he Wall Street pundits were wrong again. Everyone thought gaming was dead, but 2010 has brought a new enthusiasm for the industry. That is not to say that there still isn’t a great deal of pain to deal with. CEOs had enormous pressure on them the last two years, and that will continue for the foreseeable future.
Our annual review of gaming CEOs compares 2009 compensation in relation to stock performance, EBITDA growth and market capitalization. The results are expressed in our “HVS Value Index,” which reveals whether each CEO was over- or underpaid.
Full House CEO Andre Hilliou emerged at the top of the list with an HVS Value Index of 212. In other words, Hilliou was “underpaid” by 112 percent, or nearly $650,000. Similarly, a number of other small-cap companies fared better than their larger brethren, among them Transact, Pokertek and Elixir Gaming Technologies. Large debt loads weighed down the bricks and mortar operators this year. Bally Technologies, Churchill Downs and WMS Gaming were the only companies to have real stock appreciation over the three-year survey period. Perhaps a sign of ameliorating economic conditions in 2009, 13 stocks had increases in price over 2008.
But it was also a rough year in terms of CEO turnover. Seven bosses left the corner suite, some on their own, such as T.J. Matthews at IGT, and others were forced out, like Dan Lee at Pinnacle Entertainment. Succession usually increases as the economy tanks, but this was a very unusual year.
SALARY AND BONUS
The average base salary for the peer group was $704,000, remaining flat from the prior year. Six CEOs were paid a base salary of more than $1 million, with Steve Wynn leading the way at $2.9 million. The average bonus increased substantially over 2008, nearly doubling to $600,000. Eleven CEOs received no bonus in 2009, a decrease from 15 in 2008. Wynn and MGM Resorts’ James Murren both had bonuses of nearly $4 million, leading the way on short-term incentive pay. We predict this increase will continue into our next survey as 2010 has been a bounce-back year for financial performance.
Long-term incentives, which were granted principally in the form of restricted stock grants and stock options, averaged $1.2 million. This was virtually unchanged from 2008 as most of these plans are programmed years in advance. Murren received the largest long-term incentive package, valued at $7.1 million, while five CEOs received nothing in the form of long-term incentives.
Other compensation was up for the peer group at an average of $350,000. We believe that most of this increase is due to more transparent reporting and not a real increase in overall pay. At nearly $2.5 million, total CEO compensation was up slightly over 2008, but still substantially lower than prior years. As a great deal of CEO compensation is ultimately tied to stock performance, most of the peer group will have to hold on to their shares for a long time. To illustrate, the average market capitalization for a gaming company in 2009 was down by 50 percent from 2007 levels - from $5 billion to $2.4 billion. Many analysts predict it will take a decade to return to 2007 prices.
RETURN TO RICHES
Eight of the 10 richest gaming CEOs were unchanged from last year. However, of the group, five saw their stock holdings increase over last year at a rate of 20 percent or more. Carnival’s Micky Arison and Las Vegas Sands’ Sheldon Adelson both regained their status as the richest CEOs in gaming. Wynn lost his billionaire status in 2009 but regained it in 2010, based on current stock prices.
As the silver lining to the economic meltdown starts gleaming a little more brightly, we predict that the most successful gaming CEOs will be those who continue to adapt to the changing environment as well as maintain a global perspective. Macau, Singapore and other markets in Asia will bring the spotlight back to the gaming industry.
ABOUT THE AUTHORS
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.
Juliette Boone has amassed a wealth of experience in her 18-year hospitality industry career. She has a diverse professional background encompassing hotel food and beverage operations, culinary arts, catering sales and operations, contract food service, concept development, hospitality education and hotel consulting and valuation. She holds a master’s degree in hospitality management and a bachelor of science degree from Cornell University.