McDonald’s ousted CEO nets severance, bonus, stock awards
Fired ‘without cause’ under separation agreement
Steve Easterbrook, the CEO McDonald’s fired for engaging in a consensual relationship with an employee, has received an exit package that entitles him to severance, a bonus and stock awards that could be worth millions of dollars.
But the separation agreement, which the company filed with regulators Monday, requires that he forfeit stock option grants expiring beyond the next three years. It also bars Easterbrook from working for a McDonald’s competitor for two years.
The loss of the long-term options cuts off Easterbrook from a potentially huge pot of money. McDonald’s most recent proxy statement, filed in April 2019, showed Easterbrook could have exercised options to buy about 760,000 shares of the company through 2028. He could have exercised them at various prices, all well below the stock’s current price of $188.66 at the close of Monday’s trading. The shares were off 2.7% for the day.
Easterbrook became CEO in 2015 and, according to the proxy statement, owns 430,630 McDonald’s shares.
He was fired for violating a company policy that bars executives from being romantically involved with subordinates, but the separation agreement specifies he was fired “without cause,” meaning that it was not related to performance. Getting fired without cause often applies to factors outside an employee’s control, such as in a layoff.
Had he been fired “with cause,” the fastfood giant under its own policies could not have awarded continued compensation. A company spokesman could not be reached for comment.
Chicago-based McDonald’s said Monday its top human resources officer, David Fairhurst, also has left the company. It declined to explain the circumstances or say if his departure was related to issues with Easterbrook. Fairhurst worked with Easterbrook at McDonald’s in the U.K. and was promoted to the job of chief people officer after Easterbrook became CEO.
Easterbrook will get 26 weeks of severance, according to his deal with the company. McDonald’s has not disclosed his base salary for 2019, but the regulatory filings show it was $1.34 million. At that amount, the severance would be worth $670,000.
He’s also entitled to receive a prorated bonus based on whether McDonald’s achieves performance targets during 2019. Last year, that bonus amounted to $2.45 million.
In addition, filings show Easterbrook is in line to get grants of up to 122,986 McDonald’s shares through 2021, although those awards also depend on financial results.
In 2018, Easterbrook received a total compensation package of $15.88 million, counting salary, bonuses and stock awards. In an email to employees, he acknowledged the relationship and said it was a mistake. “Given the values of the company, I agree with the board that it is time for me to move on,” he said.
McDonald’s would only say Easterbrook “demonstrated poor judgment.”
In announcing his firing Sunday, the company named Chris Kempczinski to replace him. Kempczinski has been president of McDonald’s USA.
In a news release, Kempczinski said, “As one of the world’s leading brands, McDonald’s makes a difference in the lives of people every day. We have a responsibility not only to serve great food, but to make it responsibly and to enrich the communities in which we operate. I am energized by this challenge and look forward to guiding McDonald’s continued success.”
McDonald’s said Kempczinski’s base salary will be $1.25 million, or 58% higher than his 2018 compensation.
The company has faced a sales slowdown in the United States and last month reported a 2% drop in third-quarter profit because of heavy spending on store remodeling and expanded delivery service. It also has been the targets of complaints by labor groups and its own employees alleging sexual harassment of workers, often by managers. The company has responded with increasing training programs and a hotline for workers who wish to complain.
Analysts said they expect Kempczinski to continue Easterbrook’s remodeling push and more spending on technology, such as a voice-recognition system for drive-through orders. “We believe these initiatives will continue largely unchanged and Mr. Kempczinski’s legacy will hinge on his ability to generate traffic growth in the U.S., which neither of his two predecessors were able to achieve,” BTIG Managing Director Peter Saleh said in a note to investors.