When we began our careers in the hotel business, it was widely thought that our industry paid executives rather poorly. Is that still true today? If CEO pay is any indication, it appears that stigma needs to change. In fact, based on our 20th review of hotel CEO pay, one could say that the industry is a vehicle for getting rich. Our analysis shows that the average pay check of a hotel CEO was more than $6M in 2015, while the average stock ownership was over $40M. Not bad for an industry with a tight-fisted reputation.
Maybe more important than having a big pay check, we think CEOs should be graded on whether they really earned it or not. Using our proprietary pay-for-performance model, we have evaluated the performance of thirty-eight CEOs in the hotel/leisure industries. In using our P-F-P model, we determined whether a CEO deserved their pay relative to their industry peers.
The AETHOS Pay-for-Performance Model analyses key financial metrics such as market capitalization, stock appreciation, EBITDA growth, and total direct compensation. The market capitalization of our peer group ranged from Walt Disney's colossal $163B to Condor's tiny $9M. Comparing CEOs from two vastly different companies might appear difficult, but that is precisely what the model does. In fact, it illustrated that Bob Iger truly deserved his very large $40M pay check. It also shows that Bill Blackham at Condor warranted a raise to $1.7M. It also indicates that Jeff Keil at St. Joes barely deserved any pay at all. We still believe that value creation should be the most significant factor in doling out CEO pay. In that regard, investments in Hersha, Disney, Royal Caribbean and Priceline and their CEOs would have been the smartest decision.
Click here to access an overview of executive compensation at the reviewed companies.
As in previous years, the highest paid CEOs in the industry ran the largest companies. The top ten CEOs each earned more than $7M, with Bob Iger topping the list at $46M. Priceline's Darren Huston received just over $15M, followed closely by the CEOs at Marriott, Wyndham, Starwood and Hilton. Although their pay packages were significant, these CEOs generally deserved their compensation. All had an AETHOS Value Index (AVI) ranging from Richard Fain's 110 to Ed Walters at 87 (a score of 100 would be spot on). This year's top performing CEO base on the model was Jay Shah at Hersha with an AVI of 210. Following Shah were Warren Haruki at Maui Land, David LaRue at Forest City, Andrew Sims at Sotherly and Bill Blackham at Condor.
Ten CEOs in the hospitality industry received a base salary of $1M or more. Bob Iger topped the list with a salary of $2.5M, while NCL paid Frank Del Rio $1.8M. Five of the big hotel chains paid their CEO a seven figure salary ranging from $1M to $1.6M. Many of these same CEOs also received the largest bonuses in 2015, with Iger taking home a $22M bonus while, Wyndham's Stephen Holmes was next with a bonus of $4.8M. This makes sense as most CEO bonus programs are pegged at a percentage of base salary. Furthermore, the average CEO bonus in 2015 was $1.8M, a nearly 30% decrease from the previous year.
In addition to bonuses, long-term incentives were a significant portion of overall CEO pay. Most LTIPs were in the form of stock options and restricted stock grants. The largest stock grant in 2015 went to Del Rio at NCL, with a value at just over $28M. The average LTIP in 2015 was $4.1M, a $1M increase from last year.
When taking into consideration the value of common shares owned, the richest CEO in the hospitality industry remains Jonathan Tisch at Loews with an ownership interest worth $338M. Chris Nassetta at Hilton is next with an ownership interest of $184M. Almost every other CEO on our list was worth double digit millions. So to all you aspiring hotel executives, start thinking big. Our industry has become a great incubator for wealth creation, new technology applications and innovation. This might be the perfect time in the cycle to make your mark.