SCHEDULE 14A INFORMATION

 

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

Filed by the Registrant þ

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

 

DiamondRock Hospitality Company

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement)

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 3, 2009

 

Dear Stockholder:

 

You are cordially invited to attend the 2009 annual meeting of stockholders of DiamondRock Hospitality Company. The annual meeting will be held on Thursday, April 30, 2009 at 3:00 p.m., local time, at the Bethesda Marriott Suites Hotel, 6711 Democracy Boulevard, Bethesda, Maryland.

 

The attached proxy statement, with formal notice of the meeting on the first page, describes the matters expected to be acted upon at the meeting. We urge you to review these materials carefully and to use this opportunity to take part in the affairs of DiamondRock Hospitality Company by voting on the matters described in this proxy statement. We hope that you will be able to attend the meeting. Following the formal portion of the meeting, our directors and management team will be available to answer appropriate questions.

 

Your vote is important. Whether or not you plan to attend the meeting, please complete the enclosed proxy card and return it as promptly as possible or authorize a proxy to vote your shares by calling the toll-free telephone number or via the Internet. The enclosed proxy card contains instructions regarding all three methods of voting. If you attend the meeting, you may continue to have your shares voted as instructed in the proxy or you may withdraw your proxy at the meeting and vote your shares in person.

 

We look forward to seeing you at the meeting.

 

Sincerely,

 

Mark W. Brugger
Chief Executive Officer

DIAMONDROCK HOSPITALITY COMPANY

6903 Rockledge Drive

Suite 800

Bethesda, MD 20817

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held On April 30, 2009

 

The 2009 annual meeting of stockholders of DiamondRock Hospitality Company, a Maryland corporation, will be held on Thursday, April 30, 2009 at 3:00 p.m., local time, at the Bethesda Marriott Suites Hotel, 6711 Democracy Boulevard, Bethesda, Maryland, for the following purposes:

 

1. To elect directors, each to serve for a one-year term and until their respective successors are duly elected and qualify;

 

2. To ratify the appointment of KPMG LLP as independent auditors of DiamondRock Hospitality Company to serve for 2009; and

 

3. To consider and act upon any other matters that are properly brought before the annual meeting and at any adjournments or postponements thereof.

 

You may vote if you were a stockholder of record as of the close of business on March 3, 2009. If you do not plan to attend the meeting and vote your shares of common stock in person, please authorize a proxy to vote your shares in one of the following ways:

 

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

 

 

Any proxy may be revoked at any time prior to its exercise at the annual meeting.

 

By Order of the Board of Directors

 

Michael D. Schecter
Corporate Secretary

 

March 3, 2009

TABLE OF CONTENTS

 

March 3, 2009

 

PROXY STATEMENT

 

DiamondRock Hospitality Company
6903 Rockledge Drive
Suite 800
Bethesda, MD 20817

 

This Proxy Statement and the enclosed proxy card are being mailed to stockholders on or about March 3, 2009 and are furnished in connection with the solicitation of proxies by the Board of Directors of DiamondRock Hospitality Company, a Maryland corporation (DiamondRock or the Company), for use at the 2009 annual meeting of our stockholders to be held on Thursday, April 30, 2009 at 3:00 p.m., local time, at the Bethesda Marriott Suites Hotel, 6711 Democracy Boulevard, Bethesda, Maryland, and at any adjournments or postponements thereof.

 

At the annual meeting, stockholders will be asked to vote upon the matters set forth in the accompanying notice of meeting, including the election of directors and ratification of the appointment of KPMG LLP as our independent auditors for 2009.

 

All stockholders of record of shares of our common stock at the close of business on the record date, or their designated proxies, are authorized to attend the annual meeting. Each stockholder or proxy holder will be asked to present a form of valid government issued picture identification, such as a driver’s license or passport.

 

If our records show that you were a stockholder as of the close of business on March 3, 2009, which is referred to in this proxy statement as the record date, you are entitled to receive notice of the annual meeting and to vote the shares of common stock that you held as of the close of business on the record date. Each outstanding share of common stock entitles its holder to cast one vote on each matter to be voted upon.

 

Voting in Person at the Meeting.  If you are a registered stockholder and attend the annual meeting, you may vote in person at the meeting. If your shares of common stock are held by a broker, bank or other nominee (i.e., in “street name”) and you wish to vote in person at the meeting, you will need to obtain a proxy form from the broker, bank or other nominee that holds your shares of common stock of record.

 

Authorizing a Proxy for Shares Registered Directly in the Name of the Stockholder.  If you hold your shares in your own name as a holder of record, you may instruct the proxy holders named in the enclosed proxy card how to vote your shares of common stock by using the toll-free telephone number, the website listed on the proxy card or by signing, dating and mailing the proxy card in the postage-paid envelope provided.

 

 

 

Authorizing a Proxy for Shares Registered in Street Name.  If your shares of common stock are held in street name, you will receive instructions from your broker, bank or other nominee which you must follow in order to have your shares of common stock voted.

 

The presence, in person or by proxy, of stockholders entitled to cast a majority of all the votes entitled to be cast at the annual meeting constitutes a quorum for the transaction of business at the annual meeting. As of the record date, there were 90,050,264 shares of common stock outstanding and entitled to vote at the annual meeting. Shares that reflect votes withheld for director nominees, abstentions or “broker non-votes” (i.e., shares represented at the meeting held by brokers or other nominees as to which instructions have not been received from the beneficial owners or persons entitled to vote such shares and with respect to which, on one or more but not all matters, the broker or nominee does not have discretionary voting power to vote such shares) will be counted for purposes of determining whether a quorum is present for the transaction of business at the annual meeting.

 

The rules of the Securities and Exchange Commission, or the SEC, allow for householding, which is the delivery of a single copy of an annual report and proxy statement to any address shared by two or more stockholders. Duplicate mailings can be eliminated by allowing stockholders to consent to such elimination, or through implied consent if (1) it is believed that the stockholders are members of the same family, (2) the stockholders are notified that householding is to be used and (3) the stockholders do not request continuation of duplicate mailings. If you own shares of common stock in your own name as a holder of record, householding will not apply to your shares. If your shares of common stock are held in street name, depending upon the practices of your broker, bank or other nominee, you may need to contact them directly to discontinue duplicate mailings to your address. If you wish to revoke your consent to householding, you must contact your broker, bank or other nominee.

