Chipotle 2012 Annual Report Download - page 102

• Equity compensation awards, primarily in the form of annual awards of stock-only stock appreciation
rights, or SOSARs, which are inherently performance based since the grantees only realize
compensation in connection with the awards if our stock price increases over a multi-year period
following the date of the award.
We believe our executive compensation programs have contributed significantly to our significant growth
and strong business performance. The following table demonstrates our performance on key growth and
profitability measures over the past three years:
Annual Company Performance
Total
Restaurants
Increase from
Prior Year Sales
Increase from
Prior Year
Net
Income
Increase from
Prior Year
2012 ..................... 1,410 15% $2,731,224 20% $278,000 29%
2011 ..................... 1,230 13% $2,269,548 24% $214,945 20%
2010 ..................... 1,084 13% $1,835,922 21% $178,981 41%
Our performance relative to our restaurant industry peer group (the composition of which is further
described below under “Overview of Executive Compensation Decisions—Market Data”) has also generally
been strong in the areas of sales growth, net income growth, and total shareholder return. The following table
illustrates our relative performance in each of these areas as a percentile of the peer group over the one, three and
five year periods ended December 31, 2012, computed (for the periods greater than one year) based on the
compound annual growth rate of each measure.
Performance Versus Peer Group—One, Three and Five Year Periods Ended
December 31, 2012
Sales Growth Net Income Growth Total Shareholder Return
5 years ................. 97th percentile 100th percentile 73rd percentile
3 years ................. 97th percentile 84th percentile 96th percentile
1 year ................. 96th percentile 87th percentile 4th percentile
The compensation of our executive officers has been determined in light of, and has been significantly
driven by, this overall strong performance.
Although the performance of our common stock during 2012 was disappointing, it illustrated the benefits of
our long-term incentive program being heavily weighted towards the use of SOSARs. Although the awards of
SOSARs made in early 2012, as well as those made in 2010 and 2011, had a computed value for financial
statement accounting and disclosure purposes (as reflected under “Option Awards” in the Summary
Compensation Table below) that was significant in dollar terms, our executive officers only realize value from
the awards if the price of our common stock appreciates. Due to declines in the price of our common stock during
the second half of 2012, the SOSARs granted in 2012 are significantly “underwater,” with the exercise price of
the SOSARs being $371.63, as compared to our stock price of $319.42 as of March 21, 2013. The “in-the-
money” value of unexercised SOSARs granted in earlier years also declined significantly as a result of declines
in the price of our common stock during 2012. Unless our stock price appreciates to exceed the exercise price of
the 2012 SOSARs, the officers will not receive any value from the awards, notwithstanding the dollar value
reflected in the Summary Compensation Table. Likewise, increases in our stock price will increase the value of
earlier SOSAR awards and decreases in our stock price will decrease their value. This closely aligns the interests
of our executive officers and our shareholders as a whole, and therefore strongly correlates with the pay for
performance philosophy that guides our executive compensation programs.
Our officers realized significant value during 2012 by exercising SOSARs granted in 2008, 2009 and 2010,
as illustrated under “Option Awards” in the Option Exercises and Stock Vested in 2012 table below. The value
realized in connection with these exercises was attributable to substantial increases in our stock price since the
grant date of the awards. Our market capitalization was $9.2 billion as of the end of 2012, as compared to
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Proxy Statement