Compensation at Whole Foods Market

By John Mackey, November 2, 2006  |  Meet the Blogger  |  More Posts by John Mackey

The following message from John Mackey was distributed to all Whole Foods Market Team Members on November 2, 2006.

 

To All Team Members,

I want to announce a couple of significant changes regarding compensation at Whole Foods Market. First, as you know, we have a salary cap policy which limits the total cash compensation that can be paid to any Team Member. The Board of Directors has voted to raise the salary cap from 14 times the average pay to 19 times the average pay, effective immediately. Why is this change happening? We are raising the salary cap for one reason only—to make the compensation to our executives more competitive in the marketplace. With our tremendous growth and success there has been an explosion in interest from our supermarket competitors in virtually everything we are doing. From copying many aspects in the design of our stores to selling more organic foods of all types, other supermarkets are studying and emulating us in dozens of different ways in their attempt to compete more aggressively against us. One of their competitive strategies has also been to aggressively seek to hire several of the executive leaders in our company. Everyone on the Whole Foods Leadership Team (except for me) has been approached multiple times by "headhunters" (Executive Search Firms) with job offers to leave Whole Foods and go to work for our competitors. Raising the salary cap to 19 times the average pay has become necessary to help ensure the retention of our key leadership.  

 

This will be the third time we have raised our salary cap since we created one about 20 years ago. The original salary cap was set at 8 times the average pay. It was raised to 10 times the average pay in the early 1990's and raised again to 14 times the average pay in 2000. This increase to 19 times the average pay remains far, far below what the typical Fortune 500 company pays its executives. As you can see from the following chart, the average CEO received 431 times as much as their average employee received in 2004, while the Whole Foods Market CEO (me) received only 14 times the average employee pay in cash compensation.

 

 

Most large companies also pay their executives large amounts of stock options in addition to large salaries and cash bonuses. However, this is not the case at Whole Foods Market. As the chart below indicates, the average large corporation in the United States distributes 75% of their total stock options to only 5 top executives with the remaining 25% going to everyone else in the company (actually most of the remaining 25% goes to the next level of executives below the top 5). At Whole Foods, the exact opposite is true: the top 16 executives have received 7% of all the options granted while the other 93% of the options have been distributed throughout the entire company with all Team Members eligible for a grant after 6,000 hours of service to the company.

 

 

The second part of today's announcement has to do with my own compensation. While it has become necessary to raise the salary cap at Whole Foods to help ensure the retention of our key leadership, this is not true in my case. The tremendous success of Whole Foods Market has provided me with far more money than I ever dreamed I'd have and far more than is necessary for either my financial security or personal happiness. 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. 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. Beginning on January 1, 2007, my salary will be reduced to $1 per year and I will no longer take any other cash compensation at all. I will continue to receive the same benefits that all other Team Members receive, including the food discount card and health insurance. The intention of the Board of Directors is for Whole Foods Market to donate all the future stock options I would be eligible to receive to our two company foundations — The Whole Planet Foundation and The Animal Compassion Foundation. In case there is some technical, tax, or legal reason why these stock options cannot be given to our two foundations, then I will retain future option grants and will pledge to donate 100% of the gain from those options to the foundations. This donation of future options received doesn't apply to the stock options already issued to me prior to January 1, 2007.

 

One other important item to communicate to you is, in light of my decision to forego any future additional cash compensation, our Board of Directors has decided that Whole Foods Market will contribute $100,000 annually to a new Global Team Member Emergency Fund. This money will be distributed to Team Members throughout the company based on need when disasters occur (such as Hurricane Katrina last year). The money will be placed in a special account and any money not distributed in any particular year will roll over and be added to the following year's contribution. We are still working on the exact way Team Members will be able to access this money. The first $100,000 will be deposited on January 1, 2007.

