Director Pay in Public Hotel Companies - By: Keith Kefgen & Michael S. Kogen - HVS Executive Search
The old axiom, "you get what you pay for," implies that all things have a price/value relationship. However, paying the highest price does not always ensure getting the best quality. In the world of corporate governance, human capital is the commodity, and it too has a price. Our recent study of Director compensation takes a look at the price/value relationship and compares the hotel, restaurant and gaming segments of the hospitality industry.
Director compensation is typically a combination of cash retainer, stock retainer, stock awards, and fees for attending meetings. To analyze the data fairly, we made the following assumptions:
- Each Director served on the Board for the entire year and attended every meeting.
- Each Director served on two sub-committees.
- The number of total committee meetings attended was an average of the Audit and Compensation committee meetings held.
- There were no meetings, either Board or committee, conducted via telephone for which a Director was compensated.
- There were no "actions taken by unanimous written consent" for which a Director was compensated.
- Stock grants or options given to Directors upon joining the Board were aggregated over a five-year period.
- Total Compensation = Cash Retainer + Initial Stock Retainer + Meeting Fees + Annual Stock Award
- Stock option values were calculated using the Black-Scholes Valuation Model. We assumed the following:
- When grant date and/or price were not given, we used data from the executive compensation table.
- If option grants varied among Directors within a company, the average value was assumed.
Company size has a substantial impact on how Directors get paid, so we grouped companies into three categories based on market capitalization: less than $300M, $300M-$1B, and greater than $1B.
As the table illustrates, compensation follows a path consistent with the size of a hotel company. The "large cap" firms are paying the highest compensation packages in each of the three categories, with the largest payment of $615,470 paid by a company in the greater than $1B category. For those of you who hope to eventually achieve Director status, it is worth noting that the next-highest maximum total compensation package in the hotel industry is $237,068.
It is important to evaluate the form of the compensation as well as the dollar value. Companies in the Fortune 500 have shown increased trends to compensate Directors in annual stock awards. The hospitality industries (hotel, restaurants, and gaming) show the same trend.
Annual stock awards account for 54% of total compensation. With initial stock retainers representing 10%, the industry pays 64% of Director compensation in company stock; we believe that this percentage is appropriate. Regarding cash retainers, the Hotel industry is consistent with the restaurant and gaming industries, paying 28.37% of total compensation, compared to 24.0% for the group.
The big question remains: are Hotel investors getting what they pay for? As we noted in our annual study of the most effective (and ineffective) boards, not a single company in the industry has a stated method for evaluating Director performance. It appears that our question will remain unanswered until we can convince public lodging companies to document Director performance. We think boards should make the move before the SEC demands that they capitulate.
Reprinted with permission from Hotel Business.
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Keith Kefgen is a frequent lecturer on industry-related issues and has written more than 90 articles on the topics of executive selection, pay-for-performance, corporate governance and executive leadership. He is the founder of two e-commerce initiatives,
Michael Kogen is Vice President of HVS International Executive Search. Prior to joining the HVS Executive Search team, Kogen worked at Hospitality International Executive Search of New York City, where he was Vice President responsible for the Hotel Division. Prior to his time there, he served as General Manager of the Mansfield Hotel, also in New York, an award- winning property in the Boutique Hotel Group portfolio.
HVS Executive Search provides human resource expertise to the restaurant, lodging, and gaming industries. Core competencies of the firm include executive search, compensation management, corporate governance counseling, employee assessments, and on-line recruiting. For more information go to
20 20 Skills™ is an internet-based assessment tool specifically designed for service industry professionals. The site provides a state-of-the-art solution for assessing performance characteristics and cultural compatibility. 20 20 Skills™ was authored by professors Florence Berger and Judy Brownell of the Cornell University School of Hotel Administration. The assessment profile has three unique levels: senior, mid-management and line. For more information go to