Starbucks piles whipped cream atop CEO pay problem
Corrects figures throughout to reflect that the proportion of Niccol’s $23 million share-based bonus eligible to be tripled is 60%, not 100%. Adds that a portion of Niccol’s replacement stock award could also increase in certain circumstances. The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By John Foley
NEW YORK, Aug 15 (Reuters Breakingviews) -Few financial decisions are as vibes-driven as CEO pay. How much is too much is mostly a question of who’s counting and what it’s measured against. Starbucks SBUX.O, for example, is paying new boss Brian Niccol a potential $145 million package that, at first glance, seems like the boardroom equivalent of a venti caramel ribbon crunch Frappuccino.
Niccol faces the difficult job of turning around a $100 billion coffee chain stuck in a sales slump. Unsurprisingly, his compensation is generous. It starts with an $8.8 million shot of cash if he and the company exceed specific performance targets. He also gets $85 million just for joining, mostly replacing stock awards he surrenders by quitting as CEO of Chipotle Mexican Grill CMG.N.
Then there’s a share-based bonus: $23 million annually if he hits his targets. If he does really well, Starbucks could triple 60% of that amount, taking the sum to $51 million, assuming the awards are structured like this year’s long-term executive bonuses, which are amplified if goals like sustainability and talent retention are met, based on the company's annual proxy filing. His replacement stock award could also multiply in certain circumstances.
Would such a windfall really be so sickening? A barista might say so. The sum is roughly 10,000 times more than the median Starbucks employee earns. Unlike most of his subordinates, Niccol also gets to work from a remote office in sunny Newport Beach, California.
To a Starbucks shareholder, Niccol might be considered underpaid. The company’s market capitalization increased by $20 billion after his appointment was announced. In that sense, he has already exceeded his value by over 130 times. Seen another way, analysts reckon Starbucks will generate $4.4 billion of earnings next year, according to Visible Alpha; if Niccol can make it $4.6 billion, he’ll have earned his keep.
Ultimately, Niccol’s pay depends largely on performance and him sticking around, because of the restricted-stock elements. Ignore the sign-on awards and assume he merely hits his targets, and the $28 million a year would barely make him one of the top 100 highest-paid U.S. CEOs, using union federation AFL-CIO’s list.
The point is that CEO compensation is fuzzy. There’s no U.S. law capping it, nor is there likely to be anytime soon. Shareholders get a say, albeit in an advisory capacity, but even then there’s no real science behind what’s warranted. No wonder pay keeps mounting like whipped cream on an indulgent iced mocha.
CONTEXT NEWS
Starbucks will pay new Chief Executive Brian Niccol cash and shares that could be worth as much as $145 million, based on figures the U.S. coffee chain disclosed on Aug. 14. Headquartered in Seattle, the company also is letting him work remotely from Newport Beach, California.
Niccol, who is joining from burrito chain Chipotle Mexican Grill, will receive a base salary of $1.6 million and an annual cash bonus of up to 4.5 times that amount, depending on his and the company’s performance. He is also eligible for an annual stock award with a target value of $23 million.
Portions of similar bonuses awarded to Starbucks executives in 2024 can pay up to 303% of their target value if goals linked to earnings, share performance, talent retention and sustainability are met.
Niccol also receives a $10 million cash sign-on bonus, and $75 million in shares, conditional on performance and continued employment, to compensate him for awards he loses by leaving Chipotle.
Editing by Jeffrey Goldfarb, Sharon Lam, Streisand Neto and Pranav Kiran
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