CEO PERFORMANCE STUDIES – Articles

The end of 2019 ushered in a banner year. Valuations where high and deals were getting done (Penn National & BarStool, Caesars & Eldorado) among them. Then the world changed overnight. Panic in the public markets ensued and valuations plummeted (Penn National went from $49 to $4 in March). The gaming compensation committees had the challenge of paying 2019 bonuses and such just as COVID was devastating their businesses. A though spot to say the least. Markets have since bounced back and casinos are slowing reopening to a new reality. How gaming companies handle executive pay issues at the end of 2020 will be a very interesting read.

Space activation, reactivation, and monetization are hot-button industry topics (e.g., Collina et al., 2017; deRoos, 2011; Tamini, 2018) - especially in the context of certain forces that have disrupted retail, tourism, and hospitality markets. Specifically, Russo and Richards (2016) noted three important paradigm shifts or “turns” that have evolved the concept of consumerism in these businesses, that is, the mobilities, performative, and creative turns (pp. 3–5). A later section deals with these in greater detail, but such trends are substantiated by considerable evidence, and collectively suggest that the most successful service–hospitality concepts intentionally capitalize on “systems theory,” i.e., environment–person bidirectional or enactive influences (Goldhagen, 2017; Jelić et al., 2016; Rentfrow, 2013). Stated simply, the prevailing view is that contemporary tourism and hospitality should approach the issue of space activation as an interactionist proposition.

What a difference 6 months makes. 2020 began with hotel companies coming off one of the strongest years in history and feeling optimistic the good times would continue. Since then, the industry has had widespread closures, massive layoffs, and CEO’s taking significant pay cuts while grappling with a global pandemic. While we will explore the ramifications of this crisis in this article’s conclusion, much of this study is focused on 2019 compensation data.

In his annual review of CEO compensation in the U.S. lodging sector, AETHOS Consulting Group CEO Keith Kefgen shares candid insights as a result of his most recent assessment.

In this our thirteenth annual study of gaming industry pay, we evaluated the performance of 32 public gaming companies in determining whether a CEO deserved his or her pay. The AETHOS pay-for-performance model compares significant financial metrics such as company size (market cap), stock appreciation (rise in stock price over 3 years), EBITDA growth (over 3 years), and total direct compensation (combination of salary, bonus, LTIP & other). Our findings are illustrated below.

AETHOS conducted a recent study of the leadership teams at some of the UK’s prevalent fast-casual and casual dining restaurant operators. The study indicates what many have pointed out for a while now – spearheading a restaurant company is a very ‘hot seat’ indeed.

The latest shaming of US CEOs appears to be in the form of the Dodd-Frank CEO Pay Ratio initiative. Groups like the AFL-CIO are using this topic to rationalize the disappearance of the middle-class. Their most recent analysis puts the average CEO pay at 361 times the typical worker ($14M to $39K). This will continue to be a sore spot for income equality proponents. But think about CEO pay in relation to athlete pay. Floyd Mayweather made over $275M last year for a couple of exhibition fights, while Lionel Messi made $101M for playing soccer and endorsing sneakers. Super Bowl winning QB, Tom Brady made $34M in salary, bonus and endorsements last year. Yes, CEOs make a lot of money. Yes, some of them don’t deserve it. But the answer is in better compensation administration, not government regulation. Will the CEO pay gap create economic instability or unsustainability? We think not.

The last eighteen months has been a reckoning for powerful men in the business world and gaming has been no exception. The #MeToo Movement struck down one of the most recognizable names in the gaming industry when Steve Wynn stepped down from the company he founded, Wynn Resorts. These issues have continued to shine a spotlight on CEO pay, severance and golden parachutes. Four other CEOs in gaming are out or on the way out soon. Caesars recently announced that Mark Fissora is stepping down at the end of the year. All that said, it was a very solid year for casinos stocks, with many of the bigger companies outperforming the small ones.

According to a 2017 report from the Economic Policy Institute on CEO pay, chief executives at the largest 350 public companies in the United States made US$15.6 million on average in 2016 — 271 times what the typical worker earns. In the hotel industry the average total compensation for a public CEO was US$5.7 million or about 100 times more than the typical worker. Should hotel CEOs be criticized or praised? We think it’s a combination of both, but you might be surprised who gets criticized and who gets praised.

Being a CEO in the restaurant industry is tough work; and short lived for many. Nearly 20% of the CEOs in our annual study of pay-for-performance resigned, retired or were pushed out. It would stand to reason that deficient performance would precipitate a CEO’s ouster, but was that really the case?

Besides technology, the gaming industry has one of the largest percentages of entrepreneurs running their respective companies. Larger than life personalities such as Steve Wynn and Sheldon Adelson actually cast a shadow well beyond gaming. But that is changing as entrepreneurs are slowly being replace by corporate execs such as Keith Smith at Boyd, Jim Murren at MGM, Tim Wilmott at Penn and Mark Frissora at Caesars. It is interesting to see how CEO compensation has changed as this process has unfolded. Generally speaking, the entrepreneurs took more of the compensation in equity, while corporate executive appear to have a more balance approach to their compensation mix. In the end, what matters most is whether a CEO earns his or her pay, not necessarily the size of the paycheck. In an effort to analyze executive pay in the gaming industry, AETHOS developed a proprietary pay-for-performance model that allows for the comparison of disparate data points to determine if a pay package was too large or small.

Behind every failed leader is an excuse. In our experience studying and working with global leadership in the hospitality industry, successful leaders consistently tell us in one way or another that excuses were for “losers” whereas “winners” find solutions to tough challenges, or at least look at failed initiatives with a winning attitude and use the situation to adopt key learnings to apply to future scenarios.

