorized for future grant under the Incentive Plan in a manner intended to preserve the value of such awards and the plan pool. In addition, in February 2017, we granted equity-based awards. As a result, as of March 31, 2017, the number of shares underlying outstanding equity-based awards and the number of shares authorized for future grant under the Incentive Plan differ from the information in our Annual Report on Form 10-K. In order to provide meaningful and comparative information, the table below provides information regarding outstanding and unissued shares under the Incentive Plan (1) as of March 31, 2017 after giving effect to all transactions that occurred from January 1, 2017 through March 31, 2017 and (2) as of March 31, 2017 on a pro forma basis assuming all such transactions but the reverse stock split had occurred. The table also provides the basis for the number of shares requested under the 2017 Omnibus Incentive Plan.

 

           

Pro Forma Pre-

Reverse Stock Split

(as of March 31, 2017) (1)

   

Actual

(as of March 31, 2017) (2)

 
(a)    Remaining authorized but unissued shares under the Incentive Plan      89,336,358       29,778,786  
(b)    Remaining authorized but unissued shares under the Incentive Plan available for issuance between 3/31/2017 and the Annual Meeting, assuming stockholder approval of the 2017 Omnibus Incentive Plan      900,000       300,000  
(c)    Number of shares no longer available for issuance under the Incentive Plan if stockholders approve the 2017 Omnibus Incentive Plan      88,436,358       29,478,786  
(d)    Proposed number of new shares under the 2017 Omnibus Incentive Plan      45,000,000       15,000,000  (3) 
(e)    Shares subject to outstanding awards (excluding shares subject to stock options)      10,901,721       3,633,907  
(f)    Shares underlying stock options subject to outstanding awards*      6,075,948       2,025,316  
   — Weighted Average Exercise Price      $21.16       $63.48  
     — Weighted Average Remaining Term      8.916 years       8.916 years  
(g)    Total Awards Outstanding* (e+f)      16,977,669       5,659,223  
(h)    Number of shares of common stock outstanding      989,272,920       329,757,640  
(i)    Proposed new shares under the 2017 Omnibus Incentive Plan as a % of Common Stock Outstanding (d ÷ h)      4.55     4.55
(j)    Total Potential Dilution ((b+d+g) / (b+d+g+h))      5.98     5.98
    

*    Total Awards Outstanding represents the sum of shares subject to awards outstanding (e) and stock options outstanding (f)

                

 

(1)  Information is presented as of March 31, 2017 on a pro forma basis as if all of the transactions described in footnote (2) below had occurred except the reverse stock split.

 

(2)  Information is presented and effective as of March 31, 2017 and reflects all events related to equity-based awards that occurred between January 1, 2017 and March 31, 2017, including:

(x) as to outstanding awards: (1) the adjustments made in connection with the spin-offs; (2) the conversion of outstanding performance shares into time-vesting restricted shares, assuming a target level of performance would have been achieved; and (3) our February 2017 equity grants (which assume, as to performance shares granted in the form of RSUs, achievement of target level of performance and, as to performance shares granted in the form of restricted stock, achievement of maximum level of performance); and

(y) as to the remaining authorized but unissued shares available under the Incentive Plan, those previously granted equity awards that could have settled in or been exercisable for shares of Company common stock but that were converted in the spin-offs into awards that will settle in or be exercisable for shares of Park or HGV common stock, as applicable, and that were cancelled and added back to the remaining authorized but unissued shares available for future grant under the Incentive Plan.

 

(3) Does not include the number of shares of Company common stock underlying any award previously granted under the Incentive Plan that expires, terminates, is cancelled or is forfeited for any reason under the terms of the Incentive Plan.

SECTION 162(m)

Stockholder approval of the 2017 Omnibus Incentive Plan is also required in order to permit (but not obligate) the Compensation Committee to grant awards that qualify as performance-based compensation under Section 162(m) for purposes of tax deductibility. If the 2017 Omnibus Incentive Plan is not approved by stockholders, certain equity and cash-based awards to employees covered by Section 162(m) will not qualify as performance-based compensation.

 

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SUMMARY OF THE 2017 OMNIBUS INCENTIVE PLAN

This section summarizes the 2017 Omnibus Incentive Plan, and is qualified in its entirety by the full text of the 2017 Omnibus Incentive Plan, which is included as Appendix A to this Proxy Statement. Capitalized terms used below and not defined in this Proposal 2 are as defined in the 2017 Omnibus Incentive Plan.

 

Eligible Participants

 

  Anyemployee, director, officer, consultant or advisor to the Company or one of its subsidiaries (Company Group) (excluding, generally, employees covered by a collective bargaining agreement) selected by the Compensation Committee is eligible to receive awards under the 2017 Omnibus Incentive Plan.

 

  Asof March 31, 2017, there were approximately 2,500 persons eligible to participate in the Incentive Plan.

 

  Weanticipate that future participation by employees and other individuals will be at levels similar to their past participation under the Incentive Plan.

Administration

 

The 2017 Omnibus Incentive Plan is administered by the Compensation Committee. All members of the Compensation Committee are non-employee directors of the Company. The Committee has broad discretion to determine the individuals eligible for awards and the size, type, and terms of awards to be granted and to interpret the provisions of the 2017 Omnibus Incentive Plan. The Compensation Committee retains the discretion to accelerate the vesting of any awards in the event of a termination of employment or service and may adjust the vesting period for awards assumed by the Company in corporate transactions.

Shares Available Under the 2017 Omnibus Incentive Plan

 

The 2017 Omnibus Incentive Plan has a pool of 15 million shares which may be granted subject to awards described below.

 

   Sharesthat are subject to any award previously granted under the Incentive Plan that expires, terminates, is cancelled or is forfeited for any reason under the terms of the Incentive Plan may be granted under the 2017 Omnibus Incentive Plan.

 

   Sharessubject to an award that are withheld or surrendered in payment of the exercise price or taxes relating to the award, and not delivered to a participant, will be made again available for grant under the 2017 Omnibus Incentive Plan.

 

   Nomore than 15 million shares may be granted subject to incentive stock options.

Types of Awards

 

The 2017 Omnibus Incentive Plan allows for the granting of stock options (both non-qualified and incentive), stock appreciation rights, restricted stock, restricted stock units, cash and equity-based performance compensation awards, dividend equivalents and other stock-based awards.

 

   TheCompensation Committee has the authority to grant and set the terms and conditions of awards made to participants, so long as such awards and the terms and conditions thereof are consistent with the provisions of the 2017 Omnibus Incentive Plan.

 

   Awardsunder the 2017 Omnibus Incentive Plan may be paid in cash, common shares or as determined by the Compensation Committee.

Annual Award Limits (Participants Other than Non-Employee Directors)

 

  Noparticipant shall be granted more than 2 million shares subject to stock options and stock appreciation rights in any one fiscal year.

 

  Noparticipant shall receive more than 2 million shares subject to performance compensation awards denominated in shares of common stock for a single fiscal year (or, if the Performance Period extends beyond a single fiscal year, 2 million shares times the number of full fiscal years in the Performance Period).

 

  Themaximum amount of compensation that may be paid to any individual participant under a performance compensation award denominated in cash for a single fiscal year shall be $30 million (or if, the applicable Performance Period extends beyond a single fiscal year, $30 million times the number of full fiscal years in the applicable Performance Period).

Annual Award Limits (Non-Employee Directors)

 

No non-employee director may be granted equity-based awards under the 2017 Omnibus Incentive Plan in any one fiscal year for services as a non-employee director with an aggregate fair market value (determined on the award grant date) in excess of $1 million (taken together with any cash fees paid to the non-employee director during the fiscal year).

 

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Minimum Vesting Condition

 

All awards will have a minimum vesting condition of at least one year from the date of grant except up to a maximum of five percent (5%) of the aggregate number of shares available for issuance under the 2017 Omnibus Incentive Plan may be issued without regard to any minimum vesting period requirements.

Stock Options and Stock Appreciation Rights

 

  Astock option is the right to purchase a specified number of shares of our common stock for a fixed exercise price and a stock appreciation right (SAR) is the right to receive cash, common stock or other property based on the increase in the value of a number of shares underlying the award over a fixed exercise price.

 

   Stockoptions and SARs must have an exercise price of no less than fair market value on the date of grant for awards, subject to a limited exception for awards assumed by the Company in corporate transactions.

 

  Fairmarket value of a share of common stock on a given date is determined by the closing price as reported by the Company’s principal stock exchange (NYSE) on such date.

 

  Stockoptions and SARs may not have a term longer than ten years.

Restricted Stock and Restricted Stock Units

 

  Restrictedstock is an award of shares of common stock which is subject to vesting conditions as determined by the Compensation Committee.

 

   Aparticipant who has received an award of restricted stock has the right to vote and to accrue dividends on the underlying unvested shares; provided that no dividends will be payable with respect to an award of restricted stock unless and until the applicable vesting restrictions have lapsed, and in no event prior thereto. No dividends will be paid on unvested shares which are forfeited.

 

  Restrictedstock units are awards that represent the right to receive, upon the expiration of the applicable restricted period, shares of common stock or cash which will vest as determined by the Compensation Committee.

   

   Aparticipant who has received an award of restricted stock units will have no right to vote the underlying shares but may receive dividend equivalents if determined by the Compensation Committee in an award agreement or otherwise; provided that no dividend equivalents will be payable with respect to an award of restricted stock units unless and until the applicable vesting restrictions have lapsed and the restricted stock units have settled, and in no event prior thereto. No dividend equivalents will be paid on restricted stock units which are forfeited.

Performance Compensation Awards

 

Performance compensation awards are amounts payable in cash and/or shares of common stock, with the amount of the award based on the degree to which performance objectives are achieved during a specified period, subject to certification in writing of performance results by the Compensation Committee.

 

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Performance Criteria

 

Specific performance criteria for purposes of performance compensation awards are limited to one or more of the following, as determined by the Compensation Committee, which performance criteria may be determined in accordance with GAAP or on a non-GAAP basis and may relate to performance of the Company (and/or one or more members of the Company Group, divisions or operational and/or business units, product lines, brands, business segments, administrative departments or any combination of the foregoing):

 

  Netearnings or net income (before or after taxes)

 

  Basicor diluted earnings per share (before or after taxes)

 

  Netrevenue or net revenue growth

 

  Grossrevenue or gross revenue growth, gross profit or gross profit growth

 

  Netoperating profit (before or after taxes)

 

  Returnmeasures (including, but not limited to, return on investment, assets, capital, employed capital, invested capital, equity, or sales)

 

  Cashflow and/or growth measures (including, but not limited to, gross or adjusted cash flow, operating cash flow, free cash flow, and cash flow return on capital), which may but are not required to be measured on a per share basis

 

  Earningsbefore or after interest, taxes, depreciation and/or amortization (including EBIT, EBITDA and adjusted EBITDA)

 

  Grossor net operating margins

 

  Productivityratios

 

  Shareprice (including, but not limited to, growth measures and total stockholder return)

 

  Expensetargets or cost reduction goals, general and administrative expense savings

 

  Operatingefficiency

 

  Objectivemeasures of customer satisfaction

 

  Workingcapital targets

 

  Measuresof economic value added or other ‘value creation’ metrics

 

  Inventorycontrol

 

  Enterprisevalue

 

  Sales

 

  Stockholderreturn

 

  Competitivemarket metrics

 

  Employeeretention

 

  Timelycompletion of new product rollouts

 

  Timelyopening of new facilities

 

  Objectivemeasures of personal targets, goals or completion of projects (including but not limited to succession and hiring projects, completion of specific acquisitions, dispositions, reorganizations or other corporate transactions or capital-raising transactions, expansions of specific business operations and meeting divisional or project budgets)

 

  System-widerevenues

 

  Franchiseand/or royalty income

 

  Comparisonsof continuing operations to other operations

 

  Marketshare

 

  Costof capital, debt leverage year-end cash position or book value

 

  Strategicobjectives, development of new product lines and related revenue, sales and margin targets

 

  Franchiseegrowth and retention, co-branding or international operations

 

  Managementfee or licensing fee growth

 

  Capitalexpenditures

 

  Guestsatisfaction

 

  RevPAR(revenue per available room)

 

  Anycombination of the foregoing

 

Following the completion of a Performance Period, the Compensation Committee will review and certify in writing whether and to what extent the relevant performance goals have been achieved, and calculate and certify in writing the amount of the performance compensation awards earned for the period based on the applicable formula(e). The Compensation Committee may reduce or eliminate the amount of the performance compensation award consistent with Section 162(m).

 

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Other Equity-Based Awards/Cash-Based Performance Awards

 

The Compensation Committee may grant other equity-based awards or cash-based performance awards under the 2017 Omnibus Incentive Plan, with terms and conditions that are consistent with the 2017 Omnibus Incentive Plan.

Dividends and Dividend Equivalents

 

 The Compensation Committee may, in its sole discretion, provide part of an award with dividends, dividend equivalents, or similar payments in respect of awards, with such terms and conditions as may be determined by the Compensation Committee in its sole discretion; provided, that no dividend equivalents will be payable in respect of (1) outstanding stock options or stock appreciation rights, whether vested or unvested, or (2) any unvested awards.

 

 To the extent provided in the applicable award agreement or otherwise, holders of restricted stock units will be credited with dividend equivalent payments in cash (unless the Compensation Committee elects to credit such payments in shares of common stock or additional restricted stock units) without interest (unless otherwise determined by the Compensation Committee), which will be payable at the same time as the underlying restricted stock units are settled, and in no event prior thereto. There is no right to dividend equivalent payments (or earnings or interest thereon, if applicable) prior to the settlement date.

Transferability

 

An award will not be transferable or assignable by a participant other than by will or by the laws of descent and distribution and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance will be void and unenforceable against us or any affiliate (unless such a transfer is specifically required pursuant to a domestic relations order or by an applicable law).

Clawback/Repayment

 

All awards are subject to reduction, cancellation, forfeiture or recoupment to the extent necessary to comply with (1) any clawback, forfeiture, or other similar policy adopted by our Board or the Compensation Committee as in effect from time to time, and (2) applicable law.

Detrimental Activity

 

If a participant has engaged in any Detrimental Activity, as determined by the Compensation Committee, the Compensation Committee may, in its sole discretion, provide for one or both of the following: (1) cancellation of any or all of such participant’s outstanding awards; or (2) forfeiture by the participant of any gain realized on the vesting or exercise of awards and prompt repayment to us of any such gain.

Corporate Events/Change in Control

 

The 2017 Omnibus Incentive Plan provides that in the event of specified corporate transactions or changes in corporate capitalization, including a Change in Control, the Compensation Committee will make appropriate changes to the terms of the 2017 Omnibus Incentive Plan (e.g., the maximum number or kind of shares that may be issued under the 2017 Omnibus Incentive Plan and the individual limits) and the outstanding awards.

 

Except as otherwise provided in an award agreement, in connection with a Change in Control, the Compensation Committee may provide for any one or more of the following: (A) substitution or assumption of, accelerated vesting, exercisability, or lapse of restrictions on, or termination of any awards, or provide for a period of time to exercise outstanding awards following the occurrence of such event; (B) cancelation and cash out of any one or more outstanding awards in accordance with the terms set forth in the 2017 Omnibus Incentive Plan; and (C) subject to any limitations or reductions as may be necessary to comply with Section 409A of the Internal Revenue Code, conversion or replacement of any unvested award that is not vested as of the occurrence of such event into or with the right to receive a payment, based on the value of the award, which is subject to continued vesting on the same basis as the vesting requirements applicable to such converted or replaced award.

Tax Withholding

 

The exercise or payment of awards and the issuance of shares under the 2017 Omnibus Incentive Plan are conditioned upon a participant making arrangements for the satisfaction of any liability to withhold federal, state, local or foreign income or other taxes. The Committee may (but is not obligated to), in its sole discretion, provide that participants satisfy all or a portion of the applicable income or other taxes with respect to an award through delivery of shares by the participant to the Company, or by the Company’s withholding shares otherwise issuable to participant pursuant to such award.

 

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Plan/Award Agreement Amendment/Termination

 

The 2017 Omnibus Incentive Plan may be amended or terminated in whole or in part at any time by the Board; provided, however, that no amendment may be made without stockholder approval if (1) such approval is necessary to comply with any regulatory requirement applicable to the 2017 Omnibus Incentive Plan or for changes in GAAP to new accounting standards, (2) it would materially increase the number of securities which may be issued under the 2017 Omnibus Incentive Plan (except for adjustments in connection with certain corporate events), or (3) it would materially modify the requirements for participation in the 2017 Omnibus Incentive Plan; provided further, that any amendment or termination that would materially and adversely affect the rights of any participant or any holder or beneficiary of any award will not to that extent be effective without such individual’s consent.

 

The Compensation Committee may also, to the extent consistent with the terms of any applicable award agreement, waive any conditions or rights under, amend any terms of, or cancel or terminate, any award granted or the associated award agreement, prospectively or retroactively, subject to the consent of the affected participant if any such waiver, amendment, cancellation or termination would materially and adversely affect the rights of any participant with respect to such award.

 

However, without stockholder approval, except as otherwise permitted in the 2017 Omnibus Incentive Plan, (1) no amendment or modification may reduce the exercise price of any option or the strike price of any SAR, (2) the Compensation Committee may not cancel any outstanding option or SAR and replace it with a new option or SAR (with a lower exercise price or strike price, as the case may be) or other award or cash payment that is greater than the value of the cancelled option or SAR, and (3) the Compensation Committee may not take any other action which is considered a “repricing” for purposes of the stockholder approval rules of any securities exchange or inter-dealer quotation system on which our securities are listed or quoted. No such amendment by the Compensation Committee may alter the Minimum Vesting Period.

