Shareholder takes aim at Yum Brands’ executive bonuses

SOC Investment Group wants other shareholders to vote against a pay package for the KFC owner’s top executives, citing one-time awards based on unit count growth.
Yum Brands executive pay
Photo courtesy of Taco Bell

A Yum Brands shareholder is pushing back against the company’s executive pay packages, citing one-time stock bonuses given to some of the Louisville, Ky.-based brand operator’s top officials.

Yum, which owns KFC, Taco Bell, Pizza Hut and Habit Burger, last year gave its top executives, including CEO David Gibbs, one-time awards based on unit count growth at the company. Gibbs, whose pay package last year topped $27 million, would get $5 million if the company reaches certain unit-count growth metrics by the end of next year.

SOC Investment Group argued in a letter to shareholders on Wednesday that those one-time bonuses are unnecessary. The social investing firm, which works with a number of union pension funds, is urging fellow shareholders to vote against Yum’s “say on pay” proposal.

“We strongly believe that executives at large companies like Yum are already well compensated without special equity awards,” Dieter Walzenegger, executive director of SOC Investment Group, said in the letter. “They already receive significant amounts of annual equity grants that appreciate when the company performs well. That is a significant incentive.”

Yum has been on an aggressive push to convince franchisees around the world to build more restaurants—the company owns relatively few restaurants itself. The one-time awards are tied to that unit growth, with as much as 125% of the award if the company opens as many as 5,200 net new units between January 1, 2021 and Dec. 31, 2022. The executives have to stick with the company, however, to get the award, making it something of a combination of performance and retention bonus.

Several other executives were given stock awards, too, under the same program. CFO Chris Turner would receive $2.25 million and COO and Chief People Officer Tracy Skeans would receive $2.5 million. Mark King, the CEO of Taco Bell, would get $1.75 million.

Such one-time awards have become increasingly common of late as competition for executives has grown fierce. “There’s an inflation in the market for executive talent,” Michael Varner, director of executive compensation research at SOC, said in an interview. “It’s causing executives to demand more pay irrespective of their performance. A rising tide is lifting all boats.”

But Varner argued that such awards don’t necessarily prevent executives from leaving, especially if the recruiting company is aggressive. “Special awards are just not the way to do it,” he said, noting that the recruiting company could simply top the special award. “If an executive wants to leave, the executive is going to leave.”

One of the more notable recent examples came from Starbucks. In 2019, the coffee giant gave CEO Kevin Johnson a special performance retention grant of $50 million, while Chief Operating Officer Rosalind Brewer received $10 million, provided they stuck around through the end of 2022. Neither executive is with the company.

SOC argues that the award in Yum’s case rewards the executives for doing their job. Varner said that such awards warp the purpose of performance equity grants, which are designed to reward executives for strong performance. If the executives did their jobs, and increased locations the way the awards want, then they’d ultimately be rewarded with a stronger stock price and therefore a more valuable equity award.

“When you add special awards it distorts the performance element,” Varner said.

Yum did not respond to a request for comment Thursday.

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