The Canadian Centre for Policy Alternatives released its annual list of Canada’s highest-paid CEOs. The top 100 CEOs were paid an average of 14.9 million Canadian dollars ($11.2 million) in 2022, a record payout for Canada’s top business leaders.
At the top of the list was Patrick Doyle, the former CEO of Domino’s Pizza (DPZ) and current Executive Chairman of Burger King parent Restaurant Brands International (QSR). Doyle’s total compensation in 2022 was 151.8 million Canadian dollars ($114.0 million), 53% more than the second-place CEO.
Should QSR shareholders care about Doyle’s compensation? I’ll look at both sides of the argument.
You Have to Pay Up for Top-Notch Talent
Doyle’s compensation in 2022 was entirely share-based, with 70% from share awards and 30% from options awards. His overall compensation was 2,505x the average Canadian worker’s pay of 60,600 Canadian dollars ($45,502). It was also 10.2x the average pay of the Top 100 this past year.
Now, because it was entirely share-based, there is the possibility, albeit remote, that Doyle makes very little from his 2022 compensation package.
However, Doyle was hired in November 2022 to grow the restaurant conglomerate, whose collection of concepts includes Burger King, Tim Horton’s, Popeyes, and Firehouse Subs.
“RBI Board of Directors believes Patrick Doyle's appointment will unlock exceptional growth potential alongside current leadership,” the press release stated on Nov. 16, 2022.
“Mr. Doyle is one of the world's most successful global QSR leaders; having doubled system-wide sales, delivered 29 consecutive quarters of same store sales growth, created ~$11B of shareholder value and increased home market franchisee profitability more than 2x while CEO of Domino's Pizza from 2010-2018.”
Since Doyle’s announcement, QSR stock has gained 28%, considerably better than the 19% return of the S&P 500 over the same period.
Analysts are generally lukewarm about Restaurant Brands’ stock. According to Barchart.com data, of the 26 analysts that cover QSR, 15 rate it either a Moderate or Strong Buy (4.08 out of 5) with a mean target price of $77.84, about where it’s currently trading.
In February, the company will report its Q4 2023 results. It will be the first quarter reporting under its new organizational structure, with the North American operations for each of the four brands accounting for four operating segments, and its International operations will be a fifth operating segment. Its results outside the U.S. and Canada will be consolidated under the fifth segment.
This means the four brands outside the U.S. and Canada will operate as a single unit, providing them with the infrastructure and backing needed to compete outside their home markets.
That’s undoubtedly a move made by Doyle to reduce costs while helping with expansion overseas.
Time will tell if Doyle’s pay was worth it.
The Executive Chairman Can Only Do So Much
At the end of September, the company had 30,375 restaurants worldwide: Burger King (19,035), Tim Hortons (5,701), Popeyes (4,373), and Firehouse Subs (1,266). 100% of them are franchised.
So, no matter how much work and money goes into the head office’s Reclaim the Flame plan to accelerate sales growth and drive franchisee profitability, it all comes down to the franchisees executing the plan.
Announced in September 2022, Reclaim the Flame was intended to run for two years. Restaurant Brands invested $150 million for advertising and digital and $250 million for restaurant technology, kitchen equipment, building enhancements, and high-quality remodels and relocations.
In October, Burger King President Tom Curtis said that the plan's first year was a success. However, year two would benefit the brand’s long-term success even more.
“As we go into year two of Reclaim the Flame,” Nation’s Restaurant News reported Curtis’s October 2023 comments, “It's not about changing the pillars, but it is about amplifying and evolving some of the messages and some of the initiatives underneath the pillars.”
The pillars are marketing, execution, image, and profitability.
There are many moving parts in the parent company’s plan to accelerate growth and improve franchisee profitability. It will likely take 3-5 years for investors to learn whether it’s been a home run.
That’s a long time to wait for a favorable outcome when you can put your hard-earned capital into Chipotle Mexican Grill (CMG) or McDonald’s (MCD) and know with a significant degree of certainty that these two brands will deliver the goods in 2024 and beyond.
Doyle expects investors to trust him and his team to do the job. Doyle’s record at Domino’s suggests investors are willing to give him the benefit of the doubt.
Investors ought to ask themselves whether Restaurant Brands and Doyle deserve the benefit of the doubt.
QSR Stock Has Not Performed Over the Long Haul
Over the past five years, QSR stock delivered a 43% return, half the return of the S&P 500, 23 percentage points less than the Golden Arches, and one-ninth the return of Chipotle.
Owning QSR stock over the past five years has effectively been dead money to almost every stock in the S&P 500. That’s not good, especially if you exclude the performance since Doyle’s high-profile hiring is in November 2022.
I’ve always thought that Restaurant Brand International’s most significant negative is its debt. As of the end of September, its total debt was $14.4 billion, 59% of its $24.6 billion market cap. That compares to 23% for McDonald’s and 6% for Chipotle.
With interest rates bound to wreak havoc on poor balance sheets in 2024, QSR isn’t the rock-solid investment conservative, risk-averse investors ought to be considering, no matter how much they admire the job Doyle did with Domino’s.
Restaurant Brands International is putting Doyle in line for a massive payday should he succeed again. While that’s good for him, it doesn’t guarantee success for investors.
If Doyle is unsuccessful, he’ll still have many millions from his success at Domino’s, while QSR shareholders will have a decade or more of underperformance.
Yes, you should care about Doyle’s pay package, share-based or not.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
