Lots of comps…

Morgans Hotel Group (MHGC) went public yesterday though it didn’t quite manage to create the same type of buzz for its stock as it does for its hotels. Indeed, the stock closed below its $20 share IPO price and is down again this morning.

Perhaps one of the things that’s concerning investors is the hefty consulting contract handed out to Ian Schrager, which a regular notes was buried on p. 140 of the S-1. Here’s a snippet:

We have agreed to pay Ian Schrager a minimum base compensation per year of $1,067,240 for calendar year 2005 (which shall be pro-rated for 2005), $750,000 for calendar year 2006 and $500,000 for calendar year 2007, as well as an annual bonus based on a percentage of the increase in our EBITDA subject to a cap of $750,000 in 2006 and $500,000 in 2007.

There’s also a pretty vague sentence that talks about Schrager being reimbursed for various business and entertaining expenses, but no dollar figure attached to the reimbursement. And, naturally, there’s the $500K for the use of the corporate jet, a full-time driver, and complimentary rooms for him, his family or just about anyone else he designates as worthy. Finally, there’s a $1 million bonus for 2005, despite the fact that the company is not profitable.
Even more interesting is that despite getting all these comps, there’s nothing that restricts Schrager from competing with Morgans, which seems kind of nuts since that’s a pretty basic thing in most contracts like this.