The Director Compensation Project: Starbucks Corp.

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation.  We are including companies from 2010’s Fortune 500 and using information found in their most recent proxy statements.  In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence.  While substantially the same, there are some minor differences between NYSE and NASDAQ rules that are worth noting. 

Under NYSE Rule 303A.01, all listed companies must have a majority of independent directors sitting on their boards.  Directors are not independent if they received over $120,000 in direct compensation, other than director’s fees, in any one year period over the last three years pursuant to Rule 303A.02(b)(ii).  This is a looser restriction than the equivalent NASDAQ Rule, 5605(a)(2), which includes "any compensation."  Rules 303A.06 and 5605 also require that, in addition to the general independence standards, audit committee members must comport with the requirements of  Rule 10A-3 (C.F.R. §240.10A-3).  See also IM-5605-4. Audit Committee Composition.

One can see some of the effects of these rules when looking at the director compensation table from Starbucks (NYSE:SBUX) 2011 proxy statement.  According to the proxy statement, the company paid the directors the following amounts:

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
Barbara Bass*	0	0	271,258	0	271,258
William W. Bradley	82,500	0	169,542	0	252,042
Mellody Hobson	0	0	271,258	0	271,258
Kevin R. Johnson	110,000	0	135,633	0	245,633
Olden Lee	0	0	271,258	355,342**	626,600
Sheryl Sandberg	110,000	0	135,633	0	245,633
James G. Shennan, Jr.	110,000	0	135,633	0	245,633
Javier Teruel	0	0	271,258	0	271,258
Myron E. Ullman, III	0	0	271,258	0	271,258
Craig E. Weatherup	0	0	271,258	0	271,258

* Ms. Bass will be retiring from the board as of the conclusion of the 2011 annual meeting reducing the size of the board to ten members.

** Mr. Lee was paid $50,000 per month as a consulting fee and reimbursed  expenses incurred in the course of his service under the agreement, including $23,315 for airfare, $25,678 for lodging and $6,349 for car rental and taxi service.

Director Compensation.  During fiscal year 2010, Starbucks held 11 Board of Directors meetings and 24 Board Committee meetings.  Each director attended at least 75% of the aggregate number of meetings of the Board of Directors and meetings of the Board Committees on which he or she served.  In June 2010, the board elected to increase non-employee director compensation to $240,000 for the 2011 fiscal year, after reducing it to $220,000 in 2010.  This includes a retainer of $120,000 and stock options of $120,000, which were increased equally. 

Director Tenure.  In 2010, Mr. Schultz, who has held his position as chairman of the Board of Directors since 1985, had the longest tenure.  Mr. Shennan has been a member of the board since March 1990, and Mr. Weatherup has held his position since February 1999.  Mr. Johnson and Ms. Sandberg have the shortest tenures having been members since March 2009.  Several directors also sit on other boards.  Ms. Sandberg has served as Chief Operating Officer of Facebook Inc., and she also currently serves on the board of directors of The Walt Disney Company.  Mr. Bradley served in the U.S. Senate for 18 years representing the state of New Jersey, and currently serves on the boards of directors of Willis Group Holdings Limited and QuinStreet, Inc.

CEO Compensation.  Howard Schultz served as Starbucks Chairman, President and Chief Executive Officer for the fiscal year 2010.  The majority of Starbucks executive compensation is performance awards based on primary and secondary individual performance goals, relating to achieving operating income and earnings per share objectives respectively.  In 2010 nearly every executive met or exceeded their objective goals and received 200% of their target bonus.  Mr. Shultz received compensation of $21,733,013 with a base salary of $1,280,804.  President of Starbucks coffee U.S., Mr. Burrows, received compensation of $3,790,345 with a base salary of $663,154.  Starbucks pays for Mr. Shultz’ security costs which were $680,961 in 2009; in 2010 he reimbursed the company part of his security costs resulting in an aggregate cost of $210,268.  Starbucks pays for their executives’ insurance and disability premiums as well as annual physical examinations.  Fiscal year 2010 is the first effective year of Starbucks Recovery of Incentive Compensation Policy.  It allows the company to recoup executive bonus awards which were based upon fraudulent financial results or are now incorrect due to a material negative restatement.