| Item 5.02. | Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. |
On December 21, 2020, the Compensation Committee (the “Compensation Committee”) of the Board of Directors of Hilton Grand Vacations Inc. (the “Company”) approved a modification to the outstanding performance-based restricted stock units (the “2018 Performance RSUs”) that had been granted to our named executive officers with respect to the performance period commencing January 1, 2018 and ending December 31, 2020 (the “Performance Period”). Pursuant to the terms of the 2018 Performance RSUs, the holder could earn between 0% and 200% of target based on the level of achievement of pre-established goals related to Contract Sales and Economic EBITDA over the Performance Period. The effect of this modification is to (i) truncate the Performance Period to December 31, 2019, (ii) measure performance as of December 31, 2019, and (iii) pro-rate the payout by two-thirds to reflect the fact that performance was only measured over two-thirds of the Performance Period. Based on actual performance measured as of December 31, 2019, the 2018 Performance RSUs were earned at 143% of target, which amount was then prorated as described above, resulting in a pay out at 95% of target. If the Compensation Committee had not approved this modification, then the payout on the 2018 Performance RSUs would have been zero.
In approving this modification, the Compensation Committee considered a variety of factors related to COVID-19’s impact on the 2018 Performance RSUs. First, the Compensation Committee does not believe that a 0% payout reflects an appropriate alignment between pay and performance because (i) actual performance through the first two years of the Performance Period was above target, and (ii) our executive officers demonstrated strong leadership during the challenging times of 2020. Second, the payout resulting from the modification is reasonable, considering that it was (i) based on actual performance results, (ii) pro-rated (reduced) for the portion of the Performance Period completed, and (iii) below the original target payout level. This approach was viewed as being superior to other alternatives because there was no simple way to adjust performance results for the impact of COVID nor was their enough time or visibility to establish new performance goals for the awards. Finally, the Compensation Committee chose not to modify the outstanding performance-based RSUs granted in 2019 and 2020 (with respect to the performance periods January 1, 2019 – December 31, 2021 and January 1, 2020 – December 31, 2022, respectively). Such awards are expected to have 0% payouts at the end of their respective performance periods, resulting in a total estimated combined payout on performance-based RSUs granted in 2018, 2019, and 2020 of approximately 30% of target (95% for 2018, 0% for 2019, and 0% for 2020).
Although the Compensation Committee believes that these types of modifications should rarely be pursued, the Compensation Committee also believes that the specific and unique facts and circumstances made this modification reasonable and appropriate. The Compensation Committee also believes that the result appropriately recognizes and rewards performance during a challenging time, which will help in retaining the leadership team necessary to continue steering the Company through the pandemic and beyond.
