Chipotle 2012 Annual Report Download - page 106

Annual Incentives
We have designed, and the Compensation Committee oversees, an annual performance-based cash bonus
program for all of our full-time regional and corporate employees, including our executive officers. We call this
program our “Annual Incentive Plan,” or “AIP.” Bonuses under the AIP are based on the achievement of pre-
established performance measures that the committee determines to be important to the success of our operations
and financial performance, and therefore to the creation of shareholder value.
Early in each year, we set a target AIP bonus for each eligible employee, including approval by the
committee of the target bonus for each executive officer. Consistent with our overall compensation policies and
philosophy, target AIP bonuses as a percent of each executive officer’s base salary are set in a range around the
50th percentile of the market. Individual targeted amounts can also be increased or decreased based on subjective
individual considerations such as level of responsibility, experience and internal equity issues.
Following completion of our year-end financial statements and each executive officer’s annual performance
evaluation, actual bonuses are determined by applying to each executive officer’s target bonus a formula that
increases or decreases the payout amount based on performance against the AIP measures approved by the
committee.
The committee may in some years also approve discretionary bonuses to reward particularly strong
individual achievement or overall performance. In some years this is accomplished via a discretionary adjustment
to the AIP terms at the time final payouts are determined, and in some years discretionary bonuses are
determined outside the parameters of the AIP.
See “—Discussion of Executive Officer Compensation Decisions—Annual Incentives—2012 AIP Payouts”
below for a discussion of AIP bonuses for 2012.
Long-Term Incentives
We use long-term incentives as determined by the committee to be appropriate to motivate and reward our
executive officers for superior levels of performance, to align the interests of the executive officers with those of
the shareholders through the delivery of equity, and to add a retention element to the executive officers’
compensation. Eligibility for long-term incentives is generally limited to individuals who can have a substantial
impact on our long-term success, as well as high potential individuals who may be moving into roles that may
have a substantial impact in the future.
Long-term incentive awards are made under our 2011 Stock Incentive Plan, under which we are authorized
to issue stock options, restricted stock or other equity-based awards denominated in shares of our common stock.
The plans are administered by the Compensation Committee, and the committee makes grants directly to our
executive officers, and is authorized to delegate the authority to make awards to employees other than the
executive officers. The committee also sets the standard terms for awards under the plans each year.
The long-term incentive awards made in 2012 are described below under “—Discussion of Executive
Officer Compensation Decisions—Stock Appreciation Rights Granted during 2012” and “—Performance Shares
Granted during 2010.”
One portion of our long-term incentive awards consists of stock-only stock appreciation rights, or SOSARs.
We believe SOSARs align the economic interests of our employees, including our executive officers, with those
of our shareholders by reserving a portion of shareholder value creation for our employees. SOSARs also closely
tie compensation to corporate performance because these awards do not offer value unless our stock price
increases. We also believe that the terms the committee has set for our SOSARs strike an appropriate balance
between rewarding our employees for building shareholder value and limiting the dilutive effect to our
shareholders of our equity compensation programs. SOSARs require the issuance of fewer shares in respect of
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