Starbucks founder's hot pay package: $65M
One-Percenter of the Week: The coffee giant paid CEO Howard Schultz 55% more last year than the average S&P 500 CEO earned. But most strikingly, he got a $12 million retention bonus just to stay. Were they afraid he'd go to Folger's?
You might have heard that your Starbucks coffee is getting more expensive because of the rising price of beans.
But there may be another reason: The big pay that the coffee giant scoops out to CEO and founder Howard Schultz.
All told, Schultz got $65 million last year. At, say, $3.25 for a tall latte, that’s 20 million cups of joe. But the total is only one of several reasons the Starbucks (SBUX) chief is my latest One-Percenter of the Week.
First, his triple-espresso pay puts him in an elite group of $50-million-plus CEOs. His basic pay alone, called "direct compensation," was nearly $16.4 million, 55% higher than the median S&P 500 CEO pay of $10.6 million for 2010 (the latest year available) as calculated by Equilar, an executive compensation research firm. The rest includes $36.8 million from cashing out options, and a "retention bonus" of $12 million.
Second, that $12 million retention bonus is a mystery to me, for a number of reasons. Schultz founded Starbucks, and he has faithfully served as the company's chairman since 1985. He returned as CEO in 2008, when the company was struggling. He also has huge exposure to the company's stock, owning 30.6 million shares.
That’s plenty of reason to stick around, and he’s not about to run off and work for Green Mountain Coffee Roasters (GMCR). So paying him a retention bonus is like giving a New York Giants fan free tickets for the Super Bowl, then throwing in cash as an incentive to actually go to the game. Not needed.
Third, he’s not exactly hurting for cash. According to the company, Schultz recently owned $117.4 million worth of vested stock options, and another $51.7 million worth of unvested options. "Vested" means that he is free to cash out the options if he wants. His company-paid home-security costs alone, at about $200,000, are around four times the typical household income in the U.S. But at least it is down from the $681,000 in home-security costs the company paid in 2009, points out ISS Proxy Advisory Services.
An outsized pay gap
Fourth, there’s the vast pay gap between Schultz and the bulk of his employees. According to PayScale.com, which estimates industry pay levels, Starbucks baristas and food managers make $24,800 a year, on average, excluding any income from stock-options programs. This means Schultz makes over 660 times more than his baristas and other workers, a ratio well more than twice the typical CEO-to-worker pay imbalance.
Even assuming he works an 80-hour week and took only two weeks off, Schultz made $4,100 an hour, compared to a typical barista wage of probably around $12 an hour. "I wonder how Starbucks’ baristas feel" about Schultz's pay, asks Lisa Lindsley, who monitors CEO pay closely as director of capital strategies at the American Federation of State, County and Municipal Employees (AFSCME).
No doubt, he's done well
Now, to be fair: Schultz founded the company, and his return to the CEO slot seemed to turn it around, so he's created plenty of jobs for 99%-ers. The company employees about 200,000 people and it added 3,700 net new jobs last year, says Jim Olson, a Starbucks spokesman. The company plans to open at least 200 new stores in 2012 and redesign 1,700, which will create thousands of jobs, says Olson.
Starbucks also says the retention bonus for Schultz was a way to "recognize his leadership in the transformation of the company," and also a way to ensure he continues to lead Starbucks "through the next phase of critical growth." Olson notes that 89% of Schultz's pay is linked to company performance, so his level of pay is partly a reflection of how well he's done as a CEO and how much the stock has gone up as a result. Starbucks stock advanced about 45% last year, compared to flat returns for the S&P 500.
Those stock gains are due to solid performance. Most recently, total sales increased 16% to a record $3.4 billion in the fourth quarter, and sales at stores open more than a year were up an impressive 9%, on a 7% increase in traffic. Earnings were up 11%, in part because Starbucks didn't pass through all of the bean-price increases to consumers, sharing a little of the pain with shareholders in the form of lower profit margins. And the company opened 241 new stores, net, reaching 500 stores in mainland China and Latin America.
