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?

By MSN Money Partner Jan 27, 2012 6:11PM

By Michael Brush

 

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.

 

Howard Schutlz © Kevin P. Casey/Bloomberg via Getty ImagesFirst, 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:

 

 

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173Comments
Jan 27, 2012 11:29PM
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As a Starbucks Barista, I feel pretty qualified to comment.  I was so looking forward to my Christmas bonus this year.  Last year, I was around 2 wks shy of meeting the hire date to receive a bonus.  I worked hard this year.  Our store won several company goal contests, etc.  I felt like I was directly contributing to the bottom line for our company.  However, no bonuses this year with no explanation.  I was already planning on writing Howard directly - and am pretty confident said letter will be going out shortly now.  I am so disappointed in him...if you read his books...this isn't the passion that he so eloquently invokes. 
Jan 28, 2012 1:22AM
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Starting going to a local coffee place in my hometown.  Best coffee ever!  Puts Starbucks to shame.  Not going to support the CEO of Starbucks.  Would rather help the small guy.
Jan 27, 2012 11:31PM
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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.

Jan 27, 2012 9:10PM
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He risked his money starting the company, people went to work for him with no skin in the game, they got a job. Now he is getting what he should get which is called a return on his risk. And that is what built this Country to start with.  
Jan 28, 2012 1:37AM
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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.

 

Jan 28, 2012 12:20AM
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We're talking about a company that  raised their prices at the beginning of our economic crunch. That speaks volumes, to me at least. I haven't been through the door of a Starbucks since. Besides, I brew a damn good cup of coffee at home, and I have a little machine for brewing espresso, cappuccino, or making a latte, if that's what I want.
Jan 28, 2012 12:29AM
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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.

Jan 27, 2012 10:41PM
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Michael, read his first book!!  Read about how his pregnant wife worked to support them while he worked like hell to raise the first million dollars to start what became Starbucks.  Idiots like you seem to think businesses' like Starbucks just appear.  Yes he has done well, yes he has made a great deal of money.  I am trying to raise money for a start up as well and hope one day I will be in the same position. 
Jan 27, 2012 10:08PM
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Unbelievable, leave the guy alone.  He founded the company, he grew the company, and he has done an incredible job leading and growing the company.  He's provided thousands of jobs, rewarded shareholders, and tried to run the company in a responsible manner.  He's under no obligation (moral or otherwise) to give all his money away to everyone who wants it. 
Jan 27, 2012 9:02PM
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Ahhh no comments on the big liberal doing the same as all the rich do!
Jan 28, 2012 11:45AM
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All you people yammering about how much money this guy made just make me sick. You are the first ones to cry about the "American Dream" and how you can't have it. So you want to get pissed at someone that DID get it? This guy STARTED this company. It's HIS frikin company. (Or it was until he started selling shares in it. And still owning 30.6 million shares of it, hell it may STILL be his company.) I'm thinking he should get whatever he by God wants for compensation. He is the one that took the risks and worked hard and made himself a success. And I guess you dip-wads think he should now just "re-distribute" most of that so it would be "fair"???? Guess what? I don't know what utopian world YOU come from, but on this world, life isn't always fair. And even given that, in this deal, it is as fair as it should be. He worked hard, he took the risks, he started the damned company, he is getting rewarded. This is kinda what most of us have been taught from our youth. You study hard, work hard and you can be a success. And now there are people like you idiots that say "but it isn't fair that this guy is SOOOOO successful". I'll by God bet if it was YOUR company you wouldn't feel that way. You people need to GET A FRIKIN LIFE and quit raggin on someone that earned the "American Dream". Get your lazy asses out and try opening your own company.
Jan 27, 2012 9:13PM
Jan 28, 2012 8:19AM
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If  Mr. Shultz would cut his salary by 7mil he could give all his hard working employees a $2  an hour raise, boost company moral and still make 58 mil
Jan 27, 2012 11:39PM
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No more Starbucks for me, even with as little as I go ...I no longer go to pro games or the movies. Yes, my life IS fulfilling and not boring, but spouse is a teacher with a Masters degree working his tail off (and GREAT at it) for $35,000 a year. No...he DOES NOT get 3 months off during the year (has school)  Our priorities are backwards.
Jan 27, 2012 10:57PM
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I hate to burst anyones bubble, and for the fear of offending someone I do apologize, but my own personal opinion is that most CEO's are far overpaid as are our athletes.  Where in the world will he spend it all?  An old addage is you can't take it with you.  But again I guess everyone will just think I am jealous.Stop and think how much is to much?  No wonder the middle class is hurting.  Wonder how much he pays in taxes?
Jan 27, 2012 11:18PM
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While Howard Schultz did indeed grow the company, he is not the founder.  Do you homework.
Jan 27, 2012 9:47PM
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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

Jan 27, 2012 11:50PM
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What a Schmuck!  I quit supporting "Screw-bucks" awhile ago. I get better coffee from my Keurig K-Cup machine. I use only Green Mountain coffee and they are way better. Boycott Screw-bucks for a month and maybe he'll get the message that a $4.30 Mocha might just be too expensive. The way to hurt disgustingly rich people like him is to quit buying his companies products. If he was anykind of humanitarian he would give half of his 65 million paycheck to his employees in the form of bonuses. They are the only reason he has any measure of success.
Jan 27, 2012 10:33PM
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I don't understand what the problem is. He created a product, invested his own money, people loved the product, he sold the product, he opened new locations, he expanded outside the US, he employs plenty of people. So what if he makes that much? If you don't like it?? Don't go to Starbucks, or you can create your own product and sell it. He achieved the American dream, good for him. Don't get me wrong, I'm a 99%er. I make $29,000 a year. And I'm happy for him. As for his employees being underpaid, so what? Let them all leave, there will be hundreds of thousands of people ready to beg to have those jobs. They should be lucky to have a job. So, I'm gonna go get a Venti White Mocha Latte and sit on my happy butt.
Jan 27, 2012 10:13PM
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He held on this SBUX vision when all his bosses laughed him out of town. same story with Ebay. on surface, you would likely laugh at the Starbucks and Ebay startup ideas as well -- I mean, how silly...

 both became Billion dollar giants. Go figure... remain humble and open mind.
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