Starbucks CEO Kevin Johnson earned a $ 1.86 million bonus in fiscal year 2020, in addition to a larger retention grant, according to Starbucks’ power of attorney statement, designed to keep Johnson in position until the 2022 fiscal year.
“The board unanimously supported the performance-based retention rewards awarded to our executives at the end of 2019,” Starbucks board member Mary Dillon and CEO Ulta Beauty said in a statement.
Companies seek non-binding approval for executive compensation of shareholders through so-called “say-on-pay” proposals set out in proxies each year. Because the proposal is not binding, companies do not have to make any changes based on the result of the vote. Businesses are legally required to allow investors to vote on compensation.
In general, “it’s very rare for the ‘say-on-pay’ proposals to be approved,” said Kai Liekefett, a partner at Sidley Austin law firm specializing in executive salaries and corporate governance.
When investors indicate that they think managers are being paid too much, it could indicate the underlying shareholder unrest, he said. Shareholders usually do not like managers making a lot of money, as long as the performance is excellent, “said Liekefett.
This time, shareholders were likely influenced by the leadership of Institutional Shareholder Services and Glass Lewis, two influential proxy advisory firms that provide guidance on how investors should vote on proposals to ensure the best possible returns, and often dictate how investors vote.
ISS recommended that shareholders vote against the proposal, claiming that the rationale justifying the value of Johnson’s compensation package was “insufficient given the extraordinarily large target and the maximum opportunities under the award,” and given Johnson received a special award the previous year. Glass Lewis, also recommended that shareholders vote againt the proposal and said Starbucks ‘paid’ [its CEO] moderately more than its peers, but fared worse. ”
ISS has recommended over the past decade that shareholders vote against compensation packages at about 12% of companies annually, according to an analysis published in March by Compensation Advisory Partners, a consulting firm specializing in remuneration of executives and directors. The report found that in about 96% of cases, when most shareholders voted against an executive wage proposal, the ISS advised to vote this way.
Shareholders finally decided to go along with the recommendation issued by the advice and tune into Johnson’s proposed compensation package.
Although no changes are needed from Starbucks, it should take shareholder sentiment into account as it considers structuring management’s salaries going forward, Liekefett said. Investors may ‘feel alienated if a board does not respond … to the criticism’, he said. This could eventually lead to advice voting against directors’ nominations, or inviting an activist shareholder to take a stake in the company.
Starbucks intends to better understand what happened, Dillon noted.
“Our board and management team will continue to engage with investors in the coming months to understand their perspectives as part of our ongoing evaluation of our executive compensation programs,” she said.