What's Market: A Snapshot of Select Compensation and Severance Provisions in the Employment Agreements of Chief Executive Officers in the Hospitality Industry | Practical Law

What's Market: A Snapshot of Select Compensation and Severance Provisions in the Employment Agreements of Chief Executive Officers in the Hospitality Industry | Practical Law

A comparison of select compensation and severance provisions found in employment agreements of three chief executive officers in the hospitality industry, including Playa Hotels & Resorts N.V., World Wrestling Entertainment, Inc., and Wyndham Hotels and Resorts, Inc. maintained in the What's Market, Executive Employment Agreements: Detailed Analysis database.

What's Market: A Snapshot of Select Compensation and Severance Provisions in the Employment Agreements of Chief Executive Officers in the Hospitality Industry

by Practical Law Employee Benefits & Executive Compensation
Published on 06 Apr 2023 • USA (National/Federal)
A comparison of select compensation and severance provisions found in employment agreements of three chief executive officers in the hospitality industry, including Playa Hotels & Resorts N.V., World Wrestling Entertainment, Inc., and Wyndham Hotels and Resorts, Inc. maintained in the What's Market, Executive Employment Agreements: Detailed Analysis database.
The chief executive officer (CEO) is a company's top executive and often the company's public face. A CEO's role may vary based on company size, culture, and structure, but a CEO's core tasks typically include:
  • Overseeing the company's strategic direction.
  • Overseeing the management of the company's financial resources.
  • Driving growth for the company's shareholders.
  • Acting as the main point of contact between the company's board of directors (Board) and executive team.
The CEO reports to the company's Board, which is responsible for, among other things, choosing and appointing a CEO, supporting and evaluating the CEO's performance and, in some cases, terminating the CEO's employment.
A company may terminate a CEO's employment for a variety of reasons, including mismanagement of resources, poor financial performance, or conflict with the Board. A company may also dismiss a CEO for missing a significant industry development or trend to the company's detriment. For example, in 2018, Victoria's Secret terminated its CEO's employment after reports that the company's slumping growth at the time was due to a failure to recognize and keep up with the demands of younger buyers who began choosing comfort over satin and lace.
The hospitality industry has recently been experiencing many new developments and changing trends. According to a recent report prepared by EHL Insights, a few key new trends include:
  • The importance of personalizing services to the individual traveler's requirements and tastes.
  • A greater focus on niche markets that may enable increased value creation.
  • An increased consciousness of the value of global sustainability and social responsibility.
  • Increased use of technology as a business accelerator to monitor and improve the hotel experience in the room, as well as before and after the trip.
Should a CEO in the hospitality industry miss or fall short of the new industry trends and developments occurring during their watch, their employment may be terminated by the company without cause, which may have the Board reaching for the calculator. Many executives in the hospitality industry and beyond are entitled to severance on a termination without cause, with the severance potentially including:
  • Severance payments based on the executive's base salary or base salary plus annual bonus.
  • A pro-rated annual bonus for the year of termination.
  • Accelerated vesting of some or all of the executive's unvested equity compensation.
  • Continued medical coverage.
If the termination of the executive's employment without cause occurs within a specified time period following a change in control, the executive may be entitled to enhanced severance.
The chart below compares select compensation and severance provisions contained in the recent employment agreements of three CEOs in the hospitality industry.
EMPLOYMENT AGREEMENT
Playa Hotels & Resorts N.V. & Playa Resorts Management, LLC
Chief Executive Officer & Chairman of the Board and Chief Executive Officer
January 1, 2022
World Wrestling Entertainment, Inc.
Co-Chief Executive Officer
October 19, 2022
Wyndham Hotels & Resorts, Inc.
Chief Executive Officer
February 23, 2021
MARKET CAPITALIZATION AT FILING
Approximately $1.4 billion.
Approximately $3.4 billion.
Approximately $6.9 billion
TERM OF THE AGREEMENT
Initial term of three years (Initial Term); automatically renews for one-year periods (Renewal Term) unless either party provides written notice of their intent not to renew the employment agreement at least 180 days before the end of the Initial Term or the then-effective Renewal Term (Renewal Term and Initial Term together, the Employment Period).