 

If you wish to request extra copies free of charge of our annual report or proxy statement, please send your request to DiamondRock Hospitality Company, 6903 Rockledge Drive, Suite 800, Bethesda, MD 20817, Attention: Corporate Secretary; or call us with your request at (240) 744-1150.

 

We are not currently aware of any other matters to be presented at the annual meeting other than those described in this proxy statement. If any other matters not described in the proxy statement are properly presented at the meeting, any proxies received by us will be voted in the discretion of the proxy holders.

 

You may revoke your proxy at any time before it has been exercised by:

 

 

 

Any stockholder of record as of the record date attending the annual meeting may vote in person whether or not a proxy has been previously given, but the presence (without further action) of a stockholder at the annual meeting will not constitute revocation of a previously given proxy.

 

For your review, our 2008 annual report, including a copy of our annual report filed with the SEC on Form 10-K and financial statements for the fiscal year ended December 31, 2008, is being mailed to stockholders concurrently with this proxy statement. Although our annual report is not part of the proxy solicitation material, we recommend that you review our 2008 annual report prior to voting.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON APRIL 30, 2009:

 

Our proxy statement, form of proxy card and 2008 annual report on Form 10-K are available at www.drhc.com/proxy_statements.asp.

 

Our business is built on relationships — with our investors, with the brands we utilize for our hotels and with the management companies who manage our hotels. We are committed to keeping our relationships strong by communicating openly about our business practices, being transparent about our performance and remaining accountable for our conduct. We take our commitments seriously.

 

At the core of these commitments, of course, is the role of the Board of Directors in overseeing how management serves the long-term interests of our stockholders. We believe that an active, informed, independent and involved board is essential for ensuring our integrity, transparency and long-term strength. We believe that our Board of Directors embodies each of those characteristics. We have assembled a Board of Directors that is comprised of individuals with a wide breadth of experience including: a member with several decades of real estate experience, the retired chairman of Andersen Worldwide, a leading corporate lawyer and a retired chief executive officer, as well as our former Chief Executive Officer, current Chief Executive Officer and our President and Chief Operating Officer.

 

We follow through on our commitment by implementing what we believe are the best practices in corporate governance, including:

 

Board Structure

 

 

Change of Control

 

 

Stock Ownership Policies

 

 

Clawback Policy

 

 

Board of Directors

 

We are managed under the direction of our Board of Directors. Our directors are: Daniel J. Altobello, Mark W. Brugger, W. Robert Grafton, Maureen L. McAvey, William W. McCarten, Gilbert T. Ray and John L. Williams. Mr. McCarten is the Chairman of our Board of Directors and Mr. Grafton is our Lead Director. Each of our seven directors stands for election annually.

 

Director Independence.  Our Board of Directors has a policy that a majority of our directors must be independent. In order to qualify as an “independent director” under our independence standards, a director must be “independent” within the meaning of the requirements of the New York Stock Exchange, or the NYSE, which provide that our Board of Directors must determine whether a director has a material relationship with us (either directly or as a partner, shareholder or officer of an organization that has a relationship with us) and whether, within the past three years:

 

 

In addition, our Board of Directors considers, among other factors, whether the director, or an organization with which the director is affiliated, has entered into any commercial, consulting, or similar contracts with our Company; whether the director receives any compensation or other fees from our Company, other than director fees; and whether we and/or any of our affiliates make substantial contributions to tax-exempt organizations with which the director, or the director’s spouse, is affiliated.

 

Our Board of Directors has determined that each of Messrs. Altobello, Grafton and Ray and Ms. McAvey is an “independent” director under our independence standards and under the NYSE Corporate Governance Rules. These four directors comprise a majority of our seven-member Board of Directors.

 

Meetings.  Our Board of Directors met eight times during 2008. Each of our directors attended at least 75% of the meetings of our Board of Directors. We expect each of our directors to attend our annual meeting of stockholders in person unless doing so would be impracticable due to unavoidable conflicts. In 2008, all of our directors attended our annual meeting of stockholders.

 

Directors who qualify as being “non-management” within the meaning of the NYSE Corporate Governance Rules meet on a regular basis in executive sessions without management participation. The executive sessions occur after each regularly scheduled meeting of our entire Board of Directors and at such other times that our non-management directors deem appropriate. Each director has the right to call an executive session. The executive sessions are chaired by Mr. Grafton, the lead director of our Board of Directors.

Committees

 

Our Board of Directors has established an Audit Committee, Nominating and Corporate Governance Committee and Compensation Committee and has adopted written charters for each committee. A copy of each of our Audit Committee charter, Compensation Committee charter and Nominating and Corporate Governance Committee charter is available on our website at http://www.drhc.com under the heading “Corporate Governance” and subheading “Committee Charters.” These charters are also available in print to any stockholder upon written request addressed to Investor Relations, c/o DiamondRock Hospitality Company, 6903 Rockledge Drive, Suite 800, Bethesda, MD 20817.

 

Our Board of Directors may from time to time establish special or standing committees to facilitate the management of DiamondRock or to discharge specific duties delegated to the committee by our full Board of Directors.

 

Audit Committee.  Our Audit Committee, pursuant to its written charter, assists our Board of Directors in its oversight of (i) our accounting and financial reporting processes; (ii) the integrity and audits of our financial statements; (iii) our compliance with legal and regulatory requirements; (iv) the qualifications, independence and performance of our independent auditors; and (v) the performance of our internal audit function.

 

Our Audit Committee is comprised of all four of our independent directors: W. Robert Grafton (Chairman), Daniel J. Altobello, Maureen L. McAvey and Gilbert T. Ray. Each member of our Audit Committee is “independent” as that term is defined by the SEC and the NYSE. Our Board of Directors determined that each of Mr. Grafton and Mr. Altobello qualifies as an “audit committee financial expert” as such term is defined under the rules of the SEC. In accordance with the SEC’s safe harbor relating to audit committee financial experts, a person designated or identified as an audit committee financial expert will not be deemed an “expert” for purposes of federal securities laws. In addition, such designation or identification does not impose on such person any duties, obligations or liabilities that are greater than those imposed on such person as a member of the Audit Committee or Board of Directors in the absence of such designation or identification and does not affect the duties, obligations or liabilities of any other member of the Audit Committee or Board of Directors.

 

Our Audit Committee met five times during 2008 and each of the members of the Audit Committee attended at least 75% of the meetings of the Audit Committee.

 

The Report of the Audit Committee is included in this Proxy Statement.

