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Why Starbucks' Howard Schultz Deserves His Hefty Bonus

When does a CEO deserve a hefty bonus? Starbucks (SBUX) CEO Howard Schultz was handed a cool $3.5 million (the most he's ever received) for perking up the Seattle coffee giant's profits -- not to mention padding the wallets of its investors.

CEO bonuses are up just over 30 percent in general, according to the WSJ, and Schultz's is in line with others such as Jeffrey Immelt, GE's chief, who pocketed $4 million.

Like many other struggling enterprises, Starbucks was hitting the skids in 2008. That's when its board and management put a quick stop to raises as the chain began closing 600 struggling shops in the U.S. putting thousands of baristas out of work. Schultz didn't take part in Starbucks' executive management bonus plan in fiscal 2009 either, even though his pay was knocked down by $900,000 from $10.6 million in 2007.

At that time, the company's compensation committee determined Schultz's pay should be directly tied to increasing the company's share price, hovering around $9 compared with a high of $20.68 in 2007.

Starbucks directors weren't letting Schultz get off easy, even as the economy continued to nip hard at customers' spending habits. Schultz led an aggressive charge to transform Starbucks cafes into places to purchase a plethora of caffeinated beverages as well as pastries, wraps and sandwiches. The chain also introduced Via singles and a wine bar concept.

It was an effective counterpunch to fierce competition from McDonald's (MCD), Burger King and Dunkin' Donuts. Note the company's 2010 highlights:

  • Total net revenues increased 9.5% to $10.7 billion
  • U.S. comps increased 7 percent, driven by a 3 percent increase in traffic and a 4 percent increase in average ticket
  • International comparable store sales increased 6 percent, driven by a 5 percent increase in traffic and a 1 percent increase in average ticket
  • Consolidated operating margin improved 760 basis points to 13.3 percent.
  • U.S. operating margin increased 17.1 percent.
  • International operating margin more than doubled to 9.8 percent.
  • Operating cash flow totaled $1.7 billion; rree cash flow exceeded $1.2 billion.
  • Starbucks returned approximately $460 million to shareholders through share repurchases and dividends.
Schultz is still looking at a challenge as the coffee chain celebrates its 40th year in business. With over 11,000 outlets (both company-operated and licensed) stateside and nearly 6,000 international locations, Starbucks has hit maturity so Schultz and team are turning to branded products, overseas expansion and hotel distribution to keep those profits rolling. So far, so good. First quarter results were promising with revenue and comps continuing to gain. Let's see if he can keep making those advances as the economy continues its path to recovery.

Image via Starbucks

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