“Pay for performance” models dominate today’s compensation schemes, a fact that seems to say implicitly that outcomes are the only thing that matter. Janet Jackson summed it long ago with her popular lyrical meme, “What have you done for me lately?” But, there is also a 1970s lyric by Gordon Lightfoot that speaks to another, equally potent reality, which is “heroes often fail.” Leaders simply do not win every battle or war.

Wherever I go, I see signs of people wanting to hit the pause button, to take a moment to assimilate what is happening around them. [...] Wearing my hat as an organisational advisor in talent management and human resources, I have been asking myself, ‘Is hitting the pause button the right thing to do? What is needed for leadership talent in the hotel industry to adjust to and not be overwhelmed by the continuous catching up to keep up-to-date with progress?’

The past year was full of compelling events and personalities within the hospitality industry, and looking back, many leaders stand out as strong contenders for the title of “Leader of the Year.” To our way of thinking, anyone receiving this designation must exhibit true “servant leadership” by aligning people practices to business practices, and in so doing, bring about tremendous quantifiable results and return on investment (ROI) for all shareholders.

When we began our careers in the hotel business, it was widely thought that our industry paid executives rather poorly. Is that still true today? If CEO pay is any indication, it appears that stigma needs to change. In fact, based on our 20th review of hotel CEO pay, one could say that the industry is a vehicle for getting rich.

Public Boards are increasingly under siege by shareholder activists, putting unprecedented pressure on Board members to perform in all manner of ways to boost enterprise value. But what does it mean to perform as a Board member?

David Mansbach, Managing Director at AETHOS Consulting Group and author of the study, reviewed 37 publicly-listed restaurant companies and, using the AETHOS Value Index (AVI), identified those CEOs who excelled at their job and increased value for shareholders but who were underpaid relative to their performance and peers. Also reviewing the Top10 of those CEOs who were overpaid, David Mansbach highlights the importance of greater accountability and transparency at board level when it comes to CEO compensation.

Using our proprietary pay-for-performance model, AETHOS has evaluated the performance of forty-six CEOs in the hospitality/travel/entertainment industries. The overarching goal? To determine whether a CEO is deserving of his or her pay relative to their peers.

The AETHOS Hotel CEO Turnover study has been reviewing annual turnover in the sector since 2004. The study’s peer group is the world’s 50 largest hotel companies by number of rooms count as reported each year by HOTELS magazine. Companies range in size from IHG with 679,050 rooms to Okura with 23,686 rooms, some are publicly listed, others are private family owned businesses. 23% of the peer group is headquartered in Asia, 32% in Europe, and 45% in North America.

Pay for top gaming industry chief executives is on the uptick, especially for companies concentrating on international opportunities

Dr. Jim Houran assesses global leadership profiles and specifically hones-in on the potential challenges faced by employers and senior executives on the African continent. Dr. Jim shares best practices in driving performance in the work place and identifies key issues that need addressing - the psychometric GM and CEO/COO profiles revealed in the article provide a data-driven response to the critical question posed as to what types of leaders will meet the guests defining the new haven of hospitality. Arguably that answer is leaders who are “technical capable but perhaps not fully prepared in their service mindset.”

Every proxy season for the past 20 years I have evaluated the performance of CEOs in the hotel industry using a proprietary pay-for-performance model which looks at key financial metrics such as company size, stock appreciation, EBITDA growth, and total direct compensation within a defined peer group.

CEO turnover among the world’s 50 largest hotel firms in 2013 was 10% down from a 2012 figure of 16%. Leaders who took office in 2013 were Sébastien Bazin (Accor), Lee Chee Koon (Ascott), Wolfgang Neumann (Carlson Rezidor), Frank Fiskers (Scandic), and Peter Gowers (Travelodge). New CEO arrivals always tend to prompt speculation from employees, shareholders, analysts, media, and industry colleagues as to the likely performance of the hire and of the hiring organization. Such transition events also give us a chance to take stock, look at the CEO role in the hotel world from a holistic standpoint and explore the profile of these industry titans.

Many would argue that all CEOs are overpaid, but we disagree. Keith Kefgen reveals his findings in the latest edition of our annual review of US hotel company CEO compensation.

After a slower than expected recession recovery, the gaming industry is beginning to see signs of optimism, leading towards an economic rebound. The authors present their 2012 review of US gaming CEO compensation for Casino Journal

Based on our pay-for-performance index, in 2012 Joe D'Amato at Empire Gaming was the industry's most underpaid boss or top-performing CEO, depending on your point of view.

Hotel company CEO turnover has picked up in the past two years with 12% of the world’s 50 largest hotel companies in 2011 being led by a new Chief Executive. Read the findings of this biennial CEO Turnover study.

Even as key performance metrics - occupancy, ADR, RevPAR - recorded positive growth in 2011, CEO turnover increased at unusual levels. 2011 marked changes at the top spot for 1 out of every 8 publicly trading US hotel companies. The annual survey looks at why a recovering industry causes such upheaval in the executive suite.

Based on our pay-for-performance model, Bill McCarten was underpaid by 120.9% in 2006. The model takes into consideration three primary criteria, EBITDA/FFO growth, market capitalization and stock appreciation and compares that to total compensation.

Based on our pay-for-performance model, Steve Bollenbach at Hilton Hotels Corporation was underpaid by 120% in 2005.

You can’t read a business magazine or newspaper today without executive compensation being hotly debated.

Shareholders are demanding transparency and they are going to get it. With the right balance of metrics, managerial behavior can be directed in the appropriate way.

Did CEO pay follow the dramatic fall of the US economy in 2009? AETHOS Consulting Group presents this and other findings in our annual CEO survey of the US hotel industry.

CEO pay continues to be a highly scrutinized topic, especially in today's economic environment. We argue that when compensation programming is done correctly, a CEO's pay should be based on performance relative to his or her peers.