Starbucks CEO Howard Schultz
Options bonanza: $107.8 million
Back in the fall of 2008, Lehman Brothers had just blown up, and the government was debating whether to step in to save the banking system with bailouts. Shares of Starbucks (SBUX.O) plummeted along with the market.
In the mayhem, with Starbucks stock scraping along its lows for the decade, the company gave its founder and CEO Howard Schultz the gift of an enormous grant of stock options.
How big? Let's put it in perspective. The grant of 2.71 million options on Nov. 17 was 4.6 times the average size of his options grant for the two years before 2008 and the two years after. And, thanks to the market panic, the strike price was unusually low. At $8.64, it was just 30 per cent of the average price of his options grants in the four years surrounding 2008. The upshot: Schultz now has a $107.8 million windfall on that grant.
Despite that mega-grant, he still got increases in total pay of anywhere from 54 per cent to 124 per cent for 2009 through 2011, taking his annual pay up to between $15 million and $22 million, three to four times the median for his peers, according to ISS. He also got $6.4 million in cash awards in 2010-11.
That's not to say Schultz isn't a fine CEO. He deserves credit for founding Starbucks and returning as CEO in January 2008 to revitalize the company, a move that has led to great results. Last year, revenue at $11.7 billion was up 19.7 per cent over 2009, and earnings per share at $1.62 were up over twofold over the same period. The stock is up 2.5 times since January 2008, when he returned as CEO, compared with flat returns for the S&P 500 ($INX).
But he would have a huge reward for this success even without that 2008 mega-grant of options. At the time of that grant, he owned 31.34 million Starbucks shares, and he still has almost all of them. This means he's up $892 million on that position since he came back as CEO in 2008.
Starbucks responds that its stock was in a steady decline before the fall of 2008, and it didn't hit the bargain basement lows of $8.64 just because of the market panic at the time. It also says Schultz's pay reflects the "unique value of his leadership to Starbucks shareholders," as seen in the results since he took over as CEO again. "When Starbucks and other companies made stock options grants back in 2008, there was no guarantee that the companies would succeed. Performance was not a sure thing," says Starbucks spokesman Jim Olson.
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