HVS International's 2004 Gaming Industry CEO Survey shows majority of gaming executives deserving of their pay
The old saying reads, "the proof is in the pudding." Well if so, gaming CEOs have provided excellent pudding to investors this year. Of the 42 CEOs in this year's survey, 26 received HVS Value Index ratings of 100 or higher (an HVS Value Index rating of 100 means that the CEO's compensation was exactly what it should have been). Compared to most other industry segments, gaming has been a terrific investment.
Many landmark events happened this year. The two "big" mergers of Mandalay Resort Group-MGM Mirage and Caesars Entertainment-Harrah's Entertainment have created mega brands for the industry. The acquisition of Argosy Gaming by Penn National has created a powerhouse in the mid-cap segment.
The year also saw some notable returns to the industry such as Gordon Graves and his new venture Aces Wired, and Mike Rumbolz at Cash Systems.
Our annual study analyzes CEO performance by comparing financial results relative to total compensation. Using our proprietary pay-for-performance model each CEO was compared to their industry peers.
The resulting HVS Value Index indicates whether a CEO earned their pay or not. We further leveled the playing field by looking at suppliers and operators separately. The year's top-performing CEO was Ferenc Szony of Sands Regent whose HVS Value Index rating of 190.9 indicates that he was underpaid by 90.9 percent (see chart: 5 Best Performing CEO Operators). His performance also makes this the fifth year in the last six that the honor of top performer has gone to the CEO of a small-cap gaming operator.
John Farahi makes his second consecutive appearance on the list of top operators, which marks a resurgence of the Reno market. Lyle Berman and William L. Westerman had the biggest turnaround making the top-performing list one year after being on the worst. The final member of the top-performing pantheon was Randall Sampson of Canterbury Park, making his third consecutive appearance on this list. As a group, operators outperformed suppliers with an average HVS Value Index of 162.8 compared to 147.0.
Among top suppliers, the only holdover from last year's list is James Morgan of Daktronics (see chart: 5 Best CEO Suppliers). Both Russell McMeekin and Gerard Charlier have been responsible for leading major turnarounds at Mikohn (Progressive Gaming International Corp.) and Gaming Partners International (formerly Paul-Son Gaming). Charles Champion of Youbet.com and Bart C. Schulman of TransAct Technologies round out the list.
Top salaries and bonuses
The list of the industry's top salaries has not changed much in recent years (see chart: Top Gaming Salaries). William Boyd rejoins the list, while Craig Neilsen departs. The average salary among the top five increased very slightly from $1,442,000 in 2003 to $1,506,000 in 2004. With the exception of Donald Trump, the HVS Value Index of the group suggests that they all deserved their big paychecks. The average salary for the entire group increased 2.6 percent from $587,015 to $602,374.
The average bonus for the top five increased dramatically from $1,749,000 in 2003 to $2,589,000 in 2004 (see chart: Bonus Babies). Furthermore, the average bonus for all CEOs moved from $468,061 to $535,596. This is in keeping with our expectation that cash incentives would be trending upward in reaction to increased scrutiny and new accounting procedures for stock option awards.
Top stock incentives
As noted above, the trend away from stock options continued as 21 of the 42 CEOs received no stock options. In addition, 12 of the 21 companies that did offer long-term incentives used restricted stock awards rather than stock options.
The average value of long-term incentives to the top five CEOs was $6,588,000 up from $5,094,000 one year ago, but less than the average of $7,138,000 in 2002 (see chart: Top Stock Incentives). We expect to see this trend continue until issues surrounding valuation and accounting of options awards are sorted out.
The only change to our list of CEOs with the largest value of in-the-money-options was J. Terrence Lanni of MGM Mirage replacing Gary W. Loveman of Harrah's (see chart: Fortunes in Waiting). The average value of in-the-money-options moved to $51,384,000 up from $44,682,000 last year. However the average HVS Value Index of 104.0 for the top five CEOs in this category dispels any idea that these fortunes have not been deserved.
Mickey Arison of Carnival continues to lead our list of CEOs with the largest value of beneficial ownership. CEOs on this list share two interesting traits. First, all of their names are literally synonymous with their companies, and second they have an average HVS Value Index rating of 104.6 indicating that they are much more than just figureheads.
Overall, trends in this year's survey showed very minimal increases in CEO compensation while CEO performance, as noted, was generally high. We feel that compensation committees are more aware than ever before of the need for compensation practices that are carefully constructed, articulated, and truly designed to pay-for-performance. CJ
HVS Executive Search is a human resources consulting firm dedicated to the gaming, lodging and restaurant industries. For further information on the CEO survey, contact Keith Kefgen, president, at email@example.com, or Stephen Goebel, vice president, at firstname.lastname@example.org.