 

With Much Love,

John Mackey


Category: compensation

 

79 Comments

Comments

Adam says ...
Thanks John. I wish more CEOs saw the value of your level of transparency, let alone the egalitarian philosophy apparent in these decisions.
11/02/2006 5:37:20 PM CST
Victoria Charters says ...
Mr. Mackey, I just wanted to say "thank you" for setting such an inspiring example of philanthropy. As a team member, it is a great feeling to know you care about others. Thanks again.
11/02/2006 7:24:02 PM CST
Ed Reynolds says ...
John, Kudos on a well thought out plan and a necessary investment given the current competitive environment. I, for one, knew that the incredible success WFM has enjoyed over the past several years would eventually result in increased competition from all facets of this specialty retail sector. What I underestimated was the rapid rate at which this competition would develop and impact the company. I am a part-time team member of WFM in New Jersey (my full-time employment is in higher education-Financial Aid) and we now compete against not one, but two Wegmans within ten miles of our store. I’ve been a team member for almost a year and a half and a loyal customer and passionate believer in your mission for much longer. (I was a little late to the party on your stock, and I’m not doing so well there..lol..) I strive to carry out the core values of the company every day, whether or not I am actually working at my local WFM. I participate in the renewable energy program and preach the positive impact that natural and organic products can make in the quality of people’s lives. I’m proud to be a team member of such an incredible company with an invaluable purpose...no matter how small my contribution. I’ll tell you a story some other time about how my Labrador Retriever, diagnosed with renal failure at age 12 and ½ lived to over 15 years on a Whole Foods diet of all natural chicken thighs, natural beef, cage free eggs, winter squash, organic whole wheat bread, blueberries, olive and fish oil etc. I removed her from commercial dog food at the time she was diagnosed and my veterinarian said the prognosis was not good, maybe 6 months tops. My breeder stated that in 25 years of breeding, she never had a dog live past 14...my dog not only lived until 15, she thrived...my vet was emailing ME with questions about her diet for other clients!! Anyway, here’s to a prosperous 2007 and beyond…
11/02/2006 7:54:36 PM CST
Spike Jones says ...
Wow. Talk about leading by example. Very, very impressive, John.
11/03/2006 7:54:26 AM CST
tommy says ...
I understand the need to keep talent in an organization but at some point doesn't a company trying to be different have to make a stand on salaries? I enjoy reading your blog and watching your company grow from afar, and I like what you stand for in this world. At what point do you stop moving the salary cap and agree to lose people who aren't satisfied and who maybe don't have the vision for Whole Foods that is needed? Just a thought. Thanks and please keep up the good work!
11/03/2006 11:10:51 AM CST
Lynn says ...
How nice that Whole Foods made such enormous profits this year...as a stockholder, my portfolio is in the toilet. How will that be fixed?
11/03/2006 11:26:24 AM CST
Ed says ...
John, Shareholders (many of them team members) are getting crushed today....absolutely crushed. I wonder what type of negative impact this will have on morale and retention going forward. Again, I understand and applaud the decision to invest in your leadership, but I can't help but wonder what trickle down effect the sharp decline in stock price is going to have on everyone in the company. I also understand that you can't control the stock price--up or down--I was just wondering what your feelings were on the topic since it's relevant to retaining talent across the company.
11/03/2006 11:52:50 AM CST
Roberta Murphy says ...
John: I love Whole Foods Market and the way you and your loyal team run the business. As mentioned on this morning's CNBC program, you have created your own competition by popularizing healthy and organic foods. Given that we don't have a Whole Foods Market in our area (north San Diego County), I couldn't help but wonder about the possibility of you migrating into larger stores where you could set up a presence. In other words, you might have a Whole Foods mini market within a larger store. It might be similar to what Starbuck's has done within many of the supermarkets. Your organic name, nourishment and philosophy could have an exponential reach. Thanks for all you do!
11/03/2006 12:25:47 PM CST
Eugene Kim says ...
Mr. Mackey, Without a doubt you are my hero. For the last 10 minutes I have been typing/deleting what I could add as a comment, but have decided to leave it at: "Without a doubt you are my hero."