Section 1
Fixed term of five years.*
*The five-year term began on August 3, 2020, the effective date of the executive's original employment agreement with the employer (Original Agreement). The Original Agreement was amended and restated as of March 9, 2022 (Prior Agreement).
Section 1
Initial term of approximately three years and three months. No later than 180 days before the expiration of the initial term, the parties will begin good faith negotiation regarding a possible extension.
Section II
ANNUAL RATE OF BASE SALARY
$775,000, subject to annual review for increase by the board.
Section 4(a)
$1,350,000.
Section 3(a)
$1,030,000, subject to annual review for increase by the board.
Section III.A
ANNUAL BONUS AND CASH INCENTIVES
Eligible to receive a discretionary annual bonus with a target bonus of 150% of base salary and a maximum bonus of 300% of base salary payable as determined by the Playa board. The executive must be an employee on the last day of the year for which the bonus is attributable to receive an annual bonus.
The executive may be eligible to participate in other incentive compensation programs provided to senior executives.
Section 4(b)(i)
Section 4(b)(ii)
Eligible to participate in the employer's discretionary bonus plan, with an annual target bonus based on a percentage of the executive's base salary. Effective as of July 22, 2022, the executive's annual target bonus is 160% of annual base salary.
For the 2022 bonus, the executive's annual target bonus will be calculated based on a target of 158% of base salary from January 1, 2022, through July 1, 2022, and a target of 160% of base salary from July 22, 2022, through December 31, 2022.
The annual bonus is payable based on the achievement of employer financial and strategic performance measures and individual performance measures.
Section 3(b)
Eligible to earn an annual target incentive compensation award each fiscal year during the term equal to 150% of base salary under the employer's annual incentive plan, payable based on attainment of performance goals, criteria or targets established by the board, and subject to the board's discretion to grant awards.
Section III.B
SIGN-ON EQUITY GRANTS
None specified.
The Original Agreement provided for grants of performance stock units (PSUs) valued at $15,000,000 (Initial Sign-on Inducement Grant) and the Prior Agreement provided for a grant of PSUs valued at $7,500,000 (together with the Initial Sign-on Inducement Grant, the Inducement Grants).
$6,000,000 of the Initial Sign-on Inducement Grant (First Tranche PSUs) was granted under the employer's omnibus incentive plan (OIP), effective on or about August 5, 2020 (Start Date), with the grant value determined based on the 30-day trailing average of the employer's common stock price ending on the Original Agreement's effective date. The remaining $16,500,000 of the Inducement Grants (Second Tranche PSUs) is granted under the OIP, effective on or about October 1, 2022, with the grant value determined based on the 30-day trailing average of the employer's common stock price as of the grant date.
The First Tranche PSUs vest on September 30, 2022, and the Second Tranche PSUs vest on September 30, 2025, in each case subject to performance measures established by the board.
Section 3(d)(i)
None specified.
ONGOING EQUITY GRANTS
Eligible to participate in any equity incentive plan of the employer under which similarly situated senior executives are eligible to receive equity awards, with terms and amounts determined by the Playa board in its discretion.
Section 4(b)(ii)
Section 4(b)(iii)
Eligible to receive equity grants of PSUs and restricted stock units (RSUs) under the OIP. For the calendar year 2023, entitled to an equity grant with a target grant date value of $3,575,000.
Section 3(d)(ii)
Eligible for equity award grants, as determined by the board, under the employer's 2018 equity and incentive plan at a level commensurate with the executive's position as a senior executive officer. Any equity awards will vest as determined by the board in its sole discretion.
Section III.C
SEVERANCE ON TERMINATION BY THE EMPLOYER WITHOUT CAUSE 
Payment of an aggregate amount equal to two times the sum of the executive's base salary plus target bonus for the year of termination (Severance Payment) in 24 equal monthly installments during the Severance Payment Period.
Pro-rated annual bonus for the calendar year of termination, based on actual performance.
Payment of the Additional Amount until the earlier of the end of the Severance Payment Period or when the executive becomes eligible to obtain insurance coverage under another group insurance plan.
Severance on termination for good reason is the same as severance on termination without cause.
Section 4(b)(i)
Section 6(c)(i)
Section 6(c)(ii)
Section 6(c)(iii)
In lieu of any severance benefits the executive may otherwise be entitled to under any severance plan or program of the employer, the executive receives:
  • Continued payment of base salary through the end of the term.
