o	Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

	(1)	Title of each class of securities to which transaction applies:

	(2)	Aggregate number of securities to which transaction applies:

	(3)	Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

	(4)	Proposed maximum aggregate value of transaction:

	(5)	Total fee paid:

o	Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

	(1)	Amount Previously Paid:

	(2)	Form, Schedule or Registration Statement No.:

	(3)	Filing Party:

	(4)	Date Filed:

	1.	To elect four directors to the Company’s Board of Directors;
	2.	To approve an additional 6,000,000 shares for issuance under the Company’s 2008 Equity Incentive Plan;
	3.	To ratify the selection of the Company’s principal independent auditor;
	4.	To vote on a shareholder proposal in the accompanying proxy statement; and
	5.	To transact such other business as may properly come before the meeting and any adjournment thereof.

		Page
GENERAL INFORMATION			1
Who May Vote			1
How to Vote			1
How Proxies Work			1
Matters to be Presented			1
Vote Necessary to Approve Proposals			2
Revoking a Proxy			2
CORPORATE GOVERNANCE			2
Board of Directors and Committees			2
Board Leadership Structure			4
Risk Oversight and Board Role			5
Director Independence			5
Code of Ethics			6
Contacting Members of the Board of Directors			6
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT			7
Principal Shareholders			7
Security Ownership of Directors and Executive Officers			8
EQUITY COMPENSATION PLAN INFORMATION			9
Section 16(a) Beneficial Ownership Reporting Compliance			9
Shareholders Agreement			9
PROPOSAL 1: ELECTION OF DIRECTORS			10
Directors Standing for Election			10
Directors Continuing in Office			12
Director Compensation for 2009			13
Certain Relationships and Related Person Transactions			14
PROPOSAL 2: APPROVAL OF ADDITIONAL SHARES FOR ISSUANCE UNDER THE COMPANY’S 2008 EQUITY INCENTIVE PLAN			16
PROPOSAL 3: RATIFICATION OF PRINCIPAL INDEPENDENT AUDITOR			21
REPORT OF THE AUDIT COMMITTEE			22
REPORT OF THE COMPENSATION COMMITTEE			23
COMPENSATION DISCUSSION AND ANALYSIS			23
Introduction			23
Named Executive Officers			23
Principal Compensation Objectives			24
Compensation Review Process			24
Base Salary			25
Performance Based Annual Incentive			26
Long-Term Incentive Awards			29
Equity Grant Practices			30
Stock Ownership Guidelines			30
Severance			30
Other Elements of Compensation			31
Impact of Tax and Accounting Treatment			31
Compensation Risks			31

		Page
EXECUTIVE COMPENSATION			32
2009 Summary Compensation Table			32
2009 All Other Compensation			33
2009 Grants of Plan-Based Awards			33
Additional Information			34
Outstanding Equity Awards at 2009 Fiscal Year-End			35
Option Exercises and Stock Vested in 2009			36
2009 Nonqualified Deferred Compensation and Defined Contribution Retirement Plans			36
Payments Upon Termination of Employment			38
SHAREHOLDER PROPOSAL			39
PROPOSALS OF SHAREHOLDERS FOR NEXT YEAR			41
SOLICITATION OF PROXIES			41
IMPORTANT NOTICE REGARDING DELIVERY OF SECURITY HOLDER DOCUMENTS			41
ANNUAL REPORT ON FORM 10-K			42

GENERAL INFORMATION

 

Who May Vote

 

How to Vote

 

How Proxies Work

 

Matters to be Presented

 

Vote Necessary to Approve Proposals

 

Revoking a Proxy

 

CORPORATE GOVERNANCE

 

Board of Directors and Committees

2

	•	the integrity of the financial statements of the Company;
	•	the qualifications and independence of the Company’s principal independent auditor;
	•	the performance of the Company’s internal audit function and principal independent auditor; and
	•	the compliance by the Company with the legal and regulatory requirements in connection with the foregoing.

3

 

Board Leadership Structure

4

 

Risk Oversight and Board Role

 

Director Independence

	•	A director will not be independent if, (i) the director is, or has been within the preceding three years, an employee of the Royal Caribbean Group, or an immediate family member is, or has been within the preceding three years, an executive officer of the Royal Caribbean Group, other than in each instance as interim Chairman, interim Chief Executive Officer (“CEO”) or other interim executive officer; (ii) the director or an immediate family member has received during any twelve-month period within the preceding three years more than $120,000 in direct compensation from the Royal Caribbean Group other than (A) director and committee fees, (B) pension and other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service), (C) compensation for former services as an interim Chairman, interim CEO or other interim executive officer or (D) compensation to an immediate family member for service as a non-executive employee of the Royal Caribbean Group; (iii) the director is a current partner or employee of Royal Caribbean’s internal or external auditor (in either case, the “Auditor”) or has an immediate family member who is either (A) a current partner of the Auditor or (B) a current employee who personally works on Royal Caribbean’s audit; (iv) the director or an immediate family member was within the last three years a partner or employee of the Auditor and personally worked

5

		on Royal Caribbean’s audit within that time; (v) the director or an immediate family member is, or has been within the preceding three years, employed as an executive officer of another company where any of Royal Caribbean’s current executive officers at the same time serves or served on the compensation committee of that other company; or (vi) the director is an employee of another company that does business with the Royal Caribbean Group, or the director has an immediate family member that is an executive officer of another company that does business with the Royal Caribbean Group and, in either case, the annual payments to, or payments from, the Royal Caribbean Group within any of the three most recently completed fiscal years exceed two percent or $1,000,000 (whichever is greater) of the annual consolidated gross revenues of the other company.

	•	The following commercial relationships will not be considered to be material relationships that would impair a director’s independence: (i) if a Company director is an employee of another company that does business with the Royal Caribbean Group and the annual payments to, or payments from, the Royal Caribbean Group are less than two percent or $1,000,000 (whichever is greater) of the annual consolidated revenues of the company he or she serves as an employee; (ii) if a Company director is an employee of another company which is indebted to the Royal Caribbean Group, or to which the Royal Caribbean Group is indebted, and the total amount of indebtedness to the other is less than two percent or $1,000,000 (whichever is greater)of the total consolidated assets of the company he or she serves as an employee; and (iii) if an immediate family member of a director is an executive officer of another company that does business with the Royal Caribbean Group, and the annual payments to, or payments from, the Royal Caribbean Group, are less than two percent or $1,000,000 (whichever is greater) of the annual consolidated revenues of the company the immediate family member serves as an executive officer;

 

Code of Ethics

 

Contacting Members of the Board of Directors

6

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

Principal Shareholders

		Amount Beneficially
Name of Beneficial Owner		Owned				Percent of Ownership
A. Wilhelmsen AS			42,966,472	(1)			20.06	%
Osiris Holdings Inc.			37,903,200	(2)			17.70	%
Cruise Associates			33,281,900	(3)			15.54	%

 

 

 

This table sets forth information as of February 12, 2010 about the amount of common stock beneficially owned by (i) our directors; (ii) the named executive officers listed in the “Compensation Discussion and Analysis” below and (iii) our directors and executive officers as a group.

 

The number of shares beneficially owned by each named person or entity is determined under rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. No shares of common stock held by our directors or named executive officers have been pledged.

 

 

 

 

The following table summarizes our equity plan information as of December 31, 2009

 

 

The Board of Directors is currently divided into three classes. The current term of office of directors in Class II expires at the 2010 Annual Meeting. The Board has proposed to nominate the four nominees described below, each of whom is currently serving as a Class II director, to be elected for a new term of three years and until his or her successor is duly elected and qualified. Upon the election of the nominees named below, there will be a total of eleven directors consisting of three directors in Class I and four directors in each of Class II and Class III. The election of each of the nominees to the Board of Directors requires the approval of a majority of the votes cast at the Annual Meeting.

