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By: Keith Kefgen and Rosemary Mahoney, June 1997

• 1997 Top 39 Hotel Industry CEOs Ranked by Total Compensation
• Top Stock Incentives
• Fortunes in Waiting
• 1997's 10 Best Performing CEOs
• Top Hotel Salaries
• Top Hotel Bonuses
• Top Stock Appreciators

We proposed in our monthly column that tying executive pay and company performance was the answer. But you have to wonder if compensation committees hare gone overboard in applying pay-for-performance strategies when a CEO, even of Michael Eisner's caliber, can be granted a one year pay package worth nearly $200 million.

When you look at our analysis of 1996 CEO pay in the lodging industry, its clear that stock options were dispensed quite liberally.

The fifteen most highly paid CEOs  were granted an average of 1,132,000 options worth an estimated $19,000,000  ( table 1 - The 1997 Hotel Industry CEO Survey). When we applied our pay-for-performance value index, though, all fifteen, with the exception of Steve Bollenbach and Davd Simon, rated rather poorly. The fact is, many of these CEOs performed extremely well, they were just paid too much.

Further analysis  established that many of the highest paid CEOs ran companies that have been public  less than five years. It is more typical of a young company to be more aggressive with the granting of stock options.

The real concern to us, is that there continues to be no documented rationale from any company regarding their bonus and stock option payouts. Disney gave no explanation why Eisner needed 8,000,000 stock options in 1996. Similarly, HFS did not share with investors why Chairman/CEO Henry Silverman deserved 2,000,000 options.

When calculating the potential worth of those options using a Black-Scholes valuation model, Eisner has a future pay check of $195,000,000 and Silverman, $55,000,000 (see table 2). Add those figures to their value of in-the-money options ( Table 3), and Silverman and Eisner also have the greatest fortunes in waiting.
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If you wanted to be a top performer in this year's survey, you either ran a REIT, merged with your competition, or your name was Steve Bollenbach (table 4). Five of the top ten performers ran lodging REITs and Barry Sternlicht would have certainly made the list if his pay package would have been more conservative. The marriage between Norwood Cowgill's Studio Plus and George Johnson's Extended Stay America put both CEOs on the top performers list this year. But far and away the most impressive story of the year was Steve Bollenbach taking the reins at Hilton and doubling the market cap of the company within months of his arrival. That kind of performance will get you a healthy pay check anywhere.
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The average salary for a  lodging CEO rose 6.4% in 1996 to $414,390, while the average bonus fell 2.6% to $447,448 ( tables 5 and 6). CEOs with the highest salary and bonus were almost identical to those of last year. CEOs at the top of both the salary and bonus tables ran larger companies, with revenues and earnings exceedingly $400 million and $70 million, respectively.
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Four of the highest paid executives in the lodging industry also had significant growth in their market capitalization (table 7). Over the last three years, HFS, Starwood and Hilton have had over 100% increases in their stock price, proving that Henry  Silverman, Barry Sternlicht and Bollenbach have been real wealth creators. It was also clear that young companies and the small caps dominated the growth in EBITDA category (table 3). Capstar, for example, had an incredible growth rate of nearly 500%.
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Table 7 Top Stock Appreciators
CEO	Company	Pay Rank	Stock Appreciation	HVS Value Index
Henry Silverman	HFS	2	349%	45.1
Barry Sternlicht	Starwood Lodging	4	250%	56.0
Stephen Bollenbach	Hilton Hotels	6	206%	237.3
David A. Simon	Prime Hospitaltiy Corp.	16	153%	102.4
David Buddemeyer	Servico	24	139%	213.5
Source: HVS Executive Search

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We still believe that pay-for-performance strategies make philosophical and financial sense, but companies must understand that diluting investors with highly aggressive stock options is not the answer, either. There must be a balance between shareholder and management interests if long-term incentives are to be effective. Remember, it is not how much CEOs get paid, it's how they get paid that matters.

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