Farient CEO Pay Ratio Tracker Update – April 10, 2020
April 10, 2020
CEOs New and Old: Pay Ratios of Kraft Heinz and Urban Outfitters
Welcome to the fifth installment of Farient’s Pay Ratio Tracker™ update. Each week, we focus on the companies with the highest and lowest CEO-to-median-employee pay ratios. This week, we explore the highs and lows of the last week of March’s pay ratio disclosure with Kraft Heinz and Urban Outfitters. As a reminder, the CEO-to-median-employee pay ratio is one of the provisions of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act implemented in 2018.
Kraft Heinz: Food Giant Gets Krafty with Disclosure
Kraft Heinz (KHC) is one of the largest food and beverage companies in the world, with nearly $25 billion in sales and more than 20 ubiquitous brands such as Oscar-Mayer, Jell-O, and Kool-Aid. KHC’s CEO pay ratio is extremely high, trumping last week’s highlighted company at 1,034:1. To put this pay ratio in perspective, the median 2020 pay ratio for the consumer staples sector is 254:1 with 35% of companies reporting through April 1st.
Let’s Explore How the Sausage Was Made
KHC’s CEO pay was driven up in 2019 by an outsize one-time equity grant to the new CEO, the former CMO of Anheuser-Busch InBev, who joined in June of 2019. The majority of this grant was restricted stock that vests only if the company meets certain financial metrics. KHC also reported an alternative ratio of 80:1 in their proxy disclosure which excluded the $40 million of new-hire equity. This alternative calculation minus the one time equity grant suggests KHC’s CEO pay will be approximately $5MM going forward. This is comparable to where it has been over time with a few exceptions. Pay will likely remain at $5MM through at least 2022, as the CEO is not eligible to receive additional equity until after that year.
Urban Outfitters: CEO Pay Ratio Makes a Statement
Urban Outfitters (URBN) is a $4 billion, multinational retailer known for selling trendy apparel brands. The company’s especially low pay ratio of 4:1 is the result of a stripped-down CEO pay package. Richard Hayne, a co-founder, has been the CEO of URBN since 2012 and owns roughly a quarter of the company. In accordance with his own request, Mr. Hayne receives a $1 annual salary and has not been awarded equity compensation during his tenure as CEO. Furthermore, Mr. Hayne received no annual bonus last year as a result of weak company performance.
A common theme in Farient’s CEO Pay Ratio tracker is the wide variety of factors that influence the pay ratio. This week’s examples illustrate the importance of considering the CEO’s relationship and tenure with the company before jumping to conclusions about his or her pay package. A newly hired CEO will typically require hefty upfront equity to ensure sufficient stake in the company, while a tenured or founder CEO has had plenty of time and award cycles to accumulate ownership. As always, investors should read disclosures in full and consider all the factors that influence a company’s reported pay ratio.
Farient‘s CEO Pay Ratio Tracker™ provides updates on CEO to median employee pay ratio throughout the proxy season. In addition, for real-time information on Say on Pay votes, please visit our Say on Pay Tracker™ at Farient.com.