Starbucks Corporation, like Whole Foods, is widely held and widely discussed in the responsible investing community. The company is admired for employee policies and supply chain initiatives that are superior to those of many large companies, but some argue it is not doing as much in these areas as it should---or as its image would lead one to believe it does. (John Harrington’s recycling proposal on this year’s ballot is one example of the shareholder engagement that results.) Purchase The Corporate Library's governance profile for Starbucks (SBUX) here.
From a governance perspective, we think the company’s CEO compensation policies pose investment risk. Previously, we have questioned the compensation committee’s decision to grant large amounts of stock-option grants to founder, chairman and CEO Howard Shultz, who already owns 4.2% of the company’s shares. The effect of those past decisions was on dramatic display in 2009, when Schultz realized over $26 million in value from the exercise of options. Another continuing issue is the company’s unusually high expenditures on the CEO’s personal security—more than a half a million dollars annually in 2008 and 2009. Even more worrisome, however, is the evidence of short-term thinking in the compensation changes made in 2009. Shultz voluntarily reduced his base salary to $6900 effective March 30, 2009, but the compensation committee raised it to $1.3 million as of December 1st. Shultz also received a discretionary bonus of $1 million. It’s true that the company, and its stock price, did well last year in a challenging economic environment. But measured over the last three and five years, Starbucks’ stock is significantly underperforming its restaurant peers and the S&P 500 index. In fact, over both time frames, Starbucks’ shareholders are still losing money. An eight-month salary cut hardly seems an appropriate response.
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Kimberly Gladman - Director of Research and Risk Analytics
