A great deal has happened to the country and the world since our last compensation study. Terrorist attacks, two wars, a mini recession and some of the most blatant cases of corporate greed. How has the lodging industry faired? Quite well, under the circumstances. Fortunately for most lodging industry owners and operators, they did not experience the problems of past market downturns. It appears that hotel companies were much more disciplined with their development pipeline and showed much more flexibility in responding to market changes. Compensation administration also experienced some significant changes. Numerous regulatory changes occurred in response to highly publicized corporate scandals. The Sarbanes-Oxley Act in particular, caused sweeping changes in the way public company executives were compensated. But with all the changes, the reality is that executives are being paid more than ever before.

Lodging executives saw compensation increase in both cash categories (base salary and bonus). For example, the median CEO salary rose almost 12% from 2002 to 2004. Most other senior executives experienced 8-10% increases over the same time period. Average bonuses increased even more significantly. Due to better financial results, more companies were paying maximum bonuses under their plans. For example, the average CEO bonus went from $267,000 in our 2002 study to $625,000 in our 2004 study. Companies also increased their bonus payouts in conjunction with lowering their stock option packages. Many companies also chose to grant restricted stock awards in lieu of stock options.

Nationwide Base Salaries and Average Bonuses

	Minimum	50th Percent	Maximum	Avg. Bonus
Chief Executive Officer	$50,000	$374,400.00	$3,350,000.00	$625,804.24
Chief Financial Officer	$52,207.85	$212,180.00	$1,057,750.19	$121,824.05
Senior Operations Officer	$92,828.75	$286,443.00	$1,394,231.00	$154,187.69
Senior Marketing Officer	$84,413.16	$180,000.00	$468,440.00	$58,517.80
Senior Development Officer	$95,668.25	$180,000.00	$700,349.36	$67,159.32

Executive compensation changed dramatically as the size and complexity of the company changed. As in previous studies, as company revenue increased so did compensation. The charts below show the changes between companies with revenues of less than and more than $500 million. For example, the median salary for a CEO running a company with less than $500 million in revenue was $356,000 and $599,000 for a CEO at a company with more than $500 million in revenue. The average bonuses between the two groups was staggering, with the CEO of bigger companies receiving bonuses that were 14 times larger than their small company counterparts. In both cases, overall cash compensation was up from 2002.

Salary and Bonus Results by System Sales: Less Than $500,000,000

	Minimum	50th Percent	Maximum	Avg. Bonus
Chief Executive Officer	$50,000.00	$356,541.56	$1,730,343.81	$134,502.65
Chief Financial Officer	$0.00	$183,971.54	$440,273.50	$56,503.70
Senior Operations Officer	$0.00	$258,425.00	$1,688,263.22	$73,285.59
Senior Marketing Officer	$84,413.16	$166,644.42	$346,000.00	$38,793.83
Senior Development Officer	$95,668.25	$152,754.55	$309,125.00	$33,549.78
Data from HCE Hospitality Compensation Exchange

Salary and Bonus Results by System Sales: GReater Than $500,000,000

	Minimum	50th Percent	Maximum	Avg. Bonus
Chief Executive Officer	$265,225.00	$599,463.67	$3,350,000.00	$1,848,765.44
Chief Financial Officer	$203,737.98	$328,461.00	$1,057,750.19	$296,686.95
Senior Operations Officer	$201,571.00	$432,847.20	$1,394,231.00	$403,743.30
Senior Marketing Officer	$98,754.00	$221,772.03	$468,440.00	$119,662.09
Senior Development Officer	$129,429.80	$249,820.56	$700,349.36	$152,480.46
Data from HCE Hospitality Compensation Exchange

As previously stated, long-term incentive programs changed considerably since the passing of the Sarbanes-Oxley Act. Stock options are being granted less often and in lesser amounts. Companies are using more restricted stock awards and escalating potential bonus payouts. In the chart below, we illustrated the stock options granted in 2003 by public lodging companies. In every case, less options were granted in 2003 than in 2001. For example, the median grant to a CEO in 2003 was 50,000 options, while the median was 110,000 in 2001.

Long-Term Incentives

# Stock Options	Minimum	50th Percent	Maximum
Chief Executive Officer	0	50,000	1,800,000
Chief Financial Officer	0	32,000	600,000
Senior Operations Officer	0	45,000	350,000
Senior Marketing Officer	0	10,000	200,000
Senior Development Officer	0	11,000	300,000
The table represents 45 of the 102 companies surveyed, which are publicly traded.

The restricted stock table below shows the corresponding dollar value of the awards. Fourteen lodging companies granted restricted stock in 2003. Most of the restricted stock had 3-4 year vesting periods but only two had performance restrictions. We believe that more companies will tie restricted stock awards to financial performance measures due to pressure from shareholder activists. We further believe that more lodging companies will focus on executive pay-for-performance initiatives as they try to attract and retain the best talent in the industry.

Restricted Stock ($)	50th Percentile	Average
Chief Executive Officer	$847,494.00	$2,401,728.08
Chief Financial Officer	$210,000	$952,586.89
Senior Operations Officer	$362,174	$2,055,933.57
Senior Marketing Officer	N/A	N/A
Senior Development Officer	N/A	N/A
The table represents 14 of the 45 public companies that granted restricted stock.