INTERNATIONAL REPORT—In his annual review of CEO compensation in the U.S. lodging sector, Aethos Consulting Group CEO Keith Kefgen shared candid insights as a result of his most recent assessment.
“A year passes with the hotel industry having solid but unspectacular performance,” said Kefgen. “But what we did glean from last year’s hotel industry performance is that big companies outperformed their smaller brethren, while REITs were on the sidelines.”
Utilizing the Aethos pay-for-performance model, which analyzes key financial metrics such as market capitalization, stock appreciation, EBITDA growth and total direct compensation, Kefgen observed that as in previous years, the highest paid CEOs in the industry ran the largest companies. The top 10 CEOs each earned more than $8 million in total compensation, with Bob Iger topping the list at $65 million. Frank Del Rio at NCL earned nearly $22 million and Glenn Fogel at Booking.com earned just over $20 million, according to the data. Although their pay packages were significant, these CEOs had an Aethos Value Index (AVI) over 80 (100 would be a perfect pay-for-performance match). This year’s top performing CEO based on the model was Adam Portnoy at RMR Group with an AVI of 205.
Among Kefgen’s highlights:
Strategy and execution were the best predictors of performance. Companies that executed poorly got penalized (Red Lion). In contrast, RMR and Ashford had changes in strategy that had legs, according to the report. “We predict that 2020 will be another ‘down in the trenches’ year as investors watch the economy and the presidential election very carefully,” said Kefgen.
Size matters in public markets. The associated costs of running a public company are significant and favor the bigger players. “The market capitalization of the CEO group studied ranged from Walt Disney’s colossal $256 billion to InnSuites’ ultra-small $13 million,” he said. Comparing CEOs from two vastly different companies might appear difficult, but that is what the Aethos model tries to accomplish. In the end, investors want stock performance not payroll containment, according to the company.
Seven CEOs in the hospitality industry received a base salary of $1 million or more. Bob Iger topped the list with a salary of nearly $2.9 million, followed by Frank Del Rio at $1.75 million. Many of these same CEOs received hefty bonuses, with Iger taking home an $18 million bonus, followed by Hyatt’s Mark Hoplamazian at $8.6 million. The average salary for the group was $850,000, while the average bonus was $2.4 million.
Long-term incentives plans (LTIP) were a significant portion of overall CEO pay in the hotel industry at about 60% of total compensation. Most LTIPs were in the form of restricted stock grants and, to a lesser extent, stock options. The largest stock grant went to Iger, with a grant value of just over $43 million, followed by Chris Nassetta of Hilton at $16 million. Twenty-nine of the 35 CEOs on the list had multimillion-dollar LTIP grants. According to Aethos, we continue to see more LTIP awards with performance vesting as shareholders want to see metrics hit before vesting occurs.