Marriott Company

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! appropriate%hurdle%rate%for%each%division.%

In% 1987,% MarriottAs% sales% grew% by% 24%% and% its% return% on% equity% stood% at% 22%.% Sales% and% earnings%per%share%had%doubled%over%the%previous%four%years,%and%the%operating%strategy%was%aimed%

! at%continuing%this%trend.%MarriottAs%1987%annual%report%stated:%

We% intend% to% remain% a% premier% growth% company.% This% means% aggressively% developing% appropriate% opportunities% within% our% chosen% lines% of% business—lodging,% contract% services,% and% related% businesses.% In% each% of% these% areas% our% goal% is% to% be% the% preferred%employer,%the%preferred%provider,%and%the%most%profitable%company.%

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! decreased,%MarriottAs%growth%would%accelerate.%

Marriott%also%considered%using%the%hurdle%rates%to%determine%incentive%compensa%tion.%Annual% incentive%compensation%constituted%a%significant%portion%of%total%compensation,%ranging%from%30%%to% 50%% of% base% pay.% Criteria% for% bonus% awards% depended% on% specific% job% responsibilities% but% often% included% the% earnings% level,% the% ability% of% managers% to% meet% budgets,% and% overall% corporate% performance.% There% was% some% interest,% however,% in% basing% the% incentive% compensation,% in% part,% on% a% comparison% of% the% divisional% return% on% net% assets% and% the% market%Wbased% divisional% hurdle% rate.% The% compensation% plan% would% then% reflect% hurdle% rates,% making% managers% more% sensitive% to% MarriottAs% financial%strategy%and%capital%market%conditions.%

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! Copyright% ©% 1998% by% the% President% and% Fellows% of% Harvard% College.%% .%

Purchased on October 02, 2013

Harvard Business School

9-298-101

Rev.%March%18,%1998%

Marriott Corporation: The Cost of Capital

In% April% 1988,% Dan% Cohrs,% vice% president% of% project% finance% at% the% Marriott% Corporation,% was% preparing% his% annual% recommendations% for% the% hurdle% rates% at% each% of% the% firmAs% three%...