 

Each of the nominees has consented to serve as a director. If any of them become unavailable to serve as a director, the Board may designate a substitute nominee. In that case, the persons named as proxies will vote for the substitute nominee named by the Board. The Class II directors standing for election are:

 

William L. Kimsey, 67, has served as a Director since April 2003. Mr. Kimsey was employed for 32 years through September 2002 with the independent public accounting firm Ernst & Young L.L.P. From 1998 through 2002, Mr. Kimsey served as the Chief Executive Officer of Ernst & Young Global and Global Executive Board member of Ernst & Young and from 1993 through 1998 as the Firm Deputy Chairman and Chief Operating Officer. Mr. Kimsey also serves on the board of Western Digital Corporation, Parsons Corporation and Accenture Ltd. Mr. Kimsey serves on the audit committees of Accenture Ltd. and Western Digital Corporation. From 2004 until 2008, he served on the board of NAVTEQ Corporation and was the chairman of its audit committee. Mr. Kimsey is a certified public accountant and a member of the American Institute of Certified Public Accountants. As a practicing certified public accountant for many years and former Chief Executive Officer of one of the largest public accounting firms in the world, Mr. Kimsey brings substantial knowledge and expertise of accounting and finance matters to the Board.

 

Gert W. Munthe, 53, has served as a Director since May 2002. Since September 2002, Mr. Munthe has served as managing partner of Herkules Capital, a private equity company that focuses on mid-cap companies in the technology area. From 1994 through January 2000, Mr. Munthe was a director of Alpharma, Inc., a life science company active in animal health and generic pharmaceuticals, and served as its Chief Operating Officer from 1998 until 1999 and as its Chief Executive Officer in 1999. From 1993 through 1998, Mr. Munthe was the President and Chief Executive Officer of NetCom, a leading wireless telecommunication operator in Norway that was listed on the Oslo and London Stock Exchanges. Mr. Munthe has served on the board of Pronova BioPharma ASA since 2004. He served in the Royal Norwegian Navy and was previously with McKinsey & Co. Mr. Munthe’s knowledge and experience from serving as a senior executive officer and director of a variety of businesses and as a managing partner of a private equity company provide the Board with a unique business and financial perspective.

 

Thomas J. Pritzker, 59, has served as a Director since February 1999. Mr. Pritzker is Chairman of Hyatt Hotels Corporation and Marmon Holdings, Inc. He is Chairman and Chief Executive Officer of The Pritzker Organization LLC, which provides certain services primarily to and/or in connection with business interests of trusts for the benefit of various members of the Pritzker family. Mr. Pritzker is a member of the Board of Trustees of the University of Chicago and Chairman of the Art Institute of Chicago. Mr. Pritzker’s extensive business interests and responsibilities provide the Board with considerable experience and insight, particularly in the travel and leisure industry.

 

Bernt Reitan, 61, has served as a Director of the Company since September 2004. Mr. Reitan is an Executive Vice President of Alcoa Inc. and is the Group President for the Global Primary Products division, with responsibility for the strategic management of Alcoa Inc.’s alumina refineries and primary aluminum smelters worldwide and associated businesses, such as metal purchasing, trading and transportation. Mr. Reitan joined Alcoa Inc. in 2000 as general manager of Alcoa World Alumina & Chemicals and was named President of Alcoa World Alumina & Chemicals in January 2001. In July of that year, he was elected a Vice President of Alcoa Inc. In January 2003, he

was appointed President, Alcoa Primary Metals. In November 2004, he was named an Executive Vice President of the company. Mr. Reitan has announced that he will be retiring from Alcoa Inc. in August 2010. Before joining Alcoa Inc., he was employed for 20 years in a number of positions with Elkem ASA in Norway. Mr. Reitan serves on the board of Yara ASA in Norway and International Primary Aluminum Institute. Mr. Reitan holds a master’s degree in civil engineering from the Technical University, Trondheim, Norway. As an executive officer with various roles of increasing responsibility within a large publicly-traded global company, Mr. Reitan brings valuable leadership, strategic and managerial knowledge and experience as well as a multinational business perspective to the Board.

 

THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE
ELECTION OF EACH OF THE NOMINEES FOR DIRECTOR.

 

Class III Directors

 

The following Class III directors are serving for a term ending in 2011:

 

Laura D.B. Laviada, 59, has served as a Director since July 1997. Since 2008, Ms. Laviada has served as Chairman of Grupo Aeroportuario del Pacifico, which operates 12 airports in Mexico, including Guadalajara, Los Cabos, Puerto Vallarta and Tijuana. She also serves on the board of Telmex International and Grupo Financiero Inbursa. Ms. Laviada is President of the Board of Trustees of the Museum of San Ildefonso. Prior to 2000, Ms. Laviada was the Chairman and Chief Executive Officer of Editorial Televisa, the largest Spanish language magazine publisher with 40 titles distributed throughout 19 countries. Ms. Laviada’s service on various boards of Mexican companies allows her to provide the Board with a unique, invaluable business perspective.

 

Eyal M. Ofer, 59, has served as a Director since May 1995. Mr. Ofer has served as the Chairman and Chief Executive Officer of Deerbrook Limited, an international real estate management company, since May 1991. Mr. Ofer provides the Board with an international perspective gained from his almost two decades of leading an international real estate management firm. As a member of the Board for nearly 15 years, Mr. Ofer also brings considerable experience and insight in matters affecting our company and the cruise industry.

 

William K. Reilly, 70, has served as a Director since January 1998. Mr. Reilly is the Founding Partner of Aqua International Partners L.P., a private equity fund dedicated to investing in companies engaged in water and renewable energy, and he is a Senior Advisor to TPG Capital, LP, an international investment partnership. From 1989 to 1993, Mr. Reilly served as the Administrator of the U.S. Environmental Protection Agency. He has also previously served as the first Payne Visiting Professor at Stanford University, President of the World Wildlife Fund and President of The Conservation Foundation. He is Chairman Emeritus of the World Wildlife Fund, Co-Chairman of the National Commission on Energy Policy and Chairman of the ClimateWorks Foundation and the Nicholas Institute for Environmental Policy Solutions at Duke University and member of Gov. Schwarzenegger’s Delta Vision Blue Ribbon Task Force. He serves as a director of E.I.DuPont de Nemours and Company, ConocoPhillips, Eden Springs Ltd., the National Geographic Society and the Packard Foundation. Mr. Reilly’s leadership roles within various environmental protection organizations, including the U.S. Environmental Protection Agency, the World Wildlife Fund and the National Geographic Society, allow him to bring substantial environmental knowledge and expertise to the Board. His service on various other boards also allows him to provide the Board with a variety of perspectives.

 

Arne Alexander Wilhelmsen, 44, has served as a Director since May 2003. Mr. Wilhelmsen is chairman of the board of directors of AWILHELMSEN MANAGEMENT AS, the management company for the companies affiliated with A WILHELMSEN AS. He has held a variety of positions within the AWILHELMSEN group of companies since 1995. From 1996 through 1997, Mr. Wilhelmsen was engaged as a marketing analyst for the Company and from 2001 through 2009 has served as a member of the board of directors of Royal Caribbean Cruise Line AS, a wholly owned subsidiary of the Company that is responsible for the sales and marketing activities of the Company in Europe. From 2005 through 2008, he served as a member of the board of directors of Awilco Offshore ASA. Mr. Wilhelmsen’s varied business interests enable him to provide valuable business insight and knowledge to the Board. As the son of one of the Company’s original founders, Mr. Wilhelmsen also provides a valuable historical perspective to the Board.

