Struggling to stay ahead
by KEITH KEFGEN
October 14, 2011
From an economic standpoint, the casino industry is much the same as it was in 2009 as the impact of the recession has been deeper and the recovery slower than most analysts expected. Consumer discretionary spending has been significantly down for most of 2010 and as a result, the gaming industry continued to experience little or no growth.
True, companies such as Las Vegas Sands and Wynn Resorts that have a presence in Macau and other Asian markets have fared much better than those that operate solely in the United States or Europe; still, gaming CEOs across the spectrum have had enormous pressure heaped on them from all directions, be it customer, shareholder, employee or government. Although in a difficult spot, our annual survey of gaming CEO performance shows that some leaders performed very well under the pressure, while others have buckled. Indeed, 2010 saw a lot of CEO turnover, with seven CEOs leaving corner suites; some on their own, such as TJ Matthews at IGT, while others were forced out, like Dan Lee at Pinnacle Entertainment.
Our annual review of gaming CEOs compared 2010 compensation in relation to stock performance, EBITDA growth and market capitalization over a three year period. The results are expressed in our HVS Value Index which reveals whether each CEO was over or underpaid.
For the second straight year, Full House CEO Andre Hilliou emerged at the top of the list with an HVS Value Index of 211, (100 is the average). In other words, Hilliou was underpaid by 111 percent or nearly $639,000. On another positive performance note, 24 gaming stocks increased in price in 2010 versus 2009, compared to 13 stocks that improved from 2009 versus 2008.
SALARY AND BONUS
“Other” compensation was down in 2010 for the peer group at an average of $227,000 from $350,000 in 2009. We believe that most of this decrease is due to more transparent reporting and not a real decrease in overall pay.
At just over $3.6 million, total CEO compensation was up significantly over 2009, but still lower than prior years. As a great deal of CEO compensation is ultimately tied to stock price, many CEOs have equity that is severely underwater. To illustrate, the average market capitalization for a gaming company increased slightly in 2010 over 2009 levels from $2.4 billion to $2.8 billion but still significantly lower than the $5.0 billion level of 2007. Many analysts predict it will take a decade or more before a return to 2007 stock prices.
RETURN TO RICHES
Data collection and analysis for this article was contributed by Kendra Sutherland.
Keith Kefgen is chief executive officer of HVS Executive Search, the human resource consulting practice of HVS. He has more than 20 years of experience in the field of hospitality executive search and is a frequent lecturer and author on the topics of executive selection, pay-for-performance, corporate governance and executive leadership. He is a graduate of the School of Hotel Administration at Cornell University.
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