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twitterDAILY MEMO: Gaming:
Amid cost cuts, executives’ pay raises hackles
Workers see contrast with their worsened fortunes
Monday, June 15, 2009 | 2 a.m.
Gary Loveman, CEO of Harrah's Entertainment
Sun Archives
- Harrah’s execs dominate top spots on compensation list (6-5-2009)
- Harrah's owners offer to buy outstanding debt (3-19-2009)
- Harrah's expects annual savings of $500 million (3-17-2009)
- Harrah's announces plan to reduce debt burden (3-4-2009)
- Gambling on private-equity firms (10-12-2006)
When Station Casinos last year reported that top executives exercised more than $200 million in stock options triggered by a $9 billion management-led buyout by a private investment company in late 2007, critics attacked the lavish rewards, which made Station bosses the highest paid local executives in 2008.
That criticism is being repeated now that debt accumulated from the deal will force Station to seek bankruptcy protection.
That executive pay report was released in June 2008, before the downturn worsened and led to waves of casino layoffs. For casino workers who still have jobs, extensive belt-tightening programs have resulted in cuts to benefits, fewer work hours and heavier workloads.
It’s no surprise, then, that recent filings by Harrah’s Entertainment revealing the value of stock options exercised by executives in the wake of the company’s leveraged buyout in January 2008 appear to be eliciting a stronger response from the public as well as Harrah’s workers.
For locals who have lost jobs or fear for them each day, the fact that Harrah’s CEO Gary Loveman received $89.1 million in 2008 from the sale of stock and options feels like a punch in the stomach. Loveman, the highest-paid executive at any publicly traded company based in Las Vegas, also took home a base salary of $2 million, though he received no bonus or incentive-based cash payments last year.
The value of stock options exercised in the wake of the buyout boosted other Harrah’s executives to the top of the list of highest-compensated local executives for 2008. No. 2 executive J. Carlos Tolosa, Harrah’s Eastern Division president, reported $15.7 million in compensation, including a base salary of $1.1 million and $14 million in gains from stock and option sales. Former Chief Financial Officer and Vice Chairman Charles Atwood ranked third with compensation of $13.1 million in 2008, including a salary of $1.3 million and $11.8 million in gains from stock and option sales. (The list, compiled from Securities and Exchange Commission filings, ran two weeks ago in the Sun’s sister publication In Business Las Vegas.)
Like Station, Harrah’s went private with the help of private equity money at the worst possible time, accumulating billions in debt just before the recession decimated earnings.
Loveman’s windfall was still less than the $122.4 million Station Casinos CEO Frank Fertitta III received in 2007 from stock gains as well as former Station President Lorenzo Fertitta’s stock gains of $111.5 million that year.
Critics have railed at both companies for cheapening their offerings in the downturn, which could become a self-defeating strategy. Station is expected to wipe out a significant chunk of its debt in Chapter 11, allowing more of its cash to be reinvested in its properties.
There may be more uncertainty for employees at Harrah’s, which will be forced to cut costs to reduce more than $20 billion in debt.
This year’s executive pay packages, which will be reported next year, will reveal what bosses received for keeping their companies afloat.
Falling earnings and stock prices led to deflated compensation packages that were millions less for gaming executives in 2008 than in previous years.
Only a few of Las Vegas’ highest-paid gaming executives received incentive-based payments in 2008, including the top ranks at Wynn Resorts, Pinnacle CEO Dan Lee, Harrah’s Central Division President John Payne and a pair of Bally Technologies executives.
Salaries, starting at $500,000 or even $1 million for the biggest companies, stayed the same or increased slightly from 2007 — another bitter pill for casino workers who have cheaper or less food in employee cafeterias, more expensive health plans, fewer days off and half of their usual tip earnings.
Discussion: 27 comments so far…
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scumbags, these are the people you need to direct your anger, not union working people. wake up folks, this has been happening since man arose from walking on all 4's. rich and powerful try to divide working class with abortion, immigration, gay marriage, guns, etc. etc. etc.. it's all about the money and power to them. just look at dick cheney, do you think he'd give a rats ass about gay marriage if he didn't have a gay daughter.
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...Could Liz Benson explain to me if their are benefits if these execs exercise stock options at a lower price, (more shares) than at a regular price..
...An example would be a Fund purchase monthly at one hundred dollars, if share prices are fifty dollars in January and dip to ten dollars in June.
