Chipotle 2009 Annual Report Download - page 87

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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—2009 AIP
Payouts & Discretionary Bonuses” below for a discussion of AIP and other bonuses for 2009.
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 common stock. The plan is 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
plan each year.
The long-term incentive awards made in 2009 are described below under “—Discussion of Executive
Officer Compensation Decisions—Stock Appreciation Rights Granted during 2009.”
The majority of our long-term incentive awards are made in the form of stock-only stock appreciation
rights, or “SOSARs,” or stock option grants. We believe SOSARs and 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 these awards do not offer value unless our stock price increases. We also believe that the
terms the committee has set for our SOSARs and 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’s decision in February 2008 to make awards of SOSARs rather than
options was intended to further limit dilution to our existing shareholders. SOSARs require the issuance of fewer
shares in respect of each award than do stock options, because only the shares representing the appreciation over
the base price of the SOSAR are issued upon exercise, whereas upon the exercise of a stock option all of the
shares subject to the option are issued. All options and SOSARs granted subsequent to our initial public offering,
and all options and SOSARs we grant in the future, have or will have an exercise or base price equal to no less
than the closing market price of our common stock on the date of the grant.
Also in February 2008, in order to include a longer-term performance element to the executive officers’
compensation packages, the committee determined to award a portion of each executive officer’s long-term
incentive award in the form of performance shares with a targeted three-year performance term. The committee
also authorized the cancellation of time-based restricted stock awards granted to the executive officers in 2007,
and the replacement of those awards with performance-contingent restricted stock awards in order to comply
with Section 162(m) of the tax code and related rules relating to deductibility of the compensation expense
attributable to these awards. The performance shares granted in 2008 remain unvested and outstanding, and the
performance-contingent restricted stock awards have now vested in full. See “Grants of Plan-Based Awards in
2009—Terms of 2009 Equity-Based Awards” and “Outstanding Equity Awards at December 31, 2009” below.
23
Proxy Statement