Poor corporate governance not only endangers a company's operations and shareholder value, but also results in poor business decisions 1. Board composition and executive compensation are key elements of corporate governance, and this article examines these key factors in relation to Bennett and the Ashford companies.
In April 2020, the group of hotel companies controlled by Texan hotelier Monty Bennett became the face of the controversies surrounding the Paycheck Protection Program (PPP), a program meant to help small businesses survive the economic impact of COVID-19. Three public companies controlled by Bennett (Ashford Inc., Ashford Hospitality Trust and Braemar Hotels & Resorts) applied for USD 126 million in loans under the PPP and received at least USD 58 million in return. The Ashford group is the largest known applicant of the government's relief program, and Ashford Hospitality Trust alone applied for USD 76 million in 117 separate loans, the most by a single company2. These companies took advantage of a provision that allowed hospitality and restaurant chains to receive assistance if individual locations had fewer than 500 employees3.
Ashford companies soon received backlash for exploiting a government loan program designed to help small businesses during a difficult time. Bennett initially refused to return USD 58.7 million his companies received and denied any wrongdoing. On April 28, 2020, Treasury Secretary Mnuchin announced that all companies that had received more than USD 2 million could be audited and held criminally liable for failing to meet the program's criteria4. With mounting public scrutiny and the threat of congressional investigation, on May 2 Bennett declared his companies would return all funds.
A few days later, Douglas Kessler voluntarily resigned as President and CEO of Ashford Hospitality Trust.
Intense media scrutiny and Bennett's initial refusal to return the funds shone a light onto the companies' governance structure and poor financial performance. Ashford Inc., which provides asset management services, acts as an external advisor to real estate investment trusts Ashford Hospitality and Braemar. As Chairman of all Ashford companies and CEO of Ashford Inc., Bennett receives compensation from all three entities. These companies were already suffering from heavy losses and sinking stock prices long before COVID-19 struck. Ashford Hospitality had more than USD 100 million in losses in FY 2019. Amid the scandal, the NYSE threatened the company with delisting after its share price fell below USD 1, the minimum average closing price per share required to maintain listing on the NYSE5. Overall, the companies' share prices have fallen over 70 percent on average over the last five years.
Pay for Performance analysis of Ashford Inc.'s CEO
However, the compensation of the Ashford group's top executives did not decrease due to its poor financial performance. When using CGLytics' Pay for Performance modeler to consider Ashford Inc.'s relative position compared to its industry peer group, it is revealed that Bennett's compensation over three years as CEO is disproportionally high compared to the company's earnings per share. Their CEO's granted compensation is ranked on the 95th percentile whilst Earnings Per Share (EPS) is ranked in the 5th percentile displaying a misalignment between pay and performance.
Ashford Inc. also received an F grade in Glass Lewis' Pay for Performance Analysis for FY 2018, meaning that the company's poor financial performance is not in line with its high compensation levels.
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Footnotes
1 https://diligent.com/wp-content/uploads/sites/8/2019/06/Whitepaper_modern_governance-1.pdf
5 https://www.sec.gov/ix?doc=/Archives/edgar/data/1232582/000123258220000019/ahtnyse8-k.htm
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