A perspective on pay at the top



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

The average base salary for the peer group was $689,000, slightly lower than the prior year’s average at $704,000. Six gaming CEOs were paid a base salary of over $1 million, with Steve Wynn leading the way at $2.95 million. The average bonus increased substantially over last year from $600,000 to $1.06 million. We believe this is a sign that some companies outperformed their peers and/or performance targets were significantly decreased from the previous year. Eight gaming CEOs received no bonus in 2010, a decrease from 11 in 2009. Steve Wynn ranked first in bonus pay at $10.1 million and MGM’s James Murren and Las Vegas Sand’s Sheldon Alderson had bonuses of $5.6 and $5.1 million, respectively.



LONG-TERM INCENTIVES

Long-term incentives, which were primarily granted in the form of restricted stock grants and stock options, increased to an average of $1.6 million from $1.2 million the previous year. Stock values increased with larger number of shares granted and increased volatility (we used the Black-Scholes Valuation Method for stock options). Although most of these incentive plans are programmed years in advance, it was interesting to see CEOs taking less salary in favor of incentive pay. Lorne Weil, CEO of Scientific Games Corporation, received the largest long-term incentive package valued at $14.3 million, while five CEO’s received nothing in the form of long-term incentives.

“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

Nine of the Top Ten richest CEO’s were unchanged from last year. James Morgan of Daktronics joined the list and TJ Matthews dropped off. However, only three saw their stock holdings increase in value over last year, Carnival, Wynn and Bally Technologies. Steve Wynn regained his billionaire status in 2010 as Wynn’s stock performed 15.6 percent better than the peer group. Sheldon Adelson and Micky Arison are still the richest CEOs in gaming, although they switched places on the list. We predict that the most successful gaming CEO’s will be those who continue to adapt to the changing environment as well as maintain a global perspective. Macau, Singapore, Vietnam and other markets in the East will bring the spotlight back to the gaming industry.

Data collection and analysis for this article was contributed by Kendra Sutherland.