Starbucks Misses a Chance to Shine

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Starbucks (Nasdaq: SBUX  ) is reining in compensation for founder and CEO Howard Schultz and several top managers. That's a step in the right direction given the company's lagging performance lately, but is it really enough? It's been an awful year, folks.

The executives, including Schultz, aren't receiving raises for 2009. Also, Schultz won't participate in the company's executive bonus program this year.

There's no reason to shed bitter tears for Schultz, though. According to the company's proxy filing, his total compensation was $9.7 million in 2008 (an 8.5% decrease compared to 2007). The sum includes customary extras like stock options and life and disability insurance benefits. (Schultz's base salary remains at around $1.2 million, as it has been for years.)  

On a public relations level, this looks much better than the recent news about Starbucks' new corporate jet. Then again, it's interesting when you consider the fact that there are high-profile corporate leaders who voluntarily reject base salary. These include Apple's (Nasdaq: AAPL  ) CEO Steve Jobs and Google's (Nasdaq: GOOG  ) founders Larry Page and Sergey Brin and CEO Eric Schmidt.

Granted, all of the above gentlemen had stock or options over the years that have been extremely lucrative. However, most CEOs do take every kind of compensation they can get, so it's also noteworthy that those CEOs decided not to take customary levels of base salary in good times.

Starbucks does many good deeds with its business; I nominated it as one of the contenders for Most Socially Responsible Company for our recent Fool Awards.

That's why I find it a bit odd that for a company that's so touchy-feely, there isn't a more dramatic gesture when it comes to executive pay. After all, Starbucks' profit fell 50% in the last year. Meanwhile, Starbucks is closing stores and laying off workers. I'm not sure this is a good example of Starbucks' management team pouring its heart into it.

I still believe in Starbucks' business for the long term (I nominated it as the Best Stock for 2009, in fact), and I'm a shareholder. However, just because I'm optimistic about the company's long-term prognosis doesn't mean that I'm a built-in fan of anything management does. In this case, I'm a bit surprised that this progressive company isn't a little bit more progressive regarding executive compensation. No raises and no bonus for Schultz is a start, but it seems like much more could have been done.

Pour yourself a cup of related Foolishness:

Starbucks and Apple are Motley Fool Stock Advisor picks. Starbucks is also a Motley Fool Inside Value pick. Google is a Motley Fool Rule Breakers recommendation. The Fool owns shares of Starbucks. Try any of our Foolish newsletters today, free for 30 days.

Alyce Lomax owns shares of Starbucks. The Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 23, 2009, at 2:22 PM, XMFTom7 wrote:

    Agreed -- particularly when they're also planning on cutting the corporate matching to the employees' 401(k).

    Bad karma, I say.

  • Report this Comment On January 23, 2009, at 2:28 PM, hondo928 wrote:

    Starbucks biggest problem is employee compensation. They don't pay enough to keep quality workers at the lower levels and give too much to the higher levels. I really like the company long-term but just can't get my self to buy because this is a big issue. I am a former employee, and in talking to my old manager, they keep reducing her power and pay (not to mention the poor performance of the stock has killed the 401k's of most workers there) yet we see Schltz who since his return is doing just about everything wrong getting boatloads.

  • Report this Comment On January 23, 2009, at 6:39 PM, TMFLomax wrote:

    I neglected to mention the 401(K)s but I agree, bad karma indeed. And I believe I just saw a news headline that they're laying off more workers.

  • Report this Comment On January 23, 2009, at 8:02 PM, artistx wrote:

    Schultz isn't much different than the average CEO these days where his salary is a rediculous multiple of the average workers' salary. Believe me, I've seen him up close on projects, been at Sbux over 11yrs. He is valuable, but not that valuable. Same goes for upper management. To Sbux credit, last year they froze salaries and pay increases at Director level and above. What they are doing now is firing the experienced people at the top of their pay scales and replacing them with kids out of school. In some depts. this makes sense, in others it will be a disaster in the making.

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