 

Class I Directors

 

The following Class I directors are serving for a term ending in 2012:

 

Morten Arntzen, 55, has served as a Director since September 2008. Mr. Arntzen is currently the President and Chief Executive Officer and a director of Overseas Shipholding Group, Inc., a diversified global energy transportation company. Until December 2009, he was Chairman of OSG America, LP, a master limited partnership that was listed on the New York Stock Exchange and affiliated with Overseas Shipholding Group, Inc. From 1997 to 2003, Mr. Arntzen served as the Chief Executive Officer of American Marine Advisors, Inc., a merchant banking firm specializing in the maritime industry. Prior to joining American Marine Advisors, Inc., Mr. Arntzen spent more than 17 years in the banking industry holding various corporate positions. From March

2003 through July 2009, Mr. Arntzen was a director of Chiquita Brands International. Mr. Arntzen’s management experience with a diversified global energy transportation company and within the banking industry provides the Board with important knowledge and insights of maritime and finance matters.

 

Bernard W. Aronson, 63, has served as a Director since July 1993. Mr. Aronson is currently Managing Partner of ACON Investments, LLC. Prior to that, he served as international advisor to Goldman, Sachs & Co. From June 1989 to July 1993, Mr. Aronson served as Assistant Secretary of State for Inter-American Affairs. Prior to that, Mr. Aronson served in various positions in the private and government sectors. Mr. Aronson is a member of the Council on Foreign Relations. Mr. Aronson serves as a director of Liz Claiborne, Inc., Hyatt Hotels Corporation, Mariner Energy Incorporated and Chroma Oil and Gas, LP. As a member of the Council of Foreign Relations, a former Assistant Secretary of State and former international advisor to one of the largest investment banking firms, Mr. Aronson is appropriately suited to provide the Board with a global perspective. His service on various other boards also allows him to provide the Board with a variety of business experiences.

 

Richard D. Fain, 62, has served as a Director since 1979 and as Chairman and Chief Executive Officer of the Company since 1988. Mr. Fain has been involved in the shipping industry for over 30 years. As the longest serving member of the Board with over 30 years of experience in the shipping industry, Mr. Fain provides the Board with substantial expertise in the cruise industry. In addition, his service as Chairman and Chief Executive Officer of the Company for over 20 years, brings valuable leadership, strategic and managerial knowledge and experience to the Board.

 

Directors who are Company employees do not receive any fees for their services as directors. For services in the fiscal year 2009, each non-employee director was entitled to receive an annual retainer of $50,000 and $1,200 for each Board meeting attended in his or her capacity as director and $1,200 for each committee meeting attended. The Chair of the Audit Committee is entitled to an additional annual retainer of $30,000, the Chair of the Compensation Committee is entitled to an additional annual retainer of $15,000 and each of the Chairs of the Nominating and Corporate Governance, and Environmental, Safety and Security Committees is entitled to an additional annual retainer of $6,000. Other members of the Audit Committee are entitled to an additional annual retainer of $15,000 and other members of the Compensation, Nominating and Corporate Governance, and Environmental, Safety and Security Committees are entitled to an additional annual retainer of $5,000. Prior to 2009, directors could elect to defer their fees, in whole or in part, under the Company’s Board of Directors Nonqualified Deferred Compensation Plan, provided the deferral was made in advance in accordance with IRS requirements. Each director was entitled to elect to invest their contributions to such plan in one or more investment funds and was required to designate the form and timing of their distributions. In 2008, a new U.S. tax law was enacted that imposes a punitive tax on compensation deferred under our nonqualified deferred compensation plans after January 1, 2009. As a result of the passage of this law, the Company amended this plan to prohibit the directors from deferring compensation under such plan after January 1, 2009, and provided for the distribution to them of all previously deferred contributions. Directors are reimbursed for their travel expenses, and occasionally for those of an accompanying guest, for meetings attended.

 

At the discretion of the Board, each non-employee director is eligible to receive an annual grant of equity awards with an aggregate value on the date of grant equal to $90,000. For 2009, two-thirds of this annual grant was awarded in the form of restricted stock units and one-third was awarded in the form of stock options to purchase the Company’s common stock. The Board’s stock ownership guidelines require directors to accumulate ownership of at least $150,000 of the Company’s common stock, including the value of restricted stock units, within three years of becoming a director. If the value of their stock holdings falls below this amount, directors cannot sell the Company’s common stock until the value once again exceeds the required amount.

 

In order to increase knowledge and understanding of our business, we encourage Board members and their families to experience our cruises. As a result, the Company has adopted a Board Member Cruise Policy (the “Cruise Policy”). Under the Cruise Policy, a Board member is entitled to one stateroom accommodation per year on a complimentary basis. A Board member is also entitled to provide immediate family members traveling with the Board member with one complimentary stateroom per year. Additional guests traveling with a Board member will

receive a 15% discount off of the lowest available fare for up to 20 staterooms. A Board member is entitled to accommodate immediate family members not traveling with the Board member with one complimentary stateroom, provided they have not already traveled with a Board member that same calendar year.

 

Consulting Arrangement with William K. Reilly.  The Company has a consulting arrangement with Mr. Reilly under which it pays him $300,000 a year in consultancy fees in exchange for his providing services with respect to, and overseeing, the Company’s environmental programs. As part of his responsibilities, Mr. Reilly serves on the Grants Committee of the Royal Caribbean Ocean Fund, a fund established to support marine conservation organizations in preserving the world’s oceans.

 

The table below summarizes the compensation of our outside directors in 2009.

 

 

 

 

Related Person Transaction Policy and Procedure

 

The Company has a written Related Person Transaction Policy that requires review of all relationships and transactions in which the Company and any director or executive officer or their immediate family members have a direct or indirect material interest. Under this policy, each director, director nominee and executive officer is required to promptly notify the Corporate Secretary of any such transaction. The Corporate Secretary then presents such transactions to the Audit Committee and the Audit Committee is responsible for determining whether to approve or ratify the transactions. The following types of transactions are deemed not to create or involve a material interest on the part of the related person and do not require approval or ratification under the policy unless the Audit Committee determines that the facts and circumstances of the transaction warrant its review:

 

In making its decision, the Audit Committee reviews and considers all relevant facts and circumstances, including:

 

 

If after the review described above, the Audit Committee determines not to approve or ratify the transaction, it will be cancelled or unwound as the Audit Committee considers appropriate and practicable.

 

Related Person Transactions

 

The Audit Committee reviewed and approved or ratified all of the following transactions in accordance with our Related Person Transaction Policy.

 

During the fiscal year ended December 31, 2009, the Company paid Hyatt Hotels Corporation approximately $570,000 to provide accommodations to the Company’s guests. In addition, certain employees of the Company stay at Hyatt Hotels while traveling on business and the Company may make use of Hyatt facilities for business purposes although Hyatt has no specific arrangement or understanding with the Company in that connection. Mr. Thomas J. Pritzker, one of the Company’s directors, is Chairman of the Hyatt Hotels Corporation.

 

During the fiscal year ended December 31, 2009, the Company paid Red Sail Sports Aruba and Red Sail Sports Cayman an aggregate of approximately $320,000 as shore excursions operators in the Caribbean. Both entities are owned by business interests of the Pritzker family.

 

During the fiscal year ended December 31, 2009, the Company paid Mr. William K. Reilly, one of the Company’s directors, $300,000 under his consulting arrangement with the Company, which is described on page 14 under “Consulting Arrangement with William K. Reilly.”