 

No award may be granted under the 2017 Omnibus Incentive Plan after the tenth anniversary of the effective date (as defined therein), but awards granted before such tenth anniversary may extend beyond that date.

CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

The following general discussion of the federal income tax consequences of awards to be granted under the 2017 Omnibus Incentive Plan is based on current federal tax laws and regulations, does not purport to be a complete description of the federal income tax laws, and does not purport to be a representation as to the actual tax consequences that any participant or the Company may in fact incur. Participants may also be subject to certain state and local taxes, which are not described below. The value of any other stock award granted to participants will be taxable as ordinary income to such participant in the year in which such stock is received, and (subject to Section 162(m)), the Company will be entitled to a corresponding tax deduction.

Non-qualified Stock Options. If the award granted is a non-qualified stock option, no income is realized by the participant at the time of grant of the option, and no deduction is available to the Company at such time. At the time of a cash-out or exercise, ordinary income is realized by the participant in an amount equal to the excess of the fair market value of the common stock on the date of exercise over the option exercise price, and the Company receives a tax deduction for the same amount. Upon disposition, any difference between the participant’s tax basis in the common stock and the amount realized on disposition of the shares is treated as a capital gain or loss.

Incentive Stock Options. If the award granted is an incentive stock option, no income is realized by the participant upon grant or exercise of the option and no compensation deduction is available to the Company at such times. If the common stock purchased upon the exercise of an incentive stock option is held by a participant for at least two years from the date of the grant of such option and for at least one year after exercise, any resulting gain is taxed, upon disposition of the common stock, at long-term capital gains rates. If the common stock purchased pursuant to the option is disposed of before the expiration of that period, any gain on the disposition, up to the excess of the fair market value of the common stock at the time of exercise over the option exercise price, is taxed at ordinary income rates as compensation paid to the participant, and the Company is entitled to a compensation deduction for an equivalent amount. Any further gain (or loss) that the participant realizes upon the disqualified disposition of the common stock will be taxed as short-term or long-term capital gain (or loss), depending on how long the participant held the shares, and such gains will not result in any further tax deduction for the Company.

Stock Appreciation Rights. If the award granted is a stock appreciation right, the participant realizes no income at the time a stock appreciation right is granted, and no deduction is available to the Company at such time. When the right is exercised, ordinary income is realized by the participant in the amount of the cash and/or the fair market value of the common stock received by the participant, and the Company shall be entitled to a deduction of the same amount.

Restricted Stock Units. If the award granted is a restricted stock unit, the participant will not realize any income for federal income tax purposes when restricted stock units are granted because restricted stock units are not considered to be “property” for

 

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purposes of the Internal Revenue Code and no deduction is available to the Company at such time. After the restricted stock units vest and are settled, ordinary income is realized by the participant in an amount equal to the fair market value of the shares of common stock and/or any cash received, the Company receives a tax deduction in the same amount. Upon disposition, the participant generally will have a taxable capital gain (or loss). If a participant forfeits his or her restricted stock unit award, no gain or loss is recognized and no deduction is allowed.

Restricted Stock Awards. If the award is granted as shares of restricted stock, the Company receives a deduction and the participant recognizes taxable income equal to the fair market value of the restricted stock award at the time the restrictions on the stock awarded lapse, unless the participant elects to recognize such income immediately by so electing, within 30 days after the date of grant by the Company to the participant of a restricted stock award, as permitted under Section 83(b) of the Internal Revenue Code, in which case both the Company’s deduction and the participant’s inclusion in income occur on the grant date. A Section 83(b) election may not be made without the prior consent of the Company.

Section 162(m) of the Internal Revenue Code. Section 162(m) generally disallows a tax deduction to public companies for compensation over $1 million paid to the chief executive officer and the three other most highly compensated executive officers of the Company or any of its subsidiaries (excluding the Company’s principal financial officer) in any taxable year of the Company. Qualified performance-based compensation is not subject to this deduction limit if certain requirements are met. One requirement is stockholder approval of (1) the performance criteria upon which performance-based awards may be based, (2) the annual participant limits on awards and (3) the class of employees eligible to receive awards. In the case of restricted stock awards and performance-based awards, other requirements generally are that objective performance goals and the amounts payable upon achievement of the goals be established by a committee of at least two “outside directors” (within the meaning of Section 162(m)) and that no discretion be retained to increase the amount payable under the awards. In the case of stock options and stock appreciation rights, other requirements are that the stock option or stock appreciation right be granted by a committee of at least two “outside directors” and that the exercise price or Strike Price, as applicable, of the stock option or stock appreciation right be not less than 100% of the fair market value of the common stock subject to such award on the date of grant of the award.

Section 409A of the Internal Revenue Code. Section 409A of the Internal Revenue Code (“Section 409A”) covers certain nonqualified deferred compensation arrangements and generally establishes rules that must be followed with respect to covered deferred compensation arrangements in order to avoid the imposition of an additional 20% tax (plus interest) on the service provider who is entitled to receive the deferred compensation. Certain awards that may be granted under the 2017 Omnibus Incentive Plan may constitute “deferred compensation” within the meaning of and subject to Section 409A. While the Committee intends to administer and operate the 2017 Omnibus Incentive Plan and establish terms (or make required amendments) with respect to awards subject to Section 409A in a manner that will avoid the imposition of additional taxation under Section 409A upon a participant, there can be no assurance that additional taxation under Section 409A will be avoided in all cases.

NEW PLAN BENEFITS

The Company has not approved any equity-based awards that are conditioned upon stockholder approval of the 2017 Omnibus Incentive Plan. Equity-based awards under the 2017 Omnibus Incentive Plan will be determined by the Compensation Committee in its discretion. If the 2017 Omnibus Incentive Plan had been in effect during 2016, we expect that the equity-based awards granted during 2016 would have been the same as those actually made under the Incentive Plan. For information regarding equity-based awards made to our named executive officers during 2016, see “Executive Compensation — 2016 Grants of Plan-Based Awards.” For information regarding equity-based awards made to our directors in 2016, and to be made in 2017, see “Compensation of Directors.”

The Compensation Committee has granted under the 2017 Omnibus Incentive Plan, subject to stockholder approval of the 2017 Omnibus Incentive Plan, contingent cash-based Performance Compensation Awards (the “2017 Annual Cash Incentive Compensation Awards”). In order to comply with Section 162(m), the performance condition and maximum potential under such contingent awards needed to be established no later than April 1, 2017 (i.e., within the first 90 days of the performance period). The 2017 Annual Cash Incentive Compensation Awards will only be payable if our stockholders approve the 2017 Omnibus Incentive Plan and the pre-established performance condition established in writing by the Compensation Committee is met. The following table sets forth the maximum amount of 2017 Annual Cash Incentive Compensation Awards that may be earned under the 2017 Omnibus Incentive Plan if it is approved by stockholders and the performance condition established in writing by the Compensation Committee is met. The Compensation Committee may exercise discretion to determine the payout of each individual’s 2017 Annual Cash Incentive Compensation Award, with such payouts not to exceed the applicable maximum listed below.

 

Hilton    PROXY STATEMENT    21


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Maximum 2017 Annual Cash Incentive Compensation Award Potential

 

Name And Position

   Award(1)  

Christopher J. Nassetta

     $6,000,000      

Kevin J. Jacobs

     N/A      

Ian R. Carter

     $2,000,000      

Mark D. Wang

     N/A      

James E. Holthouser

     $2,000,000      

All Current Executive Officers as a Group

     $16,000,000 (2)  

All Current Non-Executive Directors as a Group

     N/A      

All Current Non-Executive Officer Employees as a Group

     N/A      

 

(1)  Cash-based performance compensation awards under the 2017 Omnibus Incentive Plan have been granted to participants who are, or that the Compensation Committee reasonably believes could be, a “covered employee” (within the meaning of section 162(m)). The amounts reported above reflect the 2017 Annual Cash Incentive Compensation Awards contingently granted to Mr. Nassetta and our other current executive officers (other than our Chief Financial Officer, as his compensation is not subject to the deduction limitations under section 162(m)). Accordingly, no amounts are reflected for Mr. Jacobs or for Mr. Wang, who became HGV’s President and CEO in connection with the spin-offs.

 

(2)  This number is inclusive of the $10 million referenced above.

EQUITY COMPENSATION PLAN INFORMATION

The following table provides information about our common stock that may be issued under our existing Incentive Plan. Share and share price information have been adjusted to reflect the reverse stock split.

 

As of December 31, 2016

 
     Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights (1)
    Weighted-average exercise
price of outstanding
options, warrants and rights
    Number of securities
remaining available for
future issuance under equity
compensation Plans
 

Equity compensation plans approved by stockholders

    3,389,863     $ 66.83  (2)      21,823,633  

Equity compensation plans not approved by stockholders

                 

 

(1) In addition to shares issuable upon exercise of stock options, amount also includes 2,313,832 shares that may be issued upon settlement of restricted stock units, performance shares and DSUs and dividend equivalents accrued thereon. The number of shares to be issued in respect of performance shares outstanding as of December 31, 2016 has been calculated based on the assumption that target levels of performance applicable to the performance shares would have been achieved. This assumption of target level achievement was based on the actual treatment of such outstanding performance shares in the January 2017 spin-offs. The restricted stock units, performance shares and DSUs cannot be exercised for consideration.

 

(2) The weighted-average exercise price of outstanding options, warrants and rights relates solely to stock options, which are the only currently outstanding exercisable security.

REGISTRATION WITH THE SECURITIES AND EXCHANGE COMMISSION

If the 2017 Omnibus Incentive Plan is approved by stockholders, we expect to file as soon as practicable after the Annual Meeting a Registration Statement on Form S-8 with the Securities and Exchange Commission to register the shares of common stock that will be issuable under the 2017 Omnibus Incentive Plan.

YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL OF THE HILTON 2017 OMNIBUS INCENTIVE PLAN.

 

22    PROXY STATEMENT    Hilton


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PROPOSAL NO. 3 — RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee has selected Ernst & Young LLP to serve as our independent registered public accounting firm for 2017.

Although ratification is not required by our by-laws or otherwise, the Board is submitting the selection of Ernst & Young LLP to our stockholders for ratification because we value our stockholders’ views on the Company’s independent registered public accounting firm. If our stockholders fail to ratify the selection, it will be considered as notice to the Board and the Audit Committee to consider the selection of a different firm. Even if the selection is ratified, the Audit Committee, in its discretion, may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and its stockholders.

Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting. They also will have the opportunity to make a statement if they desire to do so, and they are expected to be available to respond to appropriate questions.

The shares represented by your proxy will be voted for the ratification of the selection of Ernst & Young LLP unless you specify otherwise.

AUDIT AND NON-AUDIT FEES

In connection with the audit of the 2016 financial statements and internal control over financial reporting, we entered into an agreement with Ernst & Young LLP which sets forth the terms by which Ernst & Young LLP will perform audit services for the Company.

The following table presents fees for professional services rendered by Ernst & Young LLP for the audit of our financial statements for 2016 and 2015 and fees billed for other services rendered by Ernst & Young LLP for those periods and includes additional audit and non-audit fees incurred in connection with the spin-offs of Park Hotels & Resorts Inc. and Hilton Grand Vacations Inc., which were completed in January 2017:

 

      2016        2015  

Audit Fees:

       

Consolidated Audit(1)

   $ 6,917,189        $ 7,134,387  

Audit Fees – Spin-off(2)

     8,668,097          971,556  

Statutory and Subsidiary Audits(3)

     3,734,886          4,094,098  
     19,320,172          12,200,041  

Audit-related fees(4)

     1,676,167          2,689,678  

Tax fees(5)

     13,867,130          4,509,973  

All other fees(6)

     100,056          448,782  

Total:

   $ 34,963,525        $ 19,848,475  

 

(1)  Includes the aggregate fees recognized in each of the last two fiscal years for professional services rendered by Ernst & Young LLP for the audit of the Company’s annual financial statements and internal control over financial reporting and the review of financial statements included in SEC filings. The fees are for services that are normally provided by Ernst & Young LLP in connection with statutory or regulatory filings or engagements.

 

(2)  Includes fees principally related to professional services rendered in connection with the audit of the financial statements issued in connection with the spin-off transactions of Park Hotels & Resorts Inc. and Hilton Grand Vacations Inc.

 

(3) Includes the aggregate fees recognized in each of the last two fiscal years for professional services rendered by Ernst & Young LLP that are reasonably related to the performance of audits related to subsidiaries and statutory reporting required for legal compliance for certain international subsidiaries or requirements of debt or other operating agreements.

 

(4)  Includes the aggregate fees recognized in each of the last two fiscal years for professional services rendered by Ernst & Young LLP that are reasonably related to the performance of the Company’s audit. Specifically, these costs include fees for audits of employee benefit plans, accounting and audit consultation, separate company financial statements for our ownership and timeshare businesses and other attest services.

 

(5)  Includes the aggregate fees recognized in each of the last two fiscal years for professional services rendered by Ernst & Young LLP for tax compliance, tax advice and tax planning, including services in support of the spin-off transactions of Park Hotels & Resorts Inc. and Hilton Grand Vacations Inc.

 

(6)  Represents fees for international legal entity restructuring and accounting research services.

The Audit Committee considered whether providing the non-audit services shown in this table was compatible with maintaining Ernst & Young LLP’s independence and concluded that it was.

Consistent with SEC policies regarding auditor independence and the Audit Committee’s charter, the Audit Committee has responsibility for engaging, setting compensation for and reviewing the performance of the independent registered public accounting firm. In exercising this responsibility, the Audit Committee has adopted policies and procedures relating to the approval of all audit and permitted non-audit services provided by any independent registered public accounting firm prior to each engagement.

YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF ERNST & YOUNG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2017.

 

Hilton    PROXY STATEMENT    23


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PROPOSAL NO. 4 — NON-BINDING VOTE ON EXECUTIVE COMPENSATION

In accordance with the requirements of Section 14A of the Exchange Act (which was added by the Dodd-Frank Wall Street Reform and Consumer Protection Act) and the related rules of the SEC, we are including in these proxy materials a separate resolution subject to stockholder vote to approve, in a non-binding, advisory vote, the compensation paid to our named executive officers as disclosed on pages 44 to 53. While the results of the vote are non-binding and advisory in nature, the Compensation Committee and the Board intend to carefully consider the results of this vote.

The text of the resolution in respect of Proposal No. 4 is as follows:

“RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed in this Proxy Statement pursuant to the rules of the SEC, including the Compensation Discussion and Analysis, compensation tables and any related narrative discussion, is hereby APPROVED.”

In considering their vote, stockholders may wish to review with care the information on our compensation policies and decisions regarding the named executive officers presented in the Compensation Discussion and Analysis on pages 27 to 43, as well as the discussion regarding the Compensation Committee on pages 6 to 7.

YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL OF THE COMPENSATION PAID TO OUR NAMED EXECUTIVE OFFICERS.

 

24    PROXY STATEMENT    Hilton


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REPORT OF THE AUDIT COMMITTEE

The Audit Committee operates pursuant to a charter which is reviewed annually by the Audit Committee. Additionally, a brief description of the primary responsibilities of the Audit Committee is included in this Proxy Statement under the discussion of “The Board of Directors and Certain Governance Matters — Committee Membership — Audit Committee.” Under the Audit Committee charter, management is responsible for the preparation, presentation and integrity of the Company’s financial statements, the application of accounting and financial reporting principles and our internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. The independent registered public accounting firm is responsible for auditing our financial statements and expressing an opinion as to their conformity with accounting principles generally accepted in the United States of America.

In the performance of its oversight function, the Audit Committee reviewed and discussed the audited financial statements and internal control over financial reporting of the Company with management and with the independent registered public accounting firm. The Audit Committee also discussed with the independent registered public accounting firm the matters required to be discussed by Public Company Accounting Oversight Board Auditing Standard No. 1301 “Communications with Audit Committee.” In addition, the Audit Committee received the written disclosures and the letters from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and discussed with the independent registered public accounting firm their independence.

Based upon the review and discussions described in the preceding paragraph, the Audit Committee recommended to the Board that the audited financial statements of the Company be included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC.

Submitted by the Audit Committee of the Company’s Board of Directors:

Douglas M. Steenland, Chair

Judith A. McHale

Elizabeth A. Smith

 

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REPORT OF THE COMPENSATION COMMITTEE

The Compensation Committee has discussed and reviewed the following Compensation Discussion and Analysis with management. Based upon this review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference into the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

Submitted by the Compensation Committee of the Board of Directors:

John G. Schreiber, Chair

Jon M. Huntsman, Jr.

Judith A. McHale

 

26    PROXY STATEMENT    Hilton


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EXECUTIVE COMPENSATION –

COMPENSATION DISCUSSION AND ANALYSIS (“CD&A”)

EXECUTIVE SUMMARY

Our executive compensation program is designed to attract and retain individuals with the skills and qualifications to manage and lead the Company effectively. The overarching goal of our program is to motivate our leaders to contribute to the achievement of our financial goals and to focus on long-term value creation for our stockholders. Our named executive officers (“NEOs”) for 2016 were:

 

Name

  Position

Christopher J. Nassetta

 

President & Chief Executive Officer (“CEO”)

Kevin J. Jacobs

 

Executive Vice President (“EVP”) & Chief Financial Officer (“CFO”)

Ian R. Carter

 

EVP & President, Global Development, Architecture & Construction

Mark D. Wang

 

EVP & President, Hilton Grand Vacations (“HGV”) (1)

James E. Holthouser

 

EVP, Brands & Marketing

(1)  Mr. Wang became the President & CEO of HGV in January 2017 when we completed the spin-off of HGV.