11/03/2006 12:50:49 PM CST
george says ...
Dear Mr Mackey, Good job on matters at WF and glad you took a paycut. I do have a concern as a longtime shopper and professional. Leaving that aside, here is my issue. I shop in all the Philadelphia stores. Each is unique in its own way....however....aside from being a true believer in the most of the WF philosophy I find that staffing/customer service runs from excellent to awful. The teams can be effective and then goofy. Since an organization/business runs from top to bottom and up again if done well, if there is anything that turns me off more, it is some of the real slackers at the stores. This is not an style/ apparel issue because this is irrelavent. It is their 'too cool for words' attitude. It comes accross as 'Why are you bothering me? Can't you see I am into myself/job -you don't matter?' You want to drive up comps and beat the competition?? Improve this!! No one needs to be a WF team member if they don't reflect an attitude of service and some attention. People will remember good help and want to comback for the experience. Otherwise, the Oats, Trader, Wegmans etc will eat your organic breakfast, then lunch and then dinner. Thanks for your time and good efforts to address this locally and even in Mill Valley. George
11/03/2006 1:03:18 PM CST
Cari S says ...
This blog was mentioned on a message board that I frequent. And, after reading it, I'm blown away by the utter sensitivity and consideration shown within. Whenever I hear about the grotesque salaries paid to people, I shake my head. No one, in my opinion, in corporate business, is worth a seven figure income. And yet, many receive just that. And then there's the stock options ad nauseum. I wish that there was a Whole Foods closer to where I live. But you can be sure that I will shop at your markets when I can. And, I will also build my own new business on this type of transparent honesty. Kudos to you and your entire company.
11/03/2006 1:38:56 PM CST
Madeleine Gallay Rogow says ...
Ah, it's a sad and strange thing that (big gulp) the stock can plunge 20% or so (yeah I'm down painfully 20% and this was 1/3 of my stock portfolio/life savings)after great earnings, increased dividends, decreased chairman salary, overall the coolest market ever (there is so much room for increased marketing - ie, distribution of private label to other venues, fast food whole food venues apart from the store, increased loyalty by card tracking programs, well there is a lot that can make in grow in new ways) and the flippin' stock tumbles. Whole Foods is a valuable business and an example of how-to. I hate seeing 20,000. go away and need it to come back BUT THIS SWARM OF LITTLE FEARFUL MINDS TAKING IT DOWN IS ABSURD!!!!!!!! Onward.
11/03/2006 3:46:41 PM CST
CKM says ...
John, I applaude your latest pronouncements and most of all the realization of the stiffer competitive environment we face today; the organic market niche is now open for conventional retailers to flex their muscles and most of them will end up compromising the organic integrity set up by your good company Whole Foods Market. You have a supersonic vision which i hope could trascend to all levels of team members. After listening to the call and going through the revised structure of compensation yesterday, the first thought that came to mind was "this is definately anti Wall Street", and another team member who came from Georgia agreed with me but also added, "John thinks outside the box", because thats untypical of CEOs. True to my words, Wall-Street like the 'cooked books'from Enron and not the transparent Mackey's who gives the true transparent perspective of the changing trend in his company and sticks to the truth - the stock performance today is the reward transparent CEOs get from the markets.I again, commend you for focusing more attention on long term investors and not speculators as you said on the third quarter call. Though "Hope" is not a management tool, I truly hope all team members will rise up to the challenge, think outside the box and realize the competitive nature of the organic food sector especially in the next two years because thats when most retailers are rolling out their offerings in this niche. Comfort days are over team, lets push for more upscale and legardary customer service,clean shopping spaces and that smile will go a long way.We can not afford to loose any customer right now, lets get it right so that we can retain our competitive position in the market. My small region is under the leadership of very strong leaders and the growth is on time to face any competitive threats as we react torwards changing market trends. Keep it up with that good course and we support you.
11/03/2006 5:31:40 PM CST
CKM says ...