 

Nominating and Corporate Governance Committee.  Our Nominating and Corporate Governance Committee, pursuant to its written charter, is responsible for, among other things: (i) identifying and recommending qualified individuals to become members of our Board of Directors and the appointment of members to its various committees; (ii) overseeing the annual performance evaluation of our Board of Directors; and (iii) developing and recommending to our Board of Directors a set of corporate governance guidelines and policies and a code of ethics, and periodically reviewing and recommending any changes to such guidelines and code.

 

Our Nominating and Corporate Governance Committee is comprised of all four of our independent directors, Gilbert T. Ray (Chairman), Daniel J. Altobello, W. Robert Grafton and Maureen L. McAvey. Our Nominating and Corporate Governance Committee met four times during 2008 and each of the members of the Nominating and Corporate Governance Committee attended at least 75% of the meetings of the Nominating and Corporate Governance Committee.

 

Compensation Committee.  Our Compensation Committee, pursuant to its written charter, among other things, (i) reviews and approves corporate goals and objectives relevant to chief executive officer compensation, evaluates the chief executive officer’s performance in light of those goals and objectives, and determines and approves the chief executive officer’s compensation levels based on its evaluation and (ii) reviews and approves or makes recommendations to our Board of Directors with respect to the compensation for our other executive officers and non-employee directors. Our Compensation Committee has the authority to retain and

terminate any compensation consultant to be used to assist in the evaluation of the chief executive officer or other executive officer compensation.

 

Our Compensation Committee is comprised of all four of our independent directors, Daniel J. Altobello (Chairman), W. Robert Grafton, Maureen L. McAvey and Gilbert T. Ray. Our Compensation Committee met five times during 2008 and each of the members of the Compensation Committee attended at least 75% of the meetings of the Compensation Committee.

 

The Report of the Compensation Committee is included in this Proxy Statement.

 

Stockholder Recommendations.  Our Nominating and Corporate Governance Committee’s current policy is to review and consider any director candidates who have been recommended by stockholders in compliance with the procedures established from time to time by our Nominating and Corporate Governance Committee. All stockholder recommendations for director candidates must be submitted to our Corporate Secretary at DiamondRock Hospitality Company, 6903 Rockledge Drive, Suite 800, Bethesda, MD 20817, who will forward all recommendations to our Nominating and Corporate Governance Committee. We did not receive any stockholder recommendations for director candidates for election at our 2009 annual meeting. All stockholder recommendations for director candidates for election at our 2010 annual meeting of stockholders must be submitted to our Corporate Secretary on or after November 3, 2009 and on or before December 3, 2009 and must include the following information:

 

 

Board of Directors Membership Criteria.  Our Board of Directors has established criteria for Board of Directors membership. These criteria include the following specific, minimum qualifications that our Nominating and Corporate Governance Committee believes must be met by a nominee for a position on our Board of Directors, including that the nominee shall:

 

 

In addition to the minimum qualifications for each nominee set forth above, our Nominating and Corporate Governance Committee will recommend director candidates to the full Board of Directors for nomination, or present director candidates to the full Board of Directors for consideration, to help ensure that:

 

 

Identifying and Evaluating Nominees.  Our Nominating and Corporate Governance Committee may solicit recommendations for director nominees from any or all of the following sources: non-management directors, our chairman and chief executive officer, other executive officers, third-party search firms or any other source it deems appropriate.

 

Our Nominating and Corporate Governance Committee will review and evaluate the qualifications of any proposed director candidate that it is considering or has been recommended to it by a stockholder in compliance with our Nominating and Corporate Governance Committee’s procedures for that purpose, including conducting inquiries into the background of proposed director candidates. In identifying and evaluating proposed director candidates, our Nominating and Corporate Governance Committee may consider, in addition to the minimum qualifications for Board of Directors membership approved by our Board of Directors, all facts and circumstances that it deems appropriate or advisable, including, among other things, the skills of the proposed director candidate, his or her depth and breadth of business experience, his or her independence and the needs of our Board of Directors. Other than circumstances in which we are legally required by contract or otherwise to provide third parties with the ability to nominate directors, our Nominating and Corporate Governance Committee will evaluate all proposed director candidates that it considers or who have been properly recommended to it by a stockholder based on the same criteria and in substantially the same manner, with no regard to the source of the initial recommendation of the proposed director candidate.

 

If you wish to communicate with any of our directors or our Board of Directors as a group, you may do so by writing to them at [Name(s) of Director(s)/Board of Directors of DiamondRock Hospitality Company], c/o Corporate Secretary, DiamondRock Hospitality Company, 6903 Rockledge Drive, Suite 800, Bethesda, MD 20817.

 

If you wish to contact our Audit Committee to report complaints or concerns regarding accounting, internal accounting controls or auditing matters, you may do so by writing to the Chairman of the Audit Committee of DiamondRock Hospitality Company, c/o Corporate Secretary, DiamondRock Hospitality Company, 6903 Rockledge Drive, Suite 800, Bethesda, MD 20817. In addition, you may do so online at www.drhc.com/whistleblower.asp. You are welcome to make any such reports anonymously, but we prefer that you identify yourself so that we may contact you for additional information if necessary or appropriate.

 

If you wish to communicate with our non-management directors as a group, you may do so by writing to Non-Management Directors of DiamondRock Hospitality Company, c/o Corporate Secretary, DiamondRock Hospitality Company, 6903 Rockledge Drive, Suite 800, Bethesda, MD 20817.

 

We recommend that all correspondence be sent via certified U.S. mail, return receipt requested. All correspondence received by the Corporate Secretary will be forwarded by the Corporate Secretary promptly to the addressee(s).

 

Code of Business Conduct and Ethics

 

We have adopted a Code of Business Conduct and Ethics, or our Code of Ethics, relating to the conduct of our business by our employees, executive officers and directors. Day-to-day responsibility for administering and interpreting our Code of Ethics has been delegated by our Board of Directors to Michael Schecter, our compliance officer and our general counsel.

 

Our Code of Ethics contains compliance procedures, allows for the anonymous reporting of a suspected violation of our Code of Ethics and specifically forbids retaliation against any executive officer or employee who reports suspected misconduct in good faith. The provisions of our Code of Ethics may only be waived or amended by our Board of Directors or, if permitted, a committee of our Board of Directors. Such waivers or amendments must be promptly disclosed to our stockholders. We intend to disclose any amendments to our Code of Ethics, as well as any waivers for executive officers, on our website.

