Whole Foods Increases Salary Cap for Execs

Discussion
Nov 06, 2006

By George Anderson


Executive pay has certainly become a hot topic in recent times, especially when the compensation of some has grown while companies have floundered and/or top management has been engaged in various illegal activities.


Last week’s announcement by Whole Foods that it was increasing the salary cap from 14 times the average pay of all full-time employees at the company to a multiple of 19 is an attempt to provide a level of transparency regarding its executive compensation packages.


The increase was the second since 1999 when the cap was 10 times the average pay of all full-time members. The result of the cap increases along with the average hourly wage of all full-timers at Whole Foods means that top salaries today have risen to $607,800 from a cap of $257,000 in 1999. Employee benefits, stock options and non-cash 401(k) contributions are not counted in determining and applying the salary cap.


During the same period, 1999 to 2006, the average hourly wage of all full-time team members went from $12.36 to $15.38. Today, the average annual wage of all full-time Whole Foods team members stands at $31,990.


In a company press release to announce the change in compensation policy, John Mackey, Whole Foods’ chairman, chief executive and company co-founder, said, “We are raising the salary cap for one reason – to make the compensation of our key executives more competitive in the marketplace and help ensure their retention.”


In addition to the salary cap news, Whole Foods also issued an announcement that Mr. Mackey will reduce his annual salary to $1 beginning on Jan. 1. 2007. He also said he would forego any further stock option rewards. He would, however, take advantage of the company’s employee food discount card and health insurance.


“I continue to work for Whole Foods, not because of the money I can make, but because of the pleasure I get from leading such a great company, and the ongoing passion I have
to help make the world a better place, which Whole Foods is continuing to do,” said Mr. Mackey. “I am now 53 years old, and I have reached a place in my life where I no longer
want to work for money, but simply for the joy of the work itself and to better answer the call to service that I feel so clearly in my own heart.” 


Whole Foods Historical Salary Cap Calculation

Year

Average Hourly Wage

Annual Wage

Average
Multiple

Salary Cap

1999

$12.36

$25,709

10

$257,000

2000

$12.84

$26,707

14

$373,900

2001

$13.46

$27,997

14

$391,900

2002

$13.69

$28,479

14

$398,700

2003

$14.07

$29,266

14

$409,700

2004

$14.66

$30,493

14

$426,900

2005

$15.00

$31,200

14

$436,800

2006

$15.38

$31,990

19

$607,800

Source: Whole Foods Market, Inc., 11/2/2006

Discussion Queations: Do you see Whole Foods’ salary cap as an approach to head off any issues surrounding executive compensation at the company? Do
you see the potential for internal conflict when hourly store team members see executive compensation rising at a substantially higher annual rate than their own?

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12 Comments on "Whole Foods Increases Salary Cap for Execs"


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Michael Tesler
Guest
Michael Tesler
15 years 6 months ago

It is too bad that Whole Foods’ priority has to be stockholders and stock price and what will work for Wall Street instead of what works best for customers and employees. If they were not publicly held, they could stay true to their values and pay hourly staff $20 an hour and get commensurate results (this because of the multiplier would also raise executive pay). Consumers also would get better product and better service. In the long run, this works for all, including investors, but when do investors ever consider anything beyond this quarter’s earnings–witness the $13.50 drop in Whole Foods stock price last Friday?

David Livingston
Guest
15 years 6 months ago

Mackey is a zillionaire anyway and he is not going to miss the money. Whole Foods needs to raise the cap because of its rapid expansion. I’ve seen some of their newer stores. While the stores look great I feel Whole Foods has been forced to take a step down in class in order to get employees due to our nation’s labor shortage. They are trying to be too politically correct and in doing so, are getting less qualified labor. Obviously Whole Foods is not a charity and is not going to pay $15 per hour for $8 worth of work. That is not fair to the stockholders. The executives should not be punished because we have a labor shortage. The company is still growing and very profitable. Their responsibility is growing daily. Therefore the executive’s pay needs to grow as well. I don’t see any conflicts with low level workers. Whole Foods is still one of the Holy Grail jobs in retail.

Len Lewis
Guest
Len Lewis
15 years 6 months ago

The problem is not that Whole Foods raised the cap to 19%, it’s that other companies raise it when it’s over 400 times the pay of the average worker.

Laura Davis-Taylor
Guest
Laura Davis-Taylor
15 years 6 months ago

Wow. What an example Mr. Mackey sets. He faces the issue of attracting and retaining the best people head on and cuts his own pay to show his commitment. Yes, he can afford it. But who else has done something like this? He puts him money where his mouth is.

