March 5, 2020

Farient CEO Pay Ratio Tracker Update

Always Read the Fine Print

Welcome to Farient’s CEO Pay Ratio Tracker Update.  As many of you know, we have been sharing CEO Pay Ratio numbers since 2018 through our Farient Pay Ratio Tracker™ on Farient.com. With such an exciting year ahead, we think it makes sense to highlight the highs and lows of CEO pay to median employee pay on a weekly basis and explore companies tipping both ends of the scale.  For more information and to segment by industry, size, etc, please visit Farient’s Pay Ratio Tracker.  As a reminder, the CEO Pay Ratio is provision 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and was implemented by the Securities and Exchange Commission in 2018.

With the 2020 proxy season well underway, this week, our Farient CEO Pay Ratio Tracker Update highlights the reported CEO to median employee pay ratios of 2020, for Starbuck’s (SBUX) and Natural Fuel Gas Company (NFG).

Starbuck’s CEO Pay Ratio is Percolating

Starbuck’s (SBUX) reported CEO pay ratio increased by 60% from 1,049 in 2019 to 1,675 in 2020.  For a point of comparison, in 2019, the consumer discretionary sector* had a median ratio of 361.  Like other consumer discretionary companies, SBUX employees “frequently work in flexible, part-time roles, which has the effect of lowering the annual total compensation.”  SBUX median employee was a part-time barista in Canada and paid $11,489 per year.

Driving the increase in the ratio is a 10% drop in median employee pay and a corresponding 44% increase in executive pay year over year.  Kevin Johnson, SBUX CEO, received an increase in awarded equity, up 27% from 2019 and a 360% increase in annual bonus payout. The good news: shareholders also participated as the stock was up 58% during the 2019 fiscal year.

National Fuel Gas’ CEO Pay Ratio: Energy in Motion

Unlike SBUX, National Fuel Gas (NFG) saw a 51% decrease in its year over year CEO pay ratio.  However, closer review of this utility is required to understand the reasons behind the change.  Median employee pay barely budged year over year, increasing 2% to $84,849. Our observations found CEO pay responsible for the decrease in ratio.

NFG’s CEO, Ron Tanski retired in 2019. NFG elevated CFO, David Bauer into the role. For the ratio calculation, NFG annualized Bauer’s base pay and annual incentive plan payout, but made no adjustments to equity grants.  As a result, the CEO pay figure used in the ratio in 2020 was $4.0MM as compared to last year’s $8.1MM.  With CEO level equity grants in this fiscal year, we anticipate that NFG’s pay ratio will return to its 2019 level when the company discloses in early 2021.

Farient’s Takeaway:

As year three of this disclosure is well underway, 2020 will be an interesting year to track the CEO pay ratio. Clearly fast food, retail, and other companies like SBUX with more part time workers will have high CEO to median employee pay ratios whereas industries that require more skilled workers, like NFG, will have lower pay ratios. As macro-economic forces impact financial markets, supply chains and businesses around the world, we look forward to sharing our findings with you for proxy season 2020 and beyond.

For additional information, please contact us at info@farient.com.

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