Fired McDonald’s CEO gets to keep $37 million in stock awards
Former McDonald’s Corp. Chief Executive Stephen Easterbrook, who was fired for having a relationship with an employee, was allowed to keep stock awards worth more than $37 million as well as $675,000 severance and health insurance benefits.
Easterbrook, 52, will get to keep unvested stock options worth about $23.5 million and possibly benefit from grants of restricted shares tied to the company’s performance that are worth roughly $13.8 million at their target payouts, according to calculations by Bloomberg. He’s also eligible for a prorated bonus for his work in fiscal 2019.
McDonald’s board voted Friday to oust Easterbrook after investigating the relationship, which was consensual but violated company policy. The move was announced Sunday.
McDonald’s stock fell $5.28, or 2.7%, to $188.66 a share on Monday. The stock is up 5% this year.
The termination was categorized as “without cause,” the Chicago-based firm said Monday, signaling that the transgression wasn’t severe enough to bar him from receiving exit payments. His health insurance benefits will continue for 18 months.
Not all CEOs who lose their jobs under similar circumstances fare so well. Brian Krzanich, who was fired by Intel Corp. last year after the board learned he had a consensual relationship with an employee, surrendered equity awards worth tens of millions of dollars and received no severance.
As part of his separation agreement, Easterbrook promised to cooperate with the company in future investigations and legal matters, and to refrain from working for a direct competitor for two years.
The reason Easterbrook got severance pay was probably because he was determined to have violated a company policy, not broken sexual harassment law, said Lynne Anne Anderson, a partner at Drinker Biddle who advises companies and represents them in misconduct cases.
McDonald’s declined to elaborate on Easterbrook’s severance and departure beyond its public statements and filings.
Nell Minow, vice chair of ValueEdge Advisors, a shareholder consulting firm, said the severance is problematic.
“A middle manager who did that would be escorted out with all his belongings in a shoe box, and it sends a terrible message — not just to the employees and the investors and consumers but to society about how there are two rules: One for the powerful, one for the not,” Minow said.
Easterbrook’s successor, Chris Kempczinski, enters the job with a $1.25-million salary and annual target bonus of $2.13 million, according to the filing. It didn’t disclose details about long-term incentive compensation, which constitutes the bulk of most CEO pay packages. Easterbrook’s annual salary was $1.35 million.
McDonald’s top human resources executive, David Fairhurst, left the company Monday. In a statement posted on his LinkedIn page, Fairhurst said he had decided “the time has come for me to move on to my next career challenge.”
Mason Smoot, a senior vice president who oversees strategic alignment and staff, stepped into the HR role on an interim basis.
The rapid shake-up shows how executives’ behavior is under a microscope in the #MeToo era — and transgressions that may once have been considered minor are no longer swept aside, even for star performers. At McDonald’s, which for years has been a target of activists because of its wage and labor practices, the scrutiny is especially intense.
“If the CEO is allowed to engage in policy violations on this topic, the message to employees and to other stakeholders is that McDonald’s is not really committed to providing those protections promised in the policies,” Anderson said. “The level of conduct that is being required from executives in this #MeToo era is to set the tone and to lead by example.”
Easterbrook, who took the reins in 2015 amid a sales slump and oversaw market-beating share gains, put McDonald’s in an uncomfortable position — even though the relationship was consensual.
As a bellwether for the fast-food industry, McDonald’s has become a principal target of groups like Fight for $15 and the American Civil Liberties Union, which say McDonald’s has tolerated workplace harassment and ignored safety issues. They say the company has failed to prevent misconduct including groping, inappropriate comments from supervisors and retaliation for speaking up.
The company has countered criticism by revamping policies to include training for workers to deal with harassment and starting a hotline for victims, including other measures. But critics, including Democratic presidential candidates Bernie Sanders and Elizabeth Warren, have said McDonald’s moves “fall short” and send “the wrong message” by merely “encouraging” the franchisees who run most of the chain’s stores to adopt new policies, rather than requiring them to.
“What the research shows is basically if you’re in a position of power over somebody else, you’re really bad at recognizing the power you wield over them and how hard it is for them to say no to you,” said Vanessa Bohns, an organizational behavior professor at Cornell University. Such relationships can also undermine how the more junior employee is perceived by co-workers, she said, and fuel concern about favoritism at work.
In departing, Easterbrook acknowledged that the relationship was a mistake. McDonald’s said Sunday that the board determined he had “demonstrated poor judgment” by engaging in the consensual relationship.
McDonald’s, which has been navigating pressure from politicians on its wages, has been trying to revamp its image. The new training and anti-harassment measures create “a clear message that we are committed to creating and sustaining a culture of trust where employees feel safe, valued and respected,” Easterbrook said in a May letter to Sen. Tammy Duckworth (D-Ill.), who had sent an inquiry to the company amid a rise in claims of sexual harassment and misconduct.