Chipotle 2012 Annual Report Download - page 100

pendency of a change in control transaction can be greatly minimized by providing incentives for officers to
remain employed through the change in control. Restricting the value realizable from equity awards, which are
one important source of such incentives, may therefore not be in the best interests of shareholders. This is
especially true for companies that, like Chipotle, do not have employment or severance agreements providing
executives with benefits in connection with a change in control.
The “double-trigger” acceleration terms of Chipotle’s SOSAR and other equity awards avoid penalizing
executives for a change in control that is in the interests of shareholders. Providing for accelerated vesting in the
event of termination following a change in control ensures that senior executives are not penalized with a loss of
equity compensation awards that could occur from consummation of the change in control transaction. Such
transactions are in many cases in the best interests of a company’s shareholders as a whole, and in the
committee’s view it would be unwise to create disincentives for the executive officer team to work towards
consummation of such a transaction. Furthermore, a change in control transaction may be outside the control of
executive officers, and in those circumstances it would be unfair for officers to lose the potential for rewards that
would otherwise be due them had the change in control not occurred or had their employment continued for a
meaningful period of time following the change in control. This is particularly true in cases such as ours, where
equity awards are made in part to reward past performance, and where the vast majority of equity compensation
is in the form of SOSARs, which are inherently performance-based. Moreover, allowing for only pro-rata
vesting up to the time of an executive’s termination may deprive the executive of the potential for rewards that
are properly attributable to the executive’s tenure, such as where implementation of a significant new strategy or
development of a new concept—which may in fact be the primary basis for the change in control transaction to
begin with—begins to pay off only after the executive’s departure.
Adoption of the policy being proposed would limit the flexibility of the committee in structuring
compensation, which may not be in the best interests of the company and its shareholders. Although the
committee may determine in particular circumstances that it would be inappropriate for an equity award to
include a provision allowing, in at least some circumstances, for the full acceleration of an equity award in the
event of termination of the recipient’s employment following a change in control, the policy proposed by the
shareholder proponent would rob the committee of its discretion to include such provisions in any awards. The
committee should not have such constraints. Depriving the committee of its discretion to structure appropriate
equity compensation terms could adversely impact the committee’s ability, for example, to make awards to top-
performing executive officers as an incentive to remain with Chipotle rather than pursuing other opportunities, or
to attract qualified candidates for open officer positions at Chipotle.
For these reasons, the Board and the Compensation Committee believe that a blanket policy restricting the
terms of our equity awards in the manner proposed by this resolution would not be in the best interests of
shareholders.
The Board of Directors recommends a vote AGAINST the shareholder proposal.
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Proxy Statement