McDonalds
Annual Meeting: May 21, 2020
The CEO of McDonald’s, Stephen Easterbrook, received $15,876,116 in compensation in 2019. Easterbrook left his position last November after a consensual affair with a staffer came to light. Surprisingly, the scandal didn’t prevent him from receiving a hefty severance package. The way Easterbrook’s indiscretion was rewarded has become a scandal itself.
CtW Investment Group (CtW), which works with union-backed pension funds, and holds substantial shares in McDonald’s, is calling for shareholders to remove Enrique Hernandez, Chairman of the Board, and compensation committee chair Richard Lenny. CtW argues that Easterbrook should have been terminated with cause instead of without, because he violated the company’s non-fraternization policy.
A Financial Times article noted that the Board’s decision to choose a without cause severance made Easterbrook eligible for, “a series of lucrative benefits to which he would have otherwise not been entitled. On top of a separation payment worth $700,000 and prorated incentive plan shares worth $3m, Mr Easterbrook’s leaving package included a right to exercise options that were due to vest in the next three years and a share of restricted stock units the board had granted him. The deal could be worth more than $40 million, according to figures from remuneration data company Equilar. As part of the arrangement, Mr Easterbrook agreed not to work for rivals such as Burger King and Subway for the next two years, disparage McDonald’s on social media, or give interviews about his tenure without the agreement of the company’s general counsel.’”
In CtW’s opinion, the Company’s decision to terminate him without cause and provide him three additional years of continued vesting has exhibited their “excessive discretion.” In an evaluation of the vesting, ISS reviewed Easterbrook’s 2019 Executive Stock Option Award Agreement and found that he would have needed an additional 16 years of service to attain “68 plus years” of combined age/service to qualify for 3 years of continued option vesting, which at 52, he objectively did not attain.
A Restaurant Business article went on to highlight CtW’s disappointment in Easterbrook: he “set a poor tone at the top that tacitly condoned inappropriate workplace behavior,’ which is ‘particularly concerning in light of McDonald’s ongoing struggle to address widespread concerns over sexual harassment in its restaurants.’ Workers in Florida earlier this month filed a lawsuit against the company alleging sexual harassment. The lawsuit was supported by a union-backed group, Fight for $15, that has undertaken a campaign to convince the company to raise workers’ pay to $15 an hour and allow them unionize.”
According to an article in Investor’s Business Daily, “Easterbrook made $8,269 per hour while ‘McDonald's median employee hourly pay of $4 (or $7,473 a year) is the lowest of the 11 major peers…He's one of the other among the 11 to make more in an hour than the median worker made all year.’”
For all the reasons above, it may not come as a shock that the compensation committee is not seeing much support these days. Glass Lewis is also recommending a vote against the re-election of director Richard Lenny.