Costco No Longer a Match on Executive Pay According to McDonald’s

May 21st, 2013 · 6 Comments

You would think that executive pay would’t be all that different between Costco and McDonald’s, would you?  You might even think that Costco might pay a little better.  But you’d be so wrong.  It turns out that McDonald’s doesn’t think Costco pays executives enough anymore.  That’s right, you read that correctly, McDonald’s is basically calling Costco cheap!

Think this is what it looked like as McD’s old CEO was leaving on his last day?

To assess their executive pay levels, McDonald’s uses a selection of around 24 different companies that fall into their competitive niche of consumer product companies and retailers.  A lot of analysts and even the SEC is not fond of the practice of using peer groups to determine executive pay because they feel like it is creating artificially high executive pay packages.  And that might well be the case.  Not to mention, it doesn’t seem that they use this same method when determining pay levels for the rest of the workers.

McDonald’s didn’t come right out and say that Costco is a bunch of cheapskates, but they just played it off as different pay and compensation philosophies.  Um, yeah.  What that really means is that the CEO at Costco made what would seem to be a very decent salary of $4.8 million in 2012. While in the same year, McDonald’s CEO made a whopping $17.1 million in total compensation (salary, bonuses, and equity), and in addition they paid him another $10.6 million to step down in July.  Who wouldn’t like that kind of payout just for leaving?  In the previous five years, McDonald’s CEO pay averaged around  $13.4 million, while Costco paid their CEO on average just $3.4 million.

As HuffPo points out the difference in CEO pay could have allowed McDonald’s to buy a dollar-menu breakfast burritos for every child in New York City’s public schools, every month of the school year.  Or, alternatively, just think of all the workers that they could pay better if they weren’t paying so much to their executive team.  Maybe they could even be like Costco and pay good wages to the average worker and provide decent benefits.

It doesn’t seem like the McDonald’s CEO is worth 3.5 times as much as Costco’s CEO, does it?  I mean, their revenue and gross profits in 2012 weren’t 3.5 times better than Costco, they actually weren’t even as high as Costco’s revenue or gross profits for FY2012.  I guess they’re using some new math.

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6 Responses so far ↓

  1. 1 scottf // 2013.05.27 at 11:21 am

    I would rather have Costco CEO pay LESS because that would mean more $$ for the lower employees. It was also Jim Sinegal’s philosophy that hourly employees get payed more then average. Now lets look at Macdonnalds hourly employees… minimum wage. See now? I rest my case!

  2. 2 B. // 2013.05.25 at 7:58 pm

    I would also like to point out, that McDonalds managers make HALF of what top cashiers make at Costco (not including time and a half on sundays and the semi-annual bonus which can calculate up to 4k+). So with thousands and thousands of Costco employees making middle class pay or close to it, most of McDonalds employees are making minimum wage or slightly better. Don’t get me wrong, a job is a job, and income is income, but as much money as McDonalds makes as well, dont you think they can pay their employees a little bit better? Well I guess we can assume where most of their money goes!

  3. 3 dan // 2013.05.25 at 9:22 am

    An article about Silicon Valley but I believe the message is on topic. Companies ‘that flatten hierarchies and distribute rewards more fairly are actually more profitable, and not just nicer places to work’

  4. 4 Gary LaPointe // 2013.05.21 at 11:02 am

    So “executive pay” just means the CEO? Not any of the other executives at other levels?

    • 5 Kimberly // 2013.05.21 at 5:15 pm

      @Gary – I think it means all of the top level executives, but the articles I read only pointed out CEO pay for both companies. But I’m quite sure it means all the “C” levels and probably the EVP and VP employees as well.

  5. 6 Terri // 2013.05.21 at 10:17 am

    that IS some fancy math, isn’t it? whatever happened to corporate responsibility? if mcd’s could put some of their profits into better pay for their average workers, benefits, higher quality ingredients, more focus on nutrition, etc. etc., they could make a HUGE difference in society. and when society benefits, businesses do too.

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