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Henry Silverman, the Chief Executive Officer of Cendant, finished 1997 with a pay package estimated to be worth nearly $200,000,000 richer than a year ago. What made for such a hefty pay raise? An aggressive stock option plan, most definitely. A thriving bull market, absolutely. Superior performance, questionable. In Mr. Silverman's case an eye - popping grant of 19,000,000 options did the trick. But how can we be so sure that Cendant's financial performance did not warrant such a pay package? That's precisely why we created the HVS Value Index. It determines which CEOs deserve their pay and which ones do not (SEE). Clearly, Mr. Silverman was overpaid in 1997. So which industry CEO provided shareholders the most value for their pay? Look no further than Barry Sternlicht, the CEO of Starwood Hotels & Resorts who clocked in with an HVS Value Index of 202 (SEE).
 
 

Out of the fifteen most highly paid CEOs, eight were also among the highest in 1996, including Silverman, Eisner, Marriott Jr., Sternlicht, Shultz, Parrington, Aron and Cash. As expected, much of their pay came in the form of long - term incentives. The 15 most highly paid CEOs were granted an average of 1,680,000 options worth an estimated $20,500,000 using a Black - Scholes valuation model. Even when discounting Silverman's package, the average was still a weighty $3,600,000. The Average Value Index for the group was only 77 though, less than stellar results.
 
 

New Blood Enters Top Five Bonuses

Concerning top individual salaries in the industry, there were no real surprises. Those among the top five this year, mirrored those of last year. The only difference was Michael Eisner of Disney edging out Adam Aron, CEO of Vail Resort (SEE). In terms of the top five bonuses earned in 1997, the two new bonus babies were Sternlicht and Terence Golden. Sternlicht's bonus increased by $2,400,000 to a whopping $2,650,000, while Golden's bonus increased by $77,000 to $557,000 (SEE), but it seemed that both deserved their bonus pay, with value indexes of 202 and 98, respectively.
 
 

Looking at the top performers list, running a REIT was a real plus. Six out of the 10 best performing CEOs ran lodging REITs. Eight of these top 10 performers were new to the list. Robert Alter of Sunstone and Robert Solmson of RFS were the only two repeats for 1996 and 1997 (SEE). The Value Index used financial measurements to evaluate performance, most importantly, stock appreciation. Looking at the stock appreciation table, it's easy to see why Sternlicht took top honors in 1997(SEE).

Over a 3 - year period ending December, 1997 Starwood stock increased an astounding 251%. At the same time, Starwood's FFO increased 527%. Other superior stock performers included Loews Corporation, Prime Hospitality and Marriott International

Talking about stock performance, which CEOs benefited the most from the raging bull market? Take a look at the Fortunes in Waiting Chart to see the biggest future pay days in the industry.

With present stock ownership and options pending, Silverman and Eisner are bordering on becoming billionaires. That may get them listed on Forbes Magazine's 400 richest Americans. Not bad in an industry that has had a reputation for long hours and low pay.

So What's the verdict? Are these pay packages a function of the bull market or just bull? We return to our HVS Value Index for the answer.

Some CEOs clearly earned their pay - despite the enormous sizes of their pay checks - while others did not. As an investor, you just need to pick the right ones. Would you want it any other way?
 
 
 
 

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