Latin America brings us to another issue. Starbucks has come under criticism in the past for not buying "fair trade" coffee beans, or beans produced by groups that protect the environment and pay a reasonable wage. Starbucks' website says 84% of its beans are "fair trade" sourced.
But that begs the question of how big the pay gap is between Schultz and the people who pick his beans. "Even fair-trade coffee doesn't assure pickers get a living wage," says Karanja Gaçuça, a frequent spokesman for Occupy Wall Street and former Wall Street analyst. Gaçuça adds that the $12 million retention bonus alone “could go a long way to compensate those workers, instead of going into the bank account of a CEO.”
At the time of publication, Michael Brush did not own shares of any company mentioned in this column. Brush is an MSN Money columnist and the editor of Brush Up on Stocks, an investment newsletter.
Read previous One-Percenters of the Week:
- In Congress, nearly half are millionaires
- Zynga chief's $1 billion-plus payday
- Highest-paid CEO collected $145.3 million in a year
- UnitedHealth CEO cashes in on big pay gap
- CEO sheds title, collects $100 million
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we are drinking his coffee, yes? and we are paying for it, yes? so, the price must be right, yes?
brew your own with much less media coverage.
Truthhurts I think there are plenty of great examples of todays CEO who did work there butts off to get to that level. One that comes to mind is Jim Koch of The Boston Beer Company or Samuel Adams . Started in his kitchen and personally went to taverns and restaraunts giving his beer away. Now he helps people start businesses.
I think you may want to research some of the well known company's and the people who started them and their story. Maybe its just an idea of downloading the entire internet in 1997 like the founders of google did.
Or a local news reporter who grew into the most popular daytime talk show host and now has her own netwrk and is one of the wealthiest women in the world. Oprah Winfrey.
Countless examples of good people who risked everythng for a dream they had. And it paid off big.
Is Mark Zuckerburg and evil person if he draws a $100 million dollar per year pay from Facebook the company he started ?
What do you think ? What gives me or you the right to tell him what he can earn from his company?
There are alot of millionaires in Facebook and Google and Apple and Microsoft and Starbucks and thousands more companies all over the world.
Is the Walton family to rich from Walmart?
I hope to start and grow a trucking company as big as Swift (the largest trucking company in the world) or US Express or countless others.
How can anyone complain about a CEO's paycheck or anyones paycheck. A "public " company I understand that but unless you own stock in that company it should not matter to you.
As a consumer you can simply not buy that companies product or service.
Howard Schultz did a great job with Starbucks .
I hope to do the same with my own trucking company.
I am sick and tired of hearing about the 1% vs. the 99%. Are there people struggling?? Yes! Are there people that are extremely wealthy? Yes! Do we have a right to tell them how much they can make? NO!!! If you consider the entire world's population and not just the US, if you make $34,000 per year, yes only $34,000 per year, you are part of the the richest 1% in the world. I do realize there are a lot of people that don't make that much money. I am barely there myself, but I still consider myself blessed. It is time to get a life and get over the class warfare, and do something productive to help get this country back on track. Pointless articles such as this do nothing but continue the nonsense.
If you are jealous because of what this guy makes then you are a loser. There would not be a Starbucks if not for him. If you don't want to buy their coffee, then go somewhere else, nobody is forcing you to go to Starbucks.
vance ODonnel, you make me sick. Why should it matter to you what he makes. Have you ever done anything to deserve making more than minimum wage. Does it hurt you for him to make $65 million dollars. Is someone forcing you to buy SB coffee. NO O'Donnell people aren't tired of hearing about people working hard and becoming successful here in America. We're tired of lazy bums who do nothing but feed off of others success criticizing the producers. How many people have you created jobs for? Starbucks employs thousands of people, it puts food in peoples mouths, it pays for cars and contributes to society. I bet you don't whine about A-Rod making $25 million dollars a year. Why do people like you always criticize CEO's but revere million dollar Athletes. Athletes didn't sacrifice 20 years and work 80 hours per week. They didn't have to invest their life savings to open a business. Athletes don't employ thousands of workers. Instead they give their money to dancers and dope dealers. GET A LIFE
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