Books open on execs’ rewards, but do shareholders care?

Friday, June 8, 2007 | 7:16 a.m.

Compensation is a grand total that includes base salary, bonuses, the value of stock options exercised and stock grants that vested that year and other compensation, which includes retirement benefits and other corporate perks. The cost to the company, among a slew of new Securities and Exchange Commission reporting requirements, is reported in a separate column and is not an accurate a reflection of the money executives actually received.

Source: In Business Las Vegas research, based on SEC filings.

In this town, you can measure a man by his shoes, the cut of his suit, the eye candy on his arm, the cars in his garage and the view of the Strip from his infinity pool. And once a year you can measure him in a more definitive way - by how he ranks on the annual list of executive compensation packages, published today in the Sun's sister publication, In Business Las Vegas.

Oh, the joy of being top dog.

In fact, most executives on this list would prefer enjoying their wealth in privacy. After all, the nation's gambling capital - with a dominant industry rewarding its bosses more handsomely than even some larger industries in bigger cities - has cultivated an embarrassment of riches in recent years. Publishing the numbers raises the perennial question: Are these guys really worth it?

The Securities and Exchange Commission, responding to criticism of accounting shenanigans and runaway pay packages, last year began requiring public companies to report in greater detail when and how executives got paid, how much that pay cost the company that year and why the compensation folks (a committee generally made up of nonmanagement members of a company's board) decided on those awards.

Sounds simple, right? Far from it.

The new disclosures have added several pages of charts, footnotes and other technical details to this year's corporate proxy statements. This partly pleases unions and shareholder activists seeking more explanation of complex arrangements such as severance packages and executive business dealings with potential conflicts of interest.

But many critics of soaring pay packages - and even some executives themselves - say the new details will only give more fodder to consultants paid to figure out ways to justify bigger salaries and benefits.

And what of investors, for whom the added information was intended? Some pay experts say it won't make much difference. Paying a few million more to the bosses accounts for a small fraction of corporate expenses and doesn't really affect stock price. And although information could inspire disgruntled shareholders to take action against a company's board, it won't, on its own, help them gain more control over compensation decisions.

For the biggest gaming companies - Wall Street darlings whose stocks continue to hit new highs - most shareholders are cheering, not jeering, as executives ride the biggest wave of growth the Las Vegas Strip has seen.

"Basically, people invest in stocks to make money," said Ellis Landau, former chief financial officer for Boyd Gaming Corp. (and No. 29 on the list). "They don't wonder what the boss is getting paid so much as how he's going to get their stock up.

"Nobody's sitting there complaining about how rich (Station Casinos Chief Executive) Frank Fertitta is when they're owning Station Casinos at $85 per share and remember when they bought it at $20."

But let's not forget human nature. Ego aside, executives and underlings want to know where the bosses rank, even if the totals are mostly inflated by the sale of stock options, which account for much of the gap between base salary and total compensation.

(Even though gaming stocks rose last year, the previous year's compensation totals were even higher than 2006's because bosses in 2005 cashed out a greater number of options.)

Although some experts call the added information overkill or at worst, more confusing, some observers, such as Michael Guttentag, a securities law professor at UNLV's Boyd School of Law, say it's a good thing.

Added disclosure doesn't necessarily address the issue of pay that is based more on what the competition earns than how a company performed. But it can give the public a better idea of where the company's money is going, Guttentag said.

For the sake of edifying the public, let's turn our SEC-enabled microscope on the list's No. 1 executive, MGM Mirage Chief Executive Terry Lanni. Surely the ever-polite Lanni, who is accustomed to the spotlight (and dresses impeccably, by the way) won't mind.

Lanni was paid a $2 million base salary last year.

So how did he end up with $30.1 million in total compensation?

It includes a $6.6 million bonus based on the company's improved performance. Thanks to this year's disclosure, the company explained how a percentage of its pretax profit was pooled into a fund split among the top executives. The higher the profit, the bigger the pool. Lanni was entitled to the biggest share, 28 percent.

What about the rest of the money?

The company didn't grant any stock or stock options to executives last year. But Lanni sold $14.1 million worth of exercised stock options, pocketing money from shares he was given over time, rather than all at once, by the company. Add to that restricted stock worth $6.3 million that vested last year. He didn't sell the stock but it still represents money he didn't have before and can now sell at any time for, say, a mansion in Las Vegas (or a small home in Beverly Hills).

Of course, that has little to do with the cost of options and stock awards granted to Lanni that the company, by some convoluted accounting method, was required to report on its books last year.

Other perks for Lanni and other company bosses include use of company fitness centers and access to hotel products and services at cost . Lanni also gets to use the company's jet up to three times per year for personal trips between Nevada and California (though he reimbursed the company $87,333 for part of the costs based on standard fares.) All told, the value of Lanni's use of the aircraft, plus 401(k) matches, insurance premiums and other retirement benefits totaled $1.1 million - money he didn't necessarily pocket that year but that was included as part of his pay.

Did we mention he dresses impeccably?