It amazes me how much can change in a year. Although CEO pay is still a hot topic, the new trend this year is private equity. With the pressures and cost of being publicly traded, many companies are opting to go private. Large companies such as Harrah’s Entertainment and REITs such as Highland Hospitality see the advantage of operating in a private environment. This trend will no doubt continue until capital becomes more expensive and exit strategies need to be executed. Only thirty-seven companies are profiled in our survey this year, down from fifty-two, five years ago. The group that remained was an interesting mix of large-cap companies and micro-caps.
Another significant change this year was the new proxy reporting requirements. The SEC changed the way and type of compensation that must be disclosed in proxy statements. It was abundantly clear that a great deal of CEO pay was not being reported in the old format. What a surprise. Our winner of the top performing CEO in 2006 was also a new player, William McCarten of DiamondRock, who took the company public in 2004.
Based on our pay-for-performance model, Mr. McCarten was underpaid by 120.9% or nearly $2.7 million in 2006. The model takes into consideration three primary criteria, EBITDA/FFO growth, market capitalization and stock appreciation, and compares that to total compensation. The outcome is a pay-for-performance index that determines how much a CEO was over or under paid. Other top performers included, Hasu Shah with Hersha Hospitality (a past winner of the award), Peter Sonnabend of Sonesta International, William J. Fair from American Skiing Co, Joseph Maritori CEO of ILX Resorts and Edward Pitoniak at CHIP REIT. Most of the large-cap companies performed reasonably well in 2006, but small-caps had an outstanding year.
With the market bouncing back phenomenally well since 2001 lodging stocks have risen to an all time high. The best investments over the past three years incluced Sonesta, Bluegreeen, and American Ski. In addition, this year we add three REITS with great stock appreciation, CHIP, DiamondRock and LaSalle Hotel Properties. We predict that REITS will continue to play a big role in the lodging industry and the privatization trend.
Top Salaries and Bonuses
The average CEO salary increased to $631,000 from $583,000 or 8.2%. It is interesting to see the increase especially since shareholders have become much more cognizant of executive compensation. We believe that the increase is a combination of the competitive talent environment and a more balanced approach to compensation administration. This year the largest base salary went to the new Disney CEO Robert Iger at $2 million. Rounding out the list of top salaries include Jonathan Tisch, J.W. Marriott, Richard Fain, and Steven Heyer, each earning $1 million in base salary.
Bonus compensation for hotel CEOs also increased in 2006, with the average bonus totaling $1.1 million. It is the first time since we have been conducting the survey that that the average bonus exceeded $1 million. We again believe the rise is due to the great performance of industry sector. Furthermore, we believe shareholders will continue to demand performance-based compensation packages. Disney’s CEO once again topped our bonus list, with Robert Iger, instead of Michael Eisner, having the largest cash bonus at nearly $15,000,000. Iger’s bonus compensation was nearly five times larger than the second highest bonus, which at $3,000,000 went to Royal Caribbean CEO Richard Fain. Other top bonuses in the $2,000,000 range belonged to Mickey Arison, Stephen Bollenbach, and Steven Heyer.
Top Stock Incentives
The honor of top stock incentive goes to Chris Nassetta at Host Hotels & Resorts who received the largest long-term incentive worth nearly $10,000,000. The new reporting rules make these numbers somewhat deceiving as some of the shares were granted in previous years. With that said, companies are still doling out significant stock awards and mostly in the form of restricted stock grants. Other multi-million dollar incentives were given to J.W. Marriott Jr, Stephen Bollenbach, Steven Heyer, and Robert Iger.
Last year we had two billionaires in our list Arison and Marriott. This year the billionaire list had stayed the same with one interesting twist. Arison, who had amassed $11 billion last year, dropped down to $9 billion this year. Marriott, on the other hand, who had amassed $1 billion last year climbed to nearly $3 billion this year. Rounding out our richest list include Jonathan Tisch, Charles Ratner, and Richard Fain.
CEO compensation is now one of the most scrutinized issues in corporate America. Shareholders are increasing fighting to limit multi-million dollar awards for CEOs that do not perform. The lodging industry however, performed extremely well in 2006 and many CEOs got their just rewards. It is the underachievers who should be worried, because boards and shareholders have CEOs on a short leash. Look at the case of Steven Heyer of Starwood who was let go with noseverance pay because of a possible transgression.
View the results here: US Hotel Company CEO 2007 SURVEY