"Paid in Full" was the debut album of hip-hop duo Eric B. & Rakim. Released back in 1987, the album title has never rang more true for hospitality CEOs.
According to a new report from AETHOS Consulting Group, hotel CEOs are doing more than all right. The company released its 20th review of hotel CEO pay, finding that the average CEO earned more than $6 million in 2015, while the average stock ownership for the industry was over $40 million in the same period. The company also evaluated the performances of 38 CEOs using its Pay-for-Performance model, which takes into account market capitalization, stock appreciation, EBITDA growth and total direct compensation to determine whether or not these leaders earned their checks.
It may not come as a surprise that the industry’s highest-paid CEOs are in charge of the largest companies, with the top 10 CEOs all earning more than $7 million. Walt Disney’s Bob Iger led the list by a large gap, earning a staggering $46 million in 2015.
But it was Hersha Hospitality’s Jay Shah that took AETHOS’ distinction as top-performing CEO, scoring an AETHOS Value Index score of 210. Runners up behind Shah included Warren Haruki of Maui Land & Pineapple Company; David LaRue of Forest City; Andrew Sims of Sotherly Hotels; and Bill Blackham of Condor Hospitality.
Also, 10 CEOs led the list with a base salary of $1 million or more. Iger once again took the top spot earning a salary of $2.5 million, but many of the others also took home multimillion-dollar bonuses, Iger himself taking a $22-million bonus with Wyndham’s Stephen Holmes in second with a $4.8-million bonus. The average CEO bonus in 2015 was 1.8 million, down almost 30 percent from 2014 as CEO bonus programs are tied at a percentage of base salaries.
Stock options, restricted stock grants and other long-term incentives also factored heavily into CEO pay. The largest grant afforded to any hospitality CEO in 2015 went to Frank Del Rio at Norwegian Cruise Line, valued at roughly $28 million. The average, however, was roughly $4.1 million, up $1 million from 2014.
Annual salary, however, isn't everything. When it's all said and done, Loews Hotels’ Jonathan Tisch, who recently again resumed CEO duties, is the wealthiest CEO in hospitality. After considering the value of common shares owned, Tisch has a total ownership interest of $338 million. Next is Chris Nassetta at Hilton Worldwide with an ownership interest of $184 million.
With industry analysts unsure of hospitality's current position in the cycle, Keith Kefgen, managing director and CEO of AETHOS Consulting, told HOTEL MANAGEMENT that some income adjustments at the executive level can be expected, particularly in performance-based positions.
"Their salaries won't go down, and other compensation may not as well, but short and long-term incentives should be affected if companies are adhering to the Pay-for-Performance model correctly," he said. "Should annual bonuses be as significant as they are in an up market? We should see dips, so no, and that doesn't always happen so those are the kinds of things we want to point out."
Kefgen also said that executive pay is a major public interest right now, with public markets seeing a great deal of activism regarding CEO pay ahead of the U.S. presidential election. But if a company is paying its executives based on performance, the public, and even shareholders, won't cause as much of a stir.
"Our Pay-for-Performance modeling takes the size of a company into consideration when looking at executive pay," Kefgen said. "Bob Black could have gotten a substantial increase because he outperformed his peers, but Bob Iger deserves much of his pay according to our index because he is running Disney. There are a lot of needles to move at Disney, but he is paid handsomely to do so."