Do Lodging CEOs Get What They Deserve?

By Keith Kefgen & Rosemary Mahoney, HVS Executive Search / November, 1996

You can hear the grumbling every year around this time. Shareholders get their proxy statements and wonder how a CEO can justify making millions of dollars a year. The truth is, most CEOs can’t. According to a recent New York Times article, less than 20% of all US companies linked their executive compensation policies to company performances. However, there is mounting pressure on public companies to design pay schemes that hold executives accountable for poor business performance.

Table: The 1996 Hotel Industry Top 32 Paid CEOs

Pay- for- Performance

Over the past four years, we have analyzed the relationship between pay and performance in the lodging industry using our proprietary model. Our 1996 survey continues to demonstrate the lack of any widespread linkage between CEO pay and company performance. It also confirms the fickle nature of the stock market.

Our pay-for-performance model takes into consideration standard business indicators such as stock appreciation, return of equity, revenue and earnings growth, and relates them to executive compensation. The result is a Value Index that ranks the CEOs relative to their peers. This year, the indexes ranged from a low of 70.6 to a high of 176.9. Compared to last year’s range of 0.0 to 200.0, the performance gap has narrowed. We believe the gap will continue to narrow as more companies structure variable compensation programs based on performance indicators.

Top Performers

This year’s survey identified a number of marketplace anomalies but, E. Anthony “Tony” Wilson’s story is hard to beat. At the bottom of our two previous surveys, Tony became this year’s top performing CEO. His meteoric rise mirrored Microtel’s outstanding stock performance. The stock price rose nearly five-fold after Microtel granted world-wide franchise rights to Mike Leven’s US Franchise Systems.

Three of the five best performing CEOs of 1996 were also best performers in 1995. Those included were Gary Mead of La Quinta Inns, David Simon of Prime Hospitality and David Hawthorne of Servico. These companies have become consistent performers after leadership changes during troubled time. Looking for a good investment opportunity? The survey would suggest to look at poor performers where leadership changes are imminent.

Salaries and Bonuses

The average salary of a lodging CEO remained stagnant at approximately $390,000, while the average bonus jumped by 21% to $556,793. As the industry returned to profitability, we expected bonuses to increase but not to such a degree. Executives who ranked at the top of both the salary and bonus tables ran larger publicly-traded companies, companies with revenues and earnings surpassing $400 million and $70 million respectively.

Though company size and annual compensation components tented to increase together, when we applied a regression formula, the data was inconclusive.

We also could find no clear approach to base salary benchmarking in the lodging industry. With few exceptions, base salaries were arbitrary with most companies simply stating an interest in offering competitive pay. Bonus programs, on the other hand, were most clearly defined along financial performance measures. What remained inconsistent was the bonus criteria and dollar awards. We identified bonuses that represented anywhere form 0% to 150% of a given CEOs base salary.

Long Term Incentives

This year, 21 of the 32 CEOs profiled received long-term incentives in the form of stock options. Last year, 19 of the 35 CEOs profiled received stock options. A modest 11.4% increase, but one that points to more companies linking pay and log-term performance. When it came to offering stock options, there appeared to be little rhyme or reason the amount and frequency of the grants. We found little quantitative rationale for the granting of stock options, and issue compensation committees must address. Henry Silverman of HFS continues to be the undisputed champion of stock options, with 1995 options worth 1.3 million. However, Michael Eisner’s $171.8 million of in-the-money options gives him the largest future pay day of any hospitality CEO.

Despite some positive signs, it is evident that there are limited criteria on which pay and performance are based in the lodging industry. We anticipate that the grumbling will continue to echo through out shareholder meetings until companies can implement and effectively communicate the rationale for doling out those million-dollar pay packages.

HVS Executive Search is a Mineola, NY based human resources consulting firm. The firm is headed by Keith Kefgen, President, and Rosemary Mahoney, Director. HVS Executive Search provides retained executive search, compensation consulting, employee-opinion surveys and organization development.

For additonal information contact the firm at

Please contact Hotel.Online with your coments and suggestions.