Darden Restaurants

Annual meeting September 23

CEO Eugene Lee, Jr. had total compensation of $8,688,707 for fiscal year 2020, including stock awards of $3.9 million and options valued at $1.9 million.

One element of Lee’s pay went down slightly. Last year, Lee’s salary was $1,000,000, but in late March this year the company temporarily reduced the salaries of all salaried employees, including the named executive officers (often referred to as NEO)s, through the end of the fiscal year in June. Thus, for this year, his annual salary was $829,760.

Like all the officers he also received a special cash bonus. The Compensation Committee “approved modifications to the performance goals for fiscal 2020 annual incentives” because of the impacts of the COVID-19 pandemic. Lowering the goalposts for executives is considered bad corporate governance practice, and I expect we may be seeing more of this for the coming year.

All the executives also received a significant payment in the “all other compensation” category. The biggest component came from dividends, or dividend equivalents on performance share units (PSUs) that vested on July 27, 2019. For Lee, this amount, disclosed in the footnotes, was close to half a million dollars.

Another large element of “all other compensation”, was company contributions to defined contribution plans. For Lee, this amount was close to a quarter of a million dollars.

The median employee at Darden, which includes restaurants Olive Garden and Longhorn Steak, made $16,137 last year. The worker to CEO pay ratio, as disclosed in the proxy statement, was 538:1.

In 2015, when writing about the adoption of pay ratio disclosure, I used Darden Restaurants as an example. That year, the company’s proxy statement noted that, “The Board believes that our success depends in large measure on our ability to attract and retain highly qualified officers, employees and non-employee directors who are motivated to put forth maximum effort on our behalf and on behalf of our shareholders.” In that post, I noted the importance of acknowledging the importance of all employees. The current proxy statement steps away from acknowledging employees generally. It now reads, “The Compensation Committee believes that our success depends in large measure on our ability to attract and retain highly qualified officers who are motivated to serve with purpose on behalf of our Company, our team members and our shareholder.”

The extremely generous severance package to one such officer, Chief Operating Officer David George – the amount of which is not included in the summary compensation table—may be another reason shareholders could vote against the package this week. George will receive 78 weekly payments of $14,903.85, the amount of his current weekly salary beginning on the effective date of his retirement (approximately $1.16 million in total). In addition, he will receive a lump sum payment of $1,296,635, in August 2021. This will be his bonus paid at target for fiscal 2021 and part of fiscal 2022. Both options and restricted shares will vest.

George has had many opportunities to save for his retirement, including through company contributions to the FlexComp plan. Indeed, he had $2,777,437 in his account at the end of the fiscal year. This makes it even more difficult to justify the severance.

The company filed with the SEC a letter to shareholders to attempt to put the severance in context. The company notes that it offered a voluntary early retirement incentive program (ERIP) to approximately 250 corporate support center and field management team members who met established eligibility criteria. Darden claims that George’s terms “were substantially identical to the terms offered to eligible team members.” In my view, the claim that this extremely large ERIP is in line with offers to other eligible team members raises more questions about the excessive nature of all the ERIPs, not a justification for the one offered to George.

The company also notes that there have been “additional involuntary strategic workforce reductions.” These are no doubt ineligible employees who receive no severance, the essential workers who juggle multiple part-time jobs and have very little ability to save for retirement.

A final note, the last bit of George’s packages is that he will receive “78 weekly payments of $199.58 as a medical benefits subsidy.” One wonders how many, if any, of the employees of Darden Restaurants even have health insurance.