ED and Madaleine, Not taking the questions away from John, i thought i should throw in my two cents because am a Whole Foods Market addict.This is just a one day performance of the stock; the stock like any product on the market reacts to news good or bad and it will be very unfair to judge the long term performance of the stock based on one day trading. Speculators unlike real investors react to such news.We need long term investors for the stock to be very stable. On the contrary to your views, i heard a lot of team members vying to buy more stocks; i also urge you to buy some tomorrow at that price because thats a good bargain to buy a strong performing stock, its like buying it at a split price. The team members where i work have every confidence in the stock and thats what makes the company strong because it has a strong base who believe in the good ways the company has ventured into and continues to pursue.I strongly feel retention has nothing to do with the performance of the stock; time has come in any given work place where money is slowing loosing its meaning but company values are taking over the place of money. Speaking for myself, i can get a far better paying job anywhere anyday, but the question is: Will i find happiness and acceptabilty there? Its a million answer question. Whole Foods has an interesting culture and admittedly,its the only company i have worked for where i do not like to take a day off. Work at Whole Foods is addictive and a pleasure to work, its a very energizing and smile filled environment and i always look forward to going to work. The stock will stabilize and sooner than later it will be shooting upwards, and that starts with you, have the confidence and trust in our company, you could have been worried had it been McDonalds, organic food is here to stay. Every company can have an organic product on the shelf but its how organic that item is? Thats the distinction between Whole foods and the competition.Market entry is very easy but its market sustainability that is very difficult. John's salary cut is a real motivation and morale boaster for every team member and is a good role model to look up to.Making such disclosures comes with integrity just like the integrity in the food we sell and that will keep us on the market.
11/03/2006 7:21:44 PM CST
TM says ...
Do you have a company car and/or jet?
11/03/2006 9:29:17 PM CST
Elizabeth says ...
Dear John, Could your stores afford to close on Sundays? Maybe Sundays are too traditional, how about Thursdays? Here's my feedback: If the execs who use their brains (and I did not "quote" that, I do believe brains are key players) need extra dough to keep them competitive, your team members will need something other than fantastic benefits to keep us competitive (because we already have them) and morale might be an issue in the near future. How about one designated, consistent day off for the whole store each week? All over the world, Whole Foods team members could have Thursdays off, something consistent, just for them. That sure would be challenging to coordinate, but I'm sure the competitively-paid team leaders could figure it out. Team members would still have an additional day off during the week, but the whole store would be closed for business, resting peacefully, secure in itself and eager to support and manifest Whole Foods' values and profits the next day. I believe when you get right down to it, there really are people who enjoy working in service positions and you can throw money at them all day long, but if you drain them of their energy or humanity, no amount of financial benefits is going to matter. (May I suggest that the "Hit the Ground Running" "training" method be composted? Immediately.) Give them space in the week to not even go into the store - and that includes the team members in our 365 production sites and at the wheels of the freighters - and the STL's! Incredible equality, confidence in the abundance. Rest. I'm sure you hire the most remarkable people you can, and it's neat to imagine that they take the values and skills they acquire in Whole Foods' culture out into the world, but I'm tempted to believe it's been the grass and the roots that have made the field so enticing. In the spirit of Whole Foods' committment to community and the well being of its team members, let us all take a day off on the same day. Stand out in the crowd by giving us not only these incredible benefits, but give us time, too. It's just an idea. It's also a pleasure to work for you. With profound respect, Elizabeth CS Team Member, MLW
11/03/2006 11:21:38 PM CST
Alex says ...
You mention donating some of your stock options to the Animal Compassion Foundation. What has become of your plans to ensure that a larger proportion of your meat and poultry sales come from compassionate production systems? A couple of years ago you made a big fuss about how WFM was going to be a leader in this area, but nothing seems to be happening.
