Starbucks drops $250K CEO jet cap amid governance concerns
Executive perk expansion follows earlier security spending increase as investors question shareholder-friendly practices
Starbucks shares fell 0.8% on Tuesday after the coffee giant removed the $250,000 annual cap on its chief executive's private jet use, escalating executive compensation costs at a time when investors are already scrutinizing corporate governance practices.
The decision to eliminate the jet use cap follows Starbucks' earlier announcement about increasing security spending for chief executive Brian Niccol, who joined the company from Chipotle in September 2024. The twin moves have raised questions among shareholders about alignment between executive perks and company performance, particularly as Starbucks grapples with declining earnings.
The stock's decline to $95.65 came amid broader market concerns about corporate governance and executive compensation practices. Starbucks currently trades at a price-to-earnings ratio of 59.9, significantly elevated relative to industry peers, even as quarterly earnings fell 85.4% year-over-year in the most recent period despite revenue growth of 5.5%.
"What we're seeing is a classic disconnect between executive perks and shareholder returns," said market analysts following the restaurant and leisure sector. "When you have earnings collapsing by 85% while executive benefits are being expanded, institutional investors are going to push back."
The jet cap removal is particularly noteworthy given Starbucks' recent financial performance. The company reported adjusted earnings per share of $1.63 for the trailing twelve months, down sharply from previous periods, while maintaining a market capitalization of approximately $111 billion. The stock is currently trading close to its analyst target price of $95.87, suggesting limited upside potential according to Wall Street consensus.
Starbucks has been navigating a complex turnaround since Niccol's arrival, attempting to revitalize growth in key markets while facing increased competition and changing consumer preferences. Analysts at major firms have characterized the company as a turnaround story, with potential for operational improvements ahead of quarterly earnings expected later this week.
The governance concerns come at a sensitive time for corporate America, where shareholders have increasingly demanded tighter alignment between executive compensation and company performance. Institutional investors, who control 86.1% of Starbucks shares, typically frown upon expansions of executive perks during periods of operational challenges.
Starbucks' proxy statements have historically emphasized the company's commitment to responsible corporate governance and shareholder value. The removal of the jet cap represents a notable departure from the compensation policies that preceded Niccol's tenure and could become a point of discussion at future shareholder meetings.
The stock, which reached a 52-week high of $115.04 earlier this year, has since retreated and currently trades below its 50-day moving average of $86.94. Technical analysts note that the governance concerns add to existing pressures on the stock, which had already been grappling with concerns about growth sustainability in core markets.
Starbucks declined to provide specific details about the new jet policy or the total cost implications for shareholders. The company's corporate governance guidelines state that executive compensation should be designed to attract and retain talent while aligning interests with long-term shareholder value.
Upcoming earnings results, expected this week, will provide investors with a clearer picture of whether the operational turnaround under Niccol is gaining traction. Some market commentators, including CNBC's Jim Cramer, have suggested that post-earnings volatility could present opportunities for strategic investors, depending on the company's outlook and forward guidance.
With Starbucks paying a dividend yield of 2.56% and scheduled to go ex-dividend on February 13, income investors remain exposed to the company's performance trajectory. The governance concerns surrounding executive compensation add another layer of uncertainty for shareholders weighing the stock's risk-reward profile.