CD&A ROADMAP

 

1.

2016 Company Performance

 

• Successfully completed the spin-off of our Real Estate business (Park Hotels & Resorts) and our Timeshare business (HGV) (the “spin-offs”) in January 2017

• Adjusted EBITDA was $2,975 million compared to $2,879 million for the prior year

• Our development pipeline grew 16% to 310,000 rooms, 50% of which are under construction

• Achieved net unit growth of 45,000 rooms, approved a record 106,000 rooms and added 354 hotels to the system in 2016, opening nearly one hotel per day in the year

• Launched our newest brands: Tru in January 2016 and Tapestry Collection in January 2017

• Recognized as one of the best places to work in rankings by Fortune Magazine and Diversity Inc.

  

Page

 

 

28

    

2.

Changes

for 2016

 

• Increased base salaries for all NEOs (other than the CEO and the EVP, Brands & Marketing) by 3% consistent with market practices and increases for our corporate employees

• Increased target long-term incentive opportunities for our CEO by approximately 5% and by 3% for other NEOs (other than the EVP, Brands & Marketing), to reward their performance and to align with competitive market practices

   28
    

3.

Determining

Pay

 

• Design pay programs to reward for financial performance and specific business results, mitigate material risks and align with stockholder interests by having a significant portion composed of equity-based long-term incentive awards

• Set pay levels commensurate with performance and the need to attract and retain high quality talent

• Consider many factors, including the advice of the Compensation Committee’s consultant, internal pay equity among executives and the alignment of total pay opportunity and pay outcomes with performance and with external market data

   30
    

4.

NEO

Pay

 

• Base salaries reflect each NEO’s role, responsibility and experience

• Annual cash incentive payouts ranged from 94% to 106% of target based on achievement of pre-established performance objectives

• Long-term incentives granted at target levels, using a portfolio of performance-vesting equity (“performance shares”), restricted stock units (“RSUs”) and stock options, with the largest portion delivered in performance shares (collectively, “long-term incentive awards”)

   32
    

5.

Risk &

Governance

 

• Provide an appropriate balance of short- and long-term compensation, with payouts based on the Company’s stock price, overall financial performance and specific business results

• Follow practices that promote good governance and serve the interests of our stockholders, with caps on maximum payouts for annual cash incentives and long-term performance shares, and policies on clawbacks, anti-pledging, anti-hedging and stock ownership

   42
    

 

6.

SUMMARY:

WHY WE RECOMMEND YOU VOTE “FOR” OUR SAY ON PAY

 

 

• 2016 performance continued to support long-term stockholder value

• 2016 incentive payouts for our NEOs are aligned with overall Company and business area performance

• Our pay program is aligned with stockholder interests, emphasizing achievement of strategic objectives over the long term

• Our pay practices are tied to robust risk management and corporate governance

    

 

Hilton    PROXY STATEMENT    27


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LOGO

 

  2016 COMPANY PERFORMANCE

Highlights of our 2016 achievements included the following:

 

  ·    Successfully completed the spin-offs of our Timeshare and Real Estate businesses in January 2017

 

  ·    Adjusted EBITDA was $2,975 million compared to $2,879 million for the prior year (1)

 

  ·    Grew development pipeline 16% from 2015 to 1,968 hotels, consisting of 310,000 rooms, 50% of which are under construction

 

  ·    Achieved net unit growth of 45,000 rooms, representing a 6.6% growth in managed and franchised rooms, and approved a record 106,000 rooms

 

  ·    Added 354 hotels to the system in 2016, opening nearly one hotel per day in the year

 

  ·    Launched our newest brands: Tru by Hilton in January 2016 and Tapestry Collection by Hilton in January 2017

 

  ·    Recognized by Fortune Magazine as one of the 100 Best Companies to Work For (ranked #56 in 2016 and #26 in March 2017), one of the Most Admired Companies, one of the World’s 25 Best Multinational Workplaces and one of the 100 Best Workplaces for Women and for Millennials; also recognized by Diversity, Inc. as one of the 50 Top Companies for Diversity

 

(1)  Adjusted EBITDA is defined and reconciled to its most comparable measure under GAAP in Part I, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (“Annual Report on Form 10-K”).

 

LOGO

 

  CHANGES FOR 2016

KEY 2016 PAY DECISIONS

As part of its annual compensation-setting process, the Compensation Committee (the “Committee”) meets in the first quarter of the year. In February 2016, the Committee, using information prepared by its independent compensation consultant, Exequity, reviewed and considered the pay level and mix of the NEOs’ compensation against executives serving in similar positions at other publicly-held hospitality, restaurant, travel and global consumer brand companies with whom the Company competes for talent. As a result of this review, the Committee made the following key compensation decisions:

 

  ·    For all NEOs (other than the CEO and the EVP, Brands & Marketing), increased base salaries by 3% consistent with market practices and increases for our corporate team members

 

  ·    For the CEO, maintained the same base salary and target annual cash incentive as 2015; delivered an increase in his target total direct compensation entirely in his target long-term incentive opportunity, thereby increasing only the pay element most aligned with stockholder value over the long term

 

  ·    Increased target long-term incentive opportunities by approximately 5% for the CEO and by 3% for the other NEOs (other than the EVP, Brands & Marketing), to reward their performance and to align with competitive market practices

 

  ·    For the EVP, Brands & Marketing, granted a one-time RSU award valued at approximately $1,000,000 in recognition of the broader responsibilities he assumed following the departure of one of our executive officers, which were vital to maintaining continuity and stability throughout a period of organizational change

 

  ·    Maintained the existing compensation program structure, consisting of base salary, annual cash incentives and long-term incentives, the latter of which are awarded in the form of performance shares, RSUs and stock options

SAY ON PAY VOTE

 

In 2016, the Committee considered the outcome of the stockholder advisory vote on 2015 executive compensation when making decisions relating to the compensation of our NEOs and our executive compensation program and policies. Our stockholders voted at our 2016 annual meeting, in a non-binding, advisory vote, on the 2015 compensation paid to our NEOs. Approximately 99% of the votes were cast in favor of the Company’s 2015 compensation decisions. Based on this level of support, the Committee decided that the say on pay vote result did not necessitate any substantive changes to our compensation program.      LOGO  

We consider the opinions expressed by stockholders through their votes, periodic meetings and other communications and believe that stockholder engagement leads to enhanced governance practices. We have a proactive investor outreach program, which includes meetings with the investment community and one-on-one meetings or meetings in small groups. We periodically engage investors to discuss specific matters of importance to stockholders. We value the perspective of our stockholders and will continue to seek their input on an ongoing basis.

 

28    PROXY STATEMENT    Hilton


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2017 PAY DECISIONS

Hilton completed the spin-offs in January 2017, resulting in three standalone, fully independent, publicly traded companies. The spin-offs are an important milestone in achieving the Company’s long-term strategic objectives. In light of overall performance, completion of the spin-offs and our evolving pay practices, the Committee made the compensation decisions listed below in February 2017. We expect our executive compensation program and practices will continue to evolve with the development and growth of our organization in order to reward our executives for achieving our business strategies and creating long-term value for our stockholders.

 

Pay Component

   Decision and Rationale

Long-term

Incentives

One-time equity

grants

  

·  Decision – In February 2017, the Committee approved one-time equity grants to certain employees throughout the organization. The Committee awarded grants to the CEO and CFO valued at approximately $8,000,000 and $4,000,000, respectively, in addition to the long-term incentive awards granted under the annual equity grant program. The one-time equity grants consist of RSUs and vest in three equal annual amounts beginning on February 15, 2018 (and each February 15 thereafter), subject to the executive’s continued employment on the applicable vesting date, and have the same terms and conditions as the RSUs granted under our annual equity grant program. In addition, a number of other employees throughout the organization received one-time cash bonuses in recognition of their contributions to the spin-offs.

 

    

·  Rationale – These awards were made in recognition of contributions towards the completion of the spin-offs and to promote retention of key executives. The awards recognize the significant contributions of employees who helped to successfully establish three standalone, fully independent companies in addition to their regular responsibilities and have demonstrated consistently superior levels of achievement, commitment and potential in roles that are critical to the organization. The multi-year vesting schedule of the one-time equity grants is intended to drive retention and stability within this group of employees.

Long-term

Incentives

Mix of equity

awarded under our

annual equity grant

program

  

·  Decision – While long-term incentives granted under the annual equity program in 2017 continue to use a portfolio of performance shares, RSUs and stock options, the mix of the 2017 long-term incentives was modified to deliver 25% of the total award amount in stock options, 25% in RSUs and 50% in performance shares.

 

  

·  Rationale – This mix of long-term incentives is more closely aligned with market practices of our peer group (as described below), while maintaining balance across our long-term incentive award portfolio. The largest portion of the total equity award continues to take the form of performance shares to incentivize our NEOs to achieve our most critical long-term objectives, with the remaining portion equally split between RSUs and stock options to promote retention, serve as a linkage to stockholder value and increase NEOs’ ownership interest in the Company.

Long-term

Incentives

Performance share

metrics under our

annual equity grant

program

  

·  Decision – The performance shares granted in 2014 through 2016 were scheduled to vest based on our Relative total shareholder return (“TSR”) and the Company’s earnings before interest expense, income tax and depreciation and amortization (“EBITDA”) compound annual growth rate (“EBITDA CAGR”) over a 3-year period. For the performance shares granted in 2017, the Committee determined that 50% of the award would vest based on Free Cash Flow per share(1) CAGR (“FCF CAGR”) and 50% of the award would vest based on EBITDA CAGR, each over a 3-year performance period.

  

 

·  Rationale – As a result of the spin-offs, the Company shifted to a more simplified fee-based model, with significant free cash flow (“FCF”) generation potential. Going forward, we expect that FCF will be an important valuation metric to assess and maximize the Company’s performance. Therefore, the Committee chose to use growth in FCF as a performance measure as part of our long-term incentive design in order to motivate and reward our executives for successfully executing our business strategies.

Long-term

Incentives

Change in control

provisions

  

·  Decision – The Committee implemented “double trigger” vesting upon a change in control for performance shares beginning with grants in 2017. Double trigger vesting requires termination of employment, in addition to a change in control, for accelerated vesting to occur. Our other equity awards (stock options and RSUs) continue to have double trigger vesting in the event of a change in control.

 

Beginning with performance shares granted in 2017, if a change in control occurs, the performance shares will vest on the last day of the scheduled performance period, subject to continued employment. Accelerated vesting will occur only upon a termination without cause within 12 months following the change in control. The number of performance shares subject to each award will be based on actual performance through the most recently completed fiscal quarter prior to the change in control or at a level as determined by the Committee in its good faith discretion. Otherwise, the terms of the 2017 performance shares are the same as performance shares granted in prior years.

 

  

·  Rationale – The new provisions were adopted to better align with market practices and stockholder interests.

 

(1) Free Cash Flow Per Share is calculated as: (a) net cash provided by (used in) operating activities reported in accordance with U.S. GAAP, less (b) capital expenditures as disclosed by the Company in reports filed with or furnished to the SEC, plus (c) costs and expenses, including tax payments, relating to asset purchases and disposals, including the spin-offs of Park and HGV and (d) excluding the impact on annual adjusted free cash flow resulting from any loyalty program advanced point sales; the result of which is divided by (e) the reported diluted weighted number of shares outstanding for the last calendar year being measured.

 

Hilton    PROXY STATEMENT    29


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LOGO

 

  DETERMINING PAY

EXECUTIVE COMPENSATION FRAMEWORK

Following is an overview of key aspects of our pay philosophy, design and process.

 

Overall Compensation Philosophy

    Our goal is to provide programs that:
 

•Deliver competitive levels of compensation to attract, retain and motivate highly-qualified executives

 

•Foster a strong relationship between stockholder value and executive compensation by having a significant portion of compensation composed of long-term incentive awards

 

•Emphasize performance-based compensation contingent upon achieving corporate and business area performance goals

 

•Promote the Company’s core values of Hospitality, Integrity, Leadership, Teamwork, Ownership and Now by individuals working at our owned, leased, managed and corporate locations whose performance and responsibilities directly affect the results of our operations

Compensation Program Design

    Our programs are designed to:
 

•Provide three main components: base salary, annual cash incentive and long-term incentive awards, each designed to be consistent with our compensation philosophy

 

•Cultivate long-term value creation without taking unnecessary risks

 

•Combine both short- and long-term compensation to promote retention and create a pay-for-performance environment

 

•Emphasize at-risk pay over fixed pay, yet create a positive work environment that rewards long-term achievements

 

•Motivate and reward for successfully executing our business strategies

 

•Avoid rigid categorical guidelines or formulas in setting the level and mix of compensation

Compensation Process

    In reviewing and establishing pay, we:
 

•Evaluate pay annually, or more frequently as circumstances merit

 

•Consider the following factors when setting compensation levels:

 

•Compensation of executives serving in similar positions at peer companies

 

•Individual knowledge, experience and capabilities of the executives

 

•The executive’s scope of responsibility, authority and accountability

   

•The level of pay relative to the Company’s other executives

MAKING COMPENSATION DECISIONS

ROLE OF THE COMPENSATION COMMITTEE

 

  ·    The Committee oversees and approves key aspects of executive compensation, including our CEO’s and other executive officers’ salaries, goals and payouts under the annual cash incentive plan, the size and structure of long-term incentive awards and any executive perquisites or other benefits.

 

  ·    In determining compensation for the CEO, the Committee considers the factors outlined above, consults with its independent compensation consultant and reviews the CEO’s self-assessment of his performance against his Board-approved Company and business area objectives.

 

  ·    While the Committee reviews and approves the specific elements of compensation of our executives, including our NEOs, our Board is apprised of executive compensation matters.

 

  ·    The Committee approves objectives designed to align executive pay with Company performance and stockholder interests and also seeks to provide competitive pay opportunities tied to performance and designed to retain talent, maximize stockholder value and mitigate material risk.

 

  ·    In implementing the Company’s executive compensation program, the Committee considers many factors, including the cyclical nature of the hospitality business, the advice of its compensation consultant, competitive market data, internal pay equity among executives and the alignment of the Company’s total pay opportunity and pay outcomes with performance.

 

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ROLE OF MANAGEMENT

 

  ·    The CEO and Chief Human Resources Officer work closely with the Committee in managing the executive compensation program and attend meetings of the Committee.

 

  ·    The CEO makes recommendations to the Committee regarding compensation for executive officers other than himself.

ROLE OF THE COMPENSATION COMMITTEE’S CONSULTANT

 

  ·    Exequity has served as the Committee’s independent compensation consultant since 2012. Exequity reports to and is instructed in its duties by the Committee and carries out its responsibilities in coordination with the Company’s Human Resources department. In 2016, Exequity’s services to the Committee included, among other things, providing perspective on current trends and developments in executive and director compensation as well as analysis of benchmarking data and confirmation of our peer group composition. It otherwise performed no other services for the Company. The Committee evaluated whether any of the work provided by Exequity during 2016 raised any conflict of interest and determined that it did not.

 

  ·    Exequity provides research, data analyses, survey information and analysis, incentive design expertise and other analyses related to compensation levels and design. Exequity also updates the Committee on trends and developments related to executive compensation practices, advises on the composition of our peer group (as described below) and provides its views to the Committee on best practices when evaluating executive pay programs and policies.

ASSESSING COMPETITIVE PRACTICE THROUGH PEER GROUP COMPARISONS

EXECUTIVE COMPENSATION PEER GROUP

To gain a general understanding of current compensation practices, the Committee reviews pay of executives serving in similar positions at peer companies. The external market data reviewed for 2016 included peer group proxy data, broad industry-comparative compensation surveys and data provided by peer group companies that participate in Equilar’s Annual Executive Compensation Survey.

The Committee reviews the composition of the peer group on an annual basis, considering: industries that attract and retain similar talent; annual revenue; EBITDA; market capitalization; brand recognition; global presence; and number of employees. It also considers the peer companies’ performance across a variety of metrics, such as revenue growth.

In August 2015, the Committee adjusted the peer group to include the companies shown in the table below by removing The Walt Disney Company and adding Carnival Corporation, Royal Caribbean Cruises and Yum! Brands. The Committee selected the additional peers due to their similar size and, for Carnival Corporation and Royal Caribbean Cruises, because they are travel industry peers. Yum! Brands was selected because it is a global, multi-brand franchiser. The adjusted peer group is shown in the table below and consists of 20 hospitality, restaurant, travel and global consumer brand companies that have a corporate structure and global presence comparable to the Company. The Company is positioned near the median of the peer group based on annual revenue and market capitalization.

In February 2016, the Committee reviewed the peer group listed in the table below (the “peer group”) when determining 2016 base salaries, annual cash incentive targets and long-term incentive targets.

 

2016 Executive Compensation Peer Group Companies

Hospitality   Travel   Restaurants   Global Consumer Brands

Host Hotels & Resorts, Inc.

  Avis Budget Group, Inc.   Darden Restaurants, Inc.   FedEx Corporation

Hyatt Hotels Corporation

  Carnival Corporation   McDonald’s Corporation   General Mills, Inc.

Marriott International, Inc.

  Las Vegas Sands Corp.   YUM! Brands, Inc.   Kellogg Company

Starwood Hotels & Resorts Worldwide, Inc. (1)

  MGM Resorts International     Nike, Inc.

Wyndham Worldwide Corporation

  Royal Caribbean Cruises, Ltd.     Starbucks Corporation
  United Continental Holdings, Inc.    
    Wynn Resorts, Limited        

 

(1)  Starwood Hotels & Resorts Worldwide, Inc. was acquired by Marriott International, Inc. in September 2016 and is no longer a publicly traded company.

