In his annual review of CEO compensation in the U.S. lodging sector, AETHOS Consulting Group CEO Keith Kefgen shared candid insights into hotel CEO pay and performance from 2019.
“A year passes with the hotel industry having solid but unspectacular performance,” Kefgen said. “But what we did glean from last year’s hotel industry performance is that big companies outperformed their smaller brethren, while REITs were on the sidelines.”
Using the AETHOS pay-for-performance model, which analyzes key financial metrics such as market capitalization, stock appreciation, EBITDA growth, and total direct compensation, Kefgen observed that as in previous years, the highest-paid CEOs in the industry ran the largest companies. The top 10 CEOs each earned more than $8 million in total compensation, with Bob Iger topping the list at $65 million. Frank Del Rio at NCL earned nearly $22 million and Glenn Fogel at Booking.com earned just over $20 million. Although their pay packages were significant, these CEOs had an AETHOS Value Index (AVI) over 80 (100 would be a perfect pay-for-performance match). This year’s top-performing CEO based on the model was Adam Portnoy at RMR Group with an AVI of 205.
Strategy and execution were the best predictors of performance, according to Kefgen’s analysis. Companies that executed poorly got penalized. “We predict that 2020 will be another ‘down in the trenches’ year as investors watch the economy and the presidential election very carefully,” Kefgen said.
Kefgen also highlighted that in public markets, size matters. The associated costs of running a public company are significant and favor the bigger players. “The market capitalization of the CEO group studied ranged from Walt Disney’s colossal $256 billion to InnSuites’ ultra-small $13 million,” Kefgen said. The AETHOS model works to compare CEO pay from two vastly different companies. In the end, investors want stock performance not payroll containment.
Seven CEOs in the hospitality industry received a base salary of $1 million or more. Bob Iger topped the list with a salary of nearly $2.9 million, followed by Frank Del Rio at $1.75 million. Many of these same CEOs received bonuses, with Iger taking home an $18 million bonus, followed by Hyatt’s Mark Hoplamazian at $8.6 million. The average salary for the group was $850,000, while the average bonus was $2.4 million—a three-times multiple.
Long-term incentives plans (LTIP) were a significant portion of overall CEO pay in the hotel industry at about 60 percent of total compensation. Most LTIPs were in the form of restricted stock grants and, to a lesser extent, stock options. The largest stock grant went to Iger, with a grant value of just over $43 million, followed by Chris Nassetta of Hilton at $16 million. Twenty-nine of the 35 CEOs on the list had multi-million-dollar LTIP grants. Kefgen said AETHOS continues to see more LTIP awards with performance vesting as shareholders want to see metrics hit before vesting occurs.
On the subject of income equality, Kefgen said, “I discussed the issue of income equality when publishing the 2018 report and it appears that a Disney heir caused a stir discussing the matter; Abigail Disney (in a series of tweets) condemned Bob Iger’s pay for having ‘deepened wealth inequality,’ making $65.6 million in 2018—1,424 times the median salary of a Disney employee. While she called his pay ‘insane’, I believe the issues are separate but emotionally connected. Putting a dollar value on anyone’s work is not easy. Is an actor worth $45 million a movie; is someone worth $350 million for throwing a baseball or dunking a basketball? Is an Army private only worth $20,000 a year?”
“In a free market system, I believe that you get paid what someone is willing to pay you. It comes down to supply and demand,” Kefgen continued. “In the meantime, hotel CEOs are graded on how well they deliver on their strategy.”
“I also predict that more companies will go private as investors and CEOs look to get out of the public spotlight,” Kefgen concluded.