Top Hotel Industry Performers in a Turbulent Time - By Keith Kefgen and Becca Ickowicz | HVS International

July 21, 2008

Top Hotel Industry Performers in a Turbulent Time | By Keith Kefgen and Becca Ickowicz | HVS International
CEO
compensation in the hotel industry continues to be an important issue
in the midst of an economic downturn. Based on our pay-for-performance
model, Jon E. Bortz of LaSalle Hotel Properties was underpaid by 111.9%
or $2.1 million in 2007.

Last
year, the trend towards private equity was the hot topic in the hotel
industry. This year the focus is on the economy. The hospitality
industry has undoubtedly been affected by the faltering economy and
more specifically, the credit markets. First of all, capitalization
rates are on the rise. Additionally, the demand for hotel rooms is
slowing, indicating a decline in occupancy and ADRs over the
foreseeable future. Has the economy affected CEO pay?

This year, thirty-one companies were included in our survey, down
from thirty-seven last year and fifty-two six years ago. This trend
illustrates the increasingly popular shift towards companies going
private. The remaining group was a mix of large, mid, and micro-cap
companies. Our top performing CEO in 2007 was Jon E. Bortz of LaSalle
Hotel Properties.

Top Performers
Based on our pay-for-performance model, Mr.
Bortz was underpaid by 111.9% or nearly $2.1 million in 2007. This
model takes into consideration three primary criteria, EBITDA/FFO
growth, market capitalization and stock appreciation, and compares that
to total compensation. The result is a pay-for-performance index that
determines how much a CEO was over or under paid in a given year. Other
top performers included Paul Schulte with Supertel Hospitality,
Stephanie and Peter Sonnabend of Sonesta International, William
McCarten with DiamondRock (last year’s winner), and Arthur Coffey of
Red Lion Hotels (who recently announced his retirement). Although out
winner was a mid-cap company, the rest of our top performers were
small-caps. It is not surprising that large-cap companies did not make
this list as many have pay programs that are well aligned with
performance. This makes it more likely for small and mid-cap companies
to underpay their CEOs.

Top Appreciators
The best investments over the past three
years include Sonesta International, Priceline.com, Vail Resorts, Red
Lion Hotels, LaSalle Hotel Properties and Loews Hotels. These companies
had the best stock appreciation from December 2004 to December 2007.

Sonesta continues to appreciate in value and be a leader in this
category for 3 years in a row following their January 2005 announcement
to partner with Fortune International Realty to redevelop its Sonesta
Beach Resort in Key Biscayne, Florida. Although the stock price more
than tripled from $7 a share to well over $23, we don’t know that this
trend will hold under current economic conditions.

In contrast, Bluegreen was the second highest appreciator in 2006
and second to last in 2007. Their sudden depreciation in July of 2007
corresponded to the public announcement of David Siegel’s increase in
ownership to around 32.1%. Many companies’ stock value suffered from
the troubled market climate, and we foresee a similar trend in 2008-09.

Top Salaries and Bonuses
The average CEO salary increased
to $721,000 from $631,000, or 14.3%. This follows an 8.2% increase in
CEO salary from the previous year. We believe this is due to the
increasingly competitive talent pool as well as more systematic and
balanced approach to compensation directives. This year the largest
base salary was paid to Robert Iger of Disney for the second year in a
row at $2 million. Rounding out the list of top salaries included
Steven Heyer, Jonathan Tisch, J.W. Marriott, and Richard Fain, each
earning around $1 million in base salary. All were CEOs of large-cap
companies.

Bonus compensation for hotel CEOs increased again in 2007. The
average bonus was nearly $1.2 million, which is almost double the
average salary. Similar to our survey last year, these results lead us
to believe that shareholders will continue to request performance-based
compensation packages. For the third year in a row, Robert Iger of
Disney topped our list with the largest cash bonus at $13,671,000.
Iger’s bonus was nearly five times greater than the second highest
bonus, which went to Royal Caribbean CEO Richard Fain at nearly
$2,991,000. Other top bonuses in the $2 million range include Mickey
Arison, J.W. Marriott Jr. and Jonathan Tisch. Clearly, large-cap
companies are paying more in this category, which verifies the theory
that company size dictates pay size.

Top Stock Incentives
The CEO receiving the honor for top
stock incentive is Robert Iger with Walt Disney. Mr. Iger received
nearly $10,175,000 in long-term incentives. Other multi-million dollar
incentives were J.W. Marriott Jr. and Mickey Arison. Stock awards were
also dominated by the large-cap companies.

Richest CEOs
Like the previous two years, the spot for
richest CEO is a battle fought by our two billionaires, Mickey Arison
and J.W. Marriott Jr. Arison takes the lead again, but interestingly
enough, Arison’s fortune is down from $11 billion in 2005 to $8.4
billion this year. Marriott is also down, from $3 billion in 2005 to $2
billion in this year’s survey. The CEO’s rounding out our list of the
richest include Charles Ratner of Forest City, Jonathan Tisch of Loews
Hotels, and Richard Fain of Royal Caribbean.

CEO compensation continues to be one of the most scrutinized topics
in corporate America. Shareholders are increasingly attempting to
regulate multi-million dollar compensation awards to underperforming
CEOs. Large shareholders have actively petitioned corporate boards
regarding CEO compensation as they want a greater say on CEO pay.