 

At the Annual Meeting, shareholders will be asked to approve 6,000,000 additional shares for issuance under the Company’s 2008 Equity Incentive Plan (the “2008 Equity Plan”). The 2008 Equity Plan was adopted by the Board on March 7, 2008 and was ratified by the shareholders at the 2008 Annual Meeting. Currently, 5,000,000 shares of our common stock, par value $0.01 per share, are authorized to be issued under the 2008 Equity Plan. As of December 31, 2009, there were 2,128,294 shares of common stock available for future issuance under the 2008 Equity Plan.

 

Subject to approval by the shareholders, the Board has approved an additional 6,000,000 shares of common stock for issuance under the 2008 Equity Plan. The approval of the additional shares for issuance under the 2008 Equity Plan requires the approval of a majority of the votes cast at the Annual Meeting and the total votes cast must represent a majority of the shares entitled to vote on the proposal.

 

The 2008 Equity Plan is designed to provide long-term incentive awards, including stock options and restricted stock units, to attract and retain talented officers, directors and key employees, while aligning their compensation with shareholder interests. Long-term incentive awards represent a significant component of total direct compensation for our officers, directors and key employees. The Board believes that it is in the best interest of the Company and its shareholders to approve the additional shares for issuance under the 2008 Equity Plan as proposed to enable the Company to continue granting such awards.

 

The principal features of the 2008 Equity Plan, as amended, are summarized below.

 

Shares Available for Awards

 

If this proposal is approved by the shareholders, the number of shares of common stock authorized for issuance under the 2008 Equity Plan will be increased by 6,000,000 shares, subject to adjustment by the Compensation Committee for stock splits and other events as set forth in the 2008 Equity Plan. Each stock appreciation right will be counted against the 2008 Equity Plan’s authorized shares. If an award under the 2008 Equity Plan is cancelled or forfeited without the delivery of the full number of shares underlying such award, only the net number of shares actually delivered to the participant will be counted against the 2008 Equity Plan’s authorized shares. Also, shares underlying awards issued in assumption of or substitution for awards issued by a company acquired by the Company (“Substitute Awards”) will not reduce the number of shares remaining available for issuance under the 2008 Equity Plan.

 

No participant may receive options and stock appreciation rights under the 2008 Equity Plan relating to more than 500,000 shares of common stock, subject to adjustment as noted above, in any calendar year.

 

Material Features of the 2008 Equity Plan

 

The 2008 Equity Plan is administered by the Compensation Committee. The Compensation Committee has, among other powers, the power to interpret and construe any provision of the 2008 Equity Plan, to adopt rules and regulations for administering the 2008 Equity Plan and to perform other acts relating to the 2008 Equity Plan. Decisions of the Compensation Committee are final and binding on all parties. The Board may appoint another committee to perform the functions of the Compensation Committee under the 2008 Equity Plan.

 

The Compensation Committee has the sole discretion to grant to eligible participants one or more equity based awards, including options, stock appreciation rights, stock, restricted stock and restricted stock units, performance shares, or any combination thereof. The Compensation Committee will have the sole discretion to determine the number or amount of any award to be awarded to any participant. Awards to directors shall be recommended by the Compensation Committee and approved by the full Board.

 

If a dividend or other distribution, recapitalization, stock split, or other corporate event or transaction (more fully described in Section 7 of the 2008 Equity Plan) affects the shares in such a way that an adjustment is appropriate to prevent dilution or enlargement of the benefits, or potential benefits, intended to be made available under the 2008 Equity Plan, the Compensation Committee shall, in such manner as it may deem equitable and

appropriate, adjust: (i) the number of shares (or other securities) which may be made the subject of awards, (ii) the number of shares subject to outstanding awards, (iii) the grant, purchase or exercise price with respect to any award, and (iv) any other provision determined by the Compensation Committee to be necessary for an equitable adjustment. If such event involves a merger or sale of the Company or its assets, the Compensation Committee may provide for the assumption or substitution of such award, or for the termination of such award for a cash payment. The Compensation Committee may not take any other action to directly or indirectly reduce, or have the effect of reducing, the total exercise price of any option as established at the time of grant.

 

Awards may provide that upon their exercise the holder will receive cash, stock, other securities or other awards or any combination thereof, as the Compensation Committee determines. Any shares of stock deliverable under the 2008 Equity Plan may consist in whole or in part of authorized and unissued shares or shares acquired by the Company.

 

Except in the case of Substitute Awards, the exercise price of stock under any stock option, the grant price of any stock appreciation right, and the purchase price of any security which may be purchased under any other stock-based award will not be less than 100% of the fair market value of the stock or other security on the date of the grant of the option, right or award. The Compensation Committee will determine the times at which options and other purchase rights may be exercised and the methods by which and the forms in which payment of the purchase price may be made. Under the 2008 Equity Plan, determinations of the fair market value of shares of the Company’s common stock will be based on the average of the high and low quoted sales price on the date in question and determinations of fair market value with respect to other property will be made in accordance with methods or procedures established by the Compensation Committee.

 

No awards may be granted under the 2008 Equity Plan after the date of the annual shareholders meeting in 2018.

 

Awards

 

Options.  An option is a right to purchase from the Company a stated number of shares at an exercise price and for a period of time established by the Compensation Committee. The duration of options granted under the 2008 Equity Plan will be established by the Compensation Committee but may not exceed ten years. The Compensation Committee may impose a vesting schedule on options, and will determine the acceptable form(s) in which the exercise price may be paid. In general, options are exercisable following termination of employment for 12 months, if such options were exercisable at the time of termination. Upon termination of employment by reason of the holder’s death or permanent and total disability, options held by the holder shall become exercisable in full, and may be exercised at any time prior to the earlier of (i) one year following the date of such death or disability or (ii) the expiration date of such option.

 

Options granted under the 2008 Equity Plan may be “incentive stock options” (“ISOs”), which afford certain favorable tax treatment for the holder, or “nonqualified stock options” (“NQSOs”). See “Tax Matters” below.

 

Stock Appreciation Rights.  A stock appreciation right (“SAR”) is the right to receive an amount equal to the excess of the fair market value of the shares underlying the SAR over the base price of the SAR. The settlement amount of SARs may be paid in cash or shares. The Compensation Committee determines the terms of each SAR at the time of the grant. Any freestanding SAR may not have a base price less than the fair market value of the stock on the date the SAR is granted and cannot have a term of longer than ten years. The employment termination provisions applicable to SARs are the same as those described above for options.

 

Stock Awards.  The Compensation Committee may award shares of stock that are not subject to any restriction.

 

Restricted Stock and Restricted Stock Units.  Restricted stock is an award of shares that is subject to a risk of forfeiture for a period of time specified on the date of grant. A restricted stock unit is an award payable in cash or stock and represented by a bookkeeping credit, in which both the number of shares and the settlement date are fixed on the date of grant. The Compensation Committee may impose restrictions on restricted stock and restricted stock units at its discretion. These restrictions may lapse as the Compensation Committee deems appropriate. Upon termination of employment during the restriction period by reason of the holder’s death or permanent and total

disability, any restricted stock and restricted stock units held by the participant will fully vest and be settled. Holders of restricted stock unit awards may provide for the receipt of dividend equivalents, which may be paid currently or credited to the participant’s account. No participant may accrue more than $500,000 in dividend equivalents in any calendar year. Also, the Compensation Committee may establish provisions applicable to restricted stock and restricted stock units upon termination of employment that differ from those contained in the 2008 Equity Plan.