11/04/2006 7:34:46 PM CST
Ed says ...
Hey CKM, I agree and thanks for a well through out response. It’s team members like you that make this company such a success. I am also happy to hear about team members keeping the faith and vying to buy more stock—it truly is an interesting culture and it’s the company values along with that culture that make me want to do my part every day as a team member. From a psychological perspective though, I did notice a certain “buzz” amongst team members when the company overall was doing well (simply from a Wall Street perspective) versus the past couple of months. We have been hit particularly hard by competition and that probably compounds the issue, and I know people should not react one way or another to short-term fluctuations in stock price if they truly believe in the company’s mission and leadership, but I feel the psychological impact is there—even if for only a short time and at a time when the company really needs the entire team to step up and differentiate themselves from the competition. As stated previously, I am a part-time team member and also work in higher education (Financial Aid), a career that I find incredibly rewarding on a personal level, but certainly isn’t one of the higher paying careers for someone with my background. Unfortunately, not everyone is simply motivated by personal reward or belief in company values (hence the need for John to become increasingly competitive in the marketplace with his leadership team). I guess that is what I was driving at in my question to John. Money does motivate—and having less of it—even on paper can impact a person (mood, whatever), and at a time when every team member really needs to step it up. An example I can think of without droning on…my wife is an OB/GYN Nurse Practitioner for a local practice. She has several drug reps who work for Merck. The stock plummeted during the Vioxx scare, and she would come home telling me stories of the reps coming in dejected and completely unfocused on what they were supposed to be doing. Some worried about their jobs, others worried about their kids college funds, their retirement funds etc. I don’t invest in Merck, but I’m pretty sure it has come back substantially from its fall. I understand comparing Whole Foods to Merck is like comparing organic apples to their chemically soaked counterparts, but I do wonder about the impact on the team, even if only short-term. We could always end this Wall Street Ponzi scheme once and for all by taking the company private☺☺. This a solid company with a formidable mission. 25% swings in its stock price (either way) over a short period of time is a worthless distraction from the true value of WFM. Ed
11/05/2006 6:21:22 AM CST
CKM says ...
TM, I do not need to have a company car or jet to believe in ethics and equity of the markets neither do you need to eat organic nor conventional food to go to heaven. Am calling a spade a spade and i have the academic faculties to back that up. Am just a simple team member who beleives in the noble cause and today i got on a public transport bus to go to work because i enjoy my work. Watch the NASA scientists in space (ISS) to see the real meaning of passion in ones work - they put risk and money aside to forge for a common goal.
11/05/2006 7:33:27 AM CST
Mikeal Palulis says ...
Like my last post, this comments on communication from the top down. John, you say this letter was distributed to ALL team members on Nov. 2. I heard about it second hand, from a Team leader of an ajoining department. It wasn't posted, or announced. Just letting you know... My appreciation goes to you for your salary cut and planned philanthropy. One thought about the reasons for the raised salary caps - Are these the same execs who fail to listen to team members? The same that are disconnected from the day to day realities of working in the stores? The same people who insist on marketing decisions that even our customers don't understand (The new value line of chicken) and see holes in (Hey, Joe...)? Perhaps it would be better to let some of them go. An idea for helping upper level folks reconnect with the stakeholders in WFM: Once a month, have them work a regular shift in a store on the team they oversee from a distance. Once again, I have been with Whole Foods for 9 years, and don't have any intentions of leaving anytime soon. Just throwing a few thoughts out there for you to see. Thanks for having this venue to share them. Mikeal (from Prospect St.)
11/06/2006 9:36:09 AM CST
April says ...
Hey There! I'm excited to be a shareholder of Whole Foods! After the drop last week, I added it to my portfolio. It's inspiring to be a shareholder in a company that does things just a little (or a lot) differently. Very impressive!!!
11/06/2006 4:15:27 PM CST
Sheryl says ...
Hello sir. I heard about the announcement you made concerning your salary. I also heard that the funds would be donated to an emergency fund. Imagine my dismay. I think you are probably so distanced financially from your employees that you do not see the negative impact this kind of action has on a struggling worker. Here is their life in round figures. Their $11.00 per hour nets them about $700 every two weeks. Most aren't getting forty work hours each week. Rent in San Ramon for a one bedroom apartment is $950 per month. A car to get them there (assuming it is paid off) requires no less that $40 per month. Insurance on that car is at least $60 per month. Utilities and phone total another $100. They can't have a television because their dental plan costs $40 each month and they are still paying off the $2,000 root canal they had three months ago. Forget the internet, they will remain uneducated as long as they are employed due to lack of funds for education. And finally, I don't know about you, but I'm guessing they're hungry. Even with a whole foods discount, I'm not seeing any money left for food.
11/06/2006 11:28:18 PM CST
mike says ...
I though you weren't giving guidance anymore after Q2...but this has proven false. You said you wouldn't cause people buy short-term and there is over-emphasis on earnings. However, by flipping back and forth on your own policy of no guidance then issuing guidance, respect and trust are lost. A 100M share buyback (announced today) is a good start, but remember: You are a public company and shareholders come first. I have heard in the past saying that customers are first, then team members, then shareholders. I am not greedy, or a heartless person. I believe in people before profit, but this company's investor relations is a joke. Its the reason that there was so much volatility in the past 6 mos in the stock, and the result is ruining people's lives (savings, IRA, etc) Maybe the earlier posted should not have invested 1/3 of their savings into WFMI (bad diversification and weight distributon) but please take the steps to improve your IR.
11/07/2006 6:34:41 PM CST
Dominic says ...
Hi John, I totally agree with you, raising the salary cap is is a great retention measure As you say, there is an explosion in interest from the supermarket competitors in virtually everything Whole Foods is doing. But Whole Foods has to focus on its strengh in order to beat the competitors. The following is a comments that I found on the net about Whole Foods' moat: discerning shoppers who live in Manhattan and shop at the Whole Foods at Columbus Circle -- still find that the cheese selection is far better elsewhere and that the bakery at Whole Foods is not at all up to par with some of the city's better bakeries. Here in Denver, my own experience with the prepared foods at the Whole Foods in our neighborhood has been hit-or-miss, and the price premium on some items that are available at traditional groceries is 50% or more, driving us to make a special trip elsewhere for something that we would otherwise have simply dropped into our cart at Whole Foods. Whole Foods is different and better, keep up the good work. We look forward to have a Whole Foods in our area. Dominic Val-des-Monts (Québec) Canada
11/09/2006 7:48:04 PM CST
Joyce P. says ...
I stumbled on this blog, since I just was a guest lecturer at a local college on leadership. I searched under Whole Foods CEO, because of the experiences that our local WF (Pgh) provides. It is extremely impressive the diversity of the staff and their ability to give each customer a feeling of welcome. The store down the street is now advertising organics, but it is the EXPERIENCE that matters to me. As a professional, it is great to go to a store and feel welcome - not that I"m bothering the staff! It seems that at this store in Pittsburgh, they "get it" - that the customer is their sole responsibility! A Trader Joe just opened and went there since they advertise the same products, less pricey. It was a dreadful experience. I'll happily pay more to go to store where the clerks, stock people, etc are kind, sweet and wonderful. ESPECIALLY the fresh fish stand. There is NOTHING like it. I'm spoiled by them! They know the product and they are wonderful. There was one crabby guy there once (no pun intended!) and I was disturbed by this. Very soon, he was not there. So it seemed his awful attitude was noted and dealt with. I'm in healthcare and committed to giving a positive experience to EVERY patient that walks thru our doors. We have a ZERO tolerance on negative, nasty workers. Let them work for the competition!! I don't know enough about you, Mr. Mackey, but I hope you are a Level 5 leader!
11/16/2006 9:00:44 AM CST

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