Papa John takes a pay cut, and shares it with his staff

April 8, 2004

How's this for some unusual news? A CEO of a publicly held company that didn't perform well in 2003 responded by cutting his base pay by $200,000 and dividing it among some of the company's officers and select store-level managers.

In the words of humorist Dave Barry, "I'm not making this up."

That CEO is John Schnatter, founder of Louisville, Ky.-based pizza chain Papa John's. According to a filing with the Securities and Exchange Commission, Schnatter took home about $1 million in 2002, but a bit less than $650,000 last year. The pay decrease also includes Schnatter's refusal of stock options.

Granted, the vast majority of folks in the pizza industry can only dream of making just the $200,000

Steve Coomes, Senior Editor

he gave up, and Schnatter agreed that few will be inspired by a multimillionaire slimming down his six-figure salary.

"Yeah, it's hard to feel sorry for a guy who's got his own jet, so I see their point," Schnatter said with a laugh.

But in an era of corporate greed, unmerited salaries and shameless golden parachutes, Schnatter's move is noteworthy and laudable.

And he's not done yet. He promises to give more of his salary away when Papa John's posts positive numbers (which it barely did this past quarter. See "March sales drop 3.7% at U.S. Papa John's, Q1 '04 comes in flat.")

"Every quarter (for the next 12) that we run positive comps and beat budget, I'm taking $50,000 of my salary and spreading it out among the team," Schnatter told me recently. "I could care less about the salary. ... I'd like to see it go down to zero (that way)."

Why the sudden generosity from a leader well known for publicly upbraiding his troops?

Because, Schnatter said, it was time to walk the talk and set an example different from the "I know the stock's tanking, but I've got mine" examples set by too many CEOs.

The past few years have been tough ones for Papa John's, once a high-flying, fast-growing Wall Street darling. The work required to break its long string of negative comp sales has taken a renewed, company-wide commitment to product quality and service, Schnatter said, and some fiscal incentive was appropriate.

"I felt if I was going to ask them to march to that drummer, then I had to sacrifice a little on my side, too," Schnatter said. "If I ask everyone to take a long-term approach to this business, I've got to do the same thing."

Having come from average means to achieve wealth beyond his wildest dreams, Schnatter, 41, hasn't forgotten what it's like to resent the boss who makes a lot but shares little. Risking such antipathy, he said, was not an option if Papa John's is to recover from its current slump.

"If the guy at the top is making all the money, but the rest aren't making money, it's only a matter of time before they play 'Let's Get Even,'" he said. "For people to turn this thing around and work as hard as they've worked, and for me to not feel a little bit of pain along with them is not fair."

Wizened with age

So are the folks at Papa John's seeing a new John Schnatter, a kinder, gentler CEO who leads more often with a stick and (financial) carrot than criticism? Not exactly, he said.

He's as driven as ever to succeed and categorized his tough talk of the past few years as "grabbing the bull by the horns ... an intentional wake-up call saying, 'We've got to fix this.'"

What is different, he said, is that he's becoming wiser as he approaches middle age. Schnatter has never made a secret of his struggle to start and grow a company and turn it over to others progressively. But he said he's doing more of that by seeking increased input from others.

"As Clint Eastwood said in 'High Plains Drifter,' 'A man's got to know his limitations,'" Schnatter joked, and confronting those, he said, means listening more to others—experienced franchisees, company officers, board members—than he used to.

While that's all well and good, the question remains: Do those generals and lieutenants have the right answers to fix Papa John's problems? Schnatter believes they do, and he's betting his salary on them. Money no longer is his motivator, but if it works to inspire others, then he'll use it.

"I live for watching people when the chips are down, when they pull themselves up by their bootstraps and turn themselves into winners," Schnatter said. "As a leader, I want them to have a taste of success. And if it costs me dollars up front, I don't care."

Care to comment on this commentary? E-mail Steve Coomes at

Topics: Commentary , Papa John's

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