Study: boosts in stock options, other benefits aid senior execs' compensation

Nation's Restaurant News, Feb 17, 2003 by Dina Berta

MINEOLA, N.Y. -- Stock options are back in favor as part of executive compensation packages along with the standard bonuses, salary increases and full health and insurance benefits, according to a recent survey of corporate pay among restaurant companies.

The 2002 Hospitality Compensation Exchange study, conducted by HVS Executive Search, a division of the consulting firm HVS International Inc., based here, found an increase in the overall number of options granted to senior executives.

The report surveyed 115 of Nation's Restaurant News' 2002 Top 200 foodservice companies. Eighty-one of the surveyed companies were traded publicly.

HVS conducts the survey every other year. Compared with its 2000 report, which showed executives opting for larger cash compensation packages instead of stock, the 2002 survey noted more stock options being handed out, said David Mansbach, executive director of HVS Executive Search.

"The senior-level executives had seemed to be protecting themselves against fluctuations downward [in the stock market] and the lack of support from the investment community," Mansbach said. "But it appeared that in 2002 [restaurant stocks] were more a safe haven for investors. Naturally, compensation committees and CEOs, especially, are not adverse to saying, 'Let's look at stock options again.'"

Chief executives received the greatest number of options. The median worth of those options in 2002 was $40,000, compared with a median worth of $28,200 in 2000.

The survey, which looked at salaries for 23 corporate positions, including chairmen, chief executives, vice presidents, directors, unit general mangers and kitchen managers or chefs, found salaries and bonuses were up 2 percent to 5 percent across the board since the 2000 report.

The median salary for a chief executive was $374,909 with an average bonus of $282,016. Chief executive salaries ranged from one dollar to $1.4 million. At least one chief executive, an owner in his company, opted for a token salary of $1 and, instead, received his compensation in bonuses and stock options, Mansbach said.

The median salary for a chief operating officer or president was $325,120 with an average bonus of $233,753.

"One of the things we focus on is we want people to have an equity in the company, and we want them to have common stock like every common shareholder out there," said Greg Gadel, chief financial officer of Buca Inc., the Minneapolis-based owner of the Buca di Beppo Italian dinner-house chain. "That's always something that is important to the shareholders. They want to see operators in the company have the same incentives they have."

The survey indicated that as an executive moved up the corporate ladder, he or she received more options. The survey also showed stock options going to unit general managers and assistant managers.

Nearly 60 percent of stock options go to nonexecutive employees at Darden Restaurants, the Orlando, Fla.-based parent of the Red Lobster, Olive Garden, Bahama Breeze and Smokey Bones concepts, said Jon Reicker, senior vice president of compensation, benefits and employee relations.

"A lot of attention is being paid to equity problems these days -- stock options in particular," Reicker said. "We found it very rewarding to reward our best GMs and offer a broad stock-option plan."

Some studies have shown better financial performance among companies that have uniform stock-option plans, compared with those that concentrate all the stock-option grants on a few top-level executives, he said.

Since including general managers in the equity pool three or four years ago, Darden has seen its management turnover drop to record low levels, Reicker said. Options are rewarded based on how well general managers meet specific performance goals related to guest satisfaction, hourly-employee turnover and profitability. The top performers received $2,500 in stock options a year.

"Ownership is a very important part of our culture at Darden," he said.

Human resources executives said they use surveys such as the HVS report as one of many tools to gauge how well they are responding to employees' needs.

"The thing we look at is where do we fit, and where do we want our people to fit?" said Mike Speck, human-resources vice president for Red Robin Gourmet Burgers Inc., based in Greenwood Village, Colo.

"There are so many ways to measure [compensation] -- cash plus options plus bonuses," he added. "There are a hundred ways to slice and dice it. When I look at the benefits in the survey, that's the feel-good page. We're where we want to be in the way we take care of our team members."

An examination of additional benefits showed that 98 percent of the companies offered medical and dental plans to corporate executives, 99 percent offered life insurance, 86 percent offered short-term disability and 95 percent offered long-term disability. All but one company offered 401(k) plans, with half offering eligibility within six months or less. Most companies matched employee contributions to the plans, at an average of 25 cents for every dollar.