Chipotle 2012 Annual Report Download - page 110

For 2012, as with past years, the four measures the committee selected to be used in determining the
company and team performance factors were income from operations (prior to accrual for AIP payouts), new
restaurant average daily sales, comparable restaurant sales increases, and new restaurant weeks of operation.
Targeted performance for each measure (which would result in no adjustment to the company performance
factor) was set at $456.0 million for operating income, $4,350 for new restaurant average daily sales, comparable
restaurant sales increases