 

Performance Shares.  The Compensation Committee may grant performance shares, the grant or vesting of which is subject to the attainment of performance goals. The Compensation Committee will establish the performance criteria, the length of the performance period and the form and time of payment of the award. In the event of the holder’s death or permanent and total disability, the holder or his beneficiary or estate will receive the performance share award upon the expiration of the applicable performance period. Also, the Compensation Committee may establish provisions applicable to performance shares upon termination of employment that differ from those contained in the 2008 Equity Plan.

 

Awards (other than options and stock appreciation rights) to certain senior executives will, if the Compensation Committee intends any such award to qualify as “qualified performance based compensation” under Section 162(m) of the Internal Revenue Code, become earned and payable only if preestablished targets relating to one or more of the following performance measures are achieved during a performance period or periods, as determined by the Compensation Committee: stock price, earnings per share, price-earnings multiples, net earnings, operating earnings, revenue, number of days sales outstanding in accounts receivable, productivity, margin, cost management, EBITDA (earnings before interest, taxes, depreciation and amortization), net capital employed, return on assets, shareholder return, return on equity, return on invested capital, growth in assets, unit volume, occupancy rates, sales, cash flow, market share, performance relative to a comparison group designated by the Compensation Committee and/or strategic business criteria consisting of one or more objectives based on meeting specified revenue goals, market penetration goals, customer growth, customer satisfaction, geographic business expansion, acquisition or investment goals, cost targets and/or goals relating to investments, acquisitions or divestitures. Such targets may relate to the Company as a whole, or to one or more units thereof, on an absolute or relative basis and may be measured over such periods, as the Compensation Committee shall determine. The Compensation Committee may exclude the impact of any event or occurrence which the Compensation Committee determines is appropriate to exclude. The maximum number of shares which may be payable under any such performance share award granted in any year is 500,000 shares or the equivalent cash value thereof on the last day of the applicable performance period.

 

Transferability

 

The 2008 Equity Plan provides that, except as described in the following sentence, no options or SARs granted under the 2008 Equity Plan may be transferred or otherwise encumbered by the individual to whom it is granted, other than by will, court order or by designation of a beneficiary and that, during the individual’s lifetime, each award will be exercisable only by the individual or by the individual’s guardian or legal representative. The Compensation Committee may permit options or SARs to be transferred to an optionholder’s or SAR holder’s family members or a trust for the benefit of family members, or to certain controlled corporations. Shares represented by restricted stock awards may not be sold, assigned, transferred, pledged or otherwise encumbered, except as permitted by the Compensation Committee, during the applicable vesting period.

 

Change of Control

 

In general, if a participant’s employment is terminated by the Company without Cause, or by the participant with Good Reason within 18 months following a Change of Control, all outstanding awards will become fully exercisable and vested, and any restrictions applicable to any award shall automatically lapse. The terms “Cause”, “Good Reason” and “Change of Control” are all defined in the 2008 Equity Plan.

 

Eligibility and Participation

 

Any employee of the Company or its affiliates, including any officer or employee and any director of the Company, will be eligible to receive awards under the 2008 Equity Plan. Additionally, any holder of an outstanding

equity based award issued by a company acquired by the Company may be granted a Substitute Award under the 2008 Equity Plan. The Company and its affiliates had approximately 60,000 employees and directors as of December 31, 2009.

 

Amendment and Termination

 

The Compensation Committee may at any time terminate, suspend or discontinue the 2008 Equity Plan. The Compensation Committee may amend the 2008 Equity Plan at any time, provided that no such amendment shall be made without the approval of the Company’s shareholders (a) to the extent that such approval is required by applicable law or by the listing standards of any applicable exchange(s) on or after the adoption of the 2008 Equity Plan, (b) to the extent that such amendment would materially increase the number of securities which may be issued under the 2008 Equity Plan, (c) to the extent that such amendment would materially modify the requirements for participation in the 2008 Equity Plan, or (d) to the extent that such amendment would accelerate the vesting of any restricted stock or restricted stock units under the 2008 Equity Plan except as otherwise provided therein.

 

New Plan Benefits

 

Any awards under the 2008 Equity Plan will be at the discretion of the Compensation Committee or its delegate. Therefore, it is not possible at present to determine the amount or form of any award that will be available for grant to any individual during the term of the 2008 Equity Plan or that would have been granted during the last fiscal year had the 2008 Equity Plan been in effect.

 

Tax Matters

 

The following discussion is a brief summary of the principal United States Federal income tax consequences under current Federal income tax laws relating to awards under the 2008 Equity Plan. This summary is not intended to be exhaustive and, among other things, does not describe state, local or foreign income and other tax consequences.

 

Nonqualified Stock Options.  An optionee will not recognize any taxable income upon the grant of an NQSO and the Company will not be entitled to a tax deduction with respect to the grant of an NQSO. Upon exercise of an NQSO, the excess of the fair market value of the underlying shares of common stock on the exercise date over the option exercise price will be taxable as compensation income to the optionee and will be subject to applicable withholding taxes. The Company will generally be entitled to a tax deduction at such time in the amount of such compensation income. The optionee’s tax basis for the shares received pursuant to the exercise of an NQSO will equal the sum of the compensation income recognized and the exercise price.

 

In the event of a sale of shares received upon the exercise of an NQSO, any appreciation or depreciation after the exercise date generally will be taxed as capital gain or loss and will be long-term capital gain or loss if the holding period for such shares is more than one year.

 

Incentive Stock Options.  An optionee will not recognize any taxable income at the time of grant or timely exercise of an ISO and the Company will not be entitled to a tax deduction with respect to such grant or exercise. Exercise of an ISO may, however, give rise to taxable compensation income subject to applicable withholding taxes, and a tax deduction to the Company, if the ISO is not exercised on a timely basis (generally, while the optionee is employed by the Company or within 90 days after termination of employment) or if the optionee subsequently engages in a “disqualifying disposition”, as described below. Also, the excess of the fair market value of the underlying shares on the date of exercise over the exercise price will be an item of income for purposes of the optionee’s alternative minimum tax in the year of exercise.

 

A sale or exchange by an optionee of shares acquired upon the exercise of an ISO more than one year after the transfer of the shares to such optionee and more than two years after the date of grant of the ISO will result in any difference between the net sale proceeds and the exercise price being treated as long-term capital gain (or loss) to the optionee. If such sale or exchange takes place within two years after the date of grant of the ISO or within one year from the date of transfer of the ISO shares to the optionee, such sale or exchange will generally constitute a “disqualifying disposition” of such shares that will have the following results: any excess of (i) the lesser of (a) the

fair market value of the shares at the time of exercise of the ISO and (b) the amount realized on such disqualifying disposition of the shares over (ii) the option exercise price of such shares, will be ordinary income to the optionee, subject to applicable withholding taxes, and the Company will be entitled to a tax deduction in the amount of such income. Any further gain or loss after the date of exercise generally will qualify as capital gain or loss and will not result in any deduction by the Company.

 

Stock Appreciation Rights.  Generally, the recipient of a stand-alone SAR will not recognize taxable income at the time the stand-alone SAR is granted. The amount of cash, or the value of stock received upon exercise of the SAR will be taxed as ordinary income to the employee at the time it is received. In general, there will be no federal income tax deduction allowed to the Company upon the grant or termination of SARs. However, upon the exercise of a SAR, the Company will be entitled to a deduction equal to the amount of ordinary income the recipient is required to recognize as a result of the exercise.