....Jan.. 2 shares at fifty
....Feb.. 2.5 shares at forty
....Mar.. 3.3 shares at thirty
....Apr.. 5 shares at twenty
....May.. 8 shares at twelve.and a half
....June..10 shares at ten
...What if John Doe is paid two million and has an option for five million. When does he exercise the buy and is it wise to wait for the lowest price..???
....Mucho Groucho...
And so it goes. Haves make more money and the have nots pay for it.
formervegas76
I agree, everyone wants to point a finger at anyone other than the thieves of the world. The scum at the top needs removed, in every business. The sad part is those in charge think they deserve that kind of money.
We can't blame them for their fortune. They went to good schools, earned degrees that allowed them to be in a position to make this kind of money. It's not their fault.....companies are willing to pay them this kind of money.
How many of you would have turned down that kind of opportunity if you were given the chance? I am willing to bet 99.9% of you wouldn't. I'll be honest with you.....I wouldn't.
If we all would have went to better schools, gotten a degree from a prestigious University, and made the right connections.....we would be in a similar situation. We shouldn't be so envious of other people's successes.
S711
You just don't have to go to their casinos and business will drop more! maybe the banks are listening.
Harrahs has announced another cut in employee benefits with their so called express scripts. Now we have to pay 25% of prescriptions instead of 10%. Will it never end, not until Gary Loveman is removed from the top, along with his other cronies.
Harrahs cuts for employees and guest have dramatically reduced business and moral among the employees is at an all time low. Keep it Gary, the "FALL" is coming.
Obama's team will make them pay it all back.
The article doesn't say how many years to obtain the options, it only tells us they sold them last year.
Options are to buy at a set price, not whatever the price goes down to. The lower the price, the less they are worth.
S711,
That's how it works in theory... Horatio Alger and all. Hard work is rewarded.
But, this is not a fiction, it's reality. You need more than intelligence to get into a good school. You need to do more than work hard to get into any elite institution. You need something very specific that you can't really be taught, you can't really buy, and that you can only be born with: family connections.
There is a reason the rich get richer and the poor get poorer.
New money is good, but it will never be as good as old money... just like in that clique, those who have new money are good, but they're just not as good as those who have old money.
Sinatra711
You're a moron!! You totally DO NOT UNDERSTAND this story at all. It's not about where these guys went to school, etc. Many a rich man/woman did NOT go to a prestigious school. And yes, it does take hard work to achieve success but these guys - how hard did they all work to get that kind of money? Something isn't right since both casino companies are in precarious financial positions. It's about plain greed while they are laying off employees, cutting benefits from those who were not layed off, these guys were laughing at those same employees. If these said honchos didn't get half of that money and actually did WORK for that insane compensation they did get - maybe their properties wouldn't be in the positions they are in today. Kinda reminds me of the dude who ran was it Washington Mutual for 3 weeks, left, got a HUGE compensation package and before you knew it, WAMU was asking for bailout money. Hey if you do yur job, fine; if you don't - you shouldn't get all that $$$$$
Mandy - Who's the moron? It certainly isn't me. I'm happy with what I make and I am not complaining about these guys salaries & compensation. I'm honest enough to admit that I wouldn't turn down an offer if I got an offer like they did.
Sounds like you are pretty bitter.....maybe a little too close to this situation?
S711
RustyShackleford - It does take hard work. I got accepted into a fairly prestigious school here on the West Coast and I have absolutely no family connections. I got in on my own. It is not fiction, it is reality.....if you push yourself hard enough and not let anything hold you back, you will be able to accomplish anything.
Don't get me wrong, family connections are a huge plus. However, I know many people who have made it big without the family connections.
S711
i guess sinatra, when you get to the top forget the people you grew up with. selfish. if your making these big salaries, why the heck you bothering with us low lives.
formervegas76 - I never said I made these big salaries.....did I? I said, if I was offered a deal like they have, then I wouldn't turn it down.......just being honest.
I'm going back to school to get an advanced degree in the hopes that I can someday make salaries like that. I'm not even remotely close to making that kind of money, but you know what? I'm not complaining about the disparity between what they make and what I make. I'm going back to school to do something about it......and I'm not relying on someone else to do it. I'm paying for it out of my own pocket and with student loans.
I'm sorry you view yourself as a low life (your words, not mine)........I don't.
