COMPENSATION – 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.

The role of asset manager is as important as ever now during the pandemic, so those with asset managers within their ranks should think carefully about how they manage their teams.

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.

AETHOS' biannual US hotel asset management compensation report is designed to provide current and credible compensation trends and covers asset management compensation information for the following three positions: senior vice president asset management, vice president asset management and director asset management. All information was collected through a confidential survey from a diverse group including public lodging REITS, private equity, owners/developers and asset management advisory firms. In total, more than 1,500 data points from 240 survey respondents were processed (data responses submitted between 1/1/2020 – 2/15/2020).

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.

The economic impact of COVID-19 has devastated the hotel industry in myriad ways, from sinking revenues to company restructurings. Hilton announced in June that it was laying off 2,100 employees, about 22% of its corporate staff. In March, Marriott reported it would furlough roughly two-thirds of its 4,000-person corporate workforce. The COVID-19-induced lodging recession has not only dug into property owners’ bottom lines, but it might also have a ripple effect of draining companies of their top-tier asset-management talent. No longer bound to a company with the “golden handcuffs” of long-term incentive plans or even annual bonuses, high-performing asset managers are considering career resets that will leave owners without the talent they’ll need to thrive in Hospitality 2.0—a time sure to be marked by a wave of distressed assets and workouts that demand the attention of talented and experienced asset managers.

The key language regarding compensation in the CARES is below. How will this affect hospitality, gaming and travel companies who participate? "To receive financial assistance (in the case of air carriers and contractors), or loans and loan guarantees (in the case of other eligible businesses), a company must agree to the following limits (which generally apply during the period of assistance and for one year thereafter) on annual compensation and severance payments for each officer and other employee (other than a unionized employee) whose “total compensation” exceeded $425,000 in 2019 (“CARES Act HCEs”)"

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.

Extreme competitiveness in today’s business world demands that hotel companies consistently outthink and outpace companies within and outside their immediate hospitality verticals. Such competitors include cruise lines, home-sharing, and other luxury or niche experiences like “glamping,” all of which constantly strive to dominate market share. Identifying and securing superstars for senior leadership roles is the cornerstone for ongoing company performance in branding and profit share. Here, companies must be forward-thinking by looking at the “best-in-class” talent from other segments and specifically those within the wider hospitality industry. This is not a new idea, but with the competitor set constantly evolving and broadening, hotel companies need to raise the bar on a continuous basis. This best practice makes sense and can be extremely effective when implemented thoughtfully according to a well-defined strategic purpose.

Hotel organizations in today’s global marketplace compete heavily, not just among one another but also with other service-focused verticals and customer-facing businesses, in attracting and retaining top talent. Robust compensation and benefits packages certainly help meet candidates’ conditions of satisfaction, but these are not enough anymore for retention in the absence of one specific benefit – namely, a company culture devoted to “employee engagement.”

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.

If you have attended any hotel sector related conference this year, or kept up to date with industry press, you will have been unable to ignore the dialogue taking place around brands and the argument posited by some that we are reaching a point of brand oversaturation in the market. Are the lines of differentiation between brands, often within the same company, becoming blurrier; is the brand proposition to the consumer and to the hotel owner being diluted; is too much choice overwhelming? The big chains of course counter that they have to compete with the OTAs; their earnings are nowadays based on management fee growth rather than real estate appreciation; and the value of their loyalty programme drives the need to provide greater consumer choice. This scenario gives independent hotels an opportunity to be differentiators, to stand out from the crowd and to offer something more unique that captures the consumer not looking to follow the crowd. The reality nonetheless is that, commercially, independent properties are having to compete against an increasing number of 800lb gorillas who are getting bigger by the day.

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.

A recent compensation review of more than 250 Directors of Sales (DOS) from four- and five-star properties throughout the United States has resulted in AETHOS Consulting Group’s Director of Sales Compensation Study.

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.

The General Manager (GM) is the undisputed business and cultural nucleus of the hotel ecosystem, and recent research indicates that such leadership roles require competencies – including emotional intelligence, adaptability and consultative decision-making - that can neither be relegated nor replaced by technology. As a result, the proverbial “war for talent” is more topical and critical than ever. To this end, let us explore pertinent data and trends for hotel owners and operators to make informed decisions when designing programs to attract and retain high-impact GMs.

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.

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

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.

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 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.

What are the factors that decide how much a General Manager should be paid? AETHOS looks at compensation trends in North America’s top 6 cities to answer this question.

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.

Chris Mumford directs this year’s crop of graduates in search of money towards sales and marketing jobs in the luxury hotel sector.

IRS statute (280G) was enacted to control excessive payment to executives in the event of a Change In Control.

We still deem equity pay to be an important part of compensation administration; we just think it is time to end the compensation free-for-all.

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.