 

Hilton    PROXY STATEMENT    31


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LOGO

 

  NEO PAY

PAY FOR PERFORMANCE

TOTAL DIRECT COMPENSATION

In structuring our executive compensation packages, the Committee considers how each component of compensation promotes retention and motivates performance. We believe that, to attract and retain senior executives, we must provide them with a competitive level of compensation that rewards their continued service. We also believe that performance-based compensation plays the most significant role in aligning management’s interests with those of our stockholders. For this reason, performance-based compensation constitutes the majority of the overall compensation for our senior executives.

 

 

LOGO

Of our NEOs’ 2016 total direct compensation (defined as base salary, annual cash incentives and long-term incentives awarded in 2016 under our annual equity grant program), 88% of the CEO’s and 78% of the other NEOs’ was at-risk. A full description of the elements of our executive compensation program is included in “2016 Executive Compensation Design and Decisions.”

2016 PRIMARY PERFORMANCE MEASURES

In establishing the performance measures for our 2016 annual and long-term incentive awards, the Committee used a variety of metrics as shown in the table below. The Committee believes that these measures motivate and reward for successfully executing our business strategies and appropriately align management’s interests with those of our stockholders. Adjusted EBITDA (defined above) was the primary financial performance measure for the NEOs’ 2016 annual cash incentive awards, as it is a key corporate metric we use to assess performance over the short-term. The Committee used a mix of EBITDA CAGR and Relative TSR as performance measures for long-term equity incentives granted in 2016, as Relative TSR aligns management’s interests with those of our stockholders, and EBITDA CAGR measures EBITDA growth over the long term and focuses management on a measure that allows us to reinvest in our business and expand our global footprint.

 

     Annual Cash Incentive        Long-term Incentives

Measure

   Corporate Objective         Performance Shares    RSUs    Stock Options

Annual EBITDA (Adjusted EBITDA)

   LOGO           

Long-Term EBITDA Growth (3-Year EBITDA CAGR)

        LOGO      

Relative TSR

        LOGO      

Stock Price

                 LOGO    LOGO

 

32    PROXY STATEMENT    Hilton


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2016 EXECUTIVE COMPENSATION DESIGN AND DECISIONS

In determining the pay design and pay levels for executives in 2016, the Committee, with input from management, considered a number of factors when determining base salaries, annual cash incentive targets and long-term incentive targets, including: the level of compensation of those executives serving in similar positions at our peer group companies; individual factors such as knowledge, experience and capabilities of the executive; the level of the executive’s pay relative to other Company executives; the executive’s position within the corporate organization; and the scope of the executive’s responsibility, authority and accountability. In determining final pay outcomes, the Committee evaluated Company and business area performance.

COMPENSATION COMPONENTS

Following is an overview of our 2016 executive compensation program:

 

Compensation Element

   Form   Objectives

Base Salary

Fixed, short-term

   Cash   ·  

Attract and retain high quality executives to drive our success

 

       ·   Align with external competitive level and internal parity for each role, responsibility and experience

Annual Incentive

At-risk, short-term

   Cash   ·  

Reward for 2016 performance results

 

       ·   Align actual payout based on achievement of pre-established performance objectives

Long-term Incentive

At-risk, medium to long-term

  

Equity, composed of:

Performance Shares (60%)

RSUs (20%)

Stock Options (20%)

  ·  

Reward for future Company performance; align with interests of our stockholders; retain executives through vesting over multi-year periods

 

     ·  

Emphasize use of performance shares with a 3-year performance period based on Relative TSR (50% of award) and EBITDA CAGR (50% of award)

 

       ·   Reward for future Company stock price performance, with RSUs that vest ratably in equal annual installments over 2 years and stock options that vest ratably in equal annual installments over 3 years, the latter of which expires 10 years from the grant date

BASE SALARY

We believe it is important to provide a competitive fixed level of pay to attract and retain experienced and successful executives. In determining the amount of base salary that each NEO receives, we look to the executive’s current compensation, tenure, any change in the executive’s position or responsibilities and the complexity and scope of the executive’s position as compared to those of other executives within the Company and in similar positions at companies in our peer group. The Committee reviews base salaries periodically and may adjust them from time to time pursuant to such review.

In 2016, the Committee reviewed and set the base salaries as set forth in the table below, increasing base salaries for Messrs. Jacobs, Carter and Wang by approximately 3%, consistent with competitive market practices and increases for our corporate team members. In setting 2016 base salaries, the Committee considered the level of base salaries of executives serving in similar roles and with comparable responsibilities at companies within our peer group. The Committee has not increased Mr. Nassetta’s base salary since 2014.

 

Name

  

2015 Base Salary

($)

      

2016 Base Salary

($)

      

2015 to 2016 Increase   

(%)   

 

  Christopher J. Nassetta

     $1,200,000          $1,200,000          –         

  Kevin J. Jacobs

     $725,000          $746,750          3.0%  

  Ian R. Carter

     $721,000          $742,630          3.0%  

  Mark D. Wang

     $669,500          $689,585          3.0%  

  James E. Holthouser

     $600,000          $600,000          –         

 

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ANNUAL CASH INCENTIVE COMPENSATION

Our annual cash incentive program is designed to motivate executive officers to focus on strategic business results and initiatives and reward them for their results and achievements.

Each NEO’s annual cash incentive award opportunity is based on pre-established performance objectives. At the beginning of each performance period, our CEO works with senior management to establish business priorities, which are then used to create the performance objectives. Each objective is given a specific weighting based on its scope, importance and strategic relevance. The weighting for each objective is expressed as a percentage of the NEO’s total award opportunity. The Committee then reviews and approves the objectives recommended for each NEO.

Each NEO’s target annual cash incentive opportunity is expressed as a percentage of his base salary in effect at the end of the performance period. Threshold, target and maximum annual incentive opportunities are approved annually by the Committee based on peer group benchmark data and the scope and impact the executive has on the Company’s overall results. For 2016, the Committee set the threshold, target and maximum payout levels as set forth in the table below, which remained the same as 2015.

 

Name

   Threshold (1)      Target (1)      Maximum (1)  

  Christopher J. Nassetta

   75%      150%        300%      

  Kevin J. Jacobs

   50%      100%        150%      

  Ian R. Carter

   50%      100%        150%      

  Mark D. Wang

   50%      100%        150%      

  James E. Holthouser

   50%      100%        150%      

 

(1)  As a percentage of base salary.

2016 PERFORMANCE OBJECTIVES

The 2016 annual cash incentive program was based on a combination of corporate and business area performance goals, as well as new organizational strength objectives. The overall annual cash incentive components and weightings for the 2016 fiscal year were as follows:

 

 

LOGO

The primary financial performance measure was our Adjusted EBITDA, which included Company Adjusted EBITDA and, as applicable, a segment Adjusted EBITDA (each calculated as described below). The objectives for Messrs. Jacobs, Wang and Holthouser included both Company Adjusted EBITDA and a segment Adjusted EBITDA due to their respective responsibilities during 2016. The weighting of each NEO’s goals are shown in the table below, and the financial performance measure represented, in the aggregate, 50% of the CEO’s total award opportunity and 40% of the other NEOs’ total award opportunity.

The organizational strength objectives were specific to each individual and the function for which they are responsible. They included the leadership results that were first introduced in 2015, tying awards since then directly to employee engagement. Leadership results were calculated based on responses to questions in our annual employee engagement survey on leadership, engagement and trust from each business area. New for 2016, organizational strength objectives also included talent management as well as efficiency and effectiveness. Talent management objectives were designed to cultivate an inclusive environment, demonstrate meaningful progress towards greater workforce diversity and achieve succession planning objectives to support talent movement and business continuity. Efficiency and effectiveness objectives were established to advance strategic initiatives for savings and investment within each business area to capture value and position the enterprise for long-term success, allowing us to deliver exceptional experiences.

 

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The business area objectives were both quantitative and qualitative in nature, specific to each individual and the function for which they are responsible. The business area objectives for each NEO, along with their other performance goals and weightings under the 2016 annual cash incentive program, were as follows:

 

   

Weighting as a % of Total

Award Opportunity

 

    

    Name

 

 

Company

Adjusted

EBITDA (1)

(%)

 

 

Segment

Adjusted

EBITDA (1)

(%)

 

 

Business

Area

(%)

 

 

Organizational

Strength

(%)

 

  

Primary Business Area Performance Goals

 

    Christopher J. Nassetta   50%   N/A   50%   

   Compilationof the actual performance of each business area against their predetermined objectives, including organizational strength goals, representing results across all areas of the Company

 

    Kevin J. Jacobs   30%  

10%

(Ownership Segment Adjusted EBITDA)

  30%   30%   

   Achievestrategic business structure objectives and strengthen our balance sheet

 

   Leadcontinuing business operations to improve the organization’s financial strength and flexibility

 

   Executetechnology strategy and innovation, as well as support enterprise-wide innovation efforts

 

    Ian R. Carter   40%   N/A   30%   30%   

   Drivesystem-wide net unit growth globally

 

   Executeowner agreements and construction starts globally across our portfolio of brands

 

   Optimizedesign programs and project delivery capabilities

 

    Mark D. Wang   20%  

20%

(Timeshare Segment Adjusted EBITDA)

  30%   30%   

   Executekey objectives related to HGV’s new operating model

 

   Achievecapital and operating efficiencies

 

   MaximizeHGV customer engagement and experience

 

    James E. Holthouser   20%  

20%

(Franchise Fees Adjusted EBITDA)

  30%   30%   

   Achievesystem-wide performance and growth targets to drive Revenue Per Available Room (“RevPAR”) Index growth (2)

 

   Expandnew brands while optimizing existing brands

 

   Continueto expand customer relationship management and digital capabilities

 

 

(1)  Company Adjusted EBITDA, Ownership Segment Adjusted EBITDA and Timeshare Segment Adjusted EBITDA are calculated as set forth in Note 23 (“Business Segments”) of the consolidated financial statements in our Annual Report on Form 10-K. Franchise Fees Adjusted EBITDA is the portion of Management and Franchise Segment Adjusted EBITDA, as reported in our Annual Report on Form 10-K, that is attributable to fees we receive from licensing our brands to franchises. When measuring actual achievement of Ownership Segment Adjusted EBITDA and Franchise Fees Adjusted EBITDA, for Mr. Jacobs and Mr. Holthouser, respectively, calculations used the same foreign currency rates that were used to set target levels.

 

(2)  RevPAR represents hotel room revenue divided by room nights available for guests.

 

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2016 PERFORMANCE RESULTS

At the beginning of the fiscal year following the end of the performance period, each goal is assessed and rated based on the level of achievement. The Finance and Human Resources departments review the achievement of each performance objective against the predetermined objectives with the CEO. The CEO then reviews these results with the Committee and recommends payout amounts under the annual cash incentive plan for each of the NEOs, other than himself. The Committee reviews and assesses each NEO’s achievement towards the executive’s goals and determines and approves an achievement factor used to calculate the actual annual cash incentive award payable to each NEO.

The performance results for each of the primary financial performance measures were as follows:

 

   Primary Financial

   Performance Measure

 

  

Target

Goal

(in millions)

 

    

Actual

Achievement

(in millions)

 

    

Achievement as a
Percentage of Target
Goal (1)

(%)

 

   

Actual Payout as a
Percentage of Target
Payout

(%)

 

 

    Company Adjusted EBITDA

     $3,086        $2,975        96.4     82.1

    Ownership Segment Adjusted EBITDA

     $1,139        $1,022        90.0     50.0

    Timeshare Segment Adjusted EBITDA

     $382        $381        99.8     99.2

    Franchise Fees Adjusted EBITDA (2)

     Described Below (2)        97.5     87.6

 

(1)  Participants were eligible to receive a threshold payout percentage, defined as 50% of the target award, if actual achievement was 90% of the target financial goal and were eligible to receive the maximum payout percentage, defined as 150% of the target award (200% of target with respect to Mr. Nassetta), if actual achievement met or exceeded 110% of the target financial goal. For actual performance between the specified threshold, target and maximum levels, the resulting payout percentage would be adjusted on a linear basis.

 

(2)  Franchise Fees Adjusted EBITDA reflects the target established through the Company’s annual budgeting process at the beginning of the fiscal year. The Committee set the Franchise Fees Adjusted EBITDA at a target level that, while achievable, was challenging and not certain to be met.

Actual annual cash incentive awards are calculated by multiplying each NEO’s actual base salary by their respective target award potential, which was then adjusted by an achievement factor based on the combined achievement of the corporate, business area and organizational strength performance objectives. For the year ended December 31, 2016, the NEOs’ target cash incentive opportunity and their cash incentive award earned (as reflected in the “Non-Equity Incentive Plan Compensation” column of the “Summary Compensation Table”) were as follows:

 

   Name

 

  

2016

Year-End

Base Salary

($)

 

    

Target Annual

Cash Incentive

Opportunity

as a Percentage

of Base Salary

(%)

 

   

Target

Annual Cash

Incentive

Opportunity

($)

 

    

Achievement

Factor

as a Percentage

of Target Award (1)

(%)

 

   

2016 Amount    

Earned under    

Annual Cash    

Incentive    

Program    

($)    

 

 

     Christopher J. Nassetta

     $1,200,000        150 %       $1,800,000        104.7 %         $1,883,905      

     Kevin J. Jacobs

     $746,750        100 %       $746,750        98.6 %         $735,927      

     Ian R. Carter

     $742,630        100 %       $742,630        103.1 %         $765,859      

     Mark D. Wang (2)

     $689,585        100 %       $689,585        106.3 %         $732,684      

     James E. Holthouser

     $600,000        100 %       $600,000        93.9 %         $563,430      

 

(1)  Percentages have been rounded.

 

(2) Mr. Wang became the President & CEO of HGV in January 2017 when we completed the spin-off of HGV. To the extent that HGV awards Mr. Wang any additional annual cash incentive award amount, such amount will be disclosed in HGV’s SEC filings.

 

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LONG-TERM INCENTIVE AWARDS

The long-term incentive award program is designed to reward for future Company performance, align with the interests of our stockholders and retain executives. These goals are further described under “Compensation Components.”

Long-term incentive compensation is awarded under the Incentive Plan and provides an opportunity for executive officers, including our NEOs, and other key employees to increase their ownership interest in the Company through grants of equity-based awards. Under the Incentive Plan, equity-based awards may be awarded in the form of stock options, stock appreciation rights, restricted stock, RSUs, performance shares and other equity-based awards.

Each NEO’s target long-term incentive opportunity is approved annually by the Committee based on peer group benchmark data and the scope and impact the executive has on the Company’s overall results. For 2016, the Committee set the target pay levels as set forth in the table below, increasing targets for Messrs. Nassetta by approximately 5% and by 3% for Messrs. Jacobs, Carter and Wang, to reward their performance and to align with competitive market practices. For Mr. Nassetta, the Committee increased his target long-term incentive opportunity while maintaining the same base salary and target annual cash incentive opportunity, thereby increasing only the pay element most aligned with stockholder value over the long-term.

 

     Name

 

  

2015 Target
Long-Term
Incentive
($)

 

                                              

2016 Target
Long-Term
Incentive
($)

 

                                              

2015 to 2016
Increase

(%)

 

 

   Christopher J. Nassetta

     $6,300,000          $6,600,000          4.8%  

   Kevin J. Jacobs

     $2,050,000          $2,111,500          3.0%  

   Ian R. Carter

     $1,854,000          $1,909,620          3.0%  

   Mark D. Wang

     $1,854,000          $1,909,620          3.0%  

   James E. Holthouser

     $900,000                $900,000                 

The dollar values in the table above differ from the figures reported in the “Summary Compensation Table” and “Grants of Plan-Based Awards Table” because the values shown above for performance shares are equal to the closing price on the grant date multiplied by the number of shares granted assuming a target level of achievement.

In February 2016, the Committee granted long-term incentive awards at 100% of target based on the mix and weighting set forth in the chart below. The Committee approved a blended equity portfolio for our senior executives, granting a combination of performance shares, RSUs and stock options. The largest portion of the total equity award generally takes the form of performance shares where the number of shares that may be earned is tied to the Company’s financial and stock price performance at the end of a 3-year period.

Following the departure of one of our executive officers, Mr. Holthouser assumed broader responsibilities and has been and continues to be vital to maintaining continuity and stability throughout our period of organizational change. As a result, Mr. Holthouser received a one-time RSU award valued at approximately $1,000,000 in May 2016, in addition to the long-term incentive awards granted under the annual equity grant program. The one-time RSU award vests at the end of a 3-year period (on May 5, 2019), subject to his continued employment on the vesting date, and has the same terms and conditions as the RSUs granted under our annual equity grant program. This one-time RSU award was intended to recognize his broader scope and provide a retention incentive given the criticality of his role and retirement-eligible status.

 

    Award Type

 

 

Weighting

 

      

Vesting

 

      

Value Tied To

 

    Performance Shares (1)(2)   60% of total award       Vest at the end of a 3-year period in an amount based on the level of performance achieved (1)      

50% of the performance shares awarded: Company TSR relative to a peer group’s TSR (1)

 

50% of the performance shares awarded: EBITDA CAGR (1)

 

    Restricted Stock Units (2)     20% of total award       Vest ratably over 2 years in equal annual installments       Stock price
    Stock Options   20% of total award       Vest ratably over 3 years in equal annual installments; expires 10 years from the date of grant     Stock price appreciation

 

(1)  The 2015 and 2016 performance shares were modified into converted performance shares (as defined below) in connection with the spin-offs, as described under “Treatment of Outstanding Equity Awards in Connection with Spin-Offs.”

