McDonald's alters key ingredient in executive pay

The fast-food chain no longer compares its top-level salaries to those at Costco -- possibly because the discount retailer's CEO isn’t paid as generously.

By Aimee Picchi Apr 26, 2013 2:13PM

A sign outside the fast-food chain McDonald'sCall it McDonald's (MCD) secret sauce for executive pay, if you will. It's the list of peers the fast-food chain compares itself with when setting executive pay. 

 

The list provides a glimpse into the black box of executive compensation, which has come under fire from shareholders and Americans for growing ever more distant from that of the common worker. 

 

McDonald's noted in its proxy that it considers nearly two dozen major American companies as its peer group when it comes to setting executive pay, ranging from Walt Disney (DIS) to FedEx (FDX). Not all of those companies directly compete with McDonald's, but the burger giant said it competes with them "for talent."

 

Yet hidden in the regulatory filing was an eye-opening nugget. The compensation committee last year banished Costco (COST) from its peer group. 

 

Why? Costco was exiled "as a result of general differences in compensation structure and philosophy." The filing doesn't specify what those differences are, but a quick gander at some numbers may provide some insight. 

 

McDonald's last year paid chief executive James Skinner $27.7 million in total compensation, including a $10.2 million payment as part of his retirement, according to the proxy. Incoming CEO Donald Thompson earned $13.8 million, no small potatoes either. (The average fast-food worker, by comparison, earns about $18,500 per year, according to Bloomberg.)

 

Meanwhile, Costco chief executive W. Craig Jelinek earned $4.8 million last year. That's just 17% of Skinner's pay and about one-third of Thompson's compensation. 

 

As the Huffington Post notes, relying on peer groups to set compensation has come under fire, with some critics charging that companies were hand-picking the lists so that their CEO pay would look reasonable. A recent study suggested that such benchmarking tends to drive up executive pay. 

 

One thing's for sure: While most Americans suffer from stagnating pay, many executives are reaping ever bigger rewards. 

 

Follow Aimee Picchi on Twitter at @aimeepicchi

 

More on moneyNOW

 


 

42Comments
Apr 26, 2013 3:39PM
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mcdonalds has been a well run company in recent years and the executives should be paid well. however, the gap between line workers and management has grown very wide. it should be remembered that neither mr skinner or mr thompson started mcdonalds. it had already been in existence for more than 30 years when they began. and more importantly, there is little penalty for failure. if the exec runs the company for 2 or 3 years and little good happens, that exec still walks away with 20 or 30 million dollars. and as for things like benchmarking, phooey. sadly, 9 out of 10 boards are rubber stamps
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You know why Costco was removed from the peer group.  Because Costco executives make a reasonable amount and their hourly people make a good livable wage.  The executives at McDonald's didn't like the comparison because they pay their store hourly people terrible wages and the execs make the standard gigantic amount.  How convenient.  The model works very well for Costco.  Profits are excellent, their turnover is very low, their executives stay, and morale is great.  Ask McDonald's store hourly employees what they think of McDonald's?
Apr 26, 2013 4:05PM
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my disgusting management team now thanks us for doing a wonderful, wonderful job, each and every phone call........no raise in 3 years, each year the medical increases, which I canceled...for food, rent, elec....indefinite wage freeze....they call it

Apr 26, 2013 3:53PM
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The old saying seems to be that if you want the best, you pay the best. To many of theses so called best are running companies in the hole. When are stockholders going to say "enough is enough", and quit blaming the low pay working people. These companies were started by honest working people who had pride in their companies succeeding. Now all the CEO's and top executives seem to have pride in draining companies financially and closing companies.
Apr 26, 2013 4:50PM
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The major  problem is that CEO pay is set by the Board and not by the stockholders.     This is the "good old boy" scam that is pulled on stockholders and consumers.   "You vote for my pay package and you get into the country club".  
Apr 26, 2013 4:20PM
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Executive employment contracts and exorbitant executive compensation would both be very different things if subjected to an approval by majority shareholder vote each year in Fortune 1000 companies!  And I believe it is also the reason executive management usually protests and resists such a positive step.

 

From experience as President and Chief Executive Officer it's my personal belief that an egregious conflict of interest exists whenever the Chief Executive Officer (or any other executive officer whose active in the business) serves as Chairman of the Board of directors. For that very reason I've refused nomination as Chairman during my long tenure as President and Chief Executive yet had no similar problems in remaining constructively on the board of directors as a voting director.  Compensation has become so out of control and ridiculous in large companies today that some companies actually reward the CEO with more in salary, bonus and deferred compensation than the largest stock holders realize in increased stock value and in most of those cases the CEO has little to none of the downside risks of ownership shouldered by those same stockholders.