Yes, some of the people at the bottom of the totem pole may be a bit upset by this. But these are people paid well above the competitive set that receive full benefits, stock and the respect that makes them happy to be there. I’ve never once had a negative customer experience at Whole Foods and I believe this is why.

Compare these salaries to the crazy salaries many other retailers are pulling in and it shows that they are still being responsible. Plus, as David states, you have to have the best talent to get–and stay–at the top.

Ryan Mathews
Guest
15 years 6 months ago

Um…let’s see…the question is do workers ever get upset when they think their bosses are being over paid? Er…well, maybe just once every so often. On the other hand, look at those average hourly wages and compare them to other retail salaries and then let’s ask the question again.

George Anderson
Guest
George Anderson
15 years 6 months ago

While there is little doubt that store employees at Whole Foods are happy they are being paid more than their counterparts at other retailers, you have to question if there isn’t some resentment when they are getting average annual increases in the single digits while executive pay has more than doubled in a span of seven years.

Bernie Slome
Guest
Bernie Slome
15 years 6 months ago

The story here isn’t that Whole Foods increased the salary cap; rather the story is that there is a salary cap. In this day and age of ever increasing CEO pay and pay that is not necessarily tied to corporate performance, Whole Food stands out as an example.

Jeff Weitzman
Guest
Jeff Weitzman
15 years 6 months ago

The transparency is refreshing, and 19x is probably reasonable compared to their peer companies. What it also provides insight into, though, is the fallacy that real wages have gone up for the average American worker. This is a prime example–even Whole Foods that at least *has* a cap on executive compensation has been raising that comp faster than it is raising wages for its average workers.

Ultimately Whole Foods can’t afford to lose its execs to other companies and must figure out how best to retain them. Compensation is one of those ways, and the transparency is refreshing. If all companies did this, the gap would shrink and perhaps real wages would even creep up a bit. After all, managing happy employees is much more rewarding than the alternative, and that is a good way to retain executives as well.

George Andrews
Guest
George Andrews
15 years 6 months ago
Whole Foods is on my “A” list of stores to shop for myself. Top compensation of $600,000 is not out of line with the industry, yet I think their early insticts were right for them and created a positive corporate culture where so many negative ones exist today. On the option of offering more stock and holding the base pay; in the biggest CEO turnover rate in recent years, paying more has not necessarily resulted in better performance, ethical conduct or strategies to create long term corporate success. The superstar pay is usually used to attract the proven track record of an executive outside the company. Of course the problem with proven track records is they are in “those” companies and “those industries.” (The poor track record of most of the Jack Welch protégé’s is well known). There are more internal candidates within companies who could lead them to success than many seem willing to tap into. From 2000 to 2005 “moderate” increases in corporate compensation seemed to be OK for Whole Foods and then… Read more »
Camille P. Schuster, Ph.D.
Guest
15 years 6 months ago

If changing the cap is only creating more transparency, meaning that’s what the execs were getting anyway, that is not a problem.

The idea of a salary cap of 19% is certainly not something that generates loyalty and support from employees who are maybe hoping to get a 3% cost of living increase — especially if the company is not doing well and the employees are being asked to make sacrifices — but that’s a different issue.

Adrian Weidmann
Guest
15 years 6 months ago

Over the last several months it has come to light through the local press here in Minneapolis that the Chairman CEO of UnitedHealth Group, Bill McGuire, has amassed over $1.6 BILLION in back dated stock options- this on top of his salary of $128 million. He has resigned in light of the scandal. The board of directors then voted to provide him with an annual $5.5 million pension. Mr. McGuire is reported to claim that his compensation has nothing to do with the cost of health insurance.

Vis a vis Mr. McGuire, John Mackey and his actions regarding compensation seem philanthropic. In light of today’s values and valuations, it is refreshing to see an executive with thought leadership.

It is interesting to note that Mr. Mackey will keep his health coverage. Apparently Mr. Mackey can’t even afford to subsidize Mr. McGuire’s compensation on his own!

Mark Lilien
Guest
15 years 6 months ago

Whole Foods’ salary cap is great public relations. Note: the salary cap excludes stock options. In other high-growth firms, stock options are the major form of compensation, not salaries. Sam Walton’s compensation plan: low salaries and high earnings from stock options. So Whole Foods took a positive step, but not the Whole Step.

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