How Howard Schultz Earned More Than Half a Billion Dollars in Nine Years
Howard Schultz’s compensation tied to 517% share rise.
It’s no secret that Starbucks Corp.’s Howard Schultz will step down from the top job a wealthy man. What’s surprising is how wealthy.
Schultz, 63, has received compensation worth about $172 million since he began his second stint as the coffee retailer’s chief executive officer in January 2008, according to the company’s regulatory filings.
A closer look, however, reveals an even bigger haul. Schultz, who’s set to step down as CEO in April, received most of his compensation in equity, which varies with Starbucks’ share performance. Since he led the company to a sixfold stock improvement, Schultz’s total payday for the last nine years: $553.3 million.
“Whatever figure you read is highly unlikely to be the value the executive actually receives,” said Peter Lupo, a managing director at executive compensation consulting firm Pearl Meyer in New York. “For a CEO, only about 10 percent of pay is guaranteed. The rest is typically closely tied to performance.”
Companies such as Seattle-based Starbucks don’t have to disclose the higher figure, making comparisons to other CEOs difficult. Companies are only required to reveal the value of an executive’s complete pay package in the year it’s granted. That includes payments such as salary, bonuses and the value of taxable perks. For 2016, Schultz received a combined $4.91 million under those categories.
The remainder came in stock options and restricted shares, valued at $16.9 million on the day they were granted. But Schultz will only receive the options over a number of years by remaining at the company, which he plans to do, as executive chairman. The shares pay out if he achieves certain goals, and he could end up with twice as many shares if those targets are exceeded. What the awards will be worth at that point also depends on the company’s stock price.
Piecing that together to get a full sense of what a CEO ends up earning can be tricky, even for boards of directors. Many don’t do thorough analyses of how pay packages can swell in value if the stock price rises, according to John Trentacoste, a managing director at compensation consultant Farient Advisors.
“At Starbucks, we have a pay-for-performance philosophy, and Howard’s compensation over the past decade is directly reflective of the company’s strong financial performance, under his leadership,” spokeswoman Linda Mills said in an e-mail.
Schultz has become the face of Starbucks while steering the business to greater heights. Since he returned to the top of the coffee chain in 2008, the number of company-operated and licensed stores increased to 25,000 from 15,000, and operations expanded to 75 countries from 43. Revenue has more than doubled. As a result, its shares have risen 517 percent, compared with 61.8 percent for the S&P 500 Index.
In the meantime, the CEO has so far earned 2.92 million restricted shares and 11.8 million options, according to data compiled by Bloomberg, adjusted for a 2015 stock split. He’s exercised some of the options but still holds most of them, filings show. Those proceeds, combined with the outstanding equity awards valued as of Monday’s closing price of $55.90 a share, comes out to $515.6 million. He’s also received $12 million in salary, $22.2 million in bonuses and perks worth $3.54 million.
The estimate assumes Schultz hasn’t sold any of his vested restricted shares, since regulatory filings don’t disclose if disposed stock comes from certain awards or his previous ownership stake. Unvested awards were excluded.
Schultz joined Starbucks as head of marketing in 1982 and ended up buying the company five years later. He was CEO until 2000, when he became chairman to focus on global strategy. In 2008, the board tapped him for a second stint after the stock had slid more than 40 percent in the previous 12 months.
Schultz on Sunday announced plans to hire 10,000 refugees in coffee shops around the world within five years. It was a rebuke to President Donald Trump’s immigration order that temporarily suspended admission of refugees into the U.S.
The best corporate leaders inspire their companies to success, a fact that’s sometimes forgotten by CEOs looking to match their compensation to people such as Schultz, said Dan Walter, chief executive of Performensation, a San Francisco-based pay consulting firm.
“That’s like saying you should get paid what Tom Brady or Ben Roethlisberger get paid,” Walter said, referring to star quarterbacks of the National Football League. “Win a few Super Bowls and then give me a call.”
—With assistance from Jenn Zhao.