Apr 26, 2013 4:06PM
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straightstock has some great points, and don't forget if they run it into the ground McDonalds would most likely be bailed out, as our government would see it as an American Icon. Just as congress can't understand why the general population is not happy with them, these Fat cat C.E.O's feel perfectly entitled to the ridiculous amounts of money they get paid.  But the storm is brewing, regular working men and women are catching on, and they are not happy. A person should not have to work over 40hrs a week and still qualify for food stamps to feed their families, nor should large companies like this be allowed to keep employees under full time just to avoid having to provide access to a health plan. Our government and these C.E.O's are only out for themselves. They are shredding what this country once stood for. United we stand Divided we fall. We are falling.
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In my humble opinion no one and we mean no one should get paid more than 100x the lowest salaried employee.  If they want to pay the executives alot of money
Apr 26, 2013 5:28PM
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Yea, they are the best, just ask them. Better yet ask a JC Pennys stockholder about the best CEO they just got rid of. These people are sociopaths for crying out loud. They would steal candy from a baby.
Apr 26, 2013 6:37PM
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Corporate pigs, they should all burn in hell 10 million for retirement, who comes up with this sh!t. Ever notice when the company tanks the execs walk away with millions and the rank and file workers are out on their ear. Just ask the execs at Delphi. Why don't these stupid execs give up 75% of their salary and then give their rank and file a 3 dollar raise per hour.       
Apr 26, 2013 5:29PM
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That's the way my employer does it. They just pick and choose the salaries that would average out to our current pay range. It makes them look good and we still don't make any money.
Apr 26, 2013 5:31PM
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Almost forgot. I got a raise this year and then the increase in insurance had me taking home less. I guess the upside, is that without the raise I'd be taking home even less. Damn, I knew there was a silver lining in there somewhere.

Apr 26, 2013 5:20PM
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Wolphi....Is in the "process of azz-kissing" his way into the Club...

 

You don't have to use fancy words like "aspire" Wollfy...We know you are bending over...

Here it comes Whoopy....Guess who's driving??

Apr 26, 2013 7:42PM
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I worked as a security officer(guard) and one of the employee's was leaving to work at Wal-Mart as a retail computer help salesman. I asked him how much he was going to make, he told me 13:50$ per hour. I was in Best Buy (or I could been another similar store if not Best Buy, this was about 4 years ago) and I was curious how much the guy behind the service counter  helping with the computers was making, he told me 9:00$ per hour and he had a BA in computers( he told me working retail is not good). That's what happened.
Apr 28, 2013 9:27AM
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Corporate Executive pay should be more in line with real Executive's pay, like the President of the United States and Govenors of States....not outragious other CEO Robber Barons....
Apr 29, 2013 6:54AM
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It's a crying shame that we let this happen. When do we stand up and take back this country from the wealthy and powerful. Lets start with our government.
Maybe it's time to take stand-up and say no more.
Apr 28, 2013 11:34AM
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HI FOLKS,

IN MY 'HUMBLE OPINION' I THINK THE BOARDS OF DIRECTORS ARE MORE INTERESTED IN SELF SERVING RATHER THAN WHAT'S BEST FOR THE COMPANY AND THE 'OTHER' EMPLOYEES.  THE BOARD MEMBERS ARE EMPLOYEES ARE THEY NOT?  THE bOARDS OF DIRECTORS HAVE BECOME AN 'ENTITLEMENT' CULTURE OF 'GOOD 'OLE BOYS.'  I FIRMLY BELIEVE THAT EXECUTIVE SALARIES SHOULD BE BASED ON PERFORMANCE.  EXECS SHOULD BE GIVEN A LIST OF OBJECTIVES EACH YEAR, AND ANY INCREASES IN COMPENSATION SHOULD BE BASED ON THEIR MEETING THOSE OBJECTIVES.

 

SOME OF THOSE OBJECTIVES SHOULD HAVE TO DO WITH SUCCESS IN THE MARKETPLACE, STOCK STABILITY, EMPLOYEE COMPENSATION AND WORK STABILITY AND ASSURING STABILITY OF COMMUNITY BUSINESSES THAT DEPEND ON THE COMPANIES LOCATION IN THE COMMUNITY FOR MAINTAINING VIABLE BUSINESS SUCCESSES.

 

WISHING YOU ALL SUCCESS IN YOUR LIVES.

 

GAPSTER 

 

Apr 27, 2013 4:15AM
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Screw the executives their part of the problem and these corps are exploiting labor force. Short order you won't be able to afford mickyd's and will wade thru riot torn environment. The economic collapse is soon to arrive.
Apr 27, 2013 1:56AM
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It's funny how so many people think an executives pay has an affect on theirs.  If you're cleaning the toilets at mcdonalds for $7/hr, and the ceo cuts his pay to $7/hr, you're still going to get $7/hr.  If you have a problem with that, nobody is forcing anybody to work there.

Apr 26, 2013 7:19PM
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"McDonald's last year paid chief executive James Skinner $27.7 million in total compensation, including a $10.2 million payment as part of his retirement, according to the proxy. Incoming CEO Donald Thompson earned $13.8 million, no small potatoes either. (The average fast-food worker, by comparison, earns about $18,500 per year, .)"

 

McDonalds has 31,000 Restaurants with 1.5 million employees...........

Let's give ALL OF James Skinner's $27 million to the workers.

27,000,000 divided by 1,500,000 = $18.00 ...... Let assume (Many part-time) each employee works 1200 hours a year........

.............  $18.00 divided by 1200 hours = $0.015......... A PENNY & 1/2 ........ WOW.... Lets give each employee a raise of 1.5 CENTS an hour .......... That's a very big deal.. will really change a lot of lives......... Ya think???

 

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