 

(2)  Unvested RSUs, unvested performance shares granted beginning in 2016 and unvested converted performance shares delivered in connection with the spin-offs entitle the holder to accrue dividend equivalent payments either in cash or, at the sole discretion of the Committee, in shares of the Company’s common stock having a fair market value as of the settlement date equal to the amount of such dividends, with such dividend equivalents payable following vesting (or forfeited to the extent the underlying award is forfeited). No dividend equivalents are paid or delivered unless and until the underlying RSUs or performance shares vest.

 

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PERFORMANCE SHARES GRANTED IN 2016

Performance shares are intended to focus our executives on the long-term financial performance of the Company and its performance relative to a TSR peer group. In February 2016, the Committee determined that the performance shares would vest at the end of a 3-year performance period as follows:

 

    50% based on the level of achievement of our TSR relative to the TSR of members of the peer company group defined below (“Relative TSR”).

 

    50% based on the compound annual growth rate of the Company’s Adjusted EBITDA (“EBITDA CAGR,” as defined in the award agreement) by comparing the growth of the Company’s Adjusted EBITDA during the final four fully completed fiscal quarters of the performance period to that for the fiscal year immediately prior to the performance period.

The Committee determined that Relative TSR and EBITDA CAGR would be appropriate performance measures for the performance shares granted in 2016. These measures appropriately align management with stockholders, incentivize management to achieve the Company’s long-term strategy and focus management on growing our Adjusted EBITDA which, in turn, allows us to reinvest in our business and expand our global footprint.

The performance period begins on January 1 of the fiscal year in which the performance shares are granted and ends on December 31 of the third year thereafter. Following the 3-year performance period, the Committee determines the achievement levels under each of the performance measures and the number of performance shares earned under these measures. The performance shares granted in 2016 had a performance period that began on January 1, 2016 and was scheduled to end on December 31, 2018.

The total number of performance shares granted in 2016 that were scheduled to vest based on each of Relative TSR and EBITDA CAGR was based on the percentages shown in the table below. For actual performance between the specified threshold, target, above target and maximum levels, the resulting payout percentage would have been adjusted on a linear basis. In addition, if the Company’s TSR was negative over the performance period, the percentage of the award earned under the Relative TSR measure could not have exceeded 100%.

 

Performance
Metric

(Weighting)
      Level of Achievement    
      Below           Above       Cap
       Threshold   Threshold   Target   Target   Maximum   (if applicable)

Relative TSR

(50%)

 

Performance

Goals

 

  < 25th
percentile
  25th
percentile
  50th
percentile
  75th
percentile
  ³ 90th
percentile
 

Capped at 100% if

TSR is negative over

performance period

 

Percentage of

Award Earned

 

  0%   50%   100%   150%   200%  

EBITDA CAGR

(50%)

 

Performance

Goals

 

  < 5%   5%   9%   n/a   ³ 13%   n/a
 

Percentage of

Award Earned

 

  0%   50%   100%   n/a   200%  

The peer group for determining achievement under the Relative TSR measure was distinct from the peer group used to evaluate and set compensation levels discussed under “Assessing Competitive Practice Through Peer Group Comparisons.” At the time of the 2016 grants, the Committee approved the following peer companies in the Relative TSR peer group in order to more directly compare our financial and stock performance to companies in our industry.

 

2016 Relative TSR Peer Group Companies

Hospitality

 

REITs

 

Leisure

Carnival Corporation

 

Chesapeake Lodging Trust

 

Churchill Downs Incorporated

Choice Hotels International, Inc.

 

DiamondRock Hospitality Company

 

Penn National Gaming, Inc.

Hyatt Hotels Corporation

 

Host Hotels & Resorts, Inc.

 

Vail Resorts, Inc.

Marriott International, Inc.

 

Hospitality Properties Trust

 

Wynn Resorts, Limited

Royal Caribbean Cruises Ltd.

 

LaSalle Hotel Properties

 

Starwood Hotels & Resorts Worldwide, Inc. (1)

 

Pebblebrook Hotel Trust

 

Wyndham Worldwide Corporation

 

RLJ Lodging Trust

 
   

Ryman Hospitality Properties, Inc.

   

 

(1)  Starwood Hotels & Resorts Worldwide, Inc. was acquired by Marriott International, Inc. in September 2016 and is no longer a publicly traded company.

In November 2016, in connection with the spin-offs, the Committee determined that the NEOs’ performance shares granted in 2015 and 2016 would be converted into time-vesting restricted shares (“converted performance shares”) at the time of the spin-offs, assuming a target level of achievement as provided under the applicable award agreement. The converted performance shares were further adjusted at the time of the spin-offs to preserve the value of the awards as originally granted. These adjustments are described in further detail under “Treatment of Outstanding Equity Awards in Connection with Spin-Offs.” The converted performance shares are scheduled to vest on the original vesting date (December 31, 2017 for the shares granted in 2015 and December 31, 2018 for the shares granted in 2016), subject to the NEO’s continued employment through the applicable vesting date, and have the same terms and conditions as the original awards. Upon vesting, each NEO (other than Mr. Wang) will receive shares of Hilton common stock, and Mr. Wang will receive shares of HGV common stock.

 

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PAYOUT OF PERFORMANCE SHARES GRANTED IN 2014

In 2014, the Committee granted performance shares that vested at the end of a 3-year performance period, beginning on January 1, 2014 and ending on December 31, 2016, as follows:

 

  ·    50% based on the level of achievement of our Relative TSR (as defined above).

 

  ·    50% based on EBITDA CAGR (as defined in the award agreement and the definition reported in the Company’s 2014 SEC filings) and calculated as described above.

In February 2017, the Committee certified the achievement level under the established performance measures and settled the number of performance shares earned at 113% of target because the performance level achieved was at the target level with respect to EBITDA CAGR and between the target and above target levels with respect to Relative TSR (as shown in the table below). For actual performance between the specified target and above target level, the resulting payout percentage was adjusted on a linear basis.

 

Performance
Metric

(Weighting)
      Level of Achievement
      Below           Actual   Above    
       Threshold   Threshold   Target   Performance   Target   Maximum

Relative TSR

(50%)

 

Performance

Goals

 

  < 25th
percentile
  25th
percentile
  50th
percentile
  63rd
percentile
  75th
percentile
  ³ 90th
percentile
 

Percentage of

Award Earned

 

  0%   50%   100%   126%   150%   200%

EBITDA CAGR

(50%)

 

Performance

Goals

 

  < 5%   5%   9%   9%   n/a  

³ 13%

 

Percentage of

Award Earned

 

  0%   50%   100%   100%   n/a   200%

Actual Performance Payout as a % of Target

 

 

113%

 

       

 

TREATMENT OF OUTSTANDING EQUITY AWARDS IN CONNECTION WITH SPIN-OFFS

In connection with the spin-offs, the Committee approved the following treatment for the NEOs’ outstanding equity awards.

 

Award Type

   Treatment

All

Outstanding

Stock

Options,

RSUs and

Performance

Shares

  

·  The NEOs’ outstanding stock options (whether vested or unvested), RSUs and performance shares, were adjusted in a manner intended to preserve the value of the awards after the January 2017 spin-offs. The number of shares subject to the awards and the exercise price of stock options were adjusted based on the 3-day average closing price pre-spin and the 3-day average closing price post-spin and reverse stock split of our common stock (the “adjustments made in connection with the spin-offs”). As to Mr. Wang’s awards, the adjustment ratio was based on the relative value of our shares before the spin-offs and HGV’s common stock after the spin-offs, in each case using a 3-day average closing price.

 

·  All of the NEOs’ equity awards, as adjusted, remain subject to the same vesting and other terms and conditions as the original awards, other than as described below regarding the performance shares granted in 2015 and 2016.

 

·  Following the spin-offs, all of Mr. Wang’s awards are now under HGV’s incentive plan and will, as applicable, settle in or are exercisable for shares of HGV common stock.

 

·  For details regarding the amount and value of the equity held by the NEOs following these adjustments, see “Supplemental Outstanding Equity Awards at 2016 Fiscal Year End Table” and “Ownership of Securities.”

Additional

Details on

Performance

Shares

Granted in

2015 and

2016

  

·  The NEOs’ performance shares granted in 2015 and 2016 were modified into time-vesting restricted shares (“converted performance shares”), assuming a target level of achievement as provided under the applicable award agreement. The Committee determined to convert the performance shares into time-based restricted stock, as the performance periods for the performance shares granted in 2015 and 2016 would have ended after the spin-offs and, as such, the performance measures originally established upon grant would not have been relevant or measurable as originally intended.

 

·  In connection with the modification of these performance shares in November 2016, there was incremental fair value calculated in accordance with FASB ASC Topic 718 for each of Messrs. Nassetta, Jacobs, Carter, Wang and Holthouser in the amounts of $1,131,783, $363,218, $328,484, $328,484 and $152,755, respectively. These amounts are included in the “Summary Compensation Table” and “Grants of Plan-Based Awards” table.

 

·  The converted performance shares are scheduled to vest on the original vesting date (December 31, 2017 for the shares granted in 2015 and December 31, 2018 for the shares granted in 2016), subject to the NEO’s continued employment through the applicable vesting date, and the same terms and conditions as the original awards. Upon vesting, each NEO (other than Mr. Wang) will receive shares of Hilton common stock, and Mr. Wang will receive shares of HGV common stock.

 

Hilton    PROXY STATEMENT    39


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TREATMENT OF LONG-TERM INCENTIVE AWARDS UPON TERMINATION, CHANGE IN CONTROL OR RETIREMENT

Each equity-based award subjects the holder to restrictive covenants, including post-employment covenants not to solicit the Company’s employees or customers and not to compete against the Company for 12 months following any termination of employment, and indefinite covenants covering trade secrets, confidentiality and non-disparagement. Under the award agreements, if there is a restrictive covenant violation or the Company determines after termination that grounds for a termination for cause existed, the executive will be required to pay the Company an amount equal to the after-tax proceeds received upon the sale or other disposition or distributions in respect of the equity award and any shares issued in respect thereof. Further, each of these executives’ equity-based awards is subject to the Company’s Clawback Policy, which is described below. Additional provisions are outlined in the table below.

 

Award Type

   Provisions for Unvested Awards

Performance

Shares (1)

  

·  Death or “disability” (as defined in the Incentive Plan): Prorated portion will immediately vest at target levels (2)

·  “Change in control” (as defined in the Incentive Plan): Immediately vest based on actual performance through the most recently completed fiscal quarter or, if performance is unable to be calculated, at target levels

·  Retirement: Prorated portion will vest at the end of the performance period based on actual performance (2)(3)

·  Other reasons: Forfeited (4)

 

Restricted

Stock Units

  

·  Death or disability: Immediately vest

·  Termination without “cause” (as defined in the Incentive Plan) within 12 months following a change in control: Immediately vest

·   Retirement: Continue to vest based on the original vesting schedule (3)

·  Other reasons: Forfeited (4)

 

Stock

Options

  

·  Death or disability: Immediately vest and become exercisable; vested options remain exercisable for one year thereafter (5)

·  Termination without cause within 12 months following a change in control: Immediately vest and become exercisable; remain exercisable for 90 days thereafter (5)

·  Retirement: Continue to vest according to the original vesting schedule; remain exercisable until the earlier of (x) the original expiration date or (y) 5 years from retirement (3)(5)

·  Other reasons: Forfeited unvested; vested options will remain exercisable for 90 days thereafter (4)(5)

 

 

(1)  As discussed in further detail under “Treatment of Outstanding Equity Awards in Connection with Spin-Offs,” the NEOs’ performance shares granted in 2015 and 2016 were converted into time-vesting restricted shares, assuming a target level of achievement as provided under the applicable award agreement, and the converted performance shares otherwise retained the same terms and conditions as the original awards, including the treatment of such awards upon a termination, change in control or retirement.

 

(2)  Prorated based on the number of days in the applicable 3-year period that have elapsed prior to termination.

 

(3)  “Retirement” is defined as a termination of employment for any reason (other than for cause when grounds for cause exist or due to death or disability) after having reached age 55 and achieved at least ten years of service, provided that the grant was made at least six months prior to the executive’s retirement.

 

(4)  Upon termination for cause or a violation of specified restrictive covenants, all vested and unvested options terminate and all other unvested awards are forfeited.

 

(5)  In no case will options remain exercisable later than the original expiration date.

OTHER BENEFITS AND PERQUISITES

Our executives, including NEOs, are eligible for benefits including group health, dental and disability insurance and basic life insurance premiums. These benefits are intended to provide competitive and adequate protection in case of sickness, disability or death, and the NEOs participate in these plans on the same basis as all other employees.

We provide limited perquisites to our NEOs when determined to be necessary and appropriate. We provide our NEOs with the opportunity for an annual physical examination. We also provide NEOs complimentary rooms, food and beverage, and on-site services while on personal travel at Company-branded hotels. The travel-related benefits are consistent with our peers in the hospitality industry and offered to encourage our NEOs to visit and evaluate our properties. We provide Mr. Nassetta with a life insurance benefit for his family and the associated taxes. In addition, given our wide geographic footprint, Mr. Nassetta has use of the Company aircraft for both business and personal travel, which the Committee believes allows Mr. Nassetta to work more efficiently and safely. The value of the NEOs’ perquisites and other personal benefits are reflected in the “All Other Compensation” column of the “Summary Compensation Table” and the accompanying footnote. The cost of these benefits is a small percentage of the overall compensation package. We believe that these benefits and perquisites are competitive in our industry and consistent with our overall compensation philosophy.

 

40    PROXY STATEMENT    Hilton


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RETIREMENT SAVINGS BENEFITS

The Company maintains a tax-qualified 401(k) plan, under which the Company matches 100% of employee contributions up to 3% of eligible compensation and 50% of employee contributions on the next 2% of eligible compensation. In addition to the 401(k) plan, the Company also offers the NEOs and other senior management the opportunity to supplement their retirement and other tax-deferred savings through Hilton’s Executive Deferred Compensation Plan (“EDCP”). Those eligible to participate in the EDCP may elect to defer up to 100% of both their annual salary and bonus. The Company currently provides no contribution or match to the EDCP. Additional information about the EDCP is reflected under “2016 Nonqualified Deferred Compensation.”

PENSION BENEFITS

In addition to our 401(k) plan and EDCP, Mr. Carter participates in two of our defined benefit pension plans, the Hilton U.K. Pension Plan (the “U.K. Pension Plan”) and the Hilton U.K. Hotels Employer-Financed Retirement Benefit Scheme (the “Supplemental U.K. Plan”), because of his previous service as Chief Executive Officer of Hilton International. Mr. Carter ceased further pensionable service under both plans in 2009. See the “2016 Pension Benefits” table for a description of these defined benefit pension plans.

SEVERANCE PLAN

The Committee believes that a carefully structured severance plan is necessary to attract and retain talent. Our severance plan allows executives to focus their attention and energy on making objective business decisions that are in the best interest of stockholders. In addition, the Committee believes that the interests of our stockholders are better protected and enhanced by providing greater certainty regarding executive pay obligations in the context of planning and negotiating any potential corporate transactions.

In December 2013, the Company approved a severance benefit plan (the “Severance Plan”). Under the terms of the Severance Plan, if an eligible executive’s employment is terminated by us without “cause,” or if the eligible employee terminates his or her employment for “good reason” (each, a “qualifying termination”), then, subject to the eligible employee’s execution and non-revocation of a release of claims against us, continued compliance with restrictive covenants related to post-employment non-solicitation and non-compete covenants for one year following termination, and indefinite covenants covering confidentiality and non-disparagement, he or she will be eligible to receive a severance payment amount based on the employee’s position and then-current base salary and target bonus. Under the terms of the Severance Plan, our NEOs will be eligible to receive a severance payment equal to 2.99 times, in the case of Mr. Nassetta, and 2.0 times, in the case of our other NEOs, the sum of his annual base salary and annual target bonus at the time of termination, paid in a lump sum. In addition, upon a qualifying termination, the NEO will be entitled to certain continued health and welfare benefits, as described under “Potential Payments Upon Termination or Change in Control.”

The NEOs will also be entitled to the same level of severance upon a qualifying termination in connection with a change in control except that severance may be reduced if doing so would result in the executive realizing a better after-tax result following the imposition of any applicable golden parachute excise taxes under Internal Revenue Code Section 4999.

In addition to the Severance Plan, any compensation and benefits to be made in connection with a separation are determined at the discretion of the Committee and may be based on the executive, his or her position, the nature of the separation and the respective executive’s compliance with specified post-termination restrictive covenants.

 

Hilton    PROXY STATEMENT    41


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LOGO

 

  RISK AND GOVERNANCE

KEY EXECUTIVE COMPENSATION PRACTICES

We follow key executive compensation practices that promote good governance and serve the interests of our stockholders, as summarized below.

 

 

 

What We Do:

LOGO

   Emphasize long-term performance – Our long-term incentive program is designed to focus executives on stockholder value and emphasize achievement of strategic objectives over the next several years.

LOGO

   Engage an independent compensation consultant – The Committee’s consultant does not provide any other services to the Company.

LOGO

   Apply “double trigger” vesting in the event of a change in control – In the event of a change in control of the Company, cash severance benefits are payable and vesting of stock options and RSUs is accelerated only upon a “double trigger,” where the executive’s employment is terminated following such change in control.

LOGO

   Provide limited perquisites – Our NEOs receive perquisites consistent with industry practices and participate in the same Company-wide plans and programs offered to all eligible employees.

LOGO

   Apply a clawback policy – The Committee has discretion to recover incentive compensation paid or awarded based on financial results impacted by fraud or misconduct.

