THE chief executive officer switch atop Starbucks is poised to cost the coffee chain at least US$120 million, and possibly more, as the board bets on a change of leadership to turn the business around.
Brian Niccol will start next month with a pay package worth US$113 million, a large part of which is equity to replace awards from his prior employer that he’ll have to relinquish, according to filings.
The package will likely make him one of the highest-paid CEOs in the US, but the change led to an instant return in terms of the company’s stock price. After the announcement, shares in Starbucks soared by 25 per cent, the most ever, and added US$21.4 billion to the market capitalisation.
Outgoing CEO Laxman Narasimhan, who was terminated without cause with respect to his contractual entitlements, will leave with a payout likely worth roughly US$10 million, according to filings and his 2022 offer letter. He also holds equity awards worth millions of dollars, which he may collect in part depending on the terms of his exit.
The costly switch follows a difficult stretch for Starbucks which has grappled with weaker sales and activist investors Elliott Investment Management and Starboard Value reportedly amassing stakes in the company. Meanwhile, former CEO Howard Schultz, who had shaped the company over decades, had publicly lamented that it lost focus on its key US operations.
The chain will award Niccol stock grants worth US$75 million to replace unvested awards he will leave behind at Chipotle Mexican Grill. He will also get a US$10 million signing bonus. Those come on top of his annual pay package of US$28.2 million, consisting of a salary, a bonus and a long-term stock award.
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Much of the equity is linked to performance targets that span multiple years and may pay out fewer, or more, shares depending on how the company does.
Another perk to sweeten the pot for Niccol: He will not be required to move to the coffee chain’s headquarters in Seattle, though that is where his primary office will be. Starbucks is setting up a remote office for him in California, and he will commute to Seattle and travel as needed.
Narasimhan is poised to exit with a US$7.8 million severance payment. He will also get a pro-rated annual bonus for the current fiscal year, which may amount to roughly US$2 million, assuming that he has met the performance targets underpinning the payout.
On the day of his exit, he also still held equity awards worth millions of dollars as at Tuesday’s (Aug 13) close that were scheduled to vest in coming years, some contingent on results. Starbucks’s regulatory filings do not specify what will happen to them, and a company spokesperson declined to comment.
Public-company executives typically receive at least a partial payout of unvested stock awards if they are terminated without cause.
Narasimhan spent less than two years atop Starbucks, to which he was handpicked by Schultz from consumer goods-maker Reckitt Benckiser Group. Niccol has led Chipotle since 2018. He starts at Starbucks on Sep 9.
Schultz, 71, has had three stints as CEO of the chain he founded. He currently is chairman emeritus and has a net worth of US$5.5 billion, according to the Bloomberg Billionaires Index. BLOOMBERG