  • A pro-rated target incentive bonus payment attributable to the year of termination.
  • Subject to the executive's timely COBRA continuation coverage election, continued health care coverage under the employer's group health insurance plan in accordance with the employer's severance policy.
Severance on termination for good reason is the same as severance on termination without cause.
Section 4(c)
In lieu of any other severance benefits the executive may otherwise be entitled to under any employer severance plan, the executive will receive:
  • A lump sum payment equal to 299% multiplied by the sum of the executive's base salary, plus an amount equal to the lesser of the highest incentive compensation award paid to the executive during the three fiscal years immediately preceding the fiscal year of the executive's termination and the executive's target incentive compensation award for the year of termination.
  • Accelerated vesting of time-based equity awards granted on or after June 1, 2018 (Original Effective Date), that would otherwise vest within one-year following termination.
  • Accelerated vesting of performance-based equity awards (including restricted stock units, but excluding stock options and stock appreciation rights) granted on or after the Original Effective Date and paid (to the extent performance goals are achieved) on a pro-rata basis based on the portion of the performance period the executive was employed plus 12 months (but not to exceed 100%).
  • Subject to the executive's COBRA election, reimbursement by the employer of the full cost of COBRA premiums until the earlier of 18 months and the date the executive becomes eligible for health and medical benefits from a subsequent employer.
Severance on termination for good reason is the same as severance on termination for without cause.
Section V.A
Section V.D
SEVERANCE ON EXPIRATION OF THE TERM OF THE AGREEMENT
If the Employment Period ends due to non-renewal, then the executive receives six months of base salary payable in six equal monthly installments.
Section 6(f)
None.
Section 4(b)
If the employer fails to offer to renew the employment agreement on substantially similar terms before the end of the then-current term, the executive may terminate employment for good reason (see Severance on termination for good reason).
Section V.C.ii
DOUBLE-TRIGER CHANGE OF CONTROL BENEFITS
If the employer terminates the executive’s employment without cause or the executive terminates employment for good reason, in either case, within 2 years following a change in control (CIC), the executive will receive:
  • A lump sum payment equal to 2.99 times the sum of the executive's base salary plus the target bonus amount.
  • Pro-rated annual bonus attributable to the calendar year of termination, based on actual performance.
  • Payment of the Additional Amount until the earlier of the end of the Severance Payment Period or when the executive becomes eligible to obtain insurance coverage under another group insurance plan.
If the executive terminates employment without good reason within 60 days following a CIC or partial CIC (as defined in the employment agreement), the executive receives a severance payment equal to 3 months base salary.
Section 6(g)(i)
Section 6(g)(ii)
In lieu of any severance benefits the executive may otherwise be entitled to under any severance plan or program of the employer, if the executive's employment is terminated by the employer without cause or by the executive for good reason on the date of or within two years following a change in control, the executive receives:
  • A lump sum payment equal to 2 times base salary.
  • A lump sum payment equal to 2 times the target incentive bonus payment attributable to the year of termination.
  • A pro-rated Incentive Bonus payment for the year of termination with the amount of the bonus based on actual performance.
  • Accelerated vesting of all then-outstanding equity awards. For unvested performance awards, the payout in respect of performance criteria that have not been obtained as of the termination date is determined based on achievement of target performance, and the payout in respect of performance criteria that have been obtained as of the termination date is determined based on actual performance.
  • Subject to the executive's timely COBRA continuation coverage election, continued health care coverage under the employer's group health insurance plan until the earlier of 24 months or when the executive becomes eligible for comparable coverage under the medical health plan of a successor employer. If providing the COBRA continuation coverage would subject the employer to financial costs or penalties under the law, then the employer will instead pay the executive a monthly cash payment in an amount equal to the portion of the monthly COBRA premiums the employer would have paid during the COBRA continuation coverage period.
Section 4(d)
None specified.
For additional executive employment agreement summaries, see the What's Market, Executive Employment Agreements: Detailed Analysis database, which includes summaries of a variety of executive positions and a diverse group of employers, based on size, industry, and location. The summaries cover terms that are typically heavily negotiated, such as compensation, severance, non-competition, and change in control provisions and often reflect emerging trends.