Special Report: The Real Story Behind Rising CEO Pay

  • On average, the S&P 500 boards advised by Kay’s firm compensated their CEOs $ 1.6 million above the median of their own peer groups, based on an analysis of the companies’ 2012 proxy filings; and this understates an estimated $ 3 million gap. Columbia University researchers randomly produced 100 alternative peer groups for each of the firm’s big-company clients, using the client industry codes, revenues and market capitalization, and found the companies’ baseline was $ 1.4 million more than comparable alternatives.

    One Pay Governance client, DirecTV, replaced the lowest-paid CEO in its 15-member media peer group with another earning almost five times as much in 2012, “because of the limited access to executive pay data” on deleted peer British Sky Broadcasting, and the fact the new peer, Charter Communications, had “emerged from bankruptcy.” But Charter exited bankruptcy three years earlier and British Sky continues to report CEO pay. One change is that the Charter CEO’s compensation recently had doubled to $ 20.5 million.

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    Taxpayers Hit Twice by Fast-Food Pay Practices: Report


    When McDonald’s (NYSE: MCD) becomes the first of the major publicly traded restaurant chains to deliver up its first-quarter earnings Tuesday morning, investors hope that it will give the sector a boost.

    Some healthy revenue gains and on-target profit numbers might keep McDonald’s shareholders happy and buoy investor confidence in the economy more broadly, but it would provide one group with a lot more ammunition to lob at the restaurant industry.

    In a scathing analysis, the progressive Institute for Policy Studies has calculated that a law allowing corporations to deduct executives’ stock options and other so-called “performance pay” from their income taxes, without limits, costs taxpayers some $ 232 million in the last two years — based on just 20 large companies in the restaurant industry. 

    At the same time, the new report notes, large restaurant chains often pay their low-level workers “so little that many of them must rely on Medicaid and other taxpayer-funded anti-poverty programs.” The Institute for Policy Studies says the 20 companies in its report are all members of the National Restaurant Association, which is fighting efforts to raise the minimum wage.

    Related: Wage Hike Might Mean Fewer Fast Food Joints on Military Bases

    What the Institute for Policy Studies calls a “loophole” actually stems from changes to the tax code dating back to 1993. Congress, seeking to rein in executive pay, capped tax deductibility of cash payments at $ 1 million — but allowed for unlimited deductions for performance-based pay. That’s opened the door to the explosion in use of stock option grants as the main source of executive compensation in the 1990s.

    At McDonald’s, the tax benefit was a relatively modest $ 12 million over the last two years, in large part because new CEO Donald Thompson decided against exercising most of his “in the money” stock options. Starbucks and CEO Howard Schultz benefited far more, though. Chairman and CEO Howard Schultz received $ 236 million in exercised stock options and other kinds of performance pay in the two-year period that the Institute for Policy Studies surveyed. That enabled Starbucks to cut its IRS bill by $ 82 million — “enough to raise the pay for 30,507 baristas to $ 10.10 per hour for a year of full-time work,” the report says.

    At the other end of the wage spectrum are the Starbucks baristas, who earn an average of about $ 8.80 an hour (or, if they are a shift supervisor, just north of $ 11 an hour). No one (except maybe a few baristas) is suggesting low-level Starbucks employees should be walking away with millions a year. They’re not the people responsible for devising new drinks, designing new store layouts, negotiating real estate contracts or haggling over coffee supply deals — much less overseeing it all. And yet if you’re trying to support a family of two on those earnings, you’ve officially fallen below the poverty level. (In practical terms, trying to live off that in cities like New York, San Francisco, Boston or Miami won’t get you very far solo, either.)

    Related: Smart Policies Can Restore a Thriving Middle Class

    At Taco Bell, KFC and Pizza Hut, many workers collect less than $ 8 an hour on average, and the National Employment Law Project calculates they cost taxpayers $ 648 million a year in public assistance as a result. Yum Brands (NYSE: YUM) CEO David Novak earned $ 67 million in performance pay in 2012 and 2013. (During that two-year period, Yum’s stock rose 12.6 percent, lagging the S&P 500 index by more than 13 full percentage points.) That resulted in Yum being able to write off $ 23 million against its taxes.

    Incidentally, the three companies that the Institute for Policy Studies identifies as taking a softer line publicly on the minimum wage debate (leaving the tough talk to the National Restaurant Association) are those whose stock prices have beaten the S&P 500 over the two-year period in question: Starbucks, Dunkin’ Brands (NASDAQ: DNKN) and Chipotle Mexican Grill (NYSE: CMG). Outspoken opponents, like McDonald’s and Darden Restaurants (NYSE: DRI), underperformed the market.

    If data were going to alter the stance taken by the fast-food chains and the restaurant trade group, it would likely already have done so. They are focused on their duty to generate profits for shareholders, not on whether or not they have an obligation to pay what someone else deems to be a living wage. They can argue that as long as there are workers who will compete for jobs at a certain wage, it must, by definition, be a living wage.

    Related: Four Ideas to Help Revive the American Middle Class

    Leaving the merits of that debate to one side, this new set of data will add some new fuel onto the fire by pointing out that the taxpayer burden isn’t just a direct one — the cost of providing food stamps, say, to fast food workers who can’t even afford to dine on the cheap food they’re serving up. There’s an indirect cost, too.

    It’s tough to imagine the government retroactively insisting that a company use the corporate tax breaks of a 21-year-old policy to boost employee pay. On the other hand, it’s not all that hard to imagine this data adding to efforts, both at the national and state levels, to boost minimum wages. It may even contribute to increased scrutiny of executive compensation — and to how much “performance” those tax-deductible pay packages were really rewarding.

    At the end of the day, all the hullabaloo about the minimum wage is less about absolute wages than it is about the wealth gap. Is a CEO today worth 273 times the salary of an average worker?

