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OPINIONFinancing

CEO of Steak 'n Shake parent got a huge raise in 2017

But Sardar Biglari, CEO of Steak ‘n Shake owner Biglari Holdings, didn’t get a crucial incentive for his investment work.

The Bottom Line

The tax man was really good to Sardar Biglari in 2017. Wall Street? Not so much.

Biglari is the CEO of Biglari Holdings, the owner of various companies including the burger chain Steak ‘n Shake.

Biglari’s pay as CEO skyrocketed in 2017, from $900,000 to $8.3 million, according to SEC documents filed this week. The reason: A $7.4 million incentive payment based on the increase in the company’s value.

Biglari is paid in a manner unlike other restaurant CEOs, but in line with hedge fund investors. He gets base pay of $900,000, plus an incentive equal to 25% of any increase in Biglari Holdings’ book value above a 6% “hurdle rate,” meaning the value has to increase more than 6% for him to receive an incentive.

He hadn’t received such an incentive in either of the previous two years.

In 2017, Biglari Holdings (BH), generated net earnings of $50.1 million, which helped Biglari receive that incentive, according to the filing.

All of that came thanks to an income tax benefit of $53.5 million. If it weren’t for the tax benefit, BH would have posted a loss, and Biglari would not have received any incentive for the third straight year.

All that said, Biglari’s true pay actually fell by 75% last year.

That’s because he didn’t earn an incentive through his hedge fund, Biglari Capital (BC), which has an investment agreement with BH. Biglari gets another, similarly structured incentive based on the performance of investments.

Most of that is tied into the 4.7 million shares of Cracker Barrel that were valued at $752.8 million as of February.

Most of the rest is tied up into BH stock, most of which the company purchased and then transferred to BC, enabling Biglari to control more than 54% of the company’s stock.

As such, Biglari’s incentive is largely tied to the performance of BH stock and Cracker Barrel stock and, in 2017, both of them fell. Biglari Holdings declined 12% in 2017. Cracker Barrel fell 5%.

Thus, Biglari didn’t receive an incentive in 2017 for his investment work with BC. In 2016, that incentive was $31.6 million, which made Biglari one of the restaurant industry’s highest-paid executives.

Thus, Biglari’s combined pay actually fell by nearly 75%, from $32.5 million in 2016 to $8.3 million in 2017.

None of this counts a “services agreement” between BC and BH that pays Biglari Capital $700,000 per month starting Oct. 1 last year, or about $8.4 million per year, for services the hedge fund provides to the company.

Last year, their shared services agreement paid Biglari Capital $1.4 million.

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