Going corporate with gaming company leaders
Corporate executives continue to replace founders and entrepreneurs as gaming company leaders, which is changing the dynamic in overall CEO compensation, according to AETHOS Consulting Group
The technology sector is well known as a breeding ground for maverick millionaires who establish and oversee their own businesses. And much like the high-tech field, the gaming industry also has its fair share of flamboyant entrepreneurs running their respective companies.
This list includes larger-than-life personalities such as Steve Wynn and Sheldon Adelson, both of whom actually cast a shadow well beyond gaming. But this dynamic is changing within the casino community as entrepreneurs are slowly being replaced by corporate executives such as Keith Smith at Boyd Gaming, Jim Murren at MGM Resorts International, Tim Wilmott at Penn National and Mark Frissora at Caesars Entertainment.
It is interesting to see how CEO compensation has changed as this process has unfolded. Generally speaking, the entrepreneurs took more of the compensation in equity, while corporate executive appear to have a more balanced approach to their compensation mix.
In the end, what matters most is whether a CEO earns his or her pay, not necessarily the size of the paycheck. In an effort to analyze executive pay in the gaming industry, AETHOS developed a proprietary pay-for-performance model that allows for the comparison of disparate data points to determine if a pay package was too large or small.
In our eleventh annual study of gaming industry pay, we evaluated the performance of 36 public gaming companies to determine whether their CEO deserved his or her pay. The AETHOS pay-for-performance model compares significant financial metrics such as company size (market cap), stock appreciation (rise in stock price over three years), EBITDA growth (over three years), and total direct compensation (combination of salary, bonus, LTIP and other). Our findings are illustrated below.
GAMING CEO PAY
It comes as no surprise that the highest paid CEOs in the gaming industry work for the largest companies. Steve Wynn again topped the list in 2016 as the highest paid CEO in gaming at just over $28 million in total compensation. Mark Frissora at Caesars got bumped from the second spot on the list by Kenneth Alexander at GVC, who received nearly $25 million in pay, with most of it coming in the form of “other compensation.” Rounding out the top five highest paid CEOs were James Murren at MGM Resorts ($16.6 million), Sheldon Adelson at Las Vegas Sands ($12.7 million) and Peter Carlino at Gaming & Leisure Properties ($12 million).
In total, 24 of the 36 CEOs made more than $1 million in total compensation; the same number as last year.
However, unlike last year, this group of CEOs had an AETHOS Value Index (AVI) below 100, indicating that they were generally overpaid relative to their company performance. It appears that some of the small cap companies out-performed their larger peers especially in stock price for the first time in many years. So, not surprisingly, many of the top performing CEOs on our AVI were all running small cap companies. The best CEO on a pay-for-performance basis was Dan Lee, CEO at Full House followed by Robert Saucier at Galaxy Gaming and a host of other small cap CEOs.
Meanwhile, 14 CEOs in the gaming industry received a base salary of $1 million or more. Lawrence Ho ($3.4 million) and Steve Wynn ($2.5 million) had the largest salaries, with the average for 2016 coming in at just over $900,000.
As most bonus programs are tied to base pay, it comes as no surprise that many of the most highly paid CEOs also received the largest bonuses in 2016, with Wynn leading the group with a bonus of $12.5 million. The next largest bonus was Jim Murren at $5.65 million, and then Frissora ($4.7 million), Adelson ($4.3 million) and Arnold Donald at Carnival, who received upwards of $4 million.
All told, the average CEO paycheck in 2016 went up by $100,000 to just over $5 million. The average CEO bonus in 2016 was $1.5 million, rising another $100,000 from last year. Seven gaming CEOs received no bonus at all in 2016. Chalk that up to a rash of takeovers, new CEOs and poor performance.
The largest component of CEO compensation was long-term incentive plans (LTIPs), a sign that pay-for-performance is strongly entrenched in the industry. The average LTIP value in 2016 was nearly $1.6 million. Steve Wynn topped the list with his $12.5 million stock grant, matching his annual bonus this year. Thirteen CEOs received an equity grant worth over $1 million, while 12 received nothing at all. This is odd as best practice companies tend to dole out smaller annual grants rather than loading up every so often.
Who are the richest CEOs in the gaming industry based on their company stock ownership? Four billionaires include Lawrence Ho at Melco Crown ($4.7 billion), Sheldon Adelson at LVS ($4.2 billion), Dr. Lui at Galaxy Entertainment Group ($1.08 billion) and Wynn ($1.04 billion).
Gaming continues to become a mainstream investment option for most portfolios and a way to bet on the house for people who don’t really like to gamble. As an industry, hotels, restaurant and leisure was a top ten performing group up nearly 25 percent over the past 12 months. The CEOs in the casino space deserve some credit for bringing their stocks to main street and institutional investors.