Former Starbucks CEO Laxman Narasimhan’s favorite drink is an espresso macchiato with hot skim milk on the side. Even though he no longer works at the company after getting deposed in favor of Chipotle chairman and CEO Brian Niccol, Narasimhan won’t have any trouble paying for his coffee fix thanks to what should be a generous exit deal.
According to Starbucks’ executive severance plan, Narasimhan stands to get 1.5 to 2 times his $1.3 million salary and target cash bonus as he exits the company. That adds up to about $10.6 million in salary and bonuses, plus $37,620 in Cobra premiums, Ben Silverman, vice president and head of research at insider stock sales platform Verity, told Coins2Day. Narasimhan joined Starbucks in March 2023 after founder Howard Schultz stepped down as interim CEO for the third time. In 2023, Narasimhan’s total pay package was valued at $14.6 million.
Based on the company’s disclosures, the $10.6 million is what Narasimhan is entitled to take with him when he leaves Starbucks. However, outgoing CEOs and corporate boards often negotiate new terms in separation agreements to keep the transition frictionless and to nip potential legal or reputation risks in the bud. Silverman said it’s possible that all the prior agreements Narasimhan had with Starbucks concerning his exit could be superseded by a termination agreement with different terms.
Therefore, Narasimhan could potentially negotiate to collect some or all of an outstanding equity award that could reach as high as $21 million, based on Tuesday’s stock price close of $95.90. Starbucks hasn’t yet disclosed how much stock the outgoing CEO will collect for for 2023, but he could get as many as 215,000 performance-based restricted stock units, Starbuck’s form of equity compensation.
Narasimhan also has remaining unvested equity worth millions, but he is ineligible to collect it based on the standing executive severance agreement. As of Tuesday, he held 109,321 unvested restricted stock units, meaning that equity hadn’t translated into real value in his brokerage account yet. At Tuesday’s stock price, that unvested equity would be worth another $10 million.
Starbucks did not immediately respond to a request for comment.
“It’s currently unclear whether there was a termination agreement between Narasimhan and Starbucks that supersedes what’s spelled out in his employment agreement and the company’s basic severance package for executives, including the CEO,” said Silverman. “If there was no new agreement, Narasimhan forfeits any unvested equity awards and is walking away with about $10.6 million in cash in the form of salary, bonus, and benefits severance.”
According to his September 2022 offer letter, Narasimhan was hired at a $1.3 million base salary, a cash bonus of between 200% to 400% of his base pay and annual equity awards with a target grant value of $13.6 million. He also got a $1.6 million sign-on bonus and a $9 million replacement grant to cover the amount of equity he walked away from when he left the CEO role at British-Dutch consumer goods company Reckitt Benckiser in 2022.
Even if he walks away without negotiating a sweetener on top of his $10.6 million, that payout would be generous given that, in the 17 months Narasimhan led Starbucks, the company has performed miserably. During this time, Starbucks’ share price declined 23.9% following consecutive quarterly drops in comparable-store sales, including a notable 18% drop in China. This has led to a dismal $32 billion drop in market cap.
Experts say Narasimhan forced out
Still, Narasimhan got warm wishes from board chair Mellody Hobson on the way out, and she thanked him for his dedication and “laser focus.” Yet he was very likely pressured heavily to leave, according to a report from executive exit analytics firm Exechange. The firm ranks the likelihood that a CEO was pressured to exit, given that CEOs are almost never fired publicly. On a scale of 0 to 10, Narasimhan’s departure is a nine, according to founder Daniel Schauber.
Schauber’s report noted that former CEO Howard Schultz had written an open letter criticizing Starbucks and that activist investor Elliott Management acquired a sizable stake a few weeks ago.
Initially, reports indicated that negotiations between Elliott and Starbucks directors would allow Narasimhan to keep his job. Shortly after Niccol’s hire was announced, Elliott issued a statement acknowledging the discussions.
“Elliott has become one of the largest investors in Starbucks because of our confidence in the long-term value-creation opportunity we see at one of the world’s most important brands,” managing partner Jesse Cohn and partner Marc Steinberg said in the statement.
“We view today’s announcement as a transformational step forward for the Company,” they added. “We welcome the appointment of Brian Niccol, and we look forward to continuing our engagement with the Board as it works toward the realization of Starbucks’ full potential.”
Narasimhan is also eligible for an outplacement package or $25,000 in outplacement services. He’ll also have to sign a release and comply with restrictive covenants like non-compete clauses.
Starbucks’ chief financial officer Rachel Ruggeri, a 24-year vet at the company, will serve as interim CEO until Niccol reports to work on Sept. 9, 2024.