    In the meantime, taxpayers in the middle are asked to foot the bill at both ends, subsidizing corporate tax breaks to underwrite lavish compensation packages for CEOs while at the same time paying for public assistance programs that make it possible for a segment of that CEO’s workforce to house, clothe and feed themselves and their families.

    Given the public policy questions that arise from that situation, businesses need to start addressing the disparity…or they’ll find government does it for them in a way they’ll like even less.

    Top Reads from The Fiscal Times:

    • Why Bloomberg’s Nanny Campaign Will Backfire
    • Obama Promotes a Society of Helpless Victims
    • Congress Does Something: Pushes $ 127 Billion in Tax Breaks

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    Earnings Preview: Starbucks to report 2Q

    NEW YORK (AP) — Starbucks reports its fiscal second-quarter results Thursday, which should give investors an indication of how international expansion and new products are affecting the coffee company’s profit.

    WHAT TO WATCH FOR: The Seattle-based company, which has more than 18,000 locations around the world, reports global sales growth for cafes open at least a year, with a breakdown of the figure by region. Although Starbucks has delivered strong growth in the Americas and Asia, where it has stepped up new cafe openings, Europe has remained a weak spot.

    Executives have said they’re working to turn around results by improving service and offering more tailored products.

    The company’s other growth strategy is to offer consumers more than coffee. To do that, it’s bought other companies: A chain of tea shops, Teavana; La Boulange, a San Francisco bakery chain; and Evolution, a bottled juice company. The idea is that products from those companies will be sold in Starbucks cafes, helping boost sales.

    Starbucks also introduced a single-serve coffee machine last year to tap into the fast-growing market for single-serve coffee.

    WHY IT MATTERS: Starbucks is facing more competition from fast-food chains such as McDonald’s, which have been increasing their coffee offerings. Burger King earlier this year introduced a new line of coffees and Wendy’s is testing fancier coffees such as lattes as well.

    Starbucks has nevertheless managed to grow by expanding beyond its core coffee offerings.

    LAST YEAR’S QUARTER: Starbucks Corp. earned 40 cents per share on revenue of $ 3.2 billion.

    WHAT’S EXPECTED: Profit of 48 cents per share on revenue of $ 3.58 billion, according to FactSet.


    Earnings News and Information on Yahoo! Finance

    Earnings Preview: Starbucks to report 2Q

    NEW YORK (AP) — Starbucks reports its fiscal second-quarter results Thursday, which should give investors an indication of how international expansion and new products are affecting the coffee company’s profit.

    WHAT TO WATCH FOR: The Seattle-based company, which has more than 18,000 locations around the world, reports global sales growth for cafes open at least a year, with a breakdown of the figure by region. Although Starbucks has delivered strong growth in the Americas and Asia, where it has stepped up new cafe openings, Europe has remained a weak spot.

    Executives have said they’re working to turn around results by improving service and offering more tailored products.

    The company’s other growth strategy is to offer consumers more than coffee. To do that, it’s bought other companies: A chain of tea shops, Teavana; La Boulange, a San Francisco bakery chain; and Evolution, a bottled juice company. The idea is that products from those companies will be sold in Starbucks cafes, helping boost sales.

    Starbucks also introduced a single-serve coffee machine last year to tap into the fast-growing market for single-serve coffee.

    WHY IT MATTERS: Starbucks is facing more competition from fast-food chains such as McDonald’s, which have been increasing their coffee offerings. Burger King earlier this year introduced a new line of coffees and Wendy’s is testing fancier coffees such as lattes as well.

    Starbucks has nevertheless managed to grow by expanding beyond its core coffee offerings.

    LAST YEAR’S QUARTER: Starbucks Corp. earned 40 cents per share on revenue of $ 3.2 billion.

    WHAT’S EXPECTED: Profit of 48 cents per share on revenue of $ 3.58 billion, according to FactSet.


    Earnings News and Information on Yahoo! Finance

    Investors seek answers on 787 in Boeing 1Q report

    CHICAGO (AP) — When Boeing reports first-quarter results on Wednesday, investors will be eager for information about how soon the 787 will be able to fly again and whether Boeing can still deliver 60 planes this year to customers.

    WHAT TO LOOK FOR: The 787 is Boeing’s newest plane, but it’s been grounded since mid-January while investigators try to figure out what made batteries smolder on two planes. The Federal Aviation Administration has said that it will issue rules this week for a battery fix that will get the planes flying again.

    On Friday Boeing said the battery problem will have “no significant impact” to its 2013 guidance. It has also said that it still expects to meet its target for delivering at least 60 of the planes this year. Investors will want to know on Wednesday whether that goal still stands, considering that Boeing hasn’t delivered any yet. Also, the fix has to be installed on more than 50 planes that have been built but not yet delivered, as well as those on its assembly lines. Deliveries stopped when aviation authorities grounded the planes.

    WHY IT MATTERS: Boeing is already taking a loss on each 787. But each delivery at least brings in cash for that plane, so investors are eager to see Boeing meet its delivery targets.

    UBS analyst David Strauss tracks the movement of the special freighter that hauls the parts for the 787 to assembly plants in Everett, Wash., and Charleston, S.C. Those movements suggest that Boeing is on track to accelerate production to seven per month, up from five now, Strauss recently wrote in a note to investors.

    WHAT’S EXPECTED: Analysts are expecting a quarterly profit of $ 1.49 per share on revenue of $ 18.83 billion, according to FactSet. In December, analysts were expecting revenue of $ 21 billion, but those estimates began coming down after the 787 was grounded and deliveries stopped.

    LAST YEAR’S QUARTER: The Chicago-based company posted a profit of $ 923 million, or $ 1.22 per share, on revenue of $ 19.38 billion.


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