After a surprise shift in management, American coffee chain Starbucks named Brian Niccol its new chief executive. This move ousted the former job holder, Laxman Narasimhan, after only 17 months of him occupying the role. Niccol is a former boss of Chipotle Mexican Grill and is lined up for a significant sign-on pay package.
A Major Investment
In one of the largest deals in corporate history, the new chief executive of Starbucks is set to receive $113 million for joining the company. For context, Narasimham was paid $14.6 million by Starbucks last year and received a $28 million sign-on pay package, a quarter of what Niccol received. Niccol’s package also includes a $10 million sign-on bonus, with $75 million in extra stock options to make up for the shares he will have to return to Chipotle for leaving. Most of his pay package is accounted for by the loss of these separate stocks.
His annual salary will be $1.6 million, with the potential for a cash bonus of $3.6 million based on company performance, with an added opportunity to earn upwards of $23 million in share-based bonuses on a yearly basis.
Starbucks has also agreed to allow Niccol to work remotely, promising to cover the costs of a small home office and a local assistant. In addition, Niccol will have access to the company plane to fly from his home in Newport Beach, California, to the Starbucks company headquarters in Seattle as need be.
Stepping into a Troubled Position
Niccol will begin his role as chief executive on September 9. He is set up to be the fourth person to hold the role in less than three years, speaking to the complicated maneuvering going on at the company.
Falling Shares
Niccol’s appointment to the role and the revelation of his pay deal came amidst several issues facing the company. In the past five years, Starbucks’ share price has fallen almost 20%, while other indexes have been rising quickly. Much of their coming short has been attributed to weakening demand in the United States and Chinese markets as of July. Fortunately for the company, the news of Niccol’s appointment caused Starbucks’ stock to jump by 24%, matching one of the largest sign-up deals in corporate history with the company’s best-ever trading day.
Need to Improve Performance
This is a promising turnout for Starbucks, which is embroiled in an attempt to shake off pressure from the activist investor Elliott Investment Management. The wider management changes in the company are a result of this attempt to evade Elliot’s desire for the company to improve its performance and stock price. One of their major points was for Starbucks to improve company governance and widen the board. Because of the recent jump in stock, Starbucks is counting on Niccol to hold it there while improving performance.
The Labor Movement
Starbucks also recently finished with Starbucks v. McKinney. While a victory for Starbucks and a staggering blow to union organizers, the company continues to face backlash for its actions. Workers have voted to unionize at over 370 Starbucks locations, but the company continues to resist finding a labor agreement. In February, the company agreed to a new framework with Starbucks Workers United, but the formation of an actual union remains suppressed. After the court case, Starbucks is likely to remain determined in this effort, and it is one of the many problems Niccol will have to address.
Starbucks’ Outlook on Niccol
Starbucks has stated that Niccol had “proven himself to be one of the most effective leaders in our industry, generating significant financial returns over many years.” Niccol will have to live up to these expectations amid the wider issues faced by the company, but his sign-up has shown promising results on the market.
