Barron's criticizes Hilton chief's stock options

Hilton Hotels Corp. President Steve Bollenbach has the lowest salary among chief executives of the five largest gaming companies, but that hasn't stopped critics from questioning his compensation package.

Barron's, the Dow Jones & Co. financial weekly, said Hilton's plan to grant Bollenbach options to acquire six million shares upon the company's split into separate gaming and lodging entities has raised the ire of some shareholders.

Barron's "The Trader" column by Andrew Bary this week says Bollenbach's tenure at Hilton since February 1996 has been a disappointment with unimpressive earnings and Hilton stock down almost 50 percent from its 52-week high.

Four million of Bollenbach's new options will be priced at the market when the spinoff is effective, while the other two million will be exercisable at above-market prices.

Stock options are worthless if the underlying share price falls below the strike price. But most publicly held U.S. corporations award them to key executives as incentives, tying their compensation to stock appreciation, which benefits all shareholders.

Bollenbach's total cash compensation will be one-third that of Arthur Goldberg, who will become president of the Hilton gaming spinoff called Park Place Entertainment, but Goldberg will receive the same options package as Bollenbach. Barron's didn't mention Goldberg's compensation.

When he was hired in 1996, Bollenbach got six million Hilton options exercisable at an average price of $18.67 a share. Hilton stock closed at $19.25 Monday, putting those options "in the money" by 58 cents a share.

Among large-cap gaming companies, only MGM Grand -- about 70 percent owned by billionaire Kirk Kerkorian -- would undergo less dilution than Hilton if executives exercised all options available at year-end 1997.

Except for Mirage Resorts, the current average options package for all executives at the other four big casino companies -- Circus Circus Enterprises, Harrah's Entertaimment, MGM Grand and Hilton -- are all "out of the money." Bollenbach's options are in the money because he received his at a lower strike price than some other Hilton executives hired at other times.

At most of the big gaming companies, the selloff of gaming stocks has pushed share prices below the average strike price for the options.

In Bollenbach's case, Barron's said some investors are upset because Bollenbach is getting not just six million new options on top of his original six million options, but three million options of stock in Park Place, where he will be chairman of the board.

"I don't know what possible justification there is for showering all these options on Bollenbach. It can't be a reward for Bollenbach's performance. The first six million options didn't do the trick. Why does he need another six million?" Barron's quoted Graef Crystal, publisher of a newsletter that tracks corporate compensation.

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