Stock rewards play growing role in restaurant CEO pay

CEO compensation at the largest public restaurant companies varied widely last year, ranging from around $300,000 to more than $33 million, according to NRN research.

The results, as with public companies across all industries, increasingly reflect the influence of stock compensation and other performance awards.

“We’ve been seeing those trends continue,” Ani Huang, president of the Washington, D.C.-based Center On Executive Compensation, told NRN. “The main one is that stock compensation really continues to be the biggest component of CEO pay.”

For its annual executive salary survey, NRN reviewed SEC filings to compile 2018 pay for CEOs at 35 Top 200 restaurant companies. The report looks at each executive’s total compensation from a given company for 2018 and 2017. Executives who did not serve as CEO for the full year are noted, and compensation figures may include pay for earlier non-CEO roles.

Brian Niccol of Chipotle Mexican Grill Inc., despite serving as CEO for only 10 months last year, topped the list with more than $33.5 million, the vast majority of which was performance based. Likewise, Daniel Schwartz of Restaurant Brands International Inc. saw his compensation increase more than four-fold on stock awards totaling more than $16 million.

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In fact, among the five highest paid CEOs last year — Niccol, Schwartz, McDonald’s Steve Easterbrook, Darden Restaurants Inc.’s Gene Lee and Yum Brands Inc.’s Greg Creed — base salary was on average less than 8% of their total 2018 compensation.

Stock awards on the rise

Outside research on executive compensation bears out similar trends. The latest report from Equilar, which provides pay data to boards of directors, showed that in 2018 “stocks accounted for more than half of total CEO median pay,” Huang said. “That is a strong trend that I think is going to continue.”

The percentage of performance-based awards will likely continue to rise, she added, noting that nearly 88% of CEOs in the Equilar 500 study received performance based awards.

Equilar found median pay decreased slightly for CEOs at the top 100 public firms in terms of revenue. Median pay for Equilar 100 CEOs overall was $15.6 million in fiscal year 2018, in compared to $15.7 million for the CEOs on the previous year’s list.

Equilar earlier this year found the highest-paid CEOs at U.S. public companies in 2018 were Mark Hurd and Safra Catz, co-CEOs at Oracle, at $108.3 million each.

Women represented less than 10% of Equilar 100 CEOs. Just nine women held chief executive positions at Equilar 100 companies, which was an increase from eight in 2017. Among the nine, three are among the top 20 highest-paid on the list.

Meanwhile, four of the 35 restaurant CEOs in NRN’s salary survey were women. Two of them — Denny Marie Post of Red Robin and Liz Smith of Bloomin’ Brands Inc. — are no longer in those roles.

A focus on results

Chipotle’s Niccol, who took the CEO position at the company in March 2018, had by far the highest compensation among restaurant companies in this year’s report. His $33.5 million total pay included grants of stock appreciation rights and other incentives, such as a make-whole award to replace unvested equity awards that he forfeited when he left Taco Bell.

Chipotle, in its disclosures, said Niccol was provided an annualized base salary of $1.2 million, a target annual bonus opportunity for 2018 of 150% of his base salary (guaranteed for 2018 only), and a maximum annual bonus opportunity for 2018 of 225% of his base salary. His total compensation from Chipotle in 2018 was $33.5 million.

“Investors, especially in the U.S., are very focused on aligning executive interests with shareholder interests and I think the easiest way to do that is to focus on equity compensation and, within that equity compensation, to focus on performance-based awards,” Huang said.

As a result, stock awards remain a large part of executive compensation.

Daniel Schwartz, CEO of Restaurant Brands International Inc., parent to the Burger King, Tim Hortons and Popeye’s chains, had a base pay of $800,000 a year in 2018, as in the two years before, but stock awards of $16.3 million and other compensation, pushed his 2018 total past $18.8 million. That total was  up from $4.2 million in 2017, when his stock awards were significantly lower at $1.5 million.

Schwartz was succeeded as CEO by José Cil, president of the Burger King brand, on Jan. 22 of this year, though Schwartz remains as executive chairman through Sept. 30. Cil’s total compensation in 2018 was $15.3 million.

C-suite shuffling

Some restaurant companies saw executive turnover that led to changes in compensation levels.

For example, Domino’s longtime CEO Patrick Doyle resigned from his position last year, effective June 30, 2018, and was replaced by Richard Allison Jr. Doyle had an annual base salary of just over $1 million, effective since March 1, 2016, that was “unchanged by the compensation committee for the 2017 and 2018 fiscal years,” the company said in its disclosures.

But his package included other incentives, such as a 2015 agreement that granted him an annual allotment of 45 hours of personal use of the company’s corporate aircraft during at no charge to him to address bona fide business-oriented security concerns. For any personal use over the allotted 45 hours per year, the company had a time-sharing agreement with Doyle that required him to reimburse the company for such personal use of the company’s corporate aircraft.

For fiscal 2018, Doyle’s annual base salary and target performance incentive at the same level as fiscal 2017, and incentive payouts were prorated. Total compensation for his time as CEO in 2018, from Jan. 1 and June 30, was $4.6 million.

Allison succeeded Doyle as CEO on July 1, 2018, and was awarded base pay of $865,000 with bonus incentives, equity awards and other compensation. His full-year compensation was $9.1 million.

Other companies faced turmoil that led to executive changes, as was the case with Steven Ritchie becoming CEO of Papa John’s International Inc. on Jan. 1, 2018, replacing disgraced founder John Schnatter who stepped down as CEO just 10 days earlier.

For 2018, Ritchie’s total compensation was $5.7 million, including base salary of $900,000 and nearly $3.8 million in stock awards, among other incentives.

Public relations controversies later in the year led the company to approve an executive retention program for some executives.

“The retention program includes enhanced severance benefits and retention equity grants,” Papa John’s said in annual proxy statements. “The committee structured the retention program considering the executives’ responsibilities in a difficult business environment, their value to the company as it executes a strategy to rebuild shareholder value and to address the lack of retention value of outstanding equity awards.”

Contact Ron Ruggless at [email protected]

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