This post is part of the On the Margin blog.
Sardar Biglari’s total pay package as CEO of Biglari Holdings, the parent company of Steak ‘n Shake, is technically just $900,000. That’s relatively low. It’s also not his entire pay package.
Biglari Holdings also paid $31.6 million in incentives to Biglari Capital, an investment fund in which Biglari is the sole owner. Biglari Capital makes investments for Biglari Holdings, which then pays Biglari Capital an incentive based on the value of those investments — similar to what a private-equity firm would earn from its investors.
Combined, the total package in incentives and salary for Biglari is $32.5 million, according to SEC documents. That’s more than the CEOs of McDonald’s Corp. and Chipotle Mexican Grill Inc. earned last year. Combined.
Biglari Capital has two primary investments: Cracker Barrel Old Country Store Inc., and Biglari Holdings. According to SEC filings, the investment firm has $1.3 billion worth of investments, with $1.2 billion coming from its investments in those two companies alone.
And those investments have done well. Last year, for instance, Biglari’s stock in Cracker Barrel increased 32 percent — or about $190 million, according to SEC filings.
Biglari first invested in Cracker Barrel in 2011. He has since made three runs at seats on the company’s board of directors, having been rejected by that company’s shareholders each time. Shareholders also rejected a 2014 proposal that Cracker Barrel pay a one time, 20 percent dividend.
Nevertheless, Biglari’s initial investment has proven to be a smart one: He has bought 4.7 million shares in Cracker Barrel over the years, for a total of $250 million. Those shares are now worth more than $742 million, not including dividends paid over the years.
The rest of the increase in Biglari Capital’s investments in 2016 came from the performance of Biglari Holdings itself.
The company’s stock price increased 45 percent in 2016. Biglari Capital has been buying up shares in Biglari Holdings — including a 2015 tender offer for Biglari Holdings shares that handed Sardar Biglari controlling interest in the company. Biglari himself now controls 51 percent of Biglari Holdings shares.
Biglari Capital’s investments outside of Cracker Barrel and Biglari Holdings declined in value in 2016, according to SEC filings.
To Biglari, the pay package is better than what most investment managers would offer. In his 2015 letter to shareholders, Biglari wrote that most investment managers are paid based on assets under management — whereas he gets paid an incentive only if the investments make money.
“A typical manager’s incentive is to earn a return on his capital, rather than a return on his investors’ capital,” he wrote.
Still, the pay package has been a controversial topic over the years. Biglari has wanted to be paid like a private-equity manager, rather than a typical CEO, since he took control of Steak ‘n Shake in 2008 after winning a proxy fight against the company that year.
Biglari merged Steak ‘n Shake with another restaurant chain, Western Sizzlin’, and changed its name to Biglari Holdings. He also sold Biglari Capital to Biglari Holdings for $4.2 million.
In 2010, Biglari proposed a payment incentive that would pay him like a private-equity manager: an incentive equal to 25 percent of the increase in his company’s book value, over a 6 percent “hurdle.” So his investments would have to increase in value by more than 6 percent for him to earn an incentive.
Shareholders revolted. A cap was placed on his potential pay package. Then, in 2013, Biglari bought back Biglari Capital, for $1.7 million. Many of Biglari Holdings’ investments were then transferred to Biglari Capital. And Biglari Holdings agreed to pay Biglari Capital the incentive fee that shareholders rejected in 2010, but without any such cap.
Biglari could find some difficulty earning that much this year, however. The stock prices for both Biglari Holdings and Cracker Barrel are down so far in 2017.
Jonathan Maze, Nation’s Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company.
Contact Jonathan Maze at [email protected]
Follow him on Twitter at @jonathanmaze