 

Stock and Restricted Stock.  A grantee will not recognize any income upon the receipt of restricted stock unless the holder elects under Section 83(b) of the Internal Revenue Code, within thirty days of such receipt, to recognize ordinary income in an amount equal to the fair market value of the restricted stock at the time of receipt, less any amount paid for the shares. If the election is made, the holder will not be allowed a deduction for amounts subsequently required to be returned to the Company. If the election is not made, the holder will generally recognize ordinary income, on the date that the stock is no longer subject to restrictions, in an amount equal to the fair market value of such shares on such date, less any amount paid for the shares. With respect to a stock award that is not subject to restrictions, the holder will generally recognize ordinary income on the grant date in an amount equal to the fair market value of such shares on the grant date, less any amount paid for the shares. At the time the holder recognizes ordinary income, the Company generally will be entitled to a deduction in the same amount.

 

Generally, upon a sale or other disposition of stock or restricted stock with respect to which the holder has recognized ordinary income (i.e., a Section 83(b) election was previously made or the restrictions were previously removed), the holder will recognize capital gain or loss in an amount equal to the difference between the amount realized on such sale or other disposition and the holder’s basis in such shares. Such gain or loss will be long-term capital gain or loss if the holding period for such shares is more than one year.

 

Restricted Stock Units and Performance Shares.  The grant of an award of restricted stock units or a performance share will not result in income for the grantee or in a tax deduction for the Company. Upon the settlement of such an award, the grantee will recognize ordinary income equal to the aggregate value of the payment received, and the Company generally will be entitled to a tax deduction in the same amount.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF ADDITIONAL SHARES FOR ISSUANCE UNDER THE COMPANY’S 2008 EQUITY INCENTIVE PLAN.

PROPOSAL 3: RATIFICATION OF PRINCIPAL INDEPENDENT AUDITOR

 

The Audit Committee of the Board has appointed PricewaterhouseCoopers LLP as the principal independent auditor for the Company for the fiscal year ending December 31, 2010. PricewaterhouseCoopers LLP has served as the Company’s principal independent auditor for over 20 years. A representative of PricewaterhouseCoopers LLP will be present at the Annual Meeting to respond to questions from the shareholders and to make a statement if the representative desires to do so.

 

Although ratification by the shareholders of the appointment of the principal independent auditor for the Company is not legally required, the Board believes that such action is desirable. If the shareholders do not approve this proposal, the Audit Committee will consider selecting another independent auditor for the fiscal year 2010 and future fiscal years.

 

Aggregate fees for professional services rendered by PricewaterhouseCoopers LLP for the fiscal years ended December 31, 2009 and 2008 were:

 

 

Pursuant to the terms of its charter, the Audit Committee shall approve all audit engagement fees and terms and all non-audit engagements with the principal independent auditor. The Chairman of the Audit Committee also has the authority to approve any non-audit engagements with the principal independent auditor but must report any such approvals to the Audit Committee at its next meeting. Our Audit Committee was not called upon in the fiscal years ended December 31, 2009 or 2008 to approve, after the fact, any non-audit, review or attest services pursuant to the pre-approval waiver provisions of the auditor independence rules of the SEC.

 

The audit fees for the fiscal years ended December 31, 2009 and 2008 were for professional services rendered for the integrated audits of the Company’s consolidated financial statements and system of internal control over financial reporting, quarterly reviews, statutory audits required by foreign jurisdictions, comfort letters, consents, and review of documents filed with the SEC. The audit fees for the fiscal year ended December 31, 2008 reflect an adjustment of $64,500 of additional audit fees that were paid in 2009.

 

The audit-related fees for the fiscal years ended December 31, 2009 and 2008 were mostly for the audits of employee benefit plans.

 

Tax fees for the fiscal year ended December 31, 2009 and 2008 were for services performed in connection with international tax compliance and transfer pricing services.

 

All other fees for the fiscal year ended December 31, 2009 and 2008 were primarily for subscription fees for accounting and auditing research software.

 

The Audit Committee has considered and determined that the services provided by PricewaterhouseCoopers LLP are compatible with maintaining PricewaterhouseCoopers LLP’s independence.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY’S

PRINCIPAL INDEPENDENT AUDITOR FOR THE 2010 FISCAL YEAR.

 

In accordance with its charter, the Audit Committee of Royal Caribbean Cruises Ltd. (the “Company”) is responsible for assisting the Board of Directors in fulfilling its oversight responsibilities for the integrity of the Company’s financial statements; the Company’s compliance with legal and regulatory requirements; the Company’s principal independent auditor’s qualifications and independence; and the performance of the Company’s internal audit function and principal independent auditor.

 

It is the responsibility of the Company’s management to prepare the Company’s financial statements and to develop and maintain adequate systems of internal controls over financial reporting. The internal auditors’ responsibility is to review and, when appropriate, audit the internal controls over financial reporting. The Company’s principal independent auditor has the responsibility to express an opinion on the financial statements and internal controls over financial reporting based on an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board.

 

The Audit Committee has reviewed and discussed the audited financial statements contained in the 2009 Annual Report on Form 10-K and the Company’s internal controls over financial reporting with the Company’s management and its principal independent auditor. The Audit Committee has discussed with the principal independent auditor the matters required to be discussed by the Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1. AU Section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T. The Audit Committee has received the written disclosures and the letter from the principal independent auditor required by applicable requirements of the Public Company Accounting Oversight Board regarding the principal independent auditor’s communications with the audit committee concerning independence, and has discussed with the principal independent auditor their independence. The Audit Committee has also considered whether the provision of non-audit services is compatible with maintaining the independence of the principal independent auditor.

 

Based on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, for filing with the Securities and Exchange Commission.

 

THE AUDIT COMMITTEE

OF ROYAL CARIBBEAN CRUISES LTD.

 

William L. Kimsey, Chairman

Morten Arntzen

Gert W. Munthe

Bernt Reitan

 

The Compensation Committee of the Board of Directors of Royal Caribbean Cruises Ltd. has reviewed and discussed with management the Compensation Discussion and Analysis (“CD&A”) and, based on such review and discussion, has recommended to the Board that the CD&A be included in the Company’s 2010 proxy statement.

 

COMPENSATION COMMITTEE

OF THE BOARD OF DIRECTORS

 

Bernt Reitan, Chairman

Bernard W. Aronson

Laura D.B. Laviada

Gert W. Munthe

 

We are the second largest cruise company in the world with 38 ships operating under five different cruise brands, sailing to approximately 400 destinations and employing approximately 60,000 shipboard and shoreside employees worldwide as of December 31, 2009.

 

In 2009, our financial results continued to be negatively affected by the economic environment, including high unemployment rates in certain markets and strained consumer discretionary spending, which in turn caused a diminished demand for our cruises and land-based tours. In addition, the H1N1 flu virus had an adverse effect on our operations in 2009. In response to these challenges, we took several actions in 2009 to bolster our liquidity and aggressively manage our costs and operating efficiencies, which we believe will serve to improve our performance for 2010 and beyond. We successfully took delivery of Oasis of the Seas, a new class of ship for Royal Caribbean International, and Celebrity Equinox, the second Solstice-class ship for Celebrity Cruises, both of which generate pricing premiums. In late 2009, we began to experience growth in our order book and a diminishing gap in year-over-year booked volume comparisons.

 

This CD&A describes the compensation plans, programs and objectives for our named executive officers and outlines the 2009 compensation actions taken to recognize their overall performance in this challenging environment. In summary, we responded to the economic uncertainty by freezing the base salaries of our named executive officers, introducing a new performance-based annual incentive plan and awarding flat to lower long-term incentive award values.

 

The Compensation Committee determines the compensation of our senior executive officers, including our Chairman and Chief Executive Officer, Chief Financial Officer and our three most highly compensated executive officers other than the Chairman and Chief Executive Officer and Chief Financial Officer for the fiscal year ended December 31, 2009 (“Named Executive Officers” or “NEOs”), which are set forth below.