 

A copy of the Code of Ethics is available on our website at http://www.drhc.com under the heading “Corporate Governance” and subheading “Corporate Governance Overview.” A copy of our Code of Ethics is also available, without charge, in print to any stockholder upon written request addressed to Investor Relations, DiamondRock Hospitality Company, 6903 Rockledge Drive, Suite 800, Bethesda, MD 20817.

 

Corporate Governance Guidelines

 

Our Board of Directors has adopted Corporate Governance Guidelines, a copy of which is available on our website at http://www.drhc.com under the heading “Corporate Governance” and subheading “Corporate Governance Overview.” Our Corporate Governance Guidelines are also available, without charge, in print to any stockholder upon written request addressed to Investor Relations, DiamondRock Hospitality Company, 6903 Rockledge Drive, Suite 800, Bethesda, MD 20817.

 

Conflicts of Interest

 

Our Code of Ethics contains a conflicts of interest policy to reduce potential conflicts of interest. Our conflicts of interest policy provides that any material transaction or relationship that reasonably could be expected to give rise to a conflict of interest should be reported promptly to the compliance officer, who must then notify our Board of Directors or a committee of our Board of Directors. Actual or potential conflicts of interest involving a director, executive officer or the compliance officer should be disclosed directly to our Chairman of our Board of Directors and the Chairperson of our Nominating and Corporate Governance Committee. A “conflict of interest” occurs when a director’s, executive officer’s or employee’s personal interest interferes with our interests.

 

Maryland law provides that a contract or other transaction between a corporation and any of the corporation’s directors or any other entity in which that director is also a director or has a material financial interest is not void or voidable solely on the grounds of the common directorship or interest, the fact that the director was present at the meeting at which the contract or transaction is approved or the fact that the director’s vote was counted in favor of the contract or transaction, if:

 

 

The following chart summarizes the compensation paid to our non-management directors in 2008. Messrs. McCarten, Brugger and Williams receive no separate compensation for being members of our Board of Directors:

 

Director Compensation

 

 

 

 

In July of each year, the Compensation Committee of our Board of Directors reviews the compensation of our non-employee directors. In July of 2008 the Compensation Committee engaged its independent consultant, Frederic W. Cook & Co. Incorporated to review the compensation paid to members of the board of directors of our competitive set. After reviewing the study, the Committee concluded that a change in compensation for the Board of Directors was not warranted.

 

Each of our non-employee directors receive an annual cash retainer of $50,000 plus we pay an additional annual retainer to our Lead Director ($10,000 annual fee) as well as to the chairpersons of our Audit Committee ($15,000 annual fee), Nominating and Corporate Governance Committee ($7,500 annual fee) and Compensation Committee ($7,500 annual fee). We compensate our directors through a single annual retainer as opposed to per meeting fees. We have structured their compensation in this manner in order to simplify and clarify director compensation as each of our three standing committees are comprised of the same four directors and often a meeting might discuss matters involving the area of expertise of more than one committee.

 

In addition, in July 2008 the Board of Directors formed a special committee comprised of the four independent members of the Board of Directors in order to evaluate candidates to become our new Chief Executive Officer, as Mr. McCarten expressed his desire to retire. The members of the special committee were each paid a fixed fee of $5,000 for their services.

 

The following chart reflects the cash compensation paid to our directors in 2008.

 

 

As part of their regular annual compensation, in July of each year, each of our non-employee directors receives fully vested shares of common stock. On July 28, 2008, we issued to each of our directors 5,688 shares of common stock, which had a value of $50,000, based on the closing stock price for our common stock on the NYSE on such day.

 

We reimburse our directors for their reasonable out-of-pocket expenses incurred in attending meetings of our Board of Directors or its committees.

 

In addition, each of the seven members of our Board of Directors are entitled to reimbursement for up to $10,000 of lodging, meals, parking and certain other expenses at all of our hotels as well as at all hotels and resorts managed or franchised by Marriott. All of such reimbursement was considered taxable income to the member who stayed at the hotel or resort and is disclosed in the “All Other Compensation” column of the chart entitled “Director Compensation.”

 

Our Board of Directors requires each of our non-executive directors, within five years of first being elected to our Board of Directors, to own at all times during a year a number of shares equal to the Ownership Target (as defined below). If directors are not in compliance with the Ownership Target, they are restricted from selling any stock in the Company until such time as they are in compliance with the Ownership Target. This restriction does not apply to any shares of stock that a member of the Board of Directors has purchased.

 

The Ownership Target for a given year is determined by multiplying the annual cash retainer for that year by three and then dividing that result by the average closing price of the Company’s common stock during the first two weeks of the year. We count towards this minimum equity ownership policy only those fully vested shares of common stock that a director has either purchased or received through our equity compensation program.

 

Each of our non-executive directors was in compliance with the stock ownership policy at all times during 2008. However, as the price of our common stock has fallen significantly, the Ownership Target has increased from 10,618 shares in 2008 to 30,800 shares in 2009. As a result, all of the non-executive directors have fallen out of compliance with the policy and thus are prohibited from selling any shares of our stock, except for those shares that he or she has purchased in the open market, until such time as they are in compliance with our policy.

 

 

 

 

We have designed our executive compensation program with the following objectives:

 

 

Straightforward, Transparent, Market-Based Compensation Program

 

We have a strong preference for a simple, transparent, market-based compensation program.

 

We target our executive compensation at approximately the median of the total compensation paid to members of our competitive set in order to retain and motivate our executive team; the actual compensation may be higher or lower than our target compensation. We set our compensation targets only after thoroughly studying compensation practices within our competitive sets. Our primary competitive set is comprised of the five largest lodging-focused self-managed REITs: LaSalle Hotel Properties (NYSE: LHO), Strategic Hotels & Resorts, Inc. (NYSE: BEE), Sunstone Hotel Investors, Inc. (NYSE: SHO), Felcor Lodging Trust Incorporated (NYSE: FCH) and Ashford Hospitality Trust (NYSE: AHT). We exclude Host Hotels & Resorts, Inc. (NYSE: HST) from our competitive set as it is substantially larger than us. We confirm that our targets are in keeping with the overall market by evaluating our compensation against a secondary competitive set comprised of nine similarly-sized self-managed REITs which invest in a variety of assets, including offices, apartments and retail properties. A complete list of the secondary set is set forth below under the heading “Compensation Committee Procedures, Compensation Consultant and Input of Named Executive Officers on Compensation — Use of Competitive Set.”