LOGO

   Evaluate share utilization The Committee annually reviews share utilization, burn rate and dilution levels resulting from our compensation practices.

LOGO

   Establish caps on maximum payouts – The Committee sets maximum amounts that may be payable for annual cash incentive compensation and long-term performance awards.

 

 

What We Do Not Do:

 

LOGO    Provide employment agreements or individual change in control agreements for our NEOs – The Committee has determined that employment agreements are not necessary to attract members of our executive team.
LOGO    Allow pledging, hedging or short-sale transactions – Per our Insider Trading Policy, all covered persons are prohibited from purchasing Company securities on margin or pledging Company securities as collateral. Further, we do not permit short sales or the purchase or sale of derivative instruments based on the Company’s securities.
LOGO    Reprice or buyout underwater stock options – Our Incentive plan does not permit the repricing or substitution of underwater stock options except with stockholder approval. Our Incentive plan also does not permit the grant of underwater stock options, except in connection with certain corporate transactions.
LOGO    Pay dividends or dividend equivalents on any unvested equity awards – Our Incentive Plan and associated award agreements prohibit the payment and delivery of dividends and dividend equivalents on unvested RSUs and performance shares, unless and until the underlying award vests.

OWNERSHIP POLICY

We have adopted an executive stock ownership policy for our NEOs. Each of our NEOs is expected to own shares of our common stock in the following amounts within five years from the later of February 19, 2014 and the date he or she first becomes subject to the stock ownership policy:

 

   

Role

  Salary Multiple    
 

CEO

  5 times base salary  
 

Other Executive Officers

  3 times base salary  

Each NEO currently employed by the Company satisfies the stock ownership requirement above. Under this requirement, executives may not dispose of any shares of the Company they acquire, including, but not limited to, any shares of vested restricted stock, any shares underlying vested restricted stock units, net of taxes, or any shares acquired upon the exercise of any stock options, net of taxes and payment of any exercise price, in each case, received from grants made until the ownership requirements are satisfied. This restriction does not apply to any shares of our common stock received by the executive in exchange for his or her equity held prior to our initial public offering in December 2013 (the “IPO”).

 

42    PROXY STATEMENT    Hilton


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CLAWBACK POLICY

We have adopted a clawback policy for our incentive compensation. The Committee determined that it may be appropriate to recover annual and/or long-term incentive compensation from its current or former officers subject to reporting under Section 16 of the Exchange Act or any other employee designated by the Committee in specified situations. These situations include if such employee, was overpaid, in whole or in part, as a result of a restatement of the reported financial results of the Company or any of its segments due to material non-compliance with financial reporting requirements (unless due to a change in accounting policy or applicable law) caused or contributed to by such employee’s fraud, willful misconduct or gross negligence. If these situations occur, the Committee will review the incentive compensation paid, granted, vested or accrued based on the prior inaccurate results and determine whether to seek recovery of any excess incentive compensation paid or earned as a result of such inaccurate results.

STOCK AWARD GRANTING POLICY

The annual grant of stock-based awards to our NEOs is approved on the date of the first regularly scheduled Committee meeting of the calendar year (typically held in the first quarter). In addition to annual awards, other grants may be awarded at other times (1) to attract new hires; (2) to recognize employees for special achievements or for retention purposes; (3) to new employees as a result of the acquisition of another company; or (4) as may be desirable and prudent in other special circumstances. The exercise price of stock options is the closing market price of our common stock on the date of grant. We monitor and periodically review our equity grant policies to ensure compliance with plan rules and applicable law. We do not have a program, plan or practice to time our equity grants in coordination with the release of material, non-public information.

RISK CONSIDERATIONS

The Committee believes that the design and objectives of our executive compensation program provide an appropriate balance of incentives for executives and avoid inappropriate risks. In this regard, our executive compensation program includes the following design features:

 

  ·    Balances fixed versus at-risk compensation;

 

  ·    Balances short-term cash and long-term incentive compensation;

 

  ·    Provides that at-risk compensation is based on a variety of qualitative and quantitative performance goals, including the Company’s stock price, the Company’s overall financial performance and the performance of specific business area objectives;

 

  ·    Caps the executives’ incentive compensation opportunities;

 

  ·    Provides the Committee with discretion to reduce the annual incentive amount awarded;

 

  ·    Significant stock ownership requirements;

 

  ·    Provides for a clawback of the executive’s compensation in specified circumstances; and

 

  ·    Prohibits pledging and hedging of Company stock.

COMPLIANCE WITH IRS CODE SECTION 162(m)

Section 162(m) of the Internal Revenue Code limits the Company’s federal income tax deduction for any compensation in excess of $1 million paid to NEOs except for the CFO. However, this provision does not apply to certain qualified performance-based compensation as long as specified requirements are met.

Currently, we claim the benefit of a special exemption that applies to compensation paid (or compensation in respect of equity awards such as stock options or restricted stock granted) during a specified transition period following the IPO. This transition period may extend until the first annual meeting of stockholders that occurs after the close of the third calendar year following the calendar year in which the IPO occurred (i.e., May 24, 2017), unless the transition period is terminated earlier under the Section 162(m) post-offering transition rules.

At our annual meeting in May 2017, in order to qualify for the qualified performance-based compensation exemption under Section 162(m), we will seek stockholder approval of the Hilton 2017 Omnibus Incentive Plan, including approval of the performance goals of the plan under which the compensation will be paid (as described under “Proposal 2 — Approval of the Hilton 2017 Omnibus Incentive Plan”). In furtherance of our aim of awarding compensation eligible to constitute qualified performance-based compensation under Section 162(m), in February 2017, the Committee approved provisions for payments under our annual cash incentive program and determined that 2017 annual cash incentive awards for our executive officers who are covered by 162(m) are conditioned on achieving Adjusted EBITDA (defined above) in 2017 of at least $1.2 billion. These awards are contingent on stockholder approval of the 2017 Omnibus Incentive Plan at this Annual Meeting. See “Proposal 2 — Approval of the Hilton 2017 Omnibus Incentive Plan.”

The Committee takes the deductibility limitations of Section 162(m) into account in its compensation decisions; however, the Committee may, in its judgment, authorize compensation payments that are not exempt under Section 162(m) when it believes that such payments are appropriate to attract or retain talent. Beginning with performance shares granted in 2015, the Committee decided to grant equity in the form of restricted stock instead of RSUs to allow the Company to take advantage of federal income tax deductions under the IPO transition rules.

 

Hilton    PROXY STATEMENT    43


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SUMMARY COMPENSATION TABLE

The following table presents summary information regarding the total compensation awarded to, earned by, or paid to each of our NEOs for the fiscal years indicated.

 

Name

  Year     Salary (1)
($)
    Stock
Awards (2)
($)
    Option
Awards (2)
($)
    Non-Equity
Incentive Plan
Compensation
($)
   

Change in

Pension Value

& Nonqualified

Deferred
Compensation

Earnings (3)
($)

    All Other
Compensation (4)
($)
    Total
($)
 

Christopher J. Nassetta

President & Chief

Executive Officer

    2016       $1,200,000       $6,532,917       $1,319,999       $1,883,905             $64,507       $11,001,328  
    2015       $1,246,154       $5,419,878       $1,259,993       $2,222,013             $69,413       $10,217,451  
    2014       $1,142,201       $4,969,700       $1,199,997       $2,539,677             $50,639       $9,902,214  

Kevin J. Jacobs

EVP and Chief Financial Officer

    2016       $743,404       $2,091,147       $422,295       $735,927             $24,245       $4,017,018  
    2015       $748,077       $1,763,592       $409,994       $823,147             $10,600       $3,755,410  
    2014       $663,820       $1,490,884       $359,997       $843,364             $11,127       $3,369,192  

Ian R. Carter

EVP and President, Global

Development, Architecture &

Construction

    2016       $739,302       $1,891,199       $381,921       $765,859             $2,836       $3,781,117  
    2015       $744,692       $1,594,971       $370,796       $793,365             –         $3,503,824  
    2014       $698,077       $1,490,884       $359,997       $723,937       $60,482       $1,385       $3,334,762  

Mark D. Wang

EVP and President, Hilton Grand

Vacations

    2016       $686,495       $1,891,199       $381,921       $732,684             $13,436       $3,705,735  
    2015       $691,500       $1,594,971       $370,796       $777,427             $10,600       $3,445,294  
    2014       $623,654       $1,490,884       $359,997       $810,352             $11,409       $3,296,296  

James E. Holthouser

EVP, Brands & Marketing

    2016       $600,000       $1,889,237       $179,996       $563,430             $11,841       $3,244,504  

 

(1)  Amounts in this column reflect the salary earned during the fiscal year, whether paid or deferred under the Company’s employee benefit plans.

 

(2)  Represents (a) the aggregate grant date fair value of the awards computed in accordance with FASB ASC Topic 718, using the assumptions discussed in Note 20 (“Share-Based Compensation”) of the consolidated financial statements included in our Annual Report on Form 10-K and (b) the incremental fair values of the performance shares granted in 2015 and 2016 which were modified in November 2016 in connection with the spin-offs (as described below). Further, in accordance with the SEC’s rules, dividend equivalents that accrued on the executives’ RSUs and performance shares granted in 2016 are not reported above because dividends were factored into the grant date fair value of these awards.

 

   Of the performance shares granted in 2016, 50% were scheduled to vest according to EBITDA CAGR and 50% vest according to Relative TSR. The grant date fair value of the shares that were scheduled to vest according to EBITDA CAGR was computed in accordance with FASB ASC Topic 718 based upon the probable outcome of the performance conditions as of the grant date. Assuming the highest level of performance achievement as of the grant date, the aggregate grant date fair value of the EBITDA CAGR awards would have been: Mr. Nassetta — $3,960,004; Mr. Jacobs — $1,266,884; Mr. Carter — $1,145,774; Mr. Wang — $1,145,774; and Mr. Holthouser — $539,980. As the shares that were scheduled to vest according to Relative TSR are subject to market conditions as defined under FASB ASC Topic 718 and were not subject to performance conditions as defined under FASB ASC Topic 718, they had no maximum grant date fair values that differed from the grant date fair values presented in the table.

 

   As described above under “Treatment of Outstanding Equity Awards in Connection with Spin-Offs,” the performance shares granted in 2015 and 2016 were modified in November 2016 into converted performance shares, and there was incremental fair value calculated in accordance with FASB ASC Topic 718 for each of Messrs. Nassetta, Jacobs, Carter, Wang and Holthouser in the amounts of $1,131,783, $363,218, $328,484, $328,484 and $152,755, respectively. In January 2017, all of the executives’ outstanding stock options (whether vested or unvested), RSUs and performance shares were adjusted in a manner intended to preserve the value of the awards; the amounts reported in the table above do not reflect these adjustments.

 

(3)  For 2016, the actual annual change in pension value was negative (-$62,013) for Mr. Carter, but it is not reflected in the table pursuant to SEC regulations regarding negative amounts. Amounts reported represent the aggregate increase in the actuarial present value of Mr. Carter’s accumulated benefit under the defined-present value of the retirement pension due based on assumptions described below. This value is the sum that would be payable should Mr. Carter choose to transfer his benefits from the U.K. Pension Plan in full as of December 31, 2016, 2015 and 2014. The key financial assumptions used in the calculation of the present value included discount rates of 4.65%, 5.2% and 4.5% for 2016, 2015 and 2014, respectively, CPI inflation of 2.75%, 2.60% and 1.95% for 2016, 2015 and 2014, respectively, and pension inflation of 1.80%, 1.75% and 1.50% for 2016, 2015 and 2014, respectively. The Company does not provide any of its executives with any above-market or preferential earnings on nonqualified deferred compensation.

 

44    PROXY STATEMENT    Hilton


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(4)  All Other Compensation for 2016 includes:

 

Name

   Company
401(k)
Match
($)
     Insurance
Premiums (a)
($)
     Personal
Use of
Company
Aircraft (b)
($)
     Executive
Physical
($)
     Reimbursements
for Taxes
Incurred for
Specified
Perquisites (c)
($)
     Dividend
Equivalents (d)
($)
     Other (e)
($)
     Total
($)
 

Christopher J. Nassetta

     $10,600        $7,525        $4,620        $2,480        $11,512        $9,636        $18,134        $64,507  

Kevin J. Jacobs

     $10,600                      $2,354               $3,135        $8,156        $24,245  

Ian R. Carter

                                        $2,836               $2,836  

Mark D. Wang

     $10,600                                    $2,836               $13,436  

James E. Holthouser

     $10,600                                    $1,241               $11,841  

 

(a)  Employer-paid premiums for Mr. Nassetta’s executive life insurance policy.

 

(b)  Incremental costs associated with guests accompanying Mr. Nassetta on the Company aircraft during the year ended December 31, 2016. For purposes of the “Summary Compensation Table,” we value the incremental cost associated with these accompanying guests by using a method that takes into account the variable costs. Since the aircraft is used primarily for business travel, the calculation does not include the fixed costs that do not change based on usage, such as crew salaries, hangar storage costs and cost of maintenance not related to trips.

 

(c)  Reflects $4,213 of employer-paid taxes owed with respect to Mr. Nassetta’s personal use of the Company aircraft, $6,863 of employer-paid taxes owed in connection with his employer-paid executive life insurance policy and $436 of employer-paid taxes owed in connection with employer-paid expenses incurred at Company-branded hotels while on personal travel.

 

(d)  Reflects dividend equivalents accrued on eligible equity awards where dividends were not factored into the grant date fair value of such previously disclosed awards.

 

(e)  Employer-paid expenses incurred at Company-branded hotels while on personal travel.

 

Hilton    PROXY STATEMENT    45


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2016 GRANTS OF PLAN-BASED AWARDS

The following table sets forth grants of plan-based awards to the NEOs during the fiscal year ended December 31, 2016, prior to the January 2017 adjustments made in connection with the spin-offs. For information on a post-adjusted basis, see the supplemental table below.

 

              Estimated Future Payouts Under
Non-Equity Incentive Plan Awards (1)
    Estimated Future Payouts Under
Equity Incentive Plan Awards (2)
    All Other
Stock
Awards:
Number
or Shares
of Stock
or Units
(#)
    All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
    Exercise
or Base
Price of
Option
Awards
($/sh)
    Grant Date
Fair Value
of Stock
and Option
Awards (3)
($)
 

Name

  Award Type   Grant
Date
    Threshold
($)
    Target
($)
    Maximum
($)
    Threshold
(#)
    Target
(#)
    Maximum
(#)
         

Christopher J.
Nassetta

  Annual Cash Incentive           $40,909       $1,800,000       $3,600,000                                            
  Performance Shares     2/18/16                         100,969       201,937       403,874                         $4,081,146  
  RSUs     2/18/16                                           67,312                   $1,319,988  
  Stock Options     2/18/16                                                 241,316       $19.61       $1,319,999  
  Modified 2015 Award (4)     11/29/16                                           8,259                   $204,906  
    Modified 2016 Award (4)     11/29/16                                           37,359                   $926,877  

Kevin J.
Jacobs

  Annual Cash Incentive           $37,338       $746,750       $1,120,125                                            
  Performance Shares     2/18/16                         32,302       64,604       129,208                         $1,305,647  
  RSUs     2/18/16                                           21,534                   $422,282  
  Stock Options     2/18/16                                                 77,202       $19.61       $422,295  
  Modified 2015 Award (4)     11/29/16                                           2,688                   $66,689  
    Modified 2016 Award (4)     11/29/16                                           11,952                   $296,529  

Ian R.
Carter

  Annual Cash Incentive           $37,132       $742,630       $1,113,945                                            
  Performance Shares     2/18/16                         29,214       58,427       116,854                         $1,180,810  
  RSUs     2/18/16                                           19,475                   $381,905  
  Stock Options     2/18/16                                                 69,821       $19.61       $381,921  
  Modified 2015 Award (4)     11/29/16                                           2,431                   $60,313  
    Modified 2016 Award (4)     11/29/16                                           10,809                   $268,171  

Mark D.
Wang

  Annual Cash Incentive           $34,479       $689,585       $1,034,378                                            
  Performance Shares     2/18/16                         29,214       58,427       116,854                         $1,180,810  
  RSUs     2/18/16                                           19,475                   $381,905  
  Stock Options     2/18/16                                                 69,821       $19.61       $381,921  
  Modified 2015 Award (4)     11/29/16                                           2,431                   $60,313  
    Modified 2016 Award (4)     11/29/16                                           10,809                   $268,171  

James E.
Holthouser

  Annual Cash Incentive           $30,000       $600,000       $900,000                                            
  Performance Shares     2/18/16                         13,768       27,536       55,072                         $556,502  
  RSUs     2/18/16                                           9,178                   $179,981  
  RSUs (5)     5/5/16                                           45,372                   $999,999  
  Stock Options     2/18/16                                                 32,906       $19.61       $179,996  
  Modified 2015 Award (4)     11/29/16                                           1,063                   $26,373  
    Modified 2016 Award (4)     11/29/16                                           5,094                   $126,382  

 

(1)  Reflects the possible payouts under the 2016 annual cash incentive program. Amounts reported in the “Threshold” column assume that there is no payout under the Adjusted EBITDA component of the annual cash incentive program and that the NEO only earns the minimum payout for the one business area or organizational strength performance objective that has been assigned the lowest weighting. The actual amounts paid are described in the “Non-Equity Incentive Plan Compensation” column of the “Summary Compensation Table.”

