Starbucks CEO Brian Niccol’s $145 Million Pay Package
CEO pay tends to be imprecise at the best of times when it comes to determining how much a given CEO should be making. The question of “how much is too much” is essentially determined by what the price is measured against and who is asking the question in the first place, as there appear to be fairly sharp distinctions between asking prices for company employees at the top and bottom of the positional ladder.
To observe one case in particular, Starbucks will potentially be paying new CEO Brian Niccol a $145 million package based on figures the company released on August 14, which, at first glance, appears to lack much basis in reality.
As part of joining Starbucks, Niccol is tasked with turning around the coffee chain’s $100 billion sales slump. His compensation is generous as a result, starting with an $8.8 million bundle of cash provided he and the company are able to surpass specific performance targets. Niccol also earned $85 million for joining the company, though these funds mostly replaced stock awards he surrendered upon exiting his position as Chipotle Mexican Grill’s CEO.
Share-based bonuses are also involved depending on Niccol’s performance. He’ll earn $23 million annually if he hits his targets, though if he exceeds them by a wide enough margin, Starbucks could triple 60% of that amount, raising the sum to $51 million. This prospective increase assumes the awards are structured similarly to this year’s long-term executive bonuses, which, based on the company’s annual proxy filing, are amplified should goals like talent retention and sustainability be met.
Additionally, there are circumstances in which Niccol’s replacement stock award could also be multiplied, provided he improves performance and maintains his continued employment.
These notably substantial sums eclipse the earnings and conditions a typical barista at the company earns; the sum is about 10,000 times more than what the median Starbucks employee earns, not to mention Niccol’s workspace is located at a remote office in Newport Beach, California, instead of a bustling coffee shop.
Evaluating CEO Compensation: Market Reaction and Performance Metrics
Curiously, a Starbucks shareholder might actually consider Niccol to be underpaid, given certain market circumstances. Since the company’s market capitalization went up by $20 billion after Niccol’s new role was announced, some could see the CEO as already having exceeded his value by over 130 times. From a different perspective, analysts at Visible Alpha believe Starbucks will generate $4.4 billion in earnings next year. As such, provided Niccol can bump that amount to $4.6 billion, he will have effectively made up for any costs spent on himself.
At the end of the day, Niccol’s pay primarily relies on increasingly solid performance and maintaining his position as CEO due to restricted stock elements. Putting the sign-on awards aside and assuming he only just meets the company’s targets, his $28 million a year would barely qualify him for the list of the top 100 highest-paid US CEOs, according to the list provided by union federation AFL-CIO.
CEO compensation appears to have somewhat of a lack of predetermined structure, especially since US law doesn’t include any kind of cap to limit it, nor is it likely to do so any time soon.
Although shareholders technically get to advise on the subject, there’s still little standardization when it comes to how they can advise and what all that can/should consist of. Until some form of standardization is put into place concerning CEO pay, it’s unlikely their pay will come down any time soon, which is no doubt received differently by company employees depending on their position, workload, and standing with the brand.