 

Moreover, our compensation program is transparent and straightforward. We have not implemented a pension or a nonqualified deferred compensation program and have very limited perquisites. In addition, we have not implemented any multi-year compensation programs, eliminating the potential for surprising and out-of-market compensation; all of our executive’s total compensation is granted on an annual basis. Finally, before awarding any compensation, our Compensation Committee reviews a “tally sheet” showing the value of all of the compensation granted to our executive team since our formation, utilizing the value of all equity awards both as of the time of each stock grant and as updated for current stock values.

 

Proper Incentives to Maximize Long-Term Stockholder Value

 

Our compensation program is designed to create incentives for our executive team to maximize long-term stockholder value. Less than one-third of our five highest paid executives’ total compensation opportunity is in the form of a fixed base salary. The vast majority of our executives’ total compensation opportunity is awarded through our cash incentive compensation program, which rewards our executives for achieving our annual budget and other corporate and individual objectives, and our annual equity award program, where the ultimate value of the awards is tied to our ability to maximize long-term stockholder value.

 

We believe that our cash incentive compensation program encourages our executive officers to take prudent steps to achieve, and if possible exceed, our budgeted earnings, which we believe will increase stockholder value. In 2008, 70% of our executives’ potential cash incentive award was tied to the achievement of our internal annual budget for Adjusted Funds From Operations per share (or AFFO per share). We have not reset our targets nor have we guaranteed our executives any minimum cash incentive payments. In the event of poor performance, the executives could receive no cash incentive compensation for the year.

 

The largest individual component of our executive officers’ compensation is equity compensation. Our philosophy has been to target total compensation at approximately the median of our competitive set and to ensure that approximately half of the targeted compensation is in the form of equity. We believe that half of our executives’ compensation should be in the form of restricted stock or stock options for several reasons.

 

First, along with our minimum stock ownership policy, equity grants help ensure that a significant portion of each of our executives’ net worth is tied to the value of our stock, aligning the interests of our executives with those of our stockholders. Our view is that, if we have superior long-term operating performance, our executives, through their significant equity compensation, will eventually receive above market compensation from dividends and capital appreciation in our common stock. Conversely if we do not perform as well as our competitors, our executives’ compensation will prove to be (appropriately) below market over the long-term.

 

Second, we design our equity awards to be total stockholder return vehicles, rewarding executives for both share price appreciation as well as dividends — we believe a focus on total stockholder return will encourage our executives to prudently increase earnings to ensure that our dividend is well covered.

 

Third, our stock awards vest on a three-year schedule, thus creating for our executive officers an incentive to remain with the Company.

 

Comply with Best Practices

 

In designing our executive compensation programs, our Compensation Committee also consults with Frederic W. Cook & Co. Incorporated, its own independent compensation advisor, and with its own legal advisors to assess our compliance with corporate governance best practices. For example, we have adopted both a so-called “clawback policy” in the event of a restatement of our financial statements and an executive stock ownership policy.

 

Moreover, we strive to maximize the financial efficiency of our compensation programs. For example, the amount of our cash incentive compensation and the size of the equity grants vary based on the degree to which our financial objectives are achieved.

 

Finally our Compensation Committee regularly considers whether our compensation program encourages our executives to prudently manage enterprise risk.

 

The following table sets forth the compensation paid for the last three years to our Chief Executive Officer, our Chief Financial Officer and each of the three other named executive officers. The five individuals set forth below are all of our corporate officers.

 

Summary Compensation Table

 

 

 

 

Our compensation program seeks to promote the philosophy described above through an appropriate mix of four core elements of compensation:

 

1. base salary,

 

2. cash incentive compensation program,

 

3. equity grants, and

 

4. limited perquisites.

 

 

We traditionally review our executives’ base salaries annually in December. However, in connection with the promotion of Mr. Brugger to Chief Executive Officer and Mr. Mahoney to Chief Financial Officer on September 1, 2008 and the retirement of Mr. McCarten as Chief Executive Officer on that date, we reviewed the salaries of Messrs. McCarten, Brugger, Mahoney and Williams on that date. Consistent with past practices, we reviewed Mr. Schecter’s and Mr. Mahoney’s base salaries in December of 2008.

 

Our primary compensation philosophy is to target our total compensation at approximately the median of our competitive set and to ensure that approximately half of the compensation paid to our senior executives is in the form of equity. As a result, our executives’ cash compensation may be targeted at a level below or above the median cash compensation paid to members of our primary competitive set. During our December annual compensation review, we generally attempt to set the base salaries within the range of base salaries paid to members of our competitive sets and, whenever possible, we strive to pay base salaries at the median of competitive base salaries. However, we adjust base salaries to reflect our executive’s assigned responsibilities, relevant levels of experience and individual performance compared to other members of the competitive set.

 

In connection with the CEO succession planning, our Compensation Committee decided it would be appropriate to continue to pay Mr. McCarten his existing base salary of $564,000 per year for the remainder of 2008 and, commencing January 1, 2009, to set his base salary for his new position at $300,000. The 2009 base salary level was determined with input from the Compensation Committee’s independent consultant. The consultant conducted a competitive analysis of compensation levels, in relation to CEO pay levels, for executive chairmen at public REITs, to assist the Committee in determining an appropriate base salary level for Mr. McCarten, given Mr. McCarten’s expected roles and responsibilities in 2009.

 

Our Compensation Committee also decided to pay, effective September 1, 2008 through December 31, 2009, Mr. Brugger a base salary of $600,000 per year and Mr. Williams a base salary of $525,000 and to pay Mr. Mahoney a base salary of $285,000 during the period September 1, 2008 through December 31, 2008, with the intention of reevaluating his salary in December of 2008. In December 2008, the Compensation

Committee decided it would be appropriate to increase Mr. Schecter’s salary 2.5% to $303,400 and Mr. Mahoney’s salary to $305,000, effective January 1, 2009.

 

The base salaries for the named executive officers are as follows:

 

 

 

We maintain an annual cash incentive compensation program pursuant to which our executive officers are eligible to earn cash bonuses based upon their achievement of certain objective corporate goals as well as certain individual goals set by the Compensation Committee at the beginning of the year for that fiscal year. To date, no cash incentive compensation has been paid to our executives other than in accordance with this program.