 

(2) 

As described in further detail under “Long-Term Incentive Awards,” the performance shares granted in 2016 had a 3-year performance period scheduled to end on December 31, 2018 and would have vested, as to 50% of the awards, based on Relative TSR and, as to 50% of the award, based on EBITDA CAGR. Amounts

 

46    PROXY STATEMENT    Hilton


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  reported in the “Threshold” column assume that 50% of the total performance shares awarded would have vested and amounts reported in the “Maximum” column assume that 200% of the total performance shares awarded would have vested. In connection with the spin-offs, these awards were modified into converted performance shares based on an assumed target level of performance achievement and adjusted as described under “Treatment of Outstanding Equity Awards in Connection with Spin-Offs.” The number of converted performance shares received in respect of the performance shares granted in 2016 as adjusted in connection with the spin-offs is reflected in the supplemental table below.

 

(3)  Represents the grant date fair value of the awards computed in accordance with FASB ASC Topic 718, using the assumptions discussed in Note 20 (“Share-Based Compensation”) of the consolidated financial statements included in our Annual Report on Form 10-K. The stock options have an exercise price per share equal to the closing price of the Company’s common stock as reported on the NYSE on the date of grant.

 

   The grant date fair value of the performance shares that were scheduled to vest according to EBITDA CAGR was computed in accordance with FASB ASC Topic 718 based upon the probable outcome of the performance conditions as of the grant date and was determined to be for each of Messrs. Nassetta, Jacobs, Carter, Wang and Holthouser, $1,980,002, $633,442, $572,887, $572,887 and $269,990, respectively. The grant date fair value of the performance shares that were scheduled to vest based on Relative TSR was determined to be for each of Messrs. Nassetta, Jacobs, Carter, Wang and Holthouser, $2,101,144, $672,205, $607,923, $607,923 and $286,512, respectively.

 

(4)  Represents the performance shares granted in 2015 and 2016, all of which were modified in November 2016 into converted performance shares in connection with the spin-offs. The number of converted shares received in the modification, and reflected in the table above, assumed that target levels of both EBITDA CAGR and Relative TSR would have been achieved. See, “Treatment of Outstanding Equity Awards in Connection with Spin-Offs.” In connection with this modification, there was incremental fair value calculated in accordance with FASB ASC Topic 718 for each of Messrs. Nassetta, Jacobs, Carter, Wang and Holthouser in the amounts of $1,131,783, $363,218, $328,484, $328,484 and $152,755, respectively.

 

(5)  Represents one-time RSUs granted to Mr. Holthouser, as described under “Long-Term Incentive Awards.”

SUPPLEMENTAL TABLE TO 2016 GRANTS OF PLAN-BASED AWARDS

The following supplemental table reflects the equity awards granted to our NEOs during the fiscal year ended December 31, 2016, after giving effect to the January 2017 adjustments made in connection with the spin-offs. This table is not required by SEC regulations and is not a substitute for the required “Grants of Plan-Based Awards” table shown above.

 

            Estimated Future Payouts Under
Equity Incentive Plan Awards  (1)
     All Other
Stock
Awards:
Number
or Shares
of Stock
or Units
(#)
     All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
     Exercise
or Base
Price of
Option
Awards
($/sh)
 

Name

   Grant
Date
     Threshold
(#)
     Target
(#)
     Maximum
(#)
          

Christopher J. Nassetta

     2/18/16        47,820        95,639        191,278        31,879        114,289      $ 41.41  

Kevin J. Jacobs

     2/18/16        15,298        30,596        61,192        10,198        36,563      $ 41.41  

Ian R. Carter

     2/18/16        13,836        27,671        55,342        9,223        33,068      $ 41.41  

Mark D. Wang (2)

                                                

James E. Holthouser

     2/18/16        6,520        13,040        26,080        4,346        15,584      $ 41.41  
       5/5/16                             21,488                

 

(1)  The amounts reported reflect the number of shares granted on the grant date and the option exercise price after giving effect to the adjustments in connection with the spin-offs. The amounts reported under the “Estimated Future Payouts Under Equity Incentive Plan Awards” columns reflect the number of performance shares granted in 2016, on an adjusted basis, that could have been earned at the end of the performance period based on the level of achievement of the performance conditions. These performance shares were modified into converted performance shares assuming a target level of achievement and adjusted as described under “Treatment of Outstanding Equity Awards in Connection with Spin-Offs.” The number in the “Target” column reflects the number of converted performance shares received, on an adjusted basis, in respect of the performance shares granted in 2016 and that are eligible to vest on the original vesting date (December 31, 2018).

 

(2)  Mr. Wang’s equity awards were converted into awards that will settle in or be exercisable for shares of HGV common stock.

 

Hilton    PROXY STATEMENT    47


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OUTSTANDING EQUITY AWARDS AT 2016 FISCAL YEAR-END

The following table sets forth information regarding the outstanding equity awards held by our NEOs as of December 31, 2016, prior to the January 2017 adjustments made in connection with the spin-offs. For information on a post-adjusted basis, see the supplemental table below.

 

          Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
    Number of
Securities
Underlying
Unexercised
Options
Unexercisable (1)(2)
(#)
    Option
Exercise Price
($)
    Option
Expiration
Date
    Number of
Shares or Units
of Stock That
Have Not
Vested (2)
(#)
    Market Value of
Shares or Units
of Stock
That Have Not
Vested (3)
($)
 

Name

  Grant
Date
             

Christopher J. Nassetta

    2/19/14       104,485       53,826       $21.53       2/19/24              
    2/10/15       50,059       100,119       $27.46       2/10/25       22,942 (4)      $624,022  
    2/10/15                               137,654 (5)      $3,744,189  
    2/18/16             241,316       $19.61       2/18/26       67,312 (4)      $1,830,886  
      2/18/16                               201,937 (5)      $5,492,686  

Kevin J. Jacobs

    2/19/14       31,345       16,148       $21.53       2/19/24              
    2/10/15       16,288       32,579       $27.46       2/10/25       7,465 (4)      $203,048  
    2/10/15                               44,792 (5)      $1,218,342  
    2/18/16             77,202       $19.61       2/18/26       21,534 (4)      $585,725  
      2/18/16                               64,604 (5)      $1,757,229  

Ian R. Carter

    2/19/14       31,345       16,148       $21.53       2/19/24              
    2/10/15       14,731       29,464       $27.46       2/10/25       6,752 (4)      $183,654  
    2/10/15                               40,509 (5)      $1,101,845  
    2/18/16             69,821       $19.61       2/18/26       19,475 (4)      $529,720  
      2/18/16                               58,427 (5)      $1,589,214  

Mark D. Wang

    2/19/14       31,345       16,148       $21.53       2/19/24              
    2/10/15       14,731       29,464       $27.46       2/10/25       6,752 (4)      $183,654  
    2/10/15                               40,509 (5)      $1,101,845  
    2/18/16             69,821       $19.61       2/18/26       19,475 (4)      $529,720  
      2/18/16                               58,427 (5)      $1,589,214  

James E. Holthouser

    2/19/14       13,713       7,065       $21.53       2/19/24              
    2/10/15       6,444       12,891       $27.46       2/10/25       2,954 (4)      $80,349  
    2/10/15                               17,723 (5)      $482,066  
    2/18/16             32,906       $19.61       2/18/26       9,178 (4)      $249,642  
    2/18/16                               27,536 (5)      $748,979  
      5/5/16                               45,372 (4)      $1,234,118  

 

(1)  The stock options granted in February of 2014, 2015 and 2016 were scheduled to vest in three equal annual installments beginning on the first anniversary of the grant date. In February 2017, the Committee modified the vesting schedule of all of these awards so that the tranche of equity vesting in February of any given year is scheduled to vest on February 15 of that year, subject to the executive’s continued employment on the applicable vesting date.

 

(2)  For additional information on vesting upon specified termination events or a change in control, see “Long-Term Incentive Awards” and “Potential Payments Upon Termination or Change in Control.”

 

(3)  Amounts reported are based on the closing price of our common stock on the NYSE as of December 30, 2016 ($27.20), the last trading day of the fiscal year, multiplied by the number of outstanding shares.

 

(4)  Represents the RSUs granted in February of 2015 and 2016, which were scheduled to vest in two equal annual installments beginning on the first anniversary of the grant date. In February 2017, the Committee modified the vesting schedule of all of these awards so that the tranche of equity vesting in February of any given year is scheduled to vest on February 15 of that year, subject to the executive’s continued employment on the applicable vesting date. Mr. Holthouser’s RSUs granted in May 2016 are scheduled to vest in full on May 5, 2019, subject to his continued employment on the vesting date.

 

(5)  Represents the NEOs’ performance shares granted in 2015 and 2016 that were converted into time-vesting restricted shares. As described above, in connection with the spin-offs, these performance shares were modified in November 2016 into time-vesting converted performance shares and assumed that target levels of the performance conditions would have been achieved. The converted performance shares are scheduled to vest, as to the performance shares granted in 2015, on December 31, 2017 and, as to the performance shares granted in 2016, on December 31, 2018, in each case, subject to the executive’s continued employment through the applicable vesting date.

 

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SUPPLEMENTAL TABLE TO OUTSTANDING EQUITY AWARDS

The following supplemental table sets forth the outstanding equity awards held by our NEOs as of December 31, 2016, after giving effect to the January 2017 adjustments made in connection with the spin-offs. This table is not required by SEC regulations and is not a substitute for the required “Outstanding Equity Awards” table shown above.

 

            Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
     Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
     Option
Exercise Price
($)
    

Number of

RSUs

That Have Not
Vested
(#)

    

Number of

Converted
Performance
Shares

That Have
Not Vested
(#)

 

Name

  

Grant

Date

                

Christopher J. Nassetta

     2/19/14        49,484        25,493      $ 45.46                
     2/10/15        23,708        47,417      $ 57.99        10,866        65,194  
       2/18/16               114,289      $ 41.41        31,879        95,639  

Kevin J. Jacobs

     2/19/14        14,844        7,649      $ 45.46                
     2/10/15        7,714        15,429      $ 57.99        3,536        21,212  
       2/18/16               36,563      $ 41.41        10,198        30,596  

Ian R. Carter

     2/19/14        14,844        7,649      $ 45.46                
     2/10/15        6,976        13,955      $ 57.99        3,198        19,184  
       2/18/16               33,068      $ 41.41        9,223        27,671  

Mark D. Wang (1)

                                         

James E. Holthouser

     2/19/14        6,494        3,346      $ 45.46                
     2/10/15        3,051        6,106      $ 57.99        1,399        8,393  
     2/18/16               15,584      $ 41.41        4,346        13,040  
       5/5/16                             21,488         
(1)  Mr. Wang’s equity awards were converted into awards that will settle in or are exercisable for shares of HGV common stock.

 

Hilton    PROXY STATEMENT    49


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2016 OPTION EXERCISES AND STOCK VESTED

The following table provides information regarding shares that vested during 2016 for our NEOs and without giving effect to the January 2017 adjustments made in connection with the spin-offs.

 

    Option Awards     Stock Awards  

Name

  Number of Shares
Acquired on Exercise
(#)
    Value Realized on
Exercise
($)
    Number of Shares
Acquired on Vesting (1)(2)
(#)
    Value Realized
on Vesting (3)
($)
 

Christopher J. Nassetta

                239,755       $6,108,111  

Kevin J. Jacobs

                72,508       $1,842,942  

Ian R. Carter

                71,794       $1,830,032  

Mark D. Wang

                71,794       $1,830,032  

James E. Holthouser

                31,409       $800,617  

 

(1)  After giving effect to the January 2017 adjustments made in connection with the spin-offs, the adjusted number of shares that vested during 2016 were: 113,548 for Mr. Nassetta; 34,338 for Mr. Jacobs, 34,000 for Mr. Carter and 14,873 for Mr. Holthouser. Mr. Wang’s equity awards that vested in 2016 were converted into shares of HGV common stock.

 

(2)  Includes shares received from the vesting of RSUs granted in 2014 and 2015 and performance shares granted in 2014.

 

   The performance shares granted in 2014 vested on December 31, 2016 at the end of a 3-year performance period. The number of shares that vested on December 31, 2016, without giving effect to the January 2017 adjustments made in connection with the spin-offs, were: 188,945 for Mr. Nassetta; 56,683 for Mr. Jacobs; 56,683 for Mr. Carter; 56,683 for Mr. Wang; and 24,798 for Mr. Holthouser.

 

   In January 2017, the 2014 performance shares were adjusted in a manner intended to preserve the value of the award, as described under “Treatment of Outstanding Equity Awards in Connection with Spin-Offs.”

 

   The 2014 performance shares were issued to our NEOs in the following amounts and market values based on the closing price of our common stock on the NYSE as of February 23, 2017 ($57.21), which is the date of the regularly scheduled Committee meeting on which the Committee certified performance achievement: 89,484 shares ($5,119,380) for Mr. Nassetta; 26,844 shares ($1,535,745) for Mr. Jacobs; 26,844 shares ($1,535,745) for Mr. Carter; and 11,742 shares ($671,760) for Mr. Holthouser. Mr. Wang’s shares were settled in shares of HGV common stock.

 

(3)  Amounts reported are based on the closing price of our common stock on the NYSE on the vesting date.

2016 PENSION BENEFITS

 

Name

  Plan Name  

Number of Years
Credited Service

(#)

   

Present Value
of Accumulated
Benefit (1)

($)

   

Payments During

Last Fiscal Year

($)

 

Christopher J. Nassetta

                     

Kevin J. Jacobs

                     

Ian R. Carter

 

Hilton U.K. Pension Plan (2)

    4     $ 487,183        
 

Hilton U.K. Hotels Employer –

    3     $ 722,215        
    Financed Retirement Benefit Scheme (3)                        

Mark D. Wang

                     

James E. Holthouser

                     

 

(1)  The present value is calculated by the trustee of the U.K. Pension Plan and represents the present value of the retirement pension due based on assumptions described below. This value is the sum that would be payable should Mr. Carter choose to transfer his benefits from the U.K. Pension Plan in full as of December 31, 2016. The key financial assumptions used in the calculation of the present value included discount rates of 4.65% and 5.2% for 2016 and 2015, respectively, CPI inflation of 2.75% and 2.60% for 2016 and 2015, respectively, and pension inflation of 1.80% and 1.75% for 2016 and 2015, respectively.

 

(2)  The U.K. Pension Plan is a defined benefit pension plan in the U.K., for which benefit payments are payable monthly upon retiring in accordance with the terms of the plan. The pension value is determined based on years and completed months’ of pensionable service, final pensionable salary (which is subject to an earnings cap) and an accrual ratio. The funds are invested through a trustee, who has full investment discretion. Mr. Carter ceased pensionable service in the U.K. Pension Plan in 2009, and he has a preserved pension based on his pensionable service and final pensionable salary at that time. Mr. Carter has not contributed to the plan since then and the only increases applied to his benefit have been annual statutory increases. The purpose of the U.K. Pension Plan is to provide a retirement benefit based on U.K. market practice. The U.K. Pension Plan does not provide special policies such as granting extra years of credited service, however, it provides tax advantages such as a tax relief on employee contributions and a tax-free cash payment at retirement.

 

(3)  The Supplemental U.K. Plan is a supplementary to the U.K. Pension Plan and provides an additional retirement benefit to senior management of the Company whose pensionable earnings in the U.K. Pension Plan are restricted to an earnings cap. The Supplemental U.K. Plan does not have assets. While Mr. Carter was a member of the Supplemental U.K. Plan, the Company made notional contributions calculated as a percentage of his base salary in excess of an earnings cap, which applies within the U.K. Pension Plan. No notional contributions have been made for Mr. Carter since 2009, when he ceased pensionable service. Mr. Carter has a notional retirement account balance, which is notionally invested based on Mr. Carter’s elected investment portfolio. The terms of the Supplemental U.K. Plan provide that funds be paid as a lump sum at the same time as Mr. Carter commences drawing his retirement benefits from the U.K. Plan. The Supplemental U.K. Plan does not provide any special tax treatment.

 

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2016 NONQUALIFIED DEFERRED COMPENSATION

The Company offers to its executives, including all of the NEOs, the opportunity to participate in the EDCP. The table below provides information as of December 31, 2016, for those NEOs who chose to participate in the plan.

 

Name

    

Executive

Contributions

in Last FY (1)

($)

      

Registrant

Contributions

in Last FY

($)

      

Aggregate
Earnings

in Last FY (2)

($)

      

Aggregate

Withdrawals/

Distributions

($)

      

Aggregate

Balance

at Last FYE (3)

($)

 

Christopher J. Nassetta

                         $11,887                   $209,080  

Kevin J. Jacobs

                                            

Ian R. Carter

                                            

Mark D. Wang

       $146,160                   $84,060                   $1,421,755  

James E. Holthouser

       $136,962                   $78,976                   $1,133,329  

 

(1)  The amount in this column is included in the “Salary” column for 2016 in the “Summary Compensation Table.”

 

(2)  Amounts in this column are not reported as compensation for fiscal year 2016 in the “Summary Compensation Table” since they do not reflect above-market or preferential earnings. Deferrals may be allocated among investment options that generally mirror the investment options available under our qualified 401(k) plan. Of the available investment options, the one-year rate of return during 2016 ranged from 1.41% to 21.28%.

 

(3)  Mr. Nassetta made no contributions during fiscal years 2014, 2015 or 2016 and, therefore, no amounts in this column have previously been reported in the “Summary Compensation Table.” Of the total in this column listed for Mr. Wang, $209,499 was previously reported in the “Summary Compensation Table.”

