A Reasonable Look at Steak N' Shake CEO's Raise

Recently, as many of you know, Sardar Biglari got a pretty big raise for his role at Steak 'n Shake (SNS). While not making any money in director's fees, not getting stock options, and not having a contract, he is still going to be the recipient of $900K/year.

Being Chairman of the Board, Biglari has a fiduciary duty to the shareholders- to oversee management and set a profitable direction for the company. As CEO and President, his duty is to run the company effectively and profitably. He has done these things quite well.

Now, let's examine the facts:

1) The company had generated a ton of cash and paid off a chunk of debt.
2) The company is no longer in danger of being close to insolvency.
3) The company has introduced new (and popular) products that have helped snap 14 quarters of negative same store sales.
4) The company has become much leaner from an operational view, helping profitability.
5) There are several members of management and the board now gone, who had presided over a flawed 'expansion at all costs' policy.

First and foremost, the issue of executive pay has garnered a good discussion at the level headed value investing community Corner of Berkshire and Fairfax. My big surprise however, are the comments and commentary surrounding an article in the IndyStar. I wonder if any of the people (including the journalist) even read the 8K, which told of the raise and of the company paying off it's credit line (to the tune of $12 million) with Prudential. That action alone makes the once distant possibility of a share repurchase/dividend/acquisition a very likely development in the next year. It is also a good sign of the company *surprise* being managed rationally.

From reading the comments on the article, it seems that most of the people are angry over the pay raise in relation to hourly employees not seeing 'their share' of the company's good fortune. I surmise that the servers at the chain are doing better than they were last quarter; same store sales are up which means that they are most likely getting more in tips. If the tips are paid in cash, the additional money would probably be more significant, since they probably won't claim the wages at tax time. I fail to see how this is a bad deal for anyone, including diners, who are enjoying new and relevant products (despite some service issues- which are improving).

Not surprisingly, I am astonished at the stupidity of people that lambast a guy for making $900K (even though he turned around a restaurant chain based in their state, which brings them tax revenue), but don't seem to care that California is issuing 3,733x as much in IOU's JUST THIS MONTH! (that link comes curtousy of S. Parsad). Our priorities as a nation are really screwed up. I guess that having a gut reaction to a hot issue is easier than thinking.

On a calmer note; as much as I hate speculating on the matter, I'm betting that Biglari wouldn't have taken the raise if there were not some good news coming our way- and soon, at that.

Disclosure: Long SNS

Comments

[JohnnyC:]

Up until now the SNS CEO stood out in Indiana as the guy taking $30k a year vs. Lilly's CEO at $10mm a year.

Jul 06 08:44 AM

[Necole:]

Well i must say congrats!!!!! I bet his family eats and sleeps well at night knowing that they will be very well off. Of course that doesn't say much for the associates working for the company that he took money from. You know the ones who have worked there 10 years or more and took a substantial pay cut ( I myself took approx. $320.00 a month.) But oh well I guess hes doing good for the higher ups huh?

Jul 06 07:23 PM

[UncleLongHair:]

What do California IOU's have to do with overpaying a CEO?

Biglari now makes about 10x what his hero Buffett does -- and that is only considering one of his many jobs. Introduces quite a gap between "talk the talk" and "walk the walk".

Jul 08 10:44 AM

[Jeffrey Moore:]

For all the fuss over a measly 900K (from a now profitable company), I am saying that people should be concerned with a huge government issuing IOUs instead. Our priorities are screwed up.

Obviously, Biglari is not Buffett- the same way that Buffett was not Ben Graham... Simply because 2 people share similar philosophies doesn't mean that they have to be compensated in the same way. As an owner of SNS, I have no problem giving Biglari the money that he deserves!


On Jul 08 10:44 AM UncleLongHair wrote:

> What do California IOU's have to do with overpaying a CEO?
>
> Biglari now makes about 10x what his hero Buffett does -- and that
> is only considering one of his many jobs. Introduces quite a gap
> between "talk the talk" and "walk the walk".

Jul 09 03:30 PM

[Later:]

I happen to be one of those employees that has had EVERYTHING taken away!!! Why on earth should he deserve his salary to be tripled when we get nothing! If it wasn't for the "hourly employees", he wouldn't have a job!! I'm very disgusted with this matter and now that I know the truth about why all has been taken away from us instead of the excuse we receive "it's the bad economy and all companies are suffering right now", I'M LOOKING FOR OTHER EMPLOYMENT! P.S. The tips have actually went downhill from what they use to be.

Jul 25 09:24 PM

[SNSHoosier:]

SnS Hoosier server here. If restaurant traffic increases, servers will see a little more $ up to the point of having another server added to the rotation (you can only serve so many tables). As for the rest of the associates, they are making $7.25 / hr now. Store managers and general managers have had their 401(k) contributions cut and vacation increases (with tenure) have been suspended.

If CEO pay goes up with improved performance, that's great. But let's not take the cake away from those that are only getting crumbs in the first place.

Aug 06 09:03 AM

[paymel8ter:]

With the recent changes Steak N Shake has seen an increase in guest count however, the average customer expenditure has decreased with the evolution of the meals under $4. This has a sever impact on the server tips which are generally a percentage of the check. This is inline with the comment mad by SNS Hoosier more guests more servers equals less tips.
Along with Mr. Biglari

Oct 28 11:20 PM