 

The chart below shows the bonuses we have paid under our cash incentive compensation program for the named executive officers. We typically pay our bonuses during the first fiscal quarter subsequent to the plan year:

 

 

2008 Cash Incentive Compensation.  Our Compensation Committee established a bonus formula for 2008 under our cash incentive compensation program during the first quarter of 2008, weighted as follows:

 

 

 

 

For the corporate metric, we adopted the threshold, target and maximum numerical goals set forth above. No bonuses would have been payable under the corporate metric of the incentive compensation program if we had not achieved our threshold AFFO per share of $1.48. Achievement of the corporate metric at the threshold level of performance pays 50% of the target bonus for such metric and achievement at the maximum level of performance pays 150% of such target. Bonuses are calculated based on a linear interpolation for achievement in between each of those performance levels. At the beginning of 2008, we expected to earn an AFFO of approximately $1.64 per share, which was our target, and we expected it to be very unlikely that we would pay out the corporate component of the bonus at either the threshold or maximum levels.

The Compensation Committee chose to compensate the executives based on the Company achieving its AFFO per share budget because it believes that the achievement of the targeted results would improve long-term stockholder value. In particular, AFFO per share is one of the most commonly used non-GAAP financial measures in the commercial real estate industry. It measures the financial performance of our operations without regard to specified non-cash items, such as real estate depreciation and amortization and the gain or loss on the sale of assets. Moreover, we utilize AFFO per share (as opposed to EBITDA or some other commonly used measure) as AFFO per share takes into account the impact of our capital structure by including shares outstanding and interest expense.

 

In addition, the Compensation Committee established between five and ten individual objectives for each of the executive officers, which objectives varied by individual depending on their corporate responsibilities. The primary individual business objectives for 2008 were as follows:

 

 

In 2008, DiamondRock’s hotels operated in very difficult operating conditions. In part due to our executives’ focus beginning in late 2007 on controlling property level expenses, we were able to achieve an AFFO per share of $1.48, which was equal to the threshold for the corporate component of the incentive compensation program. In addition, the Compensation Committee requested each of the executives to prepare a report as to whether they achieved their individual business objectives, and the Compensation Committee asked the chief executive officer to provide his assessment of each officer. Following the chief executive officer’s review and a discussion by the committee, the committee awarded the individual component of the cash incentive compensation program. For 2008, the Compensation Committee concluded that it would be appropriate to pay each executive at a level equal to 90% of the maximum payout for the individual component of each executive’s bonus.

 

The annual incentive opportunity ranges for 2008 and the actual cash incentive compensation earned for 2008 performance was as follows:

 

 

 

 

2009 Cash Incentive Compensation.  Our Compensation Committee established a bonus formula for 2009 under our cash incentive compensation program during the first quarter of 2009, weighted as follows:

 

 

In 2009, our Compensation Committee adopted a bonus formula 55% weighted to two corporate performance measures (AFFO per share and Relative Hotel Performance) and 45% weighted to individual performance measures. Our Compensation Committee decreased the weighting of the AFFO per share corporate component from 70% in 2008 to 50% in 2009 as the Committee concluded that there was greater uncertainty inherent in the Company’s budget for 2009 than in prior years. The Compensation Committee was concerned that, if the Company failed to properly forecast the degree that the overall economy is expected to decline in 2009, the executive team might be either over or undercompensated. In addition, the Compensation Committee made it more difficult for the executive team to achieve either a maximum or zero payout if we significantly outperform or underperform our annual budget. In 2008, the executive team would earn a maximum bonus, if the Company achieved an AFFO per share equal to 105% of the Company’s budget and would earn no bonus if the Company achieved an AFFO per share that was less than 90% of the Company’s budget. In 2009, by comparison, the maximum bonus is set at 115% of the budgeted AFFO per share and threshold is set at 85% of budgeted AFFO per share. Bonuses are calculated based on a linear interpolation for achievement in between the performance levels in the chart above.

 

The AFFO component is based on an internal budget adopted by the Board of Directors at its meeting on February 26, 2009. The Compensation Committee concluded that it is appropriate to encourage our executives to be flexible in responding to the recession in order to create long-term stockholder value. As a result, the Committee concluded that it may, in its sole discretion, adjust the Adjusted FFO Budget for the incurrence of any additional debt, refinancing of any debt or repayment of any debt as well as for the sale or repurchase of any equity or the disposition or acquisition of assets not included in our original 2009 corporate budget. In addition, as the current recession constrains our ability to fairly estimate 2009 financial results, the Committee explicitly retained its flexibility to use its upwards or downwards discretion in awarding any 2009 bonuses if it concludes that the economic assumptions underlying our 2009 budget were materially wrong.

 

In addition, the Compensation Committee created a new corporate measure in 2009 for relative hotel performance. At the beginning of the year, the Compensation Committee approved a competitive set for each of our 20 hotels. During the year, for each hotel that gains market share against its pre-approved competitive set, as measured by Smith Travel Research, a respected third party analyst, the executives will earn 1/20^th of this component of their bonus. Conversely, for each of our twenty hotels that fail to gain market share, the executives will not earn 1/20th of this component of their bonuses.

 

In addition, the Compensation Committee established between five and fourteen individual objectives for each of the executive officers, which objectives varied by individual depending on their corporate responsibilities.

 

 

Generally we target paying half of our executive’s total compensation in the form of equity. However, our Compensation Committee determines, in its sole discretion, the actual amount of equity to be awarded to our executive officers each year reflecting our performance in the prior year, individual performance and competitive levels of long-term incentive compensation among our primary competitive set. Our executive officers are not guaranteed any minimum number of shares of restricted stock.

The value of the equity awards since our initial public offering, based on the grant date fair value of the equity, received by the named executive officers is as follows:

 

 

Types of Awards.  Since our formation, we have mainly issued shares of restricted stock and deferred stock units. In 2008, we issued a combination of stock-settled stock appreciation rights (SARs, each a SAR) and dividend equivalent rights (DERs, each a DER), but due to a change in the interpretation of tax law, we are unlikely to issue additional SARs or DERs in the future. Each of these types of awards is described in more detail below.

 

 

The strike price of the SARs was set at $12.59, the closing price of our stock on the NYSE on the grant date. The SARs may be exercised, in whole or in part, at any time after the instrument vests and before the tenth anniversary of its issuance. Upon exercise, the holder of a SAR will receive a number of shares of our common stock equal to the positive difference, if any, between the price of our common stock on the NYSE at the time of the exercise compared to the “strike price”, which is the closing price of our common stock on the NYSE at the close of business on the day the SARs were

granted, divided by the price of our common stock on the NYSE at the time that the holder exercises his or her SAR.

