McDonald's Fired CEO Is Getting Millions, Putting Spotlight On Pay Gap

Nov 5, 2019
Originally published on November 6, 2019 6:45 am

Former McDonald's CEO Stephen Easterbrook is getting an exit package of almost $42 million after his relationship with an employee was found to violate company policy. The size of his compensation puts a new focus on the widening gap between the pay at the top and the bottom of the corporate ladder.

According to an analysis by executive-compensation experts at Equilar, Easterbrook's exit package totals $41.8 million, which includes six months of severance pay, shares he can cash out in the future and other equity. And that amount is in addition to $23.8 million in stock options that Easterbrook can exercise now.

"Wow, he is walking away with a lot of money," says Cornell Law School professor Stewart Schwab, an expert on employment law. "And it comes out as part of the story of just, wow, [the] 1% gets a lot more money than the rest of the workers in this economy."

It's relatively unusual for a CEO to receive a severance package after being fired. But the board of directors at McDonald's determined his firing to not be for cause — a threshold that varies by company. And litigation in a protracted dispute can be tricky and expensive.

Writing to employees this week, Easterbrook said: "I engaged in a recent consensual relationship with an employee, which violated McDonald's policy. This was a mistake." No further details were disclosed, but McDonald's current policy prohibits employees who "have a direct or indirect reporting relationship" with one another from dating or having a sexual relationship.

McDonald's latest disclosures show that in 2018, Easterbrook made $15.9 million. That's 2,124 times more than the median income of a McDonald's employee — a part-time crew member working in Hungary. According to Glassdoor, a U.S. crew member at McDonald's makes an average of $9 an hour.

McDonald's did not respond to NPR's inquiries, including those about median salary in the United States.

"A big story of the income inequality and explanation for it is that top executives, and in particular the CEO, does have the exploding pay compared to the rank and file," Schwab says. "And this is an example of that."

Easterbrook joined McDonald's in 2015, and his tenure was praised by company watchers. The fast-food chain's stock price hit historic highs under his efforts to revamp both the restaurants and the menu.

But Easterbrook also presided over the company as it faced allegations of rampant sexual harassment of female employees by male co-workers and managers. (To be clear, his departure does not involve harassment allegations.)

In May, workers in 13 U.S. cities staged protests against low pay and the company's handling of alleged sexual harassment. In recent years, dozens of McDonald's workers have filed sexual harassment complaints, alleging everything from lewd comments and groping to retaliation.

"What we see all the time from minimum-wage workers is that once you complain, retaliation is common," says Sharyn Tejani, director of the Time's Up Legal Defense Fund, which works with victims who allege sexual harassment.

"That takes the form of losing shifts, losing your job, not being able to stay at your job, being disciplined. And ... they don't have any cushion," she says. "And when you compare that to what happens to somebody like the CEO, it's clear that there's a structural problem here."

Following worker complaints, McDonald's announced in August that it would introduce an anti-harassment training program for U.S. workers. The program, which began in October, trains restaurant supervisors and crew members on how to create a safe workplace and defuse difficult situations.

Earlier in the year, McDonald's also made an unexpected commitment to no longer lobby against minimum-wage hikes at the federal, state and local levels. In mid-2015, McDonald's added at least $1 an hour more to the local minimum wage to employees of the restaurants owned by the corporation. The majority of McDonald's locations are owned by franchisees.

In 2015, research by the UC Berkeley Center for Labor Research and Education found that more than half of fast-food workers rely on public assistance programs like food stamps. The research did not specifically focus on McDonald's.

Copyright 2019 NPR. To see more, visit https://www.npr.org.

RACHEL MARTIN, HOST:

Earlier this week, McDonald's announced that its CEO had had a consensual relationship with an employee that violated company policy. Then he was out of a job, but he got a lot of money on his way out the door - tens of millions of dollars. The story puts new attention on the enormous salary of the CEO and the widening gap with the income of those on the front line flipping burgers and taking orders. Here's NPR's Alina Selyukh.

ALINA SELYUKH, BYLINE: Almost $42 million - that's how much McDonald's will pay Stephen Easterbrook, who was fired for violating company policy. He's getting six months of severance, plus stock options and other awards worth all that money, according to pay consultants Equilar. And that doesn't even include the additional $24 million in stock options that Easterbrook can cash out now.

STEWART SCHWAB: Wow. He is walking away a lot of money.

SELYUKH: Cornell Law School professor Stewart Schwab is an expert on employment law.

SCHWAB: And so it comes out as part of the story of just - wow - you know, that 1% gets a lot more money than the rest of the workers in this economy.

SELYUKH: It's actually a story that connects a few of the most controversial threads of today's corporate America. That was one - the widening income gap. Last year, CEO Easterbrook made more than 2,000 times more money than a median McDonald's employee.

The second thread is the complex power dynamic between bosses and employees in the #MeToo era. Easterbrook got fired over a consensual relationship with an employee. McDonald's prohibits dating or sexual relationships between managers and employees. I asked Schwab what would happen if this policy was violated by a worker at the bottom of the totem pole.

SCHWAB: You'd probably just be fired and out the door with nothing.

SELYUKH: At the very least, you'd never get six months of severance. The reason Easterbrook is getting such a rich deal is because McDonald's board of directors decided that he was not fired for cause, meaning his actions weren't highly egregious. The company did not respond to NPR's inquiries. Terminating someone for cause can be tricky. Each company has its own threshold. And when a lot of money is at stake, a lawsuit is very likely, says Charles Elson, professor of corporate governance at the University of Delaware.

CHARLES ELSON: And usually, it drags on for a long time. And rather than litigate it, companies will agree that if it's a pleasant, amicable departure, they'll pay the severance - problem is over.

SELYUKH: And in Easterbrook's case, the departure was likely amicable. After he joined in 2015, the company's stock price reached historic highs, as he pushed to revamp the menu and upgrade the restaurants. But his tenure also overlapped with a growing chorus of female workers alleging rampant sexual harassment by co-workers and managers at McDonald's restaurants. Most of them are owned by franchisees.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED PROTESTERS: (Chanting) Hey, hey, ho, ho - sexual harassment has got to go.

SELYUKH: This was in May, when McDonald's workers in 13 cities protested low pay and the company's handling of alleged sexual harassment. In recent years, dozens of women have filed complaints alleging lewd comments and groping but also retaliations. Lawyers who work with these women say speaking out against their harassers sometimes caused them to lose shifts, get disciplined, even lose jobs. Kim Lawson is a former McDonald's worker from Kansas City, Mo. Her claim of sexual harassment and retaliation is pending with the Equal Employment Opportunity Commission.

KIM LAWSON: We're not asking for them to pay us $40 million. We're just asking for them to sit down with fast-food workers like myself and find a better solution to the sexual harassment issue that their company clearly has.

SELYUKH: To be clear, former CEO Easterbrook's case is not one of sexual harassment. But his very lucrative firing is a reminder of how differently American workers get treated at the top and the bottom of the corporate ladder.

Alina Selyukh, NPR News.

(SOUNDBITE OF OLDTWIG FEAT. LIME KAIN'S "DUNES") Transcript provided by NPR, Copyright NPR.