 

 

Our executive compensation programs are designed to: attract and retain executives who contribute to the Company’s long-term success; reward executives for their contribution to achieving the Company’s short- and long-term goals; align executive compensation and shareholder interests through performance- and equity-based plans; and for some executives recognize individual contributions to the Company’s performance.

 

We provide compensation to our executives consisting of three principal elements: base salary, performance based annual incentive and long-term incentive awards (collectively, “Total Direct Compensation”). The objectives of each element of compensation are described below.

 

 

While the principal elements of our compensation programs are quantitative in nature, our programs also take into account qualitative factors to avoid an overly formulaic approach in determining compensation. The key quantitative and qualitative considerations that we used in assessing performance, and the process by which we linked compensation to them, are described in this CD&A.

 

Based on our pay for performance orientation and the desire to create long-term earnings opportunities, we place a significant portion of target Total Direct Compensation at risk, as illustrated below. This mix of Total Direct Compensation elements is consistent with general market trends and with the mix provided by companies in our 2009 Market Comparison Group (the “Market Comparison Group”) described below.

 

 

 

 

The process of making compensation decisions begins with establishing a Market Comparison Group. The composition of this group is assessed annually as this is the foundation of our review of compensation practices and levels for our Named Executive Officers. The Compensation Committee engaged Watson Wyatt Worldwide, now Towers Watson (“Consultant”), an executive compensation consulting firm, to assist with constructing the Market Comparison Group. Traditionally, this group consists of companies that generally operate in the travel and tourism, hospitality, leisure, air transportation and food and beverage industries. The Compensation Committee selects these companies based upon their size (generally one-half to two times our revenues) and industry as well as the operational similarities of their business to our own, even though many of them may not be our direct or indirect competitors.

The table below sets forth the companies included in our Market Comparison Group, which was used by the Compensation Committee for making the NEO’s 2009 compensation determinations.

 

 

This Group reflects the following changes from the Market Comparison Group used in 2008, which were recommended by the consultant and approved by the Compensation Committee. Harrah’s Entertainment, Inc., Hilton Hotels Corp. and Sabre Holdings Corp were removed from the 2008 Market Comparison Group because they ceased to be public companies. These three companies were replaced by Marriott International, Inc., US Airways Group, Inc. and Hertz Global Holdings, Inc. in order to maintain the size and industry representation of the Market Comparison Group. In 2009, the Compensation Committee assessed the Market Comparison Group and determined that it continued to be appropriate for establishing the 2010 compensation comparison.

 

The Consultant obtains data on the companies comprising the Market Comparison Group and the compensation of their executives from their public filings. The Compensation Committee relies on the Consultant to analyze the data and present its findings. The Consultant’s analysis compares the elements of each NEO’s Total Direct Compensation to those of his counterparts in the Market Comparison Group and provides senior management and the Compensation Committee with the relative positioning for compensation. Additionally, the Consultant makes recommendations with regard to changes that may be appropriate in the approach to compensating the NEOs. For 2009, there were no material changes to our methodology.

 

The Compensation Committee reviews and evaluates the data and makes recommendations to determine the appropriate compensation programs and levels. In doing so, it carefully considers the performance of our Company, each brand and each NEO. For the Company and each brand, both financial (as determined by operating and net income, EBITDA, total shareholder return and earnings per share) and operational performance (including customer satisfaction and operational efficiencies) are carefully reviewed. For each NEO, the Compensation Committee assesses how the executive contributed to financial and operational performance and his long-term contributions to our Company.

 

For each NEO other than the Chairman and Chief Executive Officer, the Compensation Committee consults with and receives the recommendation of the Chairman and Chief Executive Officer, but the Compensation Committee is ultimately responsible for determining whether to accept such recommendations. For the compensation related to the Chairman and Chief Executive Officer, the Compensation Committee meets in executive session and considers the opinion of the Consultant as well as other criteria identified in this CD&A.

 

The elements of our compensation programs are discussed more fully below.

 

The Compensation Committee seeks to pay each NEO a level of fixed compensation that competitively reflects his scope of responsibility relative to his counterparts in the Market Comparison Group. The primary considerations used in setting base salary levels include each NEO’s scope of responsibilities, expertise, experience, tenure, performance and potential to further our business objectives. We generally review salaries early each year and, if appropriate, adjust them to reflect changes in such considerations and to respond to market conditions and competitive pressures.

In February 2009, the Compensation Committee reviewed the base salaries of the NEOs against their respective counterparts in the Market Comparison Group and considered the objectives for this element of compensation and the factors outlined above. Based on such review, and in light of the challenging economic environment, the Compensation Committee decided not to adjust the base salaries of the NEOs, which was also consistent with the Company’s decision not to provide merit increases for all of its other employees.

 

The table below shows each NEO’s Fiscal Year 2008 and 2009 base salary.

 

Compensation Committee expected to motivate each NEO to drive Corporate and Brand performance in a challenging economic environment. The following table shows the 2008 and 2009 bonus targets of each NEO.

 

Additionally, the Compensation Committee reviews our operating results to determine if adjustments are required because of other events outside of management’s control.

 

In accordance with the above, the Compensation Committee approved retrospective adjustments to operating results of $119 million to account for fuel price increases, liquidity actions (which included the issuance of $300 million of senior unsecured notes) and the adverse effect of the H1N1 flu virus on our operations. This resulted in 2009 ESTBP-adjusted net income of $281 million or $19 million below the net income plan target, which yielded a funding level of 62.0% for the Corporate Performance component.

 

Brand Performance — As Messrs. Goldstein and Hanrahan have direct oversight and influence over a specific cruise brand, a component of their performance based annual incentive award is tied to the performance of Royal Caribbean International and Celebrity Cruises, respectively. At the brand level, we measure performance based on operating income as it takes capital costs into account that are important in calculating returns on invested capital, which is fundamental to the Company’s operating plan. The Compensation Committee established an ESTBP operating income plan target for each brand consistent with the approach used to establish the plan target for corporate performance. The Compensation Committee also approved retrospective adjustments to the operating results of the brands due to fuel price increases or decreases and other events outside of management’s control.

 

Specifically, the Compensation Committee approved retrospective adjustments to the operating income results of Royal Caribbean International for the increase in fuel prices and the adverse effect of the H1N1 flu virus on its operations. Royal Caribbean International delivered ESTBP-adjusted operating income below plan target performance, which yielded a funding level of 55% for Mr. Goldstein’s Brand Performance component. The Compensation Committee approved retrospective adjustments to the operating income results of Celebrity Cruises only for the increase in fuel prices. Celebrity Cruises delivered ESTBP-adjusted operating income significantly above plan target, primarily due to the higher pricing premiums generated by the Solstice-class ships and the brand’s limited exposure to the adverse effect of the H1N1 flu virus, which yielded a funding level of 130.8% for Mr. Hanrahan’s Brand Performance component.

 

Individual Performance — The Individual Performance component of our ESTBP award is intended to reward the managerial decision making, behavioral interaction and overall contribution. Messrs. Rice and Kulovaara are the only NEOs whose annual incentive includes an Individual Performance component. In determining the funding levels of this component, the Compensation Committee considered the recommendation of Mr. Fain. It also evaluated this recommendation based on its knowledge of our Company and Messrs. Rice and Kulovaara’s overall contributions to our successful growth and achievement of priority strategic objectives, how they directed their area of responsibility to meet challenges in the market and the results of specific projects they were responsible for during the year.

