Executives win rewards despite stock's descent

Maine Sunday Telegram March 25, 2001

By EDWARD D. MURPHY, Staff Writer

Copyright 2001 Blethen Maine Newspapers Inc.


Since American Skiing Co.'s stock was first offered to the public in late 1997, its price has fallen steadily. The stock, which began at $18, currently trades at $1.50 a share.

During that same period, the pay and perks of the company's senior managers have continued to rise.

Leslie Otten, American Skiing's founder, president and chief executive officer, took home more than $400,000 in pay last year, plus a bonus of more than $23,000. Otten's base salary has grown by 16 percent since 1997, a period in which the company he heads has lost more than $130 million, including nearly $35 million for the first half of its current fiscal
year.

No one disputes that running a company that operates nine resorts, coast to coast, takes a lot of hard work -- especially now that a planned merger with Meristar Hotels & Resorts was canceled on Friday.

But investors don't like to see salaries and bonuses rising when their money is going down the drain, said Bradley McCurtain, the president of Maine Securities in Portland. He has followed the company since it went public and has been tracking its executive pay, bonuses and stock options.

"When you look at the year that they had now -- they lost $52 million and the stock price is down -- what is the justification for paying someone a bonus?" McCurtain asked. "What's the justification for handing out stock options? What are those people doing for you?"

McCurtain points out that Otten's not alone in pulling down a bigger paycheck, despite the sharp drop in the company's value. American Skiing's executive vice president, Christopher Howard, makes $300,000, double his salary in 1997. And Allen Wilson, who runs the company's resort in
Killington, Vt., earned $245,000 in salary last year, up 41 percent from four years ago.

And the top executives are getting more than just wages. Shortly after the company went public, its senior executives were offered stock options for $2 a share at a time when the public had to pay about $16 a share.

Since that difference between market value and the option price carries a tax liability, the company provided bonuses to offset the tax bite. The company took a charge of more than $14 million in 1998 to cover the stock options and tax assistance.

Otten's wife Chris has also been the recipient of stock options. She runs the company's retail purchasing activities at the comparatively modest salary of $54,000. The company gave her options to buy more than 20,000 shares of stock at $2 a share in early 1998, when the stock sold on the market for about $16 a share.

Exercising the options would have given Chris Otten a profit of $280,000. The company also provided money to cover the tax liability created by the discounted stock price.

Skip King, a spokesman for American Skiing, said the company's top executives would not be available to comment on pay matters for about a week, but he issued a statement that said: "American Skiing Co.'s executive compensation programs are approved by the board of directors. The board represents shareholders. It determines compensation and incentive packages for each senior executive based on position, the skills required to perform it and compensation packages for comparable positions in other companies."

McCurtain said the pay issue is frustrating for stockholders because almost anyone who has invested in the company has lost money. The losses are particularly big for those who bought stock when the company went public: $1,000 invested in American Skiing stock in November 1997 is worth about $83 now.

American Skiing's stock, which had been languishing between $1.10 and $1.20 for the last few weeks, leaped to $1.50 Friday after the merger with Meristar Hotels & Resorts was canceled. Many investors obviously felt that Meristar -- which lost $18 million in the most recent quarter -- wouldn't bring much to the combined company, to be named Doral. That perception was behind the increase in American Skiing's stock on Friday, analysts said.

"The reward for stockholders is that they lost $35 million for the first six months of the (company's current fiscal) year and the stock price has fallen more than 50 percent," McCurtain said.

David Yermack, a professor of finance at New York University, said American Skiing's compensation policies seem out of step with the practices of most companies.

"The rhetoric you hear is that the managers don't make money unless the stockholders do," he said, so few companies would pay bonuses or give substantial raises to senior executives during a long stock slide.

American Skiing could argue that its problems are industrywide, but given that its stock has not performed as well as its major competitors, Intrawest and Vail, the policy of raises and bonuses "seems like it's even more unjustifiable," Yermack said.

Yermack also said the company's stock options are unusual. Most companies price their options for managers at market value, or even a little higher, to give the executives an incentive to push the company's stock higher. That way, the options aren't worth anything unless the stock rises
substantially, he said.

With sharp stock discounts for executives, "It seems like a pretty aggressive plan," Yermack said.

Brent Longnecker, a compensation consultant based in Texas, agreed that the company's policies on options, in particular, are not typical.

"In general, most companies use fair market value options," he said. Giving raises and offering steeply discounted stock options when the stock has slid "sure would make shareholders very nervous."

"Pay for performance is the issue," McCurtain agreed.

Executive pay is often a concern for stockholders, McCurtain said, but he admitted it's rarely much of an issue for successful companies.

"You may say, 'It doesn't seem right,' but if they're making money for stockholders, you don't mind it so much," he said. But when the pay goes up and bonuses and stock options are handed out when the stock is going down, "Shareholders hate that stuff. It rubs it right in your face.

"Shareholders don't mind the management team being compensated adequately," McCurtain said. "What they mind is where senior management takes care of itself and doesn't deliver for shareholders."

Staff Writer Edward D. Murphy can be contacted at 791-6465 or at: emurphy@pressherald.com

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