Stock boosts pay for Station execs

Wednesday, July 10, 2002 | 10:55 a.m.

Executives of Las Vegas locals' casinos giant Station Casinos Inc. dominated the top of the list of the 50 highest compensated Las Vegas executives in 2001 -- beating out some international casino chiefs -- mainly due to large awards of restricted stock.

Still, executives at the world's largest casino companies came out ahead of the pack when ranked by annual compensation alone, according to a ranking compiled by In Business Las Vegas, a sister publication of the Las Vegas Sun.

The ranking is based on an analysis of company proxy statements and annual reports.

Overall, casino executives were paid handsomely last year compared to counterparts in the traditional hotel industry and other sectors, compensation experts say. Gaming companies have fared relatively well compared to other industries. And with profit margins above that of regular hotels, hotel-casino chiefs are in a position to reap the rewards of company performance, they add.

Station's Chief Executive Officer Frank Fertitta III, President Lorenzo Fertitta and Chief Financial Officer Glenn Christenson ranked 2nd, 3rd and 4th in total compensation among Las Vegas executives, topping Park Place Entertainment Corp.'s Thomas Gallagher and MGM MIRAGE's Terrence Lanni. Station executives Steven Cavallaro and Scott Nielson ranked No. 6 and No. 9 on the list -- meaning five of the top 10 spots were filled by Station executives.

But the best-paid executive in Las Vegas in 2001 was Harrah's Entertainment Inc. Chairman and Chief Executive Philip Satre. Exercised stock options were largely responsible for his rise to the top of the local compensation list.

Satre reported $7.8 million in total compensation, including an annual compensation of $2.2 million, long-term compensation of $5.1 million and other compensation worth $526,186. That compares to an annual salary of $1,585,035 in 2000, with no exercised options.

Annual compensation includes yearly salary, bonuses and other annual compensation. Long-term compensation includes awards of restricted stock and exercised stock options. Restricted stock, often awarded to management, typically must be registered with regulators and may not be immediately sold. Other compensation includes recurring and one-time miscellaneous payments such as health insurance premiums and company contributions to retirement plans.

Frank Fertitta reported $6.5 million in total compensation, including annual compensation of $1.4 million, long-term compensation worth $4.4 million and other compensation of $734,419. Lorenzo Fertitta reported $4.4 million in total compensation, including annual compensation of $878,900, long-term compensation of $3.4 million and other compensation of $175,469. Christenson reported total compensation of $4.2 million, including annual compensation of $657,800.

Frank Fertitta and Lorenzo Fertitta owned 17.1 and 11.5 percent, respectively, of company stock as of Feb. 28, financial statements show. Christenson owned 2 percent of company stock.

The totals mark significant increases from 2000, when none of the three received awards of restricted stock. That year, Frank Fertitta received $1.8 million in annual compensation and $834,386 in other compensation. Lorenzo Fertitta, named company president in July, received $502,644 in annual compensation and $49,875 in other compensation. Christenson received $831,538 in annual compensation and $531,527 in other compensation.

Long-term incentives, such as stock and option grants, are a key component of executive compensation and are a way to align the company's interests with those of shareholders, Christenson said.

"What's important from our shareholders' standpoint is that we have a very definitive plan on how we compensate people. The biggest piece of our compensation comes from the long-term incentives, where our interests are completely in line with our shareholders' interests."

The company's restricted stock awards won't vest for at least 5 to 10 years, he said. Moreover, executives took a 12 to 22 percent salary cut last year as a result of the sluggish economy in Las Vegas, he added.

Gary Loveman, president and chief operating officer of Harrah's, ranked 5th on the list. Loveman reported $3.7 million in total compensation, nearly half of which came from exercised stock options, and an annual compensation and salary of $1.8 million.

Park Place's Gallagher placed 8th, at $3.2 million. Gallagher joined the company in late 2000, reporting annual compensation of $335,500 that year.

MGM MIRAGE's Lanni placed 10th, at $2.9 million. The executive had a big year in 2000, reporting compensation of $3.4 million. That included a performance-based incentive bonus of $1 million and a $1.5 million bonus for the completion of MGM's acquisition of Mirage Resorts.

Peter Morton, chief executive of the Hard Rock Hotel empire and the operator behind the Hard Rock Hotel & Casino in Las Vegas, reported $2.4 million in total compensation, placing 15th. Boyd Gaming Corp. Chief Executive Officer William Boyd was 16th in the ranking, reporting $2.2 million. Mandalay Resort Group Chief Executive Officer Michael Ensign was 23rd, at $1.8 million.

Executives at the largest gaming companies topped the list in annual compensation alone.

Lanni earned $2.5 million in that category, followed by Satre at $2.2 million, Mirage Resorts Inc. Chief Executive Officer Robert Baldwin at $2.1 million and Mandalay's Ensign at $1.8 million.

If a company's stock outperforms peers, it's not unusual to see its executives top compensation lists, said John Challenger, chief executive officer of outplacement firm Challenger, Gray and Christmas Inc.

The 1990s trend of gearing executive compensation plans toward stock performance is coming into question now as a wave of corporate accounting scandals hits Wall Street, Challenger said.

Investors are now concerned about whether overall executive pay has become inflated beyond reason.

"The question becomes whether the communities, the employees and even the investors themselves gain from what many think are outlandish executive compensation packages," he said.

About half of the executives on the Las Vegas list make "substantially more than" their counterparts in the traditional hotel industry, said Benoit Gateau-Cumin, president of the Boutique Search Firm, a Culver City, Calif.-based executive search agency catering to the gaming and hospitality industry.

It's a reflection of the higher profits earned by hotel-casinos, he said. That trend may change as Las Vegas transitions from a gambling culture to a hospitality culture, where dining operations generate more than casino floors do, he said.

Other findings from the In Business survey:

Non-gaming executives on the highest-paid Las Vegas executives' list include: