Chipotle 2008 Annual Report Download - page 85

The base salaries set for the executive officers for 2008 are discussed below under “– Discussion of
Executive Officer Compensation Decisions—Base Salaries.”
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 fiscal year, we set a target AIP bonus for each eligible employee, including approval by the
committee of targets 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 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.
See “—Discussion of Executive Officer Compensation Decisions—Annual Incentives—2008 AIP Payouts”
below for a discussion of AIP bonuses for 2008.
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.
Long-term incentive awards are made under our Amended and Restated 2006 Stock Incentive Plan, under
which we are authorized to issue stock options, restricted stock or other equity-based awards denominated in
shares of our Class A common stock. The plan is administered by the Compensation Committee, and the
committee makes grants directly to our executive officers, and delegates to one or more executive officers the
authority to make awards to employees other than the executive officers, within limits as to award sizes and
aggregate award amounts. The committee also has discretion to set the terms of individual awards under the plan,
and has set standardized terms each year that have been incorporated into every award under the plan for that
particular year.
Prior to 2008, the majority of our long-term incentive awards were made in the form of stock option grants.
We believe options align the economic interests of our employees, including our executive officers, with those of
our shareholders, and closely tie rewards to corporate performance because options do not offer value unless our
stock price increases. We also believe that the terms the committee has set for our stock options 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. The committee did determine in February 2008
to make awards of stock-only stock appreciation rights, or “SOSARs,” rather than options, in order to further
limit dilution to our existing shareholders.
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Proxy Statement