McDonald’s shareholders voted this morning to approve a $9.5 million compensation package for CEO Donald Thompson, including $7.8 million (82 percent of the total) in stock awards and incentive pay intended to reward company performance and align the interests of the Chief Executive with shareholders at the firm.
That performance reward accompanies the type of year that that executives like to characterize as “challenging,” meaning that the restaurant chain undershot expectations and lost ground to competitors. Investors watched US sales fall at McDonald’s, while other companies thrived. And they were not the only ones disappointed with the company.
Complaints are mounting against top-level management. Worker strikes have escalated since the first walkouts in 2012, with more than 2,000 people assembling outside of corporate headquarters yesterday to reiterate demands for higher wages and a union. Franchise owners are frustrated with a lack of support as the company scrambles to regain lost market share. And consumers are heading elsewhere for cheap, convenient food service after customer satisfaction hit an all-time low last year.
Despite virtually every constituency in the McDonald’s universe having reason to be unimpressed with the company’s performance over the past year, Thompson’s equity awards grew substantially. Instead of his bonus taking a hit for the faltering financials, the compensation committee tinkered with the targets and adjusted Thompson’s salary to ensure that his performance pay didn’t slide with company sales.
The problems with misaligned incentive pay are not unique to McDonald’s. Experts argue that equity-based compensation practices outsource important corporate governance decisions, lead to inflated executive pay, and potentially undercut the long-term value of the firm. And salary and bonus-setting practices like peer benchmarking reward executives for the success of their competitors and simultaneously ratchet-up CEO pay overall.
Shareholders did not vote this morning about the compensation practices of the typical McDonald’s worker—members of the lowest-paid occupation in the US earning, on average, just 1/1000 of the typical fast food CEO.
That’s too bad, because (as I outlined in my recent paper, Fast Food Failure: How CEO-to-Worker Pay Disparity Undermines the Industry and the Overall Economy) compensation at the bottom is as important to shareholder’s long term interests as that at the top. And investing in the front line workforce would actually connect pay with performance, as the company benefits from loyal, experienced workers with better knowledge of the business, higher productivity, and improved customer service.
Workers and consumers have done all they can to get the message through to the top of the company. Investors should take this opportunity to weigh in on the problems they face from the low-wage economy as well.