Marriott CEO Mr. Arne Sorenson has released statements in support of the hotel giant’s associates and also released a much talked about and emotional video a few weeks ago (read more here).
The company is furloughing most of the corporate employees for an undisclosed period (some likely will turn to pink slips), reducing the salaries of executives while seeking a 7.7% raise and up to 200% cash bonus based on 2019 performance for its CEO. This is not even including all the hotels that have suspended their operations and others that have greatly culled their staff.
UPDATE: We have clarified that the 200% cash bonus is based on 2019 performance, and 2020 is not yet determined. Since this proxy statement was issued, Mr. Sorenson has decided to forgo the remaining base salary for 2020 (note that his base salary in 2019 was less than 10% of total remuneration). Other senior executives will cut their base pay 50% for the remainder of the year. You could argue that he should forgo his 2019 cash bonus because actions taken last year (stock buybacks) are putting the company in peril this year.
The New York Times yesterday ran an interesting piece on what CEOs are doing for themselves while others are feeling the pain.
Here’s an excerpt from the New York Times (access their piece here):
Take, for example, Marriott International, the world’s largest hotel chain, which last year earned $1.2 billion. It has begun furloughing most of its American workers, jeopardizing their access to health care, even as the company paid out more than $160 million in quarterly dividends and pursued a raise for its chief executive, Arne M. Sorenson.
Over the last two years, while Marriott was recording profits of more than $3.1 billion, it spent more than $5 billion to buy shares of its stock.
Mr. Sorenson said he was forgoing his salary — $1.3 million annually — for the rest of the year, though he said nothing about his stock-based compensation, which exceeded $8 million last year, or the cash incentive plan that brought him $3.5 million, according to a company statement.
Twelve days later, the company paid its scheduled dividend to shareholders. On April 8, Marriott filed with the Securities and Exchange Commission proposals that its board would present for approval at a meeting of shareholders next month. Among them: a 7.7 percent salary increase for the chief executive, plus a cash bonus of up to 200 percent.
UPDATE: Here’s the statement that we received from the Marriott spokesperson after this piece was published:
At the board meeting in February 2020, following a comprehensive review of market data, the Compensation Policy Committee determined to increase the base salaries by 7.7% for Mr. Sorenson and by approximately 3% for the other senior executives for 2020. The increase for Sorenson was the first increase to his base salary since 2017. However, in March 2020, in light of the rapidly evolving coronavirus (COVID-19) situation, the Committee discussed with management the appropriateness of adjusting senior executive compensation as part of the Company’s numerous initiatives to mitigate the negative financial and operational impacts of COVID-19. Sorenson recommended that he receive no base salary for the remainder of the year and the other senior executives requested, and Sorenson supported, that they receive 50% of their base salary for the remainder of the year, in each case beginning in April 2020. The Committee and Board accepted these recommendations. The cash incentive of $3.5M for Sorenson reflects 2019 performance. Cash Incentive for 2020 has not yet been determined.
Here’s Marriott’s executive compensation in 2019 (access Marriott’s filing here):
I am all for paid sick time, European style 4 to 6 weeks paid vacation yearly, reasonable unemployment insurance (60% to 80% of salary for 6 to 12 months), universal healthcare and pension for all employees. I don’t, however, believe that companies should keep people on payroll that they don’t need.
I find it very distasteful that Marriott is seeking a remuneration raise for its CEO when the entire hospitality sector is collapsing due to over leveraging and uncontrollable expansion.
Marriott is more than $10B in debt while it used more than $5B in the past two years for stock buybacks alone. Unless business turns around drastically this year (extremely unlikely), they are likely in breach of debt covenants and need to seek bailout money.
You may wonder why companies buy back their stock? Guess what metric is often used for executive bonus compensation? Earnings per share!. When debt is cheap, you can increase the earnings per share by loaning money and canceling stock. This doesn’t work in your favor when times are not good, and debt is due and unfinanceable under the old terms.
As an aside, while reading Marriott’s recently filed Schedule 14A, I realized that Mary K. Bush is on Marriott’s board. Back in the mid-2000’s I was on a United flight with her and helped stow her bag in an overhead compartment. She was on United’s board at the time and given our chat, she was flying for free. Peculiarly enough, none of the crew on board seemed to have known or even assisted her, so she asked for my help.