(February 18, 2019) – AETHOS New York Managing Director Keith Kefgen, in his annual review of CEO compensation for a variety of hospitality disciplines, shares candid insights as a result of his latest look at CEOs of U.S. lodging companies:
"What we have found over the twenty years of studying CEO pay, is that the many public boards did a poor job at linking CEO pay to company performance," observes Kefgen. "In fact, that was the goal of creating our pay-for-performance model." The AETHOS Pay-for-Performance Model analyzes key financial metrics such as market capitalization, stock appreciation, EBITDA growth, and total direct compensation. What AETHOS discovered in last year's hotel industry pay practices is that most CEOs were paid appropriately, with a few outliers.
However, the latest "shaming of U.S. CEOs appears to be in the form of the Dodd-Frank CEO Pay Ratio initiative," Kefgen continues. "Groups such as 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 ($14 million – $39 million). 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 $275 million last year for exhibition fights, while Lionel Messi earned $101 million for playing soccer and his sneaker endorsements. Super Bowl winning Quarterback Tom Brady earned $34 million in salary, bonus and endorsements last year too."
"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? I think not," adds Kefgen.
According to AETHOS' 2018 Lodging CEO Compensation survey, the market capitalization varied from Walt Disney's $167 billion to InnSuites' $22 million. Comparing CEOs from two vastly different companies might appear difficult, but that is what the AETHOS model intends to do. In fact, it illustrated that Bob Iger at Disney generally merited his $36 million paycheck, while James Wirth at InnSuites (barely) deserved his $134,000 paycheck. "Ultimately, investors seek stock performance not payroll containment."
As in previous years, the highest paid CEOs in the industry ran the largest companies, according to AETHOS. The top ten CEOs each earned more than $10 million with Bob Iger topping the list at $36 million. Glenn Fogel at Booking Holdings earned nearly $28 million and Chris Nassetta of Hilton earned just under $19 million. Although their pay packages were significant, these CEOs had an AETHOS Value Index (AVI) of 85. A score of 100 would be a perfect pay-for-performance match. This year's top performing CEO based on the model was Jorge Gonzalez at St. Joe Company with an AVI of 210. This marks a big swing for Gonzalez who has been stewarding St. Joe through some very difficult times.
Eight CEOs in the hospitality industry received a base salary of $1 million or more: Bob Iger topped the list with a salary of $2.5 million, followed by Frank Del Rio at $1.5 million. Many of these same CEOs received significant bonuses, with Iger taking home a $20 million bonus, followed by Fogel at $6 million. The largest disparities between salary and bonus belonged to Adam Portnoy at RMR – $300,000 salary to $2.6 million in bonus, and Fogel at a salary of $750,000 to his $6 million bonus. "Interesting to see so much of their pay is at risk," notes Kefgen.
Like the CEOs in the Fortune 500, long-term incentive plans (LTIP) were a significant portion of overall CEO pay in the hotel industry. Most LTIPs were in the form of restricted stock grants and to a lesser extent, stock options. The largest stock grant went to Fogel, with a value at just over $21 million. Thirty CEOs on the list had multi-million-dollar grants, which comprised much of their pay.
"We are also seeing more of the LTIP awards having performance vesting attached to them. A strong sign that compensation committees are doing a better job of tying pay and performance."
Kefgen shared suggestions for the industry. "Although I believe that most income equality advocates miss the boat, fair pay is a real issue. For starters, minimum wage needs to increase. Our industry is a beckon for first-time job-seekers and we should do are part to keep them. Secondly, more employees should be included in bonus programs. If the CEO can earn millions in bonus pay, managers should be able to participate. And finally, many argue about the effectiveness of equity pay at lower levels of the organization chart, but that is truly the fastest way to get employees thinking like shareholders."