Pursuant to our EDCP, specified eligible employees, including our NEOs, may defer up to 100% of either or both their annual salary and bonus. Deferral elections are made by eligible employees in the calendar year preceding the year compensation is otherwise payable. In 2016, contributions to the EDCP consist solely of participants’ elective deferral contributions and the Company did not provide matching contributions. Eligible employees are permitted to make individual investment elections that will determine the rate of return on their deferral amounts under the elective nonqualified deferred compensation plan. Participants may change their investment elections at any time. Deferrals are only deemed to be invested in the investment options selected. Participants have no ownership interest in any of the funds as investment elections are used only as an index for crediting gains or losses to participants’ accounts. The investment options consist of a variety of well-known mutual funds including certain non-publicly traded mutual funds available through variable insurance products. Investment gains or losses in the funds are credited to the participants’ accounts daily, net of investment option related expenses. The EDCP does not provide any above-market returns or preferential earnings to participants, and the deferrals and their earnings are always 100% vested.

NEOs may elect to receive in-service distributions of such amounts at the time they make their deferral elections. In addition, upon a showing of financial hardship due to death, illness, accident or similar extraordinary or unforeseeable circumstances, an executive may be allowed to access funds in the executive’s deferred compensation account before he otherwise would have been eligible. The participant must make two payout elections, one in the case of termination and one in the case of retirement. Benefits can generally be received either as a lump sum payment or in installments over a period not to exceed 20 years in the case of retirement, 5 years in the case of termination and 5 years for in-service distributions. In the event of a change in control, 100% of the value of the eligible employee’s deferred compensation account will be distributed.

 

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POTENTIAL PAYMENTS UPON TERMINATION

OR CHANGE IN CONTROL

The following table describes the potential payments and benefits that would have been payable to our NEOs under existing plans, assuming (1) a termination of employment and/or (2) a change in control (“CIC”) occurred, in each case, on December 31, 2016, without giving effect to the January 2017 adjustments made to equity awards in connection with the spin-offs, except with respect to performance shares (as described below). The amounts shown in the table do not include payments and benefits to the extent they are provided generally to all salaried employees upon termination of employment and do not discriminate in scope, terms or operation in favor of the NEOs. Distributions of plan balances that would be made are set forth in the “2016 Pension Benefits” and the “2016 Nonqualified Deferred Compensation” tables.

Because the disclosures in the table assume the occurrence of a termination or CIC as of a particular date and under a particular set of circumstances and therefore make a number of important assumptions, the actual amount to be paid to each of our NEOs upon a termination or CIC may vary significantly from the amounts included herein. Factors that could affect these amounts include the timing during the year of any such event, the continued availability of benefit policies at similar prices and the type of termination event that occurs.

 

  Name

  

Qualifying

Termination (1)

($)

    

CIC

($)

    

Qualifying

Termination

Within

12 Months

Following CIC

($)

    

Death or      

Disability (6)      

($)      

 

  Christopher J. Nassetta

           

Cash Severance (1)

     $8,970,000               $8,970,000        $1,800,000  

Equity Awards (2)

            $9,236,875        $13,828,566        $8,923,192  

Continuation of Benefits (3)

     $16,984               $16,984         

Outplacement Services (4)

     $50,000               $50,000         

Other Benefit (5)

     $184,615               $184,615        $184,615  

Total Value of Benefits

     $9,221,599        $9,236,875        $23,050,165        $10,907,807  

  Kevin J. Jacobs

           

Cash Severance (1)

     $2,987,000               $2,987,000        $746,750  

Equity Awards (2)

            $2,975,571        $4,441,866        $2,865,706  

Continuation of Benefits (3)

     $11,146               $11,146         

Outplacement Services (4)

     $50,000               $50,000         

Other Benefit (5)

     $79,755               $79,755        $79,755  

Total Value of Benefits

     $3,127,901        $2,975,571        $7,569,767        $3,692,211  

  Ian R. Carter

           

Cash Severance (1)

     $2,970,520               $2,970,520        $742,630  

Equity Awards (2)

            $2,691,059        $4,025,934        $2,600,478  

Continuation of Benefits (3)

     $15,688               $15,688         

Outplacement Services (4)

     $50,000               $50,000         

Other Benefit (5)

     $77,119               $77,119        $77,119  

Total Value of Benefits

     $3,113,327        $2,691,059        $7,139,261        $3,420,227  

  Mark D. Wang

           

Cash Severance (1)

     $2,758,340               $2,758,340        $689,585  

Equity Awards (2)

            $2,691,059        $4,025,934        $2,600,478  

Continuation of Benefits (3)

     $19,682               $19,682         

Outplacement Services (4)

     $50,000               $50,000         

Other Benefit (5)

     $143,222               $143,222        $143,222  

Total Value of Benefits

     $2,971,244        $2,691,059        $6,997,178        $3,433,285  

  James E. Holthouser

           

Cash Severance (1)

     $2,400,000               $2,400,000        $600,000  

Equity Awards (2)

            $1,231,045        $3,084,969        $2,425,563  

Continuation of Benefits (3)

     $12,001               $12,001         

Outplacement Services (4)

     $50,000               $50,000         

Other Benefit (5)

     $80,769               $80,769        $80,769  

Total Value of Benefits

     $2,542,770        $1,231,045        $5,627,739        $3,106,332  

 

52    PROXY STATEMENT    Hilton


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(1) For purposes of the table above, a “qualifying termination” means (x) under the Severance Plan, a termination of employment either by the Company without “cause” or by the executive for “good reason,” each as defined in the Severance Plan, and (y) under the Incentive Plan, a termination by the Company without “cause” as defined in the Incentive Plan. An executive is not deemed to have experienced a qualifying termination as a result of (a) his death or disability or (b) solely as a result of a change in control.

 

  Under the Severance Plan, whether or not in connection with a change in control, each NEO would have been entitled to receive a cash severance amount equal to two times (2.99 in the case of Mr. Nassetta) the sum of the executive’s base salary and annual cash incentive award payable at target, each as in effect at date of termination.

 

  If the employment of the NEO was terminated due death or disability, such executive would have been entitled to receive a prorated bonus. Amounts reported under “Death or Disability” for each NEO reflect each NEO’s target annual bonus for the year ended December 31, 2016.

 

(2) Amounts represent the value of the acceleration of any unvested converted performance shares, RSUs and stock options, assuming the acceleration occurred on December 31, 2016 and based on the closing price of our common stock on the NYSE as of December 31, 2016 ($27.20).

 

    Converted performance shares: If the NEO’s employment terminates as a result of death or disability, a prorated portion of the converted performance shares will immediately vest at target levels, with such proration based on the number of days in the performance period that have elapsed. Upon a change in control, the converted performance shares will immediately vest based on actual performance through the most recently completed fiscal quarter, or, if performance is unable to be calculated, at target. The amounts reported in the table above for vesting upon a change in control assume achievement of target performance due to the actual treatment of such equity awards as described under “Treatment of Outstanding Equity Awards in Connection with Spin-Offs.”

 

    RSUs: If the NEO’s employment is terminated by the Company without cause within 12 months following a change in control or due to the executive’s death or disability, all unvested RSUs will immediately vest.

 

    Stock options: If the NEO’s employment is terminated by the Company without cause within 12 months following a change in control or due to the executive’s death or disability, all unvested options will immediately vest and become exercisable. In the table above, amounts reported reflect the “spread,” or difference between the exercise price and closing price as of December 31, 2016.

 

  Amounts in the table above do not include accrued dividends on eligible outstanding equity awards. Accrued dividends as of December 31, 2016 were approximately: $85,025 for Mr. Nassetta; $27,254 for Mr. Jacobs; $24,648 for Mr. Carter; $24,648 for Mr. Wang; and $21,049 for Mr. Holthouser.

 

(3) Under the Severance Plan, upon a qualifying termination, each NEO is entitled to continued healthcare coverage in an amount equal to the excess of the cost of the coverage over the amount that the executive would have had to pay if the executive remained employed for 12 months following the date of termination. In addition, upon a qualifying termination, an NEO who received life insurance coverage prior to the qualifying termination is entitled to receive a cash payment equal to the premiums required to continue such coverage for 12 months following the termination. Amounts reported assume 2016 rates.

 

(4) Under the Severance Plan, upon a qualifying termination, each NEO is entitled to outplacement services for a period of 12 months following the date of termination. Amounts in the table above assume that the cost to the Company for these outplacement services would be $50,000 for each NEO.

 

(5) Amounts shown represent accrued but unused vacation days.

 

(6) In the event of death of an NEO, in addition to amounts reported in the table above, each NEO will receive benefits from third-party payors under our employer-paid premium life insurance plans. All of our executives are eligible for one times their regular annual eligible wages at death. In addition, the Company has provided Mr. Nassetta with additional executive life insurance with a $10,500,000 death benefit. Therefore, if such benefits were triggered for the NEOs on December 31, 2016 under our life insurance plans the legally designated beneficiary(ies) of each NEO would have received the following amounts: Mr. Nassetta ($13,000,000); Mr. Jacobs ($1,569,000); Mr. Carter ($1,342,000); Mr. Wang ($1,480,000); and Mr. Holthouser ($1,092,000).

 

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COMPENSATION COMMITTEE

INTERLOCKS AND INSIDER PARTICIPATION

During the 2016 fiscal year, the members of the Compensation Committee were Messrs. Huntsman, Schreiber and Ms. McHale, none of whom was, during the fiscal year, an officer or employee of the Company and none of whom was formerly an officer of the Company. During 2016, none of our executive officers served as a director or member of the compensation committee (or other committee serving an equivalent function) of any other entity whose executive officers served on our Compensation Committee or our Board.

 

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OWNERSHIP OF SECURITIES

The following table sets forth information regarding the beneficial ownership of shares of our common stock as of March 31, 2017 by (1) each person known to us to beneficially own more than 5% of our outstanding common stock, (2) each of our directors and named executive officers and (3) all of our directors and executive officers as a group. Beneficial ownership is determined in accordance with the rules of the SEC. The ownership information presented below for beneficial owners gives effect to the January 3, 2017 reverse stock split consummated in connection with the spin-offs.

 

Name of beneficial owner

   Amount and Nature
of Beneficial Ownership
    

Percent of Common Stock       

Outstanding      

 

Principal Stockholder

     

HNA Tourism Group Co., Ltd. (1)

     82,500,000        25.0

Blackstone (2)

     50,043,669        15.2

Wellington Management Group LLP (3)

     22,034,064        6.7

Directors and Named Executive Officers:

     

Christopher J. Nassetta (4)(5)

     3,101,431        *  

Jonathan D. Gray (6)

     34,040        *  

Charlene T. Begley

            *  

Jon M. Huntsman, Jr. (7)

     5,019        *  

Judith A. McHale (7)

     7,538        *  

John G. Schreiber (7)

     4,056        *  

Elizabeth A. Smith (7)

     7,538        *  

Douglas M. Steenland (7)

     10,871        *  

William J. Stein (6)

     3,838        *  

Kevin J. Jacobs (5)

     310,793        *  

Ian R. Carter (5)

     691,675        *  

James E. Holthouser (5)

     165,843        *  

Directors and executive officers as a group (15 persons) (8)

     4,971,146        1.5

 

 * Represents less than 1%.

 

(1) As reported in a Schedule 13D filed on March 24, 2017, HNA Group Co., Ltd., HNA Tourism Group Co., Ltd., HNA Tourism (HK) Group Co., Ltd., HNA HLT Holdco III Limited, HNA HLT Holdco II LLC and HNA HLT Holdco I LLC have shared voting power and shared dispositive power over 82,500,000 shares of our common stock. The address of each entity is HNA Building, No. 7 Guoxing Road, Haikou, 570203, People’s Republic of China.

 

(2)  Reflects 44,002,828 shares of common stock directly held by HLT Holdco III LLC, 4,325,050 shares of common stock directly held by HLT BREP VI.TE.2 Holdco LLC, 152,352 shares of common stock directly held by HLT BREH VI Holdco LLC, 25,675 shares of common stock directly held by HLT BREH Intl II Holdco LLC, 1,514,096 shares of common stock directly held by HLT A23 Holdco LLC and 8,964 shares of common stock directly held by HLT A23 BREH VI Holdco LLC (together, the “Blackstone Funds”). The sole member of HLT Holdco III LLC is HLT Holdco II LLC. The sole member of HLT Holdco II LLC is HLT Holdco LLC.

 

  The sole member of HLT Holdco LLC, HLT BREH VI Holdco LLC and HLT A23 Holdco LLC is BH Hotels Holdco LLC (“BH Hotels”). The managing members of BH Hotels are Blackstone Real Estate Partners VI L.P. and Blackstone Capital Partners V L.P. The general partner of Blackstone Capital Partners V L.P. is Blackstone Management Associates V L.L.C. The sole member of Blackstone Management Associates V L.L.C. is BMA V L.L.C. The general partner of Blackstone Real Estate Partners VI L.P. is Blackstone Real Estate Associates VI L.P. The general partner of Blackstone Real Estate Associates VI L.P. is BREA VI L.L.C. The managing member of each of BREA VI L.L.C. and BMA V L.L.C. is Blackstone Holdings III L.P.

 

  The sole member of HLT BREH Intl II Holdco LLC is HLT BREH Intl II Holdings Holdco LLC. The controlling member of HLT BREH Intl II Holdings Holdco LLC is Blackstone Real Estate Holdings International II-Q L.P. The general partner of Blackstone Real Estate Holdings International II-Q L.P. is BREP International II-Q GP L.P. The general partner of BREP International II-Q GP L.P. is BREP International II-Q GP L.L.C. The sole member of BREP International II-Q GP L.L.C. is Blackstone Holdings III L.P.

 

   The sole member of HLT BREP VI.TE.2 Holdco LLC is HLT BREP VI.TE.2 Holdings Holdco LLC. The sole member of HLT BREP VI.TE.2 Holdings Holdco LLC is Blackstone Real Estate Partners VI.TE.2 L.P. The general partner of Blackstone Real Estate Partners VI.TE.2 L.P. is Blackstone Real Estate Associates VI L.P. The general partner of Blackstone Real Estate Associates VI L.P. is BREA VI L.L.C. The managing member of BREA VI L.L.C. is Blackstone Holdings III L.P.

 

   The sole member of HLT A23 BREH VI Holdco LLC is HLT BREH VI-A Holdings Holdco LLC. The sole member of HLT BREH VI-A Holdings Holdco LLC is Blackstone Real Estate Holdings VI L.P. The general partner of Blackstone Real Estate Holdings VI L.P. is BREP VI Side-by-Side GP L.L.C. The sole member of BREP VI Side-by-Side GP L.L.C. is Blackstone Holdings III L.P.

 

   The general partner of Blackstone Holdings III L.P. is Blackstone Holdings III GP L.P. The general partner of Blackstone Holdings III GP L.P. is Blackstone Holdings III GP Management L.L.C. The sole member of Blackstone Holdings III GP Management L.L.C. is The Blackstone Group L.P. The general partner of The Blackstone Group L.P. is Blackstone Group Management L.L.C. Blackstone Group Management L.L.C. is wholly-owned by Blackstone’s senior managing directors and controlled by its founder, Stephen A. Schwarzman. Each of such Blackstone entities (other than each of the Blackstone Funds to the extent they directly hold securities reported herein) and Mr. Schwarzman may be deemed to beneficially own the shares beneficially owned by the Blackstone Funds directly or indirectly controlled by it or him, but each disclaims beneficial ownership of such shares. Also reflects 14,704 shares of common stock directly owned by Mr. Schwarzman. The address of each of Mr. Schwarzman and each of the entities listed in this footnote is c/o The Blackstone Group L.P., 345 Park Avenue, New York, New York 10154.

 

  As of March 31, 2017, Blackstone entities have pledged, hypothecated or granted security interests in substantially all of the shares of our common stock held by them pursuant to a margin loan agreement with customary default provisions. In the event of a default under the margin loan agreement, the secured parties may foreclose upon any and all shares of common stock pledged to them and may seek recourse against the borrower.

 

(3)  As reported in a Schedule 13G filed on February 9, 2017, Wellington Management Group LLP, Wellington Group Holdings LLP and Wellington Investment Advisors Holdings LLP have shared voting power over 12,064,636 shares of our common stock and shared dispositive power over 22,034,064 shares of our common stock. Wellington Management Company LLP has shared voting power over 10,358,373 shares of our common stock and shared dispositive power over 19,144,914 shares of our common stock. The address of each entity is c/o Wellington Management Group LLP, 280 Congress Street, Boston, Massachusetts 02210.

 

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(4) Includes 677,933 shares of common stock held by Harwood Road LLC, a limited liability company. A revocable living trust, of which Mr. Nassetta is the trustee and a beneficiary, serves as the managing member of Harwood Road LLC. 99% of the economic interests in the limited liability company are held by a family trust for the benefit of Mr. Nassetta’s children and the remaining 1% is held by the aforementioned living trust.

 

(5)  Includes shares underlying vested options as follows: Mr. Nassetta: 160,489; Mr. Jacobs: 50,108; Mr. Carter: 47,466; and Mr. Holthouser: 21,137. Also includes unvested shares of performance-vesting restricted stock, a portion of which may be forfeited at the end of the performance period based on the achievement of the applicable performance criteria, as follows: Mr. Nassetta: 118,492; Mr. Jacobs: 41,364; Mr. Carter: 33,900; and Mr. Holthouser: 15,976.

 

(6)  Messrs. Gray and Stein are each employees of Blackstone, but each disclaims beneficial ownership of the shares beneficially owned by Blackstone.

 

(7)  Includes fully vested DSUs and dividend equivalents that settle on earlier of a termination for any reason or a change in control as follows: Mr. Huntsman: 5,019; Ms. McHale: 5,372; Mr. Schreiber: 4,056; Ms. Smith: 5,372; and Mr. Steenland: 5,372