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Starbucks shareholders reject CEO pay proposal in rare move

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The news was first reported by the Wall Street Journal after the annual Starbucks shareholders meeting. Starbucks confirmed the voting results to CNN Business.

Kevin, CEO of Starbucks Johnson earned a $ 1.86 million bonus in fiscal year 2020 in addition to a larger withholding award, designed to keep Johnson in position until fiscal year 2022, according to the Starbucks representation statement.

“The board unanimously supported the performance-based withholding rewards given to our executives in late 2019,” said Mary Dillon, Starbucks board member and CEO of Ulta Beauty, in a statement in response to the vote.

Companies apply for non-binding approval of executive compensation of shareholders through the so-called “say pay” proposals that are detailed each year in the representation statements. Because the proposal is not binding, companies do not need to make any changes based on the outcome of the vote. But companies are legally required to allow investors to vote on compensation.

Starbucks President and CEO Kevin Johnson at the company’s annual shareholders ’meeting in Seattle, Washington, on March 20, 2019.

In general, “it’s pretty weird that proposals are not approved“ they say they pay, ”said Kai Liekefett, a partner at Sidley Austin Law Firm specializing in executive compensation and corporate governance.

When investors mean they think executives are overpaid, this may indicate underlying shareholder unease, he said. Typically, shareholders “don’t mind making a lot of money from executives, as long as the performance is excellent,” Liekefett said.

This time, it is likely that shareholders will be influenced by the guide of Institutional Shareholder Services and Glass Lewis, two Influential consulting firms that provide guidance on how investors should vote on proposals to ensure the best possible returns and often effectively dictate how investors vote.

ISS recommended that shareholders vote against the proposal, arguing that the rationale justifying the value of Johnson’s compensation package is “insufficient given the excessively large target and the maximum chances of the award,” and taking into account note that Johnson won a special performance award the year before. Glass Lewis, also recommended the votes to shareholderst the proposal, saying Starbucks “paid [its CEO] moderately more than his teammates, but he performed worse. ”

According to an analysis published in March by Compensation Advisory Partners, a consulting firm specializing in executive and executive compensation, ISS has recommended that shareholders vote against compensation packages for approximately 12% of companies each year over the past decade. The report found that in approximately 96% of cases where a majority of shareholders voted against a proposed salary proposal from the executive, the ISS had advised to vote in this way.

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Starbucks said in response to the guidelines that “we disagree respectfully” with the recommendations, and said the award reflects the value Johnson has brought to the company and is designed to keep him in the role at least for the time being. fiscal year 2022, while the company executes its fast-growing agenda. The company has recently lost two senior positions: former director Rosalind Brewer, who just took the helm at Walgreens, and Patrick Grismer, who recently resigned as CFO.

Shareholders finally decided to follow the recommendation issued by the consultants and rejected the compensation package proposed by Johnson.

While Starbucks isn’t forced to make any changes, it should take into account shareholder sentiment as it looks at how to structure executive pay to move forward, Liekefett said. Investors may feel “alienated if a board doesn’t seem to respond … to criticism,” he said. This could ultimately lead to votes against the appointment of directors or invite an activist shareholder to participate in the company.

Starbucks intends to better understand what happened, Dillon noted.

“Our board of directors and management team will continue to work with investors in the coming months to understand their prospects as part of our ongoing evaluation of our executive compensation programs,” he said.

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