Trending Positive
by and Keith Kefgen Howard Krieger
December 2, 2008
Experts analyzed the documents of 38 publicly traded gaming companies. See how the board of directors at the leading gaming companies performed this past year
HVS
Executive Search’s 11th annual study of best practices in the boardrooms of
public gaming companies indicates that governance behaviors are
improving.
The mix of directors is
increasingly independent and the frequency of board and committee meetings has
increased. All positive trends.
In coming to our
conclusions, we analyzed the documents of 38 publicly traded gaming companies.
This is a slightly smaller list than last year, due to the privatization trend
that took Harrah’s Entertainment and Station Casinos. As is our practice, we also conferred with other
corporate governance experts to rate each company in the following four
fundamentals:
• The size, makeup, and independence
of the board;
- Committee structure and effectiveness;
- The presence of interlocks, insider participation, and related transactions; and
- Fundamental commitment to pay-for-performance.
We are pleased to report that positive trends in governance continue, and that shareholders will be the beneficiaries. The average score of 28 has gone up slightly from last year, driven by higher percentages of independent directors and increased number of board/committee meetings. Backing out the “controlled companies” such as MGM Mirage, which are exempt from some SEC requirements, adds further support to this conclusion.
Board size and makeup
Most experts agree a successful board ideally be should have five to 11 members (an odd number in case of tie votes) and no more than one to three insiders. Another standard of a truly independent board is the presence of an outside chairman. Other factors are the chairman’s characteristics. We also awarded a point to companies that named a lead director in the absence of an outside chairman. Lastly. we considered the length of term, with a one-year term as optimal.
Committee structure
The four committees that
we and other corporate governance experts deem mandatory are audit,
compensation, nominating and governance committees.
In evaluating this facet
of a board, we looked for the existence of each of these committees as well as
the frequency with which they meet. Insider participation on committees
continues to decline, and we saw very few CEOs participating on the
compensation committee.
We also reduced the
score for companies that continue to have an executive committee. Executive
committees that act with the power of the full board create the potential for
serious conflicts of interest.
Every gaming company
now has an audit committee; all have recruited or designated members who are
qualified financial/accounting experts to satisfy regulatory requirements.
Compensation committees have increased in number and have increased frequency
of meetings. In prior years we
questioned the effectiveness of committees that only meet once a year, and we
are happy to report that this occurred with only two companies. Most firms still
combine nominating and governance
committees, which is not a concern.
Interlocks, insider participation
Even under our broad definitions, insider participation and interlocks continue to decline. With several “controlled companies” in our survey, this will never go away entirely, but the industry overall has performed well.
Pay for performance
Governance experts agree
that management and shareholders must be committed to the same goals. A primary
method for aligning the interests of both groups is a commitment to
pay-for-performance. Only about half of the industry has truly implemented the
components of a well-designed compensation program, although virtually all of
them espouse this as the underlying philosophy/goal of their executive
compensation plans.
The components we look
for are:
- A well-thought-out compensation philosophy;
- Salaries set using peer group analysis;
- Quantifiable, detailed bonus metrics;
- Long-term incentives that are performance-based and are not excessive; and
- Benefits and perquisites at appropriate levels.
Regarding executive compensation, we looked for plans that articulate how incentives are tied to shareholder goals. The SEC and other governing bodies also believe that compensation committees should hire independent consultants to help make impartial decisions concerning compensation. In the interest of full disclosure, HVS Executive Search provides such services and has worked for Century Casinos, Full House Resorts, Las Vegas Sands and Shuffle Master.
Best performers
This year’s best performing board was Bally Technologies. The company had a strong 2007, so President and CEO Richard “Dick” Haddrill and the entire Bally Technologies Board of Directors should be proud of their work. Other strong performers were Multimedia Games, Pinnacle Entertainment and Scientific Games.