 

We issued one DER for each SAR. A DER will entitle the holder to the value of the dividends issued on one share of common stock. No dividends will be paid on a DER prior to its vesting, but upon vesting, the holder of each DER will receive a lump sum equal to all of the dividends paid on a share of common stock from the date the DER was granted to the date the DER vested. After vesting, the holder of each DER will receive a cash payment equal to the value of the dividends paid on a share of common stock at the same time dividends are paid to our common stockholders. Initially, the DERs were to terminate on the earlier of the 10th anniversary of the grant of the DER or the date that the corresponding SAR is exercised. However, after an official with the Internal Revenue Service stated that a DER which terminates upon the exercise of an option or a stock appreciation right should be characterized as deferred compensation and subject to the provisions of Section 409A of the Internal Revenue Code, we amended the DERs to shorten the maturity of the existing DERs from 10 years from the grant date to 8 years from the grant date and eliminate the provision that required the awards to terminate, in whole or in part, upon the exercise of the SAR that were issued simultaneously with the DERs. The net impact of the award modification did not result in a change in the value of the DERs.

 

Because we were obligated to change the structure of the DERs in order to eliminate the tax uncertainty, we have decided not to issue any further SARs/DERs until such time as the IRS clarifies the status of the instruments.

 

On March 4, 2008, the named executive officers received the following SAR and DER awards:

 

 

For purposes of determining both the size of the grant and the expense associated with the SAR and DER awards under SFAS 123(R), we engaged Towers Perrin to perform a valuation study. Towers Perrin valued the SARs using a binomial option pricing model, using assumptions called for by Paragraph 16 and Appendix A of SFAS 123(R). Towers Perrin assumed a seven year expected life, a risk free rate of 3.17%, expected volatility of 29.8% and an expected dividend yield of 5.5% (the average dividend yield on the four dividend payment dates preceding the issuance of the SARs). Towers Perrin valued the DERs using a discounted cash flow model assuming a stream of dividends equal to 5.5% of the closing stock price on the NYSE on the date that the DERs were issued over the seven year expected life of the instrument. In accordance with SFAS 123(R), the expense associated with these awards is recognized over the requisite service period (i.e., the vesting period of the SARs and DERs).

 

 

We currently have very few perquisites. Messrs. McCarten, Brugger and Williams, as members of our Board of Directors, are entitled to reimbursement of up to $10,000 of lodging, meals, parking and certain other expenses at all of our hotels and at all hotels and resorts managed or franchised by Marriott, subject to certain limitations. See “Director Compensation.” We provided very limited perquisites to our executive officers until December 31, 2006, when the perquisites were discontinued.

 

Our named executive officers, along with all of our employees on a non-discriminatory basis, receive: (i) health and dental insurance with our Company paying 100% of the premiums, (ii) a $200,000 group term life insurance policy, and (iii) long term disability coverage. We maintain a retirement savings plan for all of

our employees under section 401(k) of the Code. All of our employees, including our named executive officers, benefit from the same company matching formula.

 

The following chart sets forth the perquisites and all other benefits received by our executive officers over the last three years.

 

 

In March 2007, we entered into severance agreements with each of our executive officers. Prior to entering into these severance agreements, our Compensation Committee reviewed the severance agreements and policies as well as the employment contracts for the eight largest lodging self-managed REITs that were then currently SEC reporting companies. In addition, our Compensation Committee’s independent advisor, Frederic W. Cook & Co., Incorporated, reviewed the proposed severance agreements on behalf of the Compensation Committee and provided advice on current market practices and emerging best practices regarding severance agreements. The Compensation Committee also engaged its own legal counsel to represent the Company in the negotiation of the severance agreements with management.

 

The severance agreements provide each named executive officer with certain severance benefits if his employment ends under certain circumstances. We believe that the severance agreements will benefit us by helping to retain the executives and by allowing them to focus on their duties without the distraction of the concern for their personal situations in the event of a termination of their employment, especially in connection with a possible change in control of our Company.

 

Each named executive officer will be entitled to receive cash severance benefits under their severance agreements if we terminate such executive’s employment without cause or such executive resigns with good reason. These severance agreements therefore have so-called “double triggers” as the executives are not entitled to receive any cash severance benefits if, following a change of control, they resign without demonstrating good reason. If the executive officers are entitled to receive cash severance benefits, they will receive a lump sum payment equal to three times, with respect to Messrs. McCarten and Brugger, or two times, with respect to each of the other named executive officers, of the sum of (x) his then current base salary and (y) his target bonus under our annual cash incentive compensation program. At the present time, the Board of Directors intends that Mr. McCarten’s severance agreement will continue as long as he remains an executive of the Company.

 

In addition, if we terminate such executive’s employment without cause or such executive resigns with good reason, or if the executive dies or becomes disabled, the executive (or his family) will be entitled to (i) a

pro-rated bonus under our cash incentive program at target, (ii) continued life, health and disability insurance coverage for himself, his spouse and dependents for eighteen months and (iii) the immediate vesting of any unvested portion of any restricted stock award previously issued to the executive. In addition, the unvested SARs and the DERs will immediately and fully vest upon the death or disability of an executive and may be exercised by the holder, or his estate, until the expiration dates of the SAR and DERs. Following a change in control, if an executive is terminated without cause or resigns for good reason, the SARs and DERs will continue to vest on the original vesting schedule and, once vested, the instruments may continue to be exercised until the earlier of the expiration date of the instrument or the fifth anniversary of the vesting. If there has not been a change in control and the executive resigns with good reason or is terminated without cause, the Board of Directors has sole discretion to decide whether to vest any unvested SARs and DERs.

 

In the event that the executive retires, the executive will be eligible to continue to vest in any outstanding unvested restricted stock awards and SARs and DERs, but the executive will not receive any cash severance or any continued life, health, or disability coverage for himself or his spouse or dependents.

 

In the event that the severance benefits described above are paid in connection with a change in control of our Company and deemed “excess parachute payments” under Section 280G of the Code, the named executives may be eligible to receive a tax “gross up” payment equal to the additional taxes, if any, imposed on the executive under Section 4999 of the Code in respect of such excess parachute payments. This excise tax gross up is available only to the extent that the value of the severance benefits payable to an executive equals or exceeds 110% of the maximum amount the executive could have received without being subject to any excise tax under Section 4999 of the Code (the “safe harbor”). In the event that the value of the severance benefits payable to an executive is subject to the excise tax but does not equal or exceed 110% of the “safe harbor”, the amount of the severance benefits will be reduced to an amount equal to the “safe harbor”.