S711
I'll say it again........Please die harrahs!!
I worked for Harrah's during 9/11. All the big wigs were driven by their chauffeur's to the main office where they had a catered lunch in the board room. Their decision regarding the downturn was to freeze raises for the rank and file employees until people began to travel and vacation again. Then they got in their limousines and drove off.
What ever made you think that the CEO's of major corporations gave a darn whether their employees lived or died? You're all replaceable. They're too busy counting their money and ensuring that the cocktail waitresses wear the "right" makeup.
As the old saying goes, when the tide goes out we see who's swimming naked. It's pretty obvious the Fertittas were swimming naked. Up until the crash practically any casino anywhere put up in the last decade flourished. Banks threw money at every project and it was quite easy for casino companies to raise capital in the stock market. Now that the downturn is here we see the greedy incompetents for what they are.
Stock options have been a great way for owners and managers to milk a company without calling it "salary". When the tech bust hit after the crash in 2000 a huge amount of stock options were underwater and most likely would never pay off. Most of those same companies emphatically denied they were going to reprice those options to put them in the money. A little while later when the hoopla about options died down, they repriced so the executives could get those big paydays again even though they didn't deserve them.
I wonder where the Fertitta boys would be today if their father hadn't given them a huge start in school and the business. Frank Fertitta JR. started and built a good solid business that he handed over to his 2 sons so enough about how their education got them to where they are.
We seem to equate business success and it's monetary rewards to the guy at the top. Many an incompetent executive has been handsomely rewarded because his only redeeming quality is he hired good people and then took credit for their hard work.
The Fertittas got an education and deserve their riches? Read the aritcle below and see how they got their riches and it wasn't thru hard work.
http://unlimitedfightnews.com/wordpress/...
More on father Fertittas early career.
http://www.sherdog.net/forums/f44/ufc-zu...
Both Station and Harrahs were bought out by private equity firms. The last thing outfits like these want is equity. They typically do a leveraged buyout where they pledge the aquired companies assets as collateral for a loan to purchase. An oversized mortgage. They usually try to finance the whole purchase or as close to it as they can get. In the past equity outfits would steal the best assets from the purchase and load on more debt then put some lipstick on the pig they created to entice new buyers or do a stock offering. While being in the ownership position they pay themselves very handsome fees. I don't recall the particulars of the Station or Harrahs deals, but it's obvious they overleveraged and the market turned before they could flip and now they're stuck. It's same with Cerberus and Chrysler. The equitiy outfits structure themselves so any bad deals don't cost them much or bring down the firm. It's the banks and their customers, us, left holding the bag.
I feel that you should all get over what has happened because there will be nothing done about this situation. Gary and his croonies are laughing at all of you. The only way to deal with these CEO's not only at Harrahs but nation wide is to Fire all of them, freeze their assets and bank accounts and liquidate everything back to the companies. Unfortunately . . . there will always be the next appointed person probably from the board of directors to be the new CEO and he or she will play the same game until they get fired. The Shareholders need to revolt and see to it that all new contracts are salary capped and no bonuses higher than 1/8 of 1% of the total profits Max per given Quarter. Now if the said CEO shows a loss in profits or Bankrupts a company . . . They shuold be fired for breach of contract and asked to step down without any severens pay what so ever. You should also remember that these Corporate heads are also the people that corrupt all politicians by filling their pockets with untold millions.Good luck America with cleaning up this mess. You don't stand a chance in Hell.
Something to keep in mind. When a company goes private, ALL outstanding stocks (and options) have to be redeemed at the time of the transaction so the executives (and a lot of employees and public stock holders) didn't exercise options voluntarily, they had to "cash out" at the time of the transaction. A Lot of stock holders who held stock in these companies for years and sold them (in this case at the right time) made a lot of money also, not just the top executives. And these top executives are the ones who made the company successful so that transactions like these could occur and will more than likely be the one's who can bring the company back to the success they had prior to the economic melt down. it's so much more complicated than casting stones at the executives (or other stock holders) who happened to be in the right place at the right time, just very sad that the transaction itself and the economic meltdown couldn't have come at a worse time for companies dependent on disposable income! Without this transaction the layoffs and cutbacks will still have occurred, the transaction made it worse certainly, but there would still be a lot of challenges never before faced by the industry. Skyhawk.