The current recession will deliver a heavy blow to the restaurant
industry and therefore force executives to alter their strategic
mindset. CEOs must be nimble during these tough times, staying alert to
the rapidly changing environment and the progressive recession that is
crumbling the U.S. economy. With all the future uncertainties,
executives and shareholders will likely be asking the same questions:
When will consumer spending improve? How long will it take for
financial markets to recuperate? The slowdown of franchise financing
from institutions like GE Capital, the largest lender in the industry,
will only make it more challenging for restaurant companies to grow in
2009.
Because a growth-based strategy is less viable during
this climate and therefore worrisome to shareholders, CEOs should
adopt a "getting back to basics" approach which includes reorganizing,
cost cutting, and becoming more operationally efficient. Since stock
prices and revenues will continue to drop, so should overhead,
operating expenses and the cost of goods sold. Shareholders and
analysts will perceive this approach as cautious and therefore
appropriate considering the current economic state. Executive
performance metrics that are tied to growth by units and growth by
revenue won't be as relevant in 2009.
To proceed thoughtfully
into the New Year, we analyze the top performing CEOs from 2008 to
determine what made them outperform the competition. HVS developed a
model that relates pay to performance by considering four metrics over
a three-year period. We measure EBITDA growth, market capitalization,
stock appreciation, and then compare that to total compensation. The
result is a pay-for-performance index, which is based on an average
score of 100 and determines whether or not a CEO was paid appropriately
as compared to his or her peer group. An HVS Value Index® of less than
100 means that the CEO underperformed the market average, while a score
greater than 100 means the CEO's performance was better and he/she was
therefore underpaid.
In this year's survey, we selected 53
Chief Executive Officers of publicly traded restaurant companies who
made at least $200,000 in total compensation.
Top Performers
Based on our pay-for-performance model, the top performer in 2008 was
Joel A. Schwartz of Benihana Inc. Mr. Schwartz received a
pay-for-performance rating of 211.2, demonstrating that he was
underpaid by 111.2% or nearly $11.9 million.
Other top
performers include Eric Gatoff of Nathan's Famous Inc., Marcus Jundt of
Kona Grill, Gerald Deitchle or BJ's and J. Clifford Hudson of Sonic
Corp. Rounding out the list of top ten include Steve Ells of Chipotle
Mexican Grill Inc, Christopher Pappas of Luby's, Sally Smith of Buffalo
Wild Wings Inc, Ronald Shaich of Panera Bread Co. and Lonnie Stout of
J. Alexander's Corp.
Top Appreciators
The companies with the highest overall stock appreciation from December
of 2004 to December of 2007 included Chipotle, Nathan's, Benihana, Papa
John's and Grill Concepts. Overall, however, restaurant stock values
have declined over the past three years and especially in 2007 and
2008. For example, Benihana was a top appreciator from 2004-2007, but
has lost 83% of its market value in 2008.
Top Salaries & Bonuses
The average CEO salary for 2007 was $610,170 compared to $521,941 in
2006. David Novak of Yum! Brands topped the list at $1.3 million.
Rounding out the highest salaries are James Skinner of McDonald's,
Samuel Beall III of Ruby Tuesday, Larry Flax and Richard Rosenfield of
California Pizza Kitchen and John Chidsey of Burger King, all of whom
earned at or above $1 million in base salary.
The average
bonus this year was $638,587 compared to $418,813 in 2006. Michael
Woodhouse of CBRL Group earned the highest bonus at $7.075 million.
Other CEO's that received top bonuses include David Novak of Yum!
Brands, James Skinner of McDonalds and Andrew Puzder of CKE
Restaurants. Because most bonuses are ties to company profitability for
metrics like earnings per share and stock price, the average bonus will
likely decrease by next year's survey.
Top Stock Incentives
David Novak of Yum! Brand earned the highest stock incentive at $9.26
million, compared to Tilman Fertitta of Landry's Restaurants who
received $11.4 million in 2006. Other CEOs at the top of this list
include James Donald of Starbucks, Samuel Beal III of Ruby Tuesday and
James Skinner of McDonald's.
Richest CEO's
Not surprising based on our other metrics, the richest CEO in the
restaurant industry is David Novak of Yum! Brands with a fortune of
$258 million. Following closely behind are David Overton of The
Cheesecake Factory, James Skinner of McDonald's, Ronald Shaich of
Panera Bread, and James Donald of Starbucks.
There is no doubt
that there will be a halt in performance bonuses this year and next.
CEOs must be in survivor mode and cast an optimistic outlook on the
entrenched gloom within the boardroom. Staying positive and upbeat will
trickle down to the executive team giving them a glimmer of hope while
stock prices fluctuate day-to-day. Growth and profits will come from
being prudent with corporate spending while motivating everyone to do
the same.
About Daniel Cline
Daniel
Cline is Vice President of HVS Executive Search in New York. He has
significant experience in hotel and restaurant operations, specifically
in New York City. A graduate from the School of Hotel Administration at
Cornell University, Daniel began his hospitality career with the
Waldorf=Astoria in New York City. He went on to work with Morgans Hotel
Group, Restaurant Associates, and Starwood Hotels, focusing on
restaurant and nightlife management.
About Keith Kefgen
Keith
Kefgen is President of HVS Executive Search, the leading executive
search firm specializing in the lodging, gaming, and restaurant
industries. Keith is a frequent lecturer on industry-related issues and
has written more than 90 articles on the topics of executive selection,
pay-for-performance, corporate governance, and executive leadership. He
is the founder of two e-commerce initiatives,
hospitalitycareernetwork.com, a web-based recruiting site and
2020skills.com, an online assessment profile. He served on the board of
the Association of Executive Search Consultants (AESC) and was
co-president of the International Association of Corporate and
Professional Recruitment's NYC Chapter.
By Daniel Cline and Keith Kefgen
