2018 was a record year of revenues and profitability for Aramark. Still, thousands of managers at the Philadelphia company did not get their performance-linked bonuses.
That’s because the food-and uniform-services giant did not meet the profit target set by the board of directors, a top company official told the Inquirer on Tuesday — news to the managers, some of whom said they met their individual performance goals.
Were the frontline managers told at the beginning of 2018 that company-wide profits would be a factor in their performance bonuses that could constitute up to 20 percent or more of their annual compensation?
“I don’t think so. .... They know, they can see in the plan, that the company has discretion," Aramark chief financial officer Stephen P. Bramlage said. Managers were told about the change of plans Feb. 1, more than a month after they would have typically been paid bonuses for the financial year that ended Sept. 30.
Bramlage and other top executives, including CEO Eric Foss, still got annual incentive payouts, despite the profit shortfall relative to the board’s target, because the company met precisely the “minimum threshold” for executive bonus payouts.
Moving the goalpost
What Aramark did is not unusual, according to employment lawyers.
“Companies move the goalpost all the time,” said Harold M. Goldner, an employment lawyer at Kraut Harris P.C. in Blue Bell whose clients include both employers and employees.
That doesn’t mean slashing the bonuses and telling employees about it after the fact is a good human resources practice, Goldner and others said this week.
Employers typically change the rules going for the future, not retroactively.
“They are thinking about morale, they are thinking about the effect on productivity in the future. You always want to think about the attrition rate. Retention is an important factor, especially in this economy where obtaining talent can be difficult,” said Susan L. Swatski, a lawyer in the Princeton office of Hill Wallack LLP.
The damage to morale was evident in recent emails to the Inquirer from at least three dozen Aramark employees, many of whom expressed outrage about how they were treated by Foss, who replaced longtime CEO leader Joseph Neubauer in 2012. The CEO was paid $16 million in 2018, including $2.6 million in incentive bonus.
For a long time, employees said, annual bonuses had been treated more or less like deferred compensation. They might have been higher or lower, depending on the year, but they were a regular financial windfall for Aramark managers in early December.
That doesn’t mean the company hasn’t exercised discretion before, both positively and negatively, said Lynn McKee, Aramark’s executive vice president of human resources, who has been with the company since 1980.
“There have been times when people haven’t really achieved their goals, and depending on circumstances, we have used positive discretion to award them some sort of bonus even though they hadn’t achieve the targets that we set up for them," she said.
But last year, instead of sending out a notice of bonus awards, Aramark notified managers on Dec. 3 that bonuses would be paid in February. The company already knew then that thousands of people expecting a bonus wouldn’t get one, Bramlage said. He and McKee said they didn’t know exactly how many people were affected.
Aramark employs about 170,000 people in the United States, including 14,000 in Pennsylvania and nearly 6,500 in the Philadelphia region.
The good and the bad
While knowing that the lack of bonuses for thousands was not going to go over well, Aramark was trying to figure out how it would spend $90 million of the $100 million in surplus cash it had received from the federal government thanks to the 2017 Tax Cuts and Jobs Act to benefit employees, Bramlage said.
Management delayed the bonus announcement because it wanted to "combine the good and the bad,” he said.
The good news, disclosed to employees Feb. 1 — the same day many were told the bad, namely that they wouldn’t get a 2018 bonus — was onetime payments ranging from $5,500 to $27,500 for different management tiers. Those were paid out last Friday, a week earlier than initially announced.
Bramlage wouldn’t say how much Aramark spent on those payments in total.
But the payments — which under most circumstances would have been seen as a boon — did little to assuage some managers who said their bonuses would have been higher.
“It’s definitely not enough to keep everyone happy,” said one manager, who said he missed out on $13,000. All the managers who contacted the Inquirer shared their views on condition of anonymity to protect their jobs.
Bramlage acknowledged that Aramark could have done a better job getting the word out about what it was doing.
“I do believe the company could have been more effective communicating earlier,” said Bramlage, who received $546,900 in annual incentive payments for 2018. “OK, what is in it for me as an individual employee? I think that is a fair critique for someone to have.”
Why top execs got bonuses
Bramlage and other executives got their bonuses because Aramark’s adjusted operating income landed precisely on the minimum target — $974.5 million — for top executives to receive a bonus. That figure, which excludes the gains from companywide lower incentive pay and other factors, was 95 percent of the company’s $1.03 billion target.
In fiscal 2017, Aramark had come within 98.6 percent of its target.
“Because the distance from target was greater, at the end of 2018 a smaller bonus pool in terms of dollars was created,” Bramlage said.
In presenting results to Wall Street, Foss and Bramlage emphasized that Aramark had met a three-year profitability target (barely) and set records for margins, and earnings per share.
“There is no doubt that 2018 for the company was a record year,” Bramlage said. “But the company creates and earns a bonus pool of dollars based on our performance versus a set of predefined targets. It doesn’t create a bonus pool based on an absolute performance number that’s good or bad.”