Hershey's New Leadership: Can Performance Equity and Experience Overcome Cocoa's Costs?

The Hershey Company's appointment of Kirk Tanner as its new CEO has sparked both optimism and scrutiny among investors. The compensation package, detailed in a recent SEC filing, highlights a balance between aligning leadership incentives with shareholder value and mitigating dilution risks. Yet, the broader question remains: Can Tanner's experience in consumer goods and snacks leadership navigate the sector's persistent challenges—such as rising cocoa costs, trade tariffs, and shifting consumer preferences—to sustain Hershey's growth trajectory?

Compensation Structure: Performance Equity as a Double-Edged Sword

Tanner's compensation package—$1.25 million base salary, 180% cash bonus target, and $11 million in sign-on equity (split between restricted stock units and performance-based stock units)—reflects a deliberate focus on long-term performance. The PSUs, which constitute 27% of his sign-on equity, are tied to a three-year performance period, incentivizing him to prioritize margin expansion and top-line growth. This structure aligns with industry norms for large-cap consumer staples firms, where performance-linked equity often makes up 20-30% of total compensation.

However, the equity-heavy deal raises dilution concerns. At a company with a $30 billion market cap and a 0.6% average annual share count growth over the past decade, the $11 million upfront grant—equivalent to ~0.04% of market cap—poses minimal immediate dilution. Yet, ongoing annual equity grants of $9 million could compound over time. Investors should monitor whether the PSU performance metrics (likely tied to EBITDA growth or market share gains) are sufficiently ambitious to justify the equity outlay.

Leadership Continuity: A Smooth Transition, But Risks Remain

Michele Buck's phased exit—remaining as Special Advisor until mid-2026—reduces abrupt leadership gaps, a critical factor for a company reliant on stable supply chains and brand management. Buck's tenure saw Hershey expand into snacks and plant-based products, but her departure leaves unanswered questions about the execution of her growth roadmap. Tanner's deep experience in global operations (from PepsiCo's $28 billion beverage division to Wendy's turnaround) positions him to address these challenges, particularly in optimizing costs and diversifying beyond chocolate.

A potential risk lies in the transition at Wendy's, where Tanner's abrupt exit may disrupt its global expansion plans. However, this is a secondary concern for Hershey shareholders, as his 30-year CPG background and M&A expertise (e.g., Wendy's acquisition of Arby's in 2022) are seen as a net positive.

Sector-Specific Challenges: Cocoa Costs and Margin Pressures

Hershey's core challenge remains the volatility of its key input: cocoa prices. Cocoa futures have surged 50% since early 2024 due to West African supply disruptions, while U.S. tariffs on imported chocolate products persist. These pressures have already dented margins; Hershey's EBITDA margin dropped to 22.5% in 2024 from 25.1% in 2020.

Tanner's track record at PepsiCo and Wendy's suggests he may lean into pricing power and portfolio diversification. At Wendy's, he raised menu prices 6-8% annually to offset input costs while expanding into healthier snacks—a strategy that could be replicated at Hershey. His focus on “iconic brands” aligns with Hershey's need to protect its $11 billion chocolate business while growing its plant-based and premium segments (e.g., SkinnyPop).

Governance: Flexibility vs. Shareholder Protections

The employment agreement includes standard protections: a 1.5× severance package, non-compete clauses, and clawback provisions. Notably absent are golden parachute triggers exceeding 2.99× salary, which could signal restraint compared to peers. The change-in-control benefits, while typical, warrant scrutiny as Hershey's stagnant stock price (down 12% YTD) may increase takeover speculation.

Investment Thesis: Hold for the Long Game

While Tanner's expertise addresses structural growth opportunities, near-term EBITDA trends remain cloudy. Cocoa prices are unlikely to stabilize soon, and tariff risks persist. The recommendation to Hold reflects this uncertainty, but the strategic merit of his appointment is clear. His ability to navigate supply chains, manage pricing, and drive innovation could position Hershey to outperform in 2026 and beyond.

For investors, this is a “wait-and-see” call: monitor margin recovery in 2025 earnings releases and track Hershey's moves in premium snacks and international markets. If EBITDA rebounds to pre-2024 levels, a Buy could follow. Until then, patience—and a focus on long-term value—prevails.