US gaming companies up the ante in international markets and CEO compensation
By Keith Kefgen, Lacey Hagen and Mandeep Singh, HVS Executive Search
After a slower than expected recession recovery, the US gaming industry is beginning to see signs of optimism, leading towards an economic rebound.
Casino revenues have been increasing along with a stronger domestic and international presence. Commercial casinos are now in 22 US jurisdictions and companies have also begun serious developments in emerging international markets. These increases have produced a noticeable impact on executive compensation for certain gaming leaders; however, others are sitting at the table with a short stack.
Our annual review of gaming CEOs compared 2011 compensation in relation to stock performance, EBITDA growth and market capitalization over a three-year period. The results are expressed in our HVS Value Index, which reveals whether each CEO was over- or underpaid based on performance.
After two years of holding the top spot in the Top HVS Value Index, Full House CEO Andre Hilliou comes in second to Las Vegas Sands (LVS) CEO Sheldon Adelson, who moved up from the No. 12 ranking last year. According to our analysis, Mr Adelson was underpaid by 93.6%, or approximately $13 million. The LVS stock price rose 228% over the survey period, while 13 other gaming stocks improved from 2010 to 2011. Entertainment Gaming Asia had the largest stock appreciation with a 272% increase.
Salary and Bonus
The average base salary for a gaming CEO was US$776,000, a 13% increase over 2010. Seven CEOs had a base salary of $1 million or higher with Stephen Wynn leading the group at $2.95 million. The average bonus payout for 2011 was $1.32 million, a 25% increase from the 2010 average of $1.06 million and a 120% increase from 2009. This is a clear sign that business has been improving as most bonus payouts were based on financial performance metrics.
Five CEOs did not receive a bonus in 2011, while eight got nothing in 2010 and 11 in 2009. The largest bonus payouts were made to the same players as last year: Stephen Wynn, Wynn Resorts ($10.1 million), Sheldon Adelson, Las Vegas Sands ($6.3 million), and James Murren, MGM Resorts ($5.4 million).
Long -term incentives, typically granted in the form of restricted stock grants and stock options, averaged $2.04 million in 2011, a 28% increase above 2010. Gary Loveman of Caesars Entertainment garnered the largest long-term incentive package of $13.4 million. Caesars Entertainment rejoined the list after a hiatus of five years with their IPO.
Seven CEOs received nothing in the form of long-term incentives, which we thought odd in light of pay-for performance pressures from shareholders and boards. The average amount of “other” compensation was $388,726 in 2011, which was a 71% increase from the 2010 average of $227,000.
The average CEO total compensation for 2011 was $4.5 million with Gary Loveman of Caesars Entertainment leading the way with his $20.4 million package. Lorne Weil of Scientific Games Corporation followed closely with a package of $19.9 million.
It is an interesting and pivotal time for US casino companies as we start to see signs of recovery and growth. Of course, growth in Asian markets, especially fueled by new developments in Macau and Singapore, are responsible for much of the overall growth within the industry. Gaming executives that are playing these markets are poised to fare much better than those focused solely in the US. Fifteen states have seen overall GGR increases in 2011, most of which occurred in states that opened new casinos. Additionally, the gaming manufacturing sector, after two years of contraction, has started to post gains in revenue.
With his new development in Madrid, Sheldon Adelson may significantly increase the gap between himself and Micky Arison of Carnival as the highest-paid CEO in the industry. It appears that growth focused organizations are still getting greater multiples from Wall Street and investors. The key is walking the fine line between accretive growth and a capital stack that will implode at the sign of global economic weakness.
About the Authors
Keith Kefgen is CEO of HVS Executive Search. Keith has more than 20 years of experience in the field of hospitality executive search. He is a frequent lecturer on industry related issues and has written more than 100 articles on the topics of executive selection, pay-for-performance, corporate governance and executive leadership.
Lacey Hagen is vice president of HVS Executive Search in New York. Lacey is responsible for midmanagement recruitment as well as global marketing and business development initiatives in North America.
Mandeep Singh is vice President of HVS Executive Search in Las Vegas. Previous experience includes Robert Half International as a sales consultant for professional staffing and consulting services. He was also an associate at Ernst& Young.
Reprinted with permission from Casino Journal.