Starbucks
Annual meeting: Marcy 17, 2021
Starbucks CEO Kevin Johnson received total compensation of $14,665,575 for 2020. In our most recent report on the 100 Most Overpaid CEOs, Johnson was number 43 our list of overpaid CEOs.
Last year, 15.5 percent of shareholder voted against the advisory vote on pay. Many of them objected to a one-time, long-term, performance-based cash award, tied to performance for a three-year period from October 1, 2019 through September 30, 2022. With a target payout of $25 million, and a maximum payment of $50 million, some shareholders thought it was excessive and also lacked sufficiently challenging performance thresholds. Shareholders have the same concerns this year, made more powerful by the context. Both ISS and Glass Lewis have recommended against this proposal.
In an additional SEC filing in defense of its compensation, Starbucks notes that “the Award was capped at target payout if our absolute TSR (total shareholder return) is negative over the three-year performance period, regardless of relative performance.” In other words, the payment can be achieved at target even if the company’s stock price decreases, as long as most of the rest of the market decreases more than Starbucks. Many shareholders would not support a special bonus of $25 million to the CEO of a company that actually lost value. To be paid at target, Starbucks must achieve TSR relative to the S&P 500 index at the 65th percentile over the three-year performance period. So, the full payout will be achieved even if a third of the companies in the S&P 500 have better performance.
In addition, the payments include other features shareholders may find to not be in best practice. “The prorata payments are required at 100% of target in the event of death or disability prior to the end of the performance period. Payments will be accelerated and made on a prorata basis applied to actual performance through the termination date in the event of involuntary termination or voluntary termination for good reason. Payments will be accelerated and made based on actual performance in the event of involuntary termination or voluntary termination for good reason in connection with a change of control.”
In the same additional filing cited above, the company points out that nothing has yet been paid out. Further, it states, “The Committee believes that the assessment of pay-for-performance alignment is most fairly judged based on the actual payout at the conclusion of the performance period.” However, shareholders vote based on compensation, as reported in the summary compensation table, which is future-looking for the majority of compensation awarded.
Starbuck reported in its proxy statement that the CEO pay to median employee pay ratio is 1,211 to 1. According to the company, “The fiscal 2020 annual total compensation for our median employee, a part-time barista in Canada, was $12,113.”
Among its peers, Starbucks is viewed as relatively progressive in its compensation practices. The CEO has publicly supported an increase in the minimum wage, and offers more benefits to some employees, including health benefits for both full and part-time employees. Johnson believes “if we care for our partners and invest in them, they create that customer connection, and if customer connection scores go up, we know customers visit Starbucks more frequently.” Yet it is hard to square this with the median pay of $12,113. Even if a person were able to work four part-time jobs – very difficult giving the scheduling practices for such jobs – their annual compensation would only be approximately $48,452.