Why did Hilton modify its executive performance awards?

The COVID-19 pandemic severely impacted the hospitality industry, making it impossible or highly unlikely for executives to achieve the original performance targets set for the 2018, 2019, and 2020 performance awards. The modifications were made to retain key talent during these unprecedented times and to recognize strong performance achieved prior to the pandemic's onset.

How were the 2018 performance awards adjusted?

For the 2018 performance share units, the Compensation Committee certified achievement at 200% for two-thirds of the performance period. This decision was based on the determination that performance targets would have been met at that level had the performance period ended on December 31, 2019, acknowledging strong pre-pandemic results.

What are the new performance metrics for the 2019 and 2020 awards?

For the modified 2019 and 2020 performance share units, four new performance goals were established, each weighted at 25%. These metrics are Free Cash Flow per share, Adjusted EBITDA, Net Unit Growth (NUG) Compound Annual Growth Rate (CAGR), and Revenue per Available Room (RevPAR) Index Growth. These are designed to align executive compensation with the company's recovery and long-term performance post-pandemic.

Will all executives receive modified awards under the new terms?

For the 2019 and 2020 awards, holders other than executive committee members and Section 16 officers are entitled to the payout under the original terms if those terms would result in a larger payout than the modified terms. This provides a safeguard for certain participants.

HLT 8-K: Leadership Changes

Summary

Hilton Worldwide Holdings Inc. (HLT) filed an 8-K on December 22, 2020, detailing significant adjustments to its executive compensation related to performance awards due to the severe impact of the COVID-19 pandemic on the hospitality industry. The pandemic made achieving original performance targets for 2018, 2019, and 2020 awards impossible or highly unlikely, potentially leading to zero payouts. To retain key talent and recognize prior performance, the Compensation Committee modified these awards. For 2018 awards, achievement was certified at 200% for two-thirds of the performance period, acknowledging strong pre-pandemic results. For 2019 and 2020 awards, a portion of the awards recognized performance up to December 31, 2019, while new performance metrics (Free Cash Flow per share, Adjusted EBITDA, Net Unit Growth CAGR, and RevPAR Index Growth) were established for the remaining portions of these awards, with adjusted performance periods extending into 2021 and 2022 respectively. These modifications aim to align compensation with the company's recovery and long-term performance, ensuring a significant portion remains at-risk.

Key Highlights

1COVID-19 pandemic significantly impacted Hilton's business, making achievement of original executive performance award targets impossible or unlikely.
2Compensation Committee modified 2018, 2019, and 2020 performance awards to retain key talent and acknowledge pre-pandemic achievements.
32018 performance awards certified at 200% for two-thirds of the performance period, reflecting strong prior results.
42019 and 2020 performance awards had initial portions recognized based on pre-pandemic performance.
5New performance metrics for 2019 and 2020 awards include Free Cash Flow per share, Adjusted EBITDA, Net Unit Growth CAGR, and RevPAR Index Growth.
6Performance periods for modified 2019 and 2020 awards were extended, with settlement dates in Q1 2022 and Q1 2023 respectively.
7Modifications aim to align executive pay with recovery efforts and ensure a significant portion of compensation remains at-risk.

Hilton Worldwide Holdings Inc. 8-K Report, Executive Changes (Dec 22, 2020)

Summary

Key Highlights

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