The CEO Merry-Go-Round Continues: Recent Trends in CEO Compensation

Being a CEO in the restaurant industry is tough work; and short lived for many. Nearly 20% of the CEOs in our annual study of pay-for-performance resigned, retired or were pushed out. It would stand to reason that deficient performance would precipitate a CEO’s ouster, but was that really the case?

In conducting our analysis, we used our proprietary Pay-for Performance Model to measures stock appreciation, EBITDA growth, market capitalization and total direct compensation. Of the departing CEOs, a clear majority had double-digits declines in their stock price from January 1, 2014 to January 1, 2016. The two that saw their stocks rise were Sally Smith at Buffalo Wild Wings and John Schnatter of Papa John’s. More recent events saw Smith lose a battle with activist investor, Marcato Capital Management, and Schnatter bumping heads with the NFL regarding player protests. It appears that there are more ways to lose your job, but inferior performance is still the greatest career killer.

Click here for the restaurant CEO pay-for-performance overview table.

Components of CEO Compensation

SALARY: When we examine CEO pay, the best compensation programs have a balanced approach and consider peer group comparisons. The best plans have more “at risk” compensation in the form of short and long-term rather the guaranteed pay such as salary. The average salary of a restaurant CEO in our survey was just over $700K. Interestingly, that is below the average of $778K in hotels and $904K in casinos. The largest salary of the group belonged to Steve Ells at Chipotle at $1.54M. Ten other CEOs made a salary of at least $1M.

INCENTIVES: The average bonus for a restaurant CEO was $769K, down from $1.2M in our previous year’s study. The industry is evidently struggling to keep pace with the economic recovery. Likewise, the average Long-Term Incentive Plan (LTIP) was also down for the group going from $2.7M to $2M last year. The largest bonus payment went to Patrick Doyle at Domino’s at just over $4.6M. A total of 13 CEOs made over a $1M in bonus pay. The largest LTIP went to Howard Schultz at Starbucks raking in almost $17M in stock. Nearly half the group (25) had a stock grant worth more than $1M.

We were struck by two of the best paid CEOs deciding to step down, namely Steve Ells and Howard Schultz. Both will become Executive Chairman following their departures. However, their ultimate pay will vary greatly: Ells will most likely get very little of his $14 million valued LTIP, as the award has a performance trigger at $700 per share price (the stock is currently valued at $313). On the other hand, Schultz’s pay plan allows him to continue getting paid as if he were the CEO.

PAY-FOR-PERFORMANCE: The top five paid CEOs all made over $10M, with Schultz making the most at nearly $22M in total compensation. The big question is, “are these CEOs worth it”? That is precisely what our pay-for-performance model is intended to answer. The model factors in key financial metrics and relates it to overall pay. The outcome is an AETHOS Value Index that grades each CEO on a pay for performance basis. With a AVI of 208, Boyd Hoback of Good Times gave investors the best value relative to his paycheck, while Randy Gier gave the worst. An AVI of 100 means that a CEO was paid exactly what he or she was worth to shareholders. It would seem that many of the highest paid CEOs in our survey deserved their lofty paychecks.

 
 

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