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Sardar Gets a Raise

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By TMFCanuck
June 26, 2009

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"On June 19, 2009, the Compensation Committee of the [Steak N Shake] Board of Directors voted unanimously to increase the salary of the Chairman, President and Chief Executive Officer, Sardar Biglari, to $900,000 per year effective immediately. Mr. Biglari's previous salary had been $280,000. Mr. Biglari does not have an employment agreement and will not participate in any bonus program or receive any stock or stock option grants. Mr. Biglari does not receive any separate compensation for serving as a Director or Chairman of the Board of Directors."

You know...

A wise man once said that it takes a lifetime to build a reputation, and five minutes to sully it...

This raise thing for Sardar comes out of left field. And it's the comp committee who is responsible (not Sardar directly), and so it may not be fair to say that this directly sullies Bigliari's reputation, but said reputation certainly takes a body blow today. Said compensation committee is staffed by Director's Person, Ryan, Schmidt, and Sardar's old professor Philip Cooley. So, the raise may or may not have been a surprise to Sardar. Regardless, the optics are horrible.

And he takes no comp from Western Sizzlin, though that is not an argument (as independent companies, SNS should not supplement WEST).

But on the continuum of Buffett-to-Selim in terms of investor friendliness, this is a definite leap toward the Selim end of the scale, and would seem at odds with the whole "make money with shareholders, and not off shareholders" meme.

Of course, if this extra-stipend were to keep him from selling SNS shares for income, I suppose I'd hold my nose. And if this came as a, say, $0.065/qtr dividend to all shareholders, Sardar would be making his incremental $620K (taxed at a lower rate, don't you know) on his share holdings alone (and since we're all about FCF at SNS now...) and we'd all be singing his praises for bringing in the dividend.

And I find myself wondering about double standards. On the one hand, the 8-K takes pains to somewhat justify the tripling of salary, saying that Sardar's taking no options or stock grants, that he's in no bonus plans, and has no employment agreement.

Fair enough - total compensation for his restaurant CEO peers is typically far above $900K per year when you include all of those things. But the thing is, Sardar himself is the one who ostensibly held himself up for greater scrutiny by refusing stock option grants and such. So for the comp to committee to then goose the base salary in light of this, frankly, leaves something of a bad taste in the mouth. A bad analogy perhaps, but isn't there a well-known quip about a child murdering his parents and then throwing himself upon the mercy of the court as an orphan?

What this also does is draw a line in the sand - this far and no further. From here on after, Sardar CANNOT then participate in any bonus plans, option or stock grants, nor can he enter an employment agreement to guarantee him fat payouts when he retires. Doing so would be a 'bait and switch', based on this 8-K. Are we to nod our heads sagely in two or three years when Sardar is brought into whatever bonus plan then exists because the poor dear hasn't been receiving a bonus in the interim?

This far and no further. I don't invest in bait-and-switch companies.