I ate at a Burger King in rural Montana earlier this fall. The wait to order was long. My burger was overcooked. My mother got the wrong order, and it was cold as well. It was, she says, the worst fast-food meal she’d ever had.
I don’t blame the workers; the restaurant was understaffed, and they are underpaid. Yet those front-line workers at Burger King, Tim Horton’s, and all the other chains in the Restaurant Brands International Inc. QSR-T portfolio is the most important driver of customer happiness.
Yet once again, the company is going to give a gargantuan pay package to its executive class, leaving crumbs for the underpaid and overworked people who serve us. Not even the common shareholders of the company are benefiting from the largesse.
RBI said Wednesday it has lured Patrick Doyle, the former CEO of Domino’s Pizza Inc., as its new executive chairman in a bid to goose its flagging stock. Mr. Doyle is viewed as a magician for turning around Domino’s, starting with his admission that the pizza was terrible.
The price is high: RBI will give Mr. Doyle a package of stock options and shares that could be worth nearly US$400-million if the shares appreciate by roughly 15 per cent a year over the next five years. (That return figure is not purely speculative; RBI put that into Mr. Doyle’s compensation plan.)
It is perhaps the biggest pay package RBI has awarded, but it’s completely consistent with the company’s past practices. RBI, driven by its private-equity owners at 3G Capital, has been giving out huge amounts of stock to its executives for years, claiming they’re aligning them with shareholders.
Former CEO Daniel Schwartz has made $260-million in profits from his RBI stock options in just over 10 years. The company has paid current CEO Jose Cil nearly US$55-million in the past three years, the bulk of it in stock awards.
And yet the great gains in RBI’s stock are long past; Among all the restaurant stocks in the S&P 500 and S&P/TSX Composite indexes, RBI has the second-worst performance since the 2014 acquisition of Tim Horton’s, and the worst performance over the past five years.
Will it matter for Mr. Doyle’s compensation if that continues? Not really. RBI has crafted a package that makes it possible for him to grab hundreds of millions of dollars even if RBI continues to lag its restaurant peers.
According to RBI’s disclosures Wednesday, Mr. Doyle will receive 500,000 restricted shares worth roughly US$30-million, matching a commitment he has made to buy RBI stock with his own money. He also gets two million stock options.
He also receives 750,000 performance-share units (PSUs), to be paid out at the end of a five-and-half-year period. For him to receive any kind of payout on the PSUs in 2028, RBI stock will need to rise about 6 per cent a year; To get all 750,000 shares, it needs to rise about 10 per cent a year. If the stock increases about 15 per cent a year, he’ll get 1.5 million shares.
The entire options-and-shares package would be worth around US$370-million in the bullish scenario. The problem, however, is none of these share awards are tied to relative performance, according to RBI’s disclosures. If RBI’s restaurant peers gain, on average, 12 per cent a year while RBI gains 10 per cent, Mr. Doyle still gets a payout of a couple hundred million dollars. As they say in a period of broad stock-market gains, a rising tide lifts all boats.
Well, not all, really.
Each year, RBI must disclose the ratio of its CEO compensation to the average worker’s pay. (The Securities and Exchange Commission considers RBI a US company; Canada has not mandated pay-ratio disclosure.
In the past three years, the ratio of Mr. Cil’s compensation to the median worker’s has ranged from 274 times to 973 times.
That, however, understates the inequity. RBI is primarily a franchiser of its concepts, with the actual fast-food workers on other companies’ payrolls. To obtain a better comparison, we can look at a publicly traded Burger King franchisee in the United States that also reports its worker data.
The median of Carrolls Restaurant Group Inc.’s 25,100 employees worked an average of 30.5 hours per week in 2021, making a total of $16,403. That’s up from $12,993 two years ago. Compare the RBI CEO’s pay with the Carrolls numbers and Mr. Cil made somewhere between 850 and 1,600 times the typical US Burger King worker over the past three years.
Mr. Doyle’s package will blow those ratios into the stratosphere when the company places a dollar estimate on it in next spring’s proxy circular.
RBI still believes it’s got the right plan in place. In an interview with my colleague Susan Krashinsky Robertson, Mr. Schwartz said Mr. Doyle’s compensation package “is ultimately linked to shareholder value creation. In order to achieve shareholder value creation, we’re going to have to continue to grow the size of the brands all around the world, and in order to do that, we’re going to have to work and to continue to grow the profitability of our franchisees and deliver a great guest experience.”
Spokesperson Duncan Fulton adds, via e-mail, that if Mr. Doyle receives 100 per cent of his PSUs, which would imply billions of dollars in shareholder value creation. “Unpinning that share price growth would be core restaurant growth in local economies, growing franchisee profitability of thousands of small and medium-sized business owners – and at a time when franchisees are paying all-time high wages for team members in a highly competitive labor.” environment – so this is all predicated on creating value all the way through the business.”
My recommendation, however, would be less CEO pay and more money for the folks who grill the burgers, pour the coffee and truly create the value for the brands at Restaurant Brands.