Chipotle 2009 Annual Report Download - page 94

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Tax and Other Regulatory Considerations
Code Section 162(m)
Section 162(m) of the Internal Revenue Code provides that compensation of more than $1,000,000 paid to
the chief executive officer or to certain other executive officers of a public company will not be deductible for
federal income tax purposes unless amounts above $1,000,000 qualify for one of several exceptions. The
committee typically attempts to structure the compensation of our executive officers such that compensation paid
will be tax deductible to us. The deductibility of some types of compensation payments, however, can depend
upon interpretations of and changes in applicable tax laws and regulations, as well as other factors beyond our
control. In addition, the committee’s primary objective in designing executive compensation programs is to
support and encourage the achievement of our company’s strategic goals and to enhance long-term shareholder
value. For these and other reasons, the committee has determined that it will not necessarily seek to limit
executive compensation to the amount that will be fully deductible under Section 162(m).
We have implemented a 2006 Cash Incentive Plan as an umbrella plan under which the AIP bonuses are
paid in order to ensure that we can deduct the amount of the payouts from our reported income under
Section 162(m). Under the 2006 Cash Incentive Plan, the committee sets maximum bonuses for each executive
officer and other key employees. If the bonus amount determined under the AIP for participants in the 2006 Cash
Incentive Plan is lower than the maximum bonus set under the 2006 Cash Incentive Plan, the committee has
historically exercised discretion to pay the lower AIP bonus rather than the maximum bonus payable under the
2006 Cash Incentive Plan.
Code Section 409A
Section 409A of the U.S. tax code generally changes the tax rules that affect most forms of deferred
compensation that were not earned and vested prior to 2005. The committee takes Section 409A into account in
determining the form and timing of compensation paid to our executive officers.
Accounting Rules
Various rules under generally accepted accounting principles determine the manner in which we account for
equity-based compensation in our financial statements. The committee may consider the accounting treatment
under Financial Accounting Standards Board Accounting Standards Codification Topic 718 (FASB Topic 718)
of alternative grant proposals when determining the form and timing of equity compensation grants to our
executive officers. The accounting treatment of such grants, however, is not generally determinative of the type,
timing, or amount of any particular grant of equity-based compensation the committee determines to make.
COMPENSATION COMMITTEE REPORT
The Compensation Committee reviewed and discussed the Compensation Discussion and Analysis included
in this Proxy Statement with management. Based on such review and discussion, the Compensation Committee
recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy
Statement for filing with the SEC.
The Compensation Committee.
Darlene J. Friedman, Chairperson
Patrick J. Flynn
30
Proxy Statement