Annals of Ridiculous Exec Comp: a $12 Million Howard Schultz 'Retention Bonus' at Starbucks

by jeff Bailey May 01, 2012

Executive compensation among publicly-traded U.S. companies is a sprawling smorgasbord of cash and equity and guaranteed pensions – seemingly limited only by the appetite of the CEO to gorge him or herself. But we hold in special scorn those individuals who have already attained billionaire status thanks to stockholdings in the companies they run, and yet who continue to feast as if their next meal was in doubt.

See here for a special list of these ravenous types.

Why do the billionaires, say, like Larry Ellison of Oracle (ORCL), get special scorn? Because their huge stockholdings in the companies they run give them all the incentive they need to show up for work and do a great job. We suspect that if boards of directors at such companies suddenly grew spines and told the CEOs they’d have to work for nothing – no salary, no bonus, no stock awards or options, no special guaranteed pension – that the billionaire CEOs would, after sulking, keep doing what they’d been doing. To do otherwise would risk their wealth, after all.

Which brings us to Howard Schultz, CEO of Starbucks (SBUX). His roughly 23 million Starbucks shares are valued at more than $1.3 billion. He has feasted mightily in prior years, so as of the end of the 2011 fiscal year, October 2, Schultz also had stock options that carried unrealized gains of about $170 million. And there’s the usual bunch of other compensation stuff for him.

Point is, the bulk of the man’s wealth is tied up in Starbucks stock. He has demonstrated an extreme desire to run the company and be identified as its leader. If you doubt that, read his second self-flattering business memoir, "Onward: How Starbucks Fought for Its Life Without Losing Its Soul,” or spare yourself and read this unkind review of the book, written by yours truly. In “Onward,” without any apparent embarrassment, Schultz details how he schemed to oust Jim Donald, Starbucks’ CEO during a period when Schultz fancied himself a strategic thinker who didn’t need to be pulling all the levers.

Starbucks’ board may not realize it, but they have Howard by the coffee beans – his whole being seems tied up in his role as Starbucks’ CEO. Hell, he’d probably pay them to remain CEO. And yet:

Schultz was given a $12 million restricted stock award recently and it was explained as a retention bonus. “After the end of fiscal 2011, our ceo was granted a special RSU award in recognition of his leadership in driving record 2011 performance and the board's desire to retain Mr. Schultz for at least the next three years.”

Was Schultz threatening to leave? Perhaps take another job?

We aren’t told, but the idea seems silly. Schultz received regular compensation of $16.4 million last year.

Schultz has, of course, presided over a wonderful turnaround at Starbucks, since returning as CEO.

SBUX data by YCharts

But no one has profited more from that turnaround than Schultz, who’s holdings, like those of smaller Starbucks shareholders, grew eightfold from the stock’s bottom in late 2008.

Kevin Johnson, CEO of Juniper Networks (JNPR) chairs the Starbucks compensation committee. Nice work, Kevin. Also on the panel is Myron Ullman III, the recently retired CEO of JC Penney (JCP), where he stepped aside quietly as former Apple (AAPL) executive Ron Johnson brought in new top managers and awarded them astounding up-front cash bonuses. Myron walked away with $34.6 million in 2011 compensation. Starbucks board members are paid roughly $250,000 a year for their services.

Starbucks’ board received wise counsel from not one but two compensation consulting firms, Towers Watson & Co. and Frederic W. Cook & Co. One expects the firms are well paid.

Jeff Bailey is an editor for the YCharts Pro Investor Service which includes professional stock charts, stock ratings and portfolio strategies.

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