 

The following table sets forth a summary of our payment obligations pursuant to the severance agreements:

 

 

 

The following chart sets forth the cost that we would have incurred if one of the executives were terminated as of December 31, 2008 under the terms of our severance agreements, assuming a stock price of $5.07, the closing market price on the NYSE on December 31, 2008:

 

Cost of Termination under Severance Agreements(1)

 

 

 

 

 

The severance agreements contain non-competition covenants that apply during the term and for 12 months after the expiration or termination of such executive’s employment with us to the extent that the executive receives a cash severance payment. The non-competition covenants restrict the executives from working for any lodging-oriented real estate investment company located in the United States. The non-competition covenants will not apply following a change of control.

 

We believe that it is important to align the interests of those in senior management positions with those of our stockholders. As one concrete step to ensure such alignment, we adopted a mandatory stock ownership requirement for each of our corporate officers.

 

Under our mandatory stock ownership policy, each of our covered executives, within five years of his or her date of hire or promotion, must acquire and hold a certain number of shares. If an executive is not in compliance with the Ownership Target, he or she is restricted from selling any stock in the Company until such time as he or she is in compliance with the Ownership Target. An executive is permitted to sell any shares that the executive has purchased.

 

We count towards this minimum equity ownership policy only those shares which an officer has purchased or otherwise has received through our equity compensation program to the extent that such shares are fully vested and otherwise continue to be owned by the executive. Under this policy our executives must own at all times during a year a number of shares equal to the Ownership Target for that year. The Ownership Target for an executive officer for a given year is determined by multiplying that officer’s base salary for a year by a multiple and then dividing that result by the average closing price of the Company’s common stock during the first two weeks of the year.

 

Each of our executives was in compliance with the stock ownership policy at all times during 2008; the stock ownership policy did not apply to Mr. Mahoney in 2008 as the policy only applies to officers who are at least an Executive Vice President of the Company on the first day of the year.

 

In 2008, the price of our common stock fell significantly. As a result the 2009 Ownership Target has nearly tripled compared to the Ownership Target in 2008. As a result, each of the executives (except Mr. McCarten) has fallen out of compliance with the policy and thus is prohibited from selling any shares of our stock (except such shares as the executives may have purchased in the open market) until such time as he or she is in compliance with our policy.

The status of each executive under our stock ownership policy is shown in the following chart:

 

 

 

 

Our Board of Directors has adopted a policy that, in the event of a significant restatement of our financial results, our Board of Directors will review all cash incentive plan compensation that was paid to the five most highly compensated executives on the basis of having met or exceeded specific performance targets for performance periods after the adoption of the policy (December 31, 2006). If the bonuses paid pursuant to such cash incentive program compensation would have been lower had the bonuses been calculated based on such restated results, it is the general policy of our Board of Directors to seek to recoup, for the benefit of our Company, the portion of the excess cash incentive program compensation that was received by any individual senior executive who engaged in fraud, intentional misconduct or illegal behavior in connection with the financial results that were restated. Notwithstanding anything stated or implied in the foregoing, our Board of Directors will, in its reasonable business judgment, decide whether or not to pursue such recoupment from an individual based on those factors that our Board of Directors believes to be reasonable.

 

Section 162(m) of the Code limits the deductibility on DiamondRock’s tax return of compensation over $1 million to certain of our corporate officers unless, in general, the compensation is paid pursuant to a plan which is performance-related, non-discretionary and has been approved by our stockholders. Because DiamondRock is a real estate investment trust that generally does not pay corporate income taxes, the loss of deductibility of compensation does not have a significant adverse impact on us. In 2008, $1.0 million was not deductible under Section 162(m).

 

The Compensation Committee of our Board of Directors is responsible for determining the amount and composition of compensation paid to our chief executive officer and four other named executive officers. Our Compensation Committee exercises its independent discretion in reviewing and approving the executive compensation program as a whole, as well as specific compensation levels for each executive officer.

Independent Consultant

 

The Compensation Committee engages Frederic W. Cook & Co. Incorporated (“F.W. Cook”) as its independent compensation consultant to advise the Compensation Committee on compensation program design and the amounts we should pay to our executives. F.W. Cook also provides the Compensation Committee with information on executive compensation trends, best practices and advice for potential improvements to the executive compensation program. F.W. Cook also advises the Compensation Committee on the design of the compensation program for non-employee directors. F.W. Cook does no work for management, receives no compensation from our Company other than for its work in advising the Compensation Committee, and maintains no other economic relationships with our Company. As part of the process of assessing the effectiveness of our Company’s compensation programs, F.W. Cook receives input from the Chief Executive Officer regarding our Company’s strategic goals and the manner in which the compensation plans should support these goals.

 

Use of Competitive Set

 

Each year, the Compensation Committee of our Board of Directors conducts a review of the executive compensation program in terms of both design and compensation levels. This includes a competitive analysis of our compensation practices versus those of our peers with a focus on other lodging REITs and, to a lesser extent, the real estate industry in general. For compensation comparisons, we use the following two competitive sets:

 

Lodging REIT Competitive Set

 

 

Non-Lodging REIT Competitive Set

 

 

 

Annual Process

 

During its December meeting, our Compensation Committee reviews the total compensation of each of our executive officers for the prior year, including an estimate of the incentive plan compensation for the prior year, a summary of all executive severance agreements and a calculation of potential change in control costs. The Compensation Committee, at this meeting, also reviews appropriate compensation studies and surveys. For each of the named executives, Mr. Brugger makes a compensation recommendation to the Compensation Committee and the Compensation Committee considers these recommendations in setting the compensation for the four other named executive officers. Following that review, our Compensation Committee sets an appropriate base salary for the executive officers along with target bonuses and equity awards for the following year.

 

Once the financial results for the prior year are available and the annual budget for the subsequent year is finalized, the Compensation Committee finalizes the prior year bonuses, the structure of the current year annual cash incentive compensation program and the amount of the equity awards.

ADDITIONAL EXECUTIVE COMPENSATION DATA

 

Grants of Plan-Based Awards

(For the year ended December 31, 2008)