| Rank Total | Company | Size & Markup | Committee Structure | Interlocks & Insider Participation | Pay for Performance | Total |
|---|---|---|---|---|---|---|
| 1 | Bally Technologies | 9 | 10 | 10 | 6 | 35 |
| 1 | Multimedia Games | 10 | 9 | 10 | 5 | 34 |
| 3 | Pinnacle Entertainment | 9 | 8 | 10 | 7 | 34 |
| 3 | Scientific Games | 9 | 8 | 10 | 7 | 34 |
| 5 | Carnival | 5 | 9 | 10 | 8 | 32 |
| 5 | MTR Gaming | 7 | 9 | 10 | 6 | 32 |
| 5 | Penn National | 5 | 9 | 10 | 8 | 32 |
| 8 | WMS Industries, Inc. | 5 | 10 | 10 | 7 | 32 |
| 8 | Trump Entertainment | 5 | 9 | 10 | 7 | 31 |
| 8 | Youbet | 6 | 8 | 10 | 7 | 31 |
| 11 | Body Gaming | 3 | 10 | 10 | 7 | 30 |
| 11 | Daktronics | 5 | 10 | 10 | 5 | 30 |
| 11 | Global Payment Technologies | 9 | 7 | 10 | 4 | 30 |
| 11 | IGT | 4 | 10 | 10 | 6 | 30 |
| 11 | Progressive Gaming | 6 | 8 | 10 | 6 | 30 |
| 16 | Empire Resorts | 6 | 8 | 10 | 5 | 29 |
| 16 | Gaming Partners International | 6 | 8 | 10 | 5 | 29 |
| 18 | Shuffle Master | 6 | 8 | 10 | 5 | 29 |
| 18 | Churchill Downs | 6 | 7 | 10 | 5 | 28 |
| 18 | Full House Resorts | 7 | 6 | 10 | 5 | 28 |
| 18 | Littlefield Corp. | 9 | 5 | 10 | 4 | 28 |
| 22 | Wynn Resorts | 1 | 10 | 10 | 7 | 28 |
| 22 | Century Casinos | 5 | 5 | 10 | 7 | 27 |
| 22 | Isle of Capri | 6 | 6 | 10 | 5 | 27 |
| 22 | MGM/Mirage | 5 | 5 | 10 | 7 | 27 |
| 22 | Monarch Casino | 5 | 6 | 10 | 6 | 27 |
| 27 | TransAct Technologies, Inc. | 2 | 8 | 10 | 7 | 27 |
| 27 | Lakes Entertainment | 6 | 5 | 10 | 5 | 26 |
| 27 | Ameristar Casinos | 2 | 6 | 10 | 7 | 25 |
| 30 | Canterbury Park | 4 | 5 | 10 | 6 | 25 |
| 30 | Nevada Gold | 3 | 7 | 10 | 5 | 25 |
| 32 | Dover Downs | 5 | 5 | 10 | 3 | 23 |
| 33 | Wells-Gardner Electronics | 3 | 6 | 10 | 4 | 23 |
| 34 | GameTech International | 6 | 6 | 5 | 5 | 22 |
| 35 | Global Cash Access, Inc. | 5 | 7 | 5 | 4 | 21 |
| 36 | Magna Entertainment (MEC) | 4 | 7 | 0 | 7 | 18 |
| 37 | Las Vegas Sands Corp. | 5 | 5 | 0 | 6 | 16 |
| 38 | Archon Corp. | 2 | 3 | 5 | 4 | 14 |
Howard Krieger
is a veteran sales
and business development professional having spent the majority of his career
working in several aspects of financial services. Krieger is managing director
at HVS Executive Search, and specializes in retained executive search,
compensation consulting, and corporate governance counseling for the Lodging
and Gaming industries. Previously Mr. Krieger held several positions with
American Express primarily in sales and account management for the
Establishment Services division. His experiences also include development of
new sales channels for the Travelers Cheque/Pre-paid Services Division where he
led the effort to expand the number and type of partners selling Amex’
Travelers and Gift Cheques. Most recently Mr. Krieger was working with a
start-up company in the golf industry, which appealed to his passion for the
game. Mr. Krieger holds a B.A. in Economics from Rutgers
University.
and Keith Kefgen
is president of HVS Executive Search, a leading career placement and compensation consulting firm specializing in the lodging, gaming, retail and restaurant industries. He is a frequent lecturer on these and related issues and has written more than 90 articles on the topics of executive selection, pay-for-performance, corporate governance and executive leadership. He is the founder of the recruiting Web site hospitalitycareernet.com and 2020skills.com, an online assessment profiling service.
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