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Amid cost cuts, executives' pay raises hackles

15 Jun 2009

By Liz Benston, Las Vegas Sun

LAS VEGAS, Nevada -- 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.

Copyright © Las Vegas Sun. Inc. Republished with permission.

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