At our sister brand Skift Travel we’ve been looking at executive compensation this time of year for a while now.
Compensation is a good way to get a sense of how a brand is performing. And by “compensation” we mean all the pieces that go into it — cash, stock, benefits, perks, etc. — and what those things signal. While, for instance, Wynn Resorts’ former CEO Steve Wynn walked away with the top compensation for 2017 in the hotel and gaming sector, it provided more a chance to seriously question the competence of the board rather than celebrate the performance of an executive and founder kicked to the curb for credible accusations of unbecoming behavior.
This year in the restaurant industry only saw one really eye-raising departure of an executive, the holiday exit by Papa John’s founder and public face John Schnatter. The only smoke in this case was around the brand’s poor performance in previous quarters, but the timing of the departure for a founder and CEO was incredibly odd.
The other big departure of 2017, that of Chipotle CEO and founder Steve Ells, wasn’t a surprise. The announcement in November followed multiple quarters of earnings and stock performance that had returned the brand to valuations it last saw six years prior and erased all its market gains. Despite stock performance, Ells’ compensation last year was quite generous. But it has been quite generous for many years, despite the brand’s performance. He’s been the Steve Wynn of the restaurant industry, minus the HR nightmare.
On the flip side, sometimes a top-ranking position is a signal of long-term performance that has dramatically improved the brand. To illustrate this, we offer McDonald’s performance over the last few years and the compensation given to its executive team.
CEO Stephen Easterbrook leads his peers in compensation this year, and it’s hard to argue against this on merit.
In the chart below you can scroll right to see a company’s performance over the last year, as well as its compound annual growth rate over the past five years. You can also scroll to the bottom to compare these brand numbers to both the S&P 500 Index as well as the restaurants index.
While McDonald’s is the clear leader in yearly growth, it’s merely in line with the restaurants index for the last five years. This speaks to both its poor performance in recent years as well as its remarkable moves during 2017.
Read below for more notes.
Note: All companies are listed on either the NASDAQ or New York Stock Exchange. Compensation is categorized as All Reported Total Executive Compensation for fiscal year 2017.
20 Most Compensated Executives
|Executive||Company||Title||Compensation||1Y % Change||5Y CAGR|
|Stephen J. Easterbrook||McDonald’s Corporation||President, CEO & Director||$21,761,052||36%||9%|
|Howard D. Schultz||Starbucks Corporation||Founder & Executive Chairman||$17,980,890||1%||15%|
|Greg Creed||YUM! Brands, Inc.||CEO & Non-Independent Director||$12,368,607||18%||-2%|
|Kevin R. Johnson||Starbucks Corporation||CEO, President & Director||$11,480,364||1%||15%|
|M. Steven Ells||Chipotle Mexican Grill, Inc.||Founder & Executive Chairman||$11,052,180||-25%||-3%|
|Wayne Kent Taylor||Texas Roadhouse, Inc.||Founder, Chairman & CEO||$8,558,210||10%||26%|
|J. Patrick Doyle||Domino’s Pizza, Inc.||President, CEO & Director||$7,939,727||8%||27%|
|David W. Gibbs*||YUM! Brands, Inc.||President & CFO||$7,534,320||18%||-2%|
|Elizabeth A. Smith||Bloomin’ Brands, Inc.||Chairman, CEO & President||$7,445,638||2%||1%|
|Stephen P. Joyce||Dine Brands Global, Inc.||CEO & Director||$7,013,443||-35%||-6%|
|Eugene I. Lee||Darden Restaurants, Inc.||President, CEO & Director||$6,361,776||33%||15%|
|Sandra Brophy Cochran||Cracker Barrel Old Country Store, Inc.||President, CEO & Director||$6,209,342||-5%||20%|
|Julia A. Stewart*||Dine Brands Global, Inc.||Former Chairman, Chief Executive Officer and Interim President of Applebee’s Business Unit||$6,137,700||-35%||-6%|
|Todd Allan Penegor||The Wendy’s Company||President, CEO & Director||$5,472,993||20%||17%|
|Nigel Travis||Dunkin’ Brands Group, Inc.||Chairman & CEO||$5,349,292||21%||11%|
|David M. Overton||The Cheesecake Factory Incorporated||Chairman & CEO||$5,126,897||-22%||4%|
|Wyman T. Roberts||Brinker International, Inc.||CEO, President & Non-Independent Director||$5,102,318||-27%||-5%|
|Leonard A. Comma||Jack in the Box Inc.||Chairman of the Board & CEO||$4,747,933||-20%||19%|
|Daniel S. Schwartz||Restaurant Brands International Inc.||CEO & Director||$4,152,266||33%||n/a|
|Scott M. Colosi*||Texas Roadhouse, Inc.||President & CFO||$3,641,364||10%||26%|
|Denny Marie Post||Red Robin Gourmet Burgers, Inc.||CEO, President & Director||$3,621,862||1%||8%|
|Richard C. Stockinger||Fiesta Restaurant Group, Inc.||CEO, President & Director||$3,443,539||-36%||8%|
|S&P 500 Restaurants||19%||9%|
Source: SEC filings and CapitalIQ
* Not on Board
** Previous position
In the last year, Wendy’s, Dunkin, Darden, and Burger King parent Restaurant Brands International were the only ones beyond McDonald’s that had both executives in the top 20 in terms of compensation and year-over-year growth north of 20%. Still, none of their executives were in the top ten.
If anyone has room to complain it is Darden’s Eugene Lee, who saw both a 33% increase in 2017, as well as very healthy 15% CAGR growth in the past five years — coming close to McDonald’s in the former and healthily beating it in the latter. Wendy’s CEO can also sleep healthy knowing that the business has grown significantly under his watch, he hasn’t cost them a ton in compensation, and his beef is always fresh.
Still, McDonald’s size and market cap mean that when it wins it wins big. Below, you can see its drop-earning executives in 2017. If they were included alongside Chairpersons, CEOs, and Presidents they would push out a number of the bottom ten positions.
McDonald’s Executive Compensation
|Stephen J. Easterbrook||President, CEO & Director||$21,761,052|
|Douglas M. Goare||Chief Restaurant Officer & President of International Lead Markets||$5,598,524|
|Kevin M. Ozan||Corporate Executive VP & CFO||$5,474,378|
|Gloria Santona *||Former Executive VP, Secretary & CGC||$4,289,462|
|Silvia Lagnado||Corporate Executive VP & Global Chief Marketing Officer||$3,973,663|
|Christopher J. Kempczinski||President of USA||$3,847,453|
Source: SEC filings and CapitalIQ
* Previous position
This year marked the first year that the U.S. Securities and Exchange Commission required companies to report a CEO pay ratio, or how much CEOs make in comparison to their employees. In an industry like restaurants, where minimum wages are common and executive salaries can be particularly high, there can be a vast disparity in pay.
We pulled out five of the leading fast-food brands for comparison. The combination of high executive pay at McDonald’s and a global workforce filled with low wage earners gave the company one of the highest over-all ratios at 3,101:1.
According to the Wall Street Journal, the retail industry has the greatest disparity at 669:1, with the food, beverage & tobacco sector coming in second with an average of 233:1.
Companies are more likely to see greater pay disparity as they grow in size, with a company that has fewer than 2,310 employees seeing a 45:1 ratio, while a company with more than 43,000 employees seeing a 318:0 average ratio.
As part of the new SEC requirement, companies must also describe what a “median employee” is. Descriptions for each of these brands can be found beneath the chart.
|Company||CEO Compensation||Median Employee Compensation||Ratio|
|YUM! Brands, Inc.||$12.4 million||$9,111||1,358:1|
Source: SEC filings and CapitalIQ
McDonald’s: 2017 total compensation for our median employee (a part-time restaurant crew employee located in Poland) was $7,017.
YUM Brands, Inc.: Our median employee was identified as a part-time Taco Bell restaurant employee in the U.S. who was employed by the Company for three months.
Chipotle: When including total compensation for our CEO using realizable pay from 2017 compensation as described above under “Compensation Discussion and Analysis – Executive Summary – Alignment of CEO Realizable Pay Value and Performance,” the CEO to median employee pay ratio would be computed to be 113 to 1. We believe such realizable pay for our CEO results in a more meaningful comparison of compensation actually received in the year by our CEO and median-compensated employee.
Domino’s: Based on total cash compensation, our median employee was identified as a part-time delivery driver who worked an average of 25 hours per week and was employed by the Company for 23 of 26 pay periods.
Wendy’s: Based on total cash compensation, our median employee was identified as a restaurant team member who in 2017 was paid on an hourly basis and worked 1,892 hours.
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