Chipotle 2013 Annual Report Download - page 105

Section 409A
Section 409A of the Internal Revenue Code provides additional tax rules governing non-qualified deferred
compensation. Generally, Section 409A will not apply to awards granted under the 2011 Stock Incentive Plan,
but may apply in some cases to restricted stock unit, performance shares, deferred share units, phantom stock or
share-denominated performance units. For such awards subject to Section 409A, certain officers of the company
may experience a delay of up to six months in the settlement of the awards in shares of company stock.
Withholding
The 2011 Stock Incentive Plan permits us to withhold from awards an amount sufficient to cover any
required withholding taxes. In lieu of cash, the committee may permit a participant to cover withholding
obligations through a reduction in the number of shares to be delivered to such participant or by delivery of
shares already owned by the participant.
Section 162(m)
As described above, equity awards granted under the 2011 Stock Incentive Plan may be structured to qualify
as performance-based compensation under Section 162(m) of the tax code. To qualify, the 2011 Stock Incentive
Plan must satisfy the conditions set forth in Section 162(m) of the Internal Revenue Code, and stock options and
other awards must be granted under the 2011 Stock Incentive Plan by a committee consisting solely of two or
more outside directors (as defined under Section 162(m) regulations) and must satisfy the plan’s limit on the total
number of shares that may be awarded to any one participant during any calendar year. For awards other than
stock options and stock appreciation rights to qualify, the grant, issuance, vesting, or retention of the award must
be contingent upon satisfying one or more of the performance criteria set forth in the 2011 Stock Incentive Plan,
as established and certified by a committee consisting solely of two or more outside directors. The rules and
regulations promulgated under Section 162(m) are complicated and subject to change from time to time, and may
apply with retroactive effect. In addition, a number of requirements must be met in order for particular
compensation to so qualify. As such, there can be no assurance that any compensation awarded or paid under the
2011 Stock Incentive Plan will be deductible under all circumstances.
Key Metrics Related to the 2011 Stock Incentive Plan
The following table sets forth the overhang, burn rate and dilution metrics for 2011-2013 under the 2011
Stock Incentive Plan:
2013
(%)
2012
(%)
2011
(%)
Average
(%)
Current Dilution .............................. 5.67% 5.05% 5.42% 5.38%
Burn Rate ................................... 2.38% 1.99% 1.90% 2.09%
Total Potential Overhang ....................... 12.16% 13.92% 16.16% 14.08%
“Current Dilution” is the number of shares subject to equity awards outstanding but not exercised, divided
by the total number of common shares outstanding as of December 31st of the applicable year.
The “Burn Rate” measures how quickly we use shares and is calculated by dividing the number of equity
awards granted during any particular period by the number of outstanding shares of common stock as of
December 31st of the applicable year. A higher burn rate indicates an increased number of equity awards being
granted to employees and/or directors. The burn rate is usually compared to industry data, particularly date
furnished by various shareholder services groups.
“Total Potential Overhang” is the number of shares subject to equity awards outstanding but not exercised,
plus the number of shares available to be granted, divided by the total number of common shares outstanding as
of December 31st of the applicable year.
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Proxy Statement