Tiffany Brown / FILE PHOTO

Station Casinos President Lorenzo Fertitta, left, and his brother Frank Fertitta III, chief executive, were by far the two highest paid executives in Las Vegas in 2007. The bulk of their earnings came from exercising stock and options after Station Casinos was bought for $9 billion and taken private.

By Liz Benston

Mon, Jun 16, 2008 (2 a.m.)

Until the economy turned south, Las Vegas casino companies enjoyed a robust 2007, rewarding executives and leading a pair of brothers to a pot of gold at the end of their rainbow.

Many executives, acting before gaming stocks plummeted, profited after selling hundreds of thousands of shares from exercised stock options and grants of stock.

In a class of their own: Station Casinos Chief Executive Frank Fertitta, who in 2007 made $122.4 million in exercised options and vested stock. He made another $3.5 million in other compensation. Similarly, Station President Lorenzo Fertitta earned $111.5 million from the value of stock and options, plus another $2.3 million in other compensation.

Their big paydays came after Station Casinos was purchased for $9 billion and taken private by Colony Capital.

Overall, six of Las Vegas’ 10 highest paid executives in 2007 were Station Casinos bosses, according to the Sun’s sister publication, In Business Las Vegas. Its list is based on Securities and Exchange Commission filings for all public companies in the region, which include those with publicly-traded shares and/or bonds.

The balance of last year’s top 10 were MGM Mirage executives Bobby Baldwin, John Redmond, Jim Murren and Gary Jacobs. These longtime executives also cashed out by selling large chunks of company shares last year.

The list can change dramatically from year to year. MGM Mirage Chief Executive Terry Lanni earned $22.2 million in 2007, placing 11th behind Station’s top executives and even other MGM Mirage executives. In 2006, he topped the list for earned compensation, with $30.1 million.

Aside from exercised options and share grants, executives reported similar salaries and annual bonuses, typically offered to executives regardless of performance, in 2007 versus the previous year. Incentive-based pay, based on some measure of company performance, actually declined slightly for many top executives last year.

Companies have long defended grants of stock and option grants as a way to reward executives over the long haul, saying such incentives align company interests with those of shareholders. Stock grants as well as options typically must be held for years before they can be sold.

Some executives say it’s misleading to compare compensation packages that include exercised stock or vested shares because executives may choose to exercise blocks of options they’ve accumulated over several years in a single year. Likewise, blocks of restricted shares may vest, counting toward compensation that year even though an executive might choose to keep those shares rather than actually pocketing the cash.

Of the major operators, MGM Mirage stock rose the most last year, soaring more than 40 percent. Station rose more than 10 percent last year until the stock, which sold for $90 a share, was delisted in November. Wynn Resorts stock rose nearly 20 percent and Las Vegas Sands shares rose more than 15 percent. Harrah’s Entertainment, delisted in January of this year, rose more than 7 percent last year and shares of Boyd Gaming Corp. — the hardest hit of the remaining public companies – fell nearly 25 percent in 2007.

Neither Steve Wynn nor Sands Chief Executive Sheldon Adelson vested stock or exercised options last year so their pay was primarily a total of base salary plus incentive-based bonuses. Wynn, No. 13 on the list, earned the highest salary and incentive bonus, $3.2 million and $7.5 million, respectively. Adelson, No. 30, reported a salary of $1 million and an incentive bonus of $1.9 million.

Harrah’s Chief Executive Gary Loveman, No. 16 on the list with $8.2 million, reported a compensation package that appeared evenly spread between salary, incentive-based pay and the value of options and stock grants. No. 28 Bill Boyd of Boyd Gaming earned $3.8 million, mostly from salary and performance pay.

Overall, the numbers are higher than ever — and compensation experts say they expect that trend to continue.

Soaring CEO pay is a lightning rod for dissident shareholders, politicians and other corporate critics, especially now during the economic downturn.

Some members of Congress have proposed various bills in recent years to limit executive pay, and Democratic presidential nominee Sen. Barack Obama wants Congress to pass legislation he has sponsored that would allow shareholders to vote on executive pay packages.

There’s greater scrutiny of pay packages since last year, when the SEC began requiring companies to report in greater detail when and how executives get paid, how much that pay cost the company and why compensation committees appointed by boards of directors decided on those amounts.

There’s a third pressure point in the form of private equity funds that were buying up public companies until the market downturn, said John Challenger of the executive headhunter firm Challenger, Gray & Christmas.

While compensation figures for these funds remain private, “private equity companies are trying to control costs and one of those costs is the cost of management,” he said. With ownership limited to a select few shareholders, private equity funds have much greater control over company expenses, including pay packages, than public companies with tens of thousands of individual shareholders.

Together, all these forces may create a tipping point to slow the growth of executive pay, Challenger said.

But that doesn’t appear likely in the near term, with pay packages expected to rise this year, even as earnings and stock prices drop, he said.

“There’s so much pressure to stay the same or grow. The system is pretty entrenched as it is.”

The rise of private equity firms may actually serve to compensate top-performing hotel and casino operators more richly than in years past, said Benoit Gateau-Cumin, president of the Boutique Search Firm, an executive search agency in Beverly Hills that works in the hotel industry and the nongaming side of the casino resort business.

“In the hospitality industry, it used to be that a bonus would represent 20 to 40 percent of an executive’s base salary. In private equity, your bonus can be more than 100 percent of your base. But if things don’t go as well, you won’t make as much money — or you won’t be asked to stay.”