 

In the face of the severe economic conditions and tight credit market prevailing in 2009, Mr. Rice was able to successfully secure financing for the Oasis of the Seas and Celebrity Equinox, and issue $300 million of senior unsecured notes, under competitive terms. As such, the Compensation Committee agreed with Mr. Fain’s recommendation to award Mr. Rice a funding level of 130% for his Individual Performance component. Mr. Kulovaara oversaw the successful design, construction, and delivery of the Oasis of the Seas, a new class of ship, which revolutionized the cruise industry by introducing seven distinct neighborhoods aboard the ship, including Central Park and Boardwalk. Accordingly, the Compensation Committee agreed with Mr. Fain’s recommendation to award Mr. Kulovaara’s with a funding level of 130% for his Individual Performance component.

 

The table below shows the 2009 performance based annual incentive payout, as a percent of target, for each bonus award component.

 

Target and Actual Bonus Awards

 

For 2009, the following table shows each NEO’s Target and Actual Bonus award. For Mr. Kulovaara, the ship delivery bonuses (described below) are not factored into his target, but they are included in the actual performance based annual incentive. The 2009 Actual Bonus awards for Messrs. Fain, Goldstein and Kulovaara were on average lower than their 2008 levels, reflecting our Company’s results and our pay for performance philosophy. Mr. Rice received a slightly higher increase based on his individual performance. Mr. Hanrahan received a significant bonus award increase in 2009 reflecting the strong performance of Celebrity Cruises relative to its budget.

 

received were it not for such limitation. The table below illustrates the 2008 and 2009 equity award values for the NEOs and the allocation of the equity awards between stock options and RSUs.

 

 

In an effort to offer our employees a competitive remuneration package, we provide them with certain retirement, medical and welfare benefits, including the Royal Caribbean Cruises Ltd. et al. Retirement Plan, a qualified non-contributory profit-sharing retirement plan (the “Retirement Plan”). The NEOs are eligible to participate and/or receive such benefits on a basis commensurate with that of other employees.

 

Prior to 2009, the NEOs were eligible to participate in (i) the Royal Caribbean Cruises Ltd. Nonqualified Deferred Compensation Plan (the “NDCP”), which allowed participants to defer compensation on a pre-tax basis and (ii) the Royal Caribbean Cruises Ltd. Supplemental Executive Retirement Plan (the “SERP”), pursuant to which the Company made contributions on behalf of participants in an amount equal to the benefits they lost under the Retirement Plan due to IRS limitations. In 2008, a new U.S. tax law was enacted that imposes a punitive tax on compensation deferred under these nonqualified plans after January 1, 2009. As a result of the passage of this law, the Company amended these nonqualified plans. The NDCP was amended to prohibit the NEOs and other participants from deferring compensation under such plan after January 1, 2009, and provided for the distribution to them of all amounts previously deferred under such plan. The SERP was amended to eliminate the maximum compensation benefit, provide for the distribution of vested amounts deferred under such plan prior to January 1, 2009, and provide for future contributions after January 1, 2009 to be made directly to the participant upon vesting.

 

Prior to the enactment of the new U.S. tax law referred to above, the Company granted 10,086 shares of its stock to a trust for Mr. Fain’s benefit on a quarterly basis. These grants were intended to give Mr. Fain a wealth accumulation opportunity commensurate with that of similarly situated executives in other companies, and to more closely link his long-term interests to those of shareholders. To avoid the punitive tax consequences to Mr. Fain under the new U.S. tax law, the Compensation Committee approved an amendment to Mr. Fain’s employment agreement as of January 1, 2009, which provided that all future quarterly distributions of shares of Company stock that were previously required to be paid into the trust be paid instead directly to Mr. Fain and the deferred assets already in the trust be disbursed to Mr. Fain.

 

The Company also offers the NEOs certain perquisites or personal benefits, which include: Company subsidized automobile leases, membership dues, discounts on Company cruises, annual executive physicals and travel expenses for guests accompanying executives on business travel. Our NEOs also receive life insurance coverage equal to five times their annual base salary.

 

Our 2008 Equity Plan complies with the requirements for “qualified performance based compensation” under Section 162(m) of the U.S. Internal Revenue Code.

 

Our ESTBP does not comply with Section 162(m), as it would require our ESTBP awards to be entirely formulaic and not allow for any discretion in determining individual performance. We believe our ESTBP is closely aligned to Company performance and should also appropriately reward our NEOs for their individual contributions to our Company’s success. Although our ESTBP is subject to the deduction limitations under Section 162(m), the financial impact of these limitations is immaterial.

 

Management and the Compensation Committee have considered and discussed the risks inherent in our business and the design of our compensation plans, policies and programs that are intended to drive the achievement of our business objectives. We believe that the nature of our business, and the material risks we face, are such that the compensation plans, policies and programs we have put in place are not reasonably likely to give rise to risks that would have a material adverse effect on our business. In addition, we believe that the mix and design of the elements of executive compensation do not encourage management to assume excessive risks. Finally, as described in this CD&A, our compensation programs and decisions include qualitative factors which we believe restrain the influence an overly formulaic approach may have on excessive risk taking by management.

 

 

The Company has an employment agreement with Mr. Fain dated as of July 25, 2007 and amended as of December 19, 2008. The Company has employment agreements with Messrs. Rice, Goldstein, and Kulovaara dated as of July 25, 2007. Our subsidiary, Celebrity Cruises Inc. (“Celebrity”), has an employment agreement with Mr. Hanrahan dated as of July 25, 2007. These agreements (the “Agreements”) are intended to enhance the retention and motivation of these key employees, ensure compliance with section 409A of the U.S. Internal Revenue Code and include provisions protecting the Company such as a non-competition and non-solicitation clause. The terms of the Agreements are summarized below and apply uniformly to all NEOs, except that Mr. Hanrahan’s employment agreement differs from that of the other NEOs by establishing Celebrity rather than the Company as his employer. In addition, under our employment agreement with Mr. Fain, we have agreed to make quarterly distributions to Mr. Fain, in the amount of 10,086 shares of Company stock per quarter, until the earlier of the termination of Mr. Fain’s employment or June 2014. Prior to January 1, 2009, the Company made the quarterly contributions of such shares to a trust in favor of Mr. Fain as described on page 37 under “Trust Agreement for Mr. Richard D. Fain.”

 

The term of the Agreements shall always be two years, unless sooner terminated as provided in the Agreements. The Agreements provide for an annual base salary which may be increased, but not decreased at any time during the term of the Agreement at the sole discretion of the Company. Each NEO is eligible to participate in any cash incentive compensation program on terms available to similarly situated executives of the Company. Under the terms of the Agreements, the NEO is eligible to participate in any equity or long-term incentive plans available to similarly situated executives of the Company and is eligible to receive awards under such plans as determined by the Company in its sole discretion.

 

The NEOs’ employment can be terminated by the Company or by them at any time. If the Company terminates a NEO’s employment without cause or if the NEO resigns for “good reason” (as defined in the Agreement), he is entitled to receive: an amount equal to two times annual base salary; the target annual Executive Short-Term Bonus Plan award during the two years following termination; continued payment of health and medical benefits for a period of two years, or until such time that he commences employment with a new employer, whichever occurs first; and payment of reasonable professional search fees relating to outplacement. At the sole discretion of the Company, the NEO is also eligible to receive a one time termination bonus to be paid two years after the date of termination in an amount not to exceed 50% of base salary.

 

Each NEO has agreed not to compete with the Company or its affiliates during the term of employment and for two years following termination of employment and to refrain from (i) employing the Company’s or its affiliates’ employees during this period or (ii) soliciting employees, consultants, lenders, suppliers or customers from discontinuing, modifying or reducing the extent of their relationship with the Company during such period. During the term of the Agreements and subsequent to other terminations, the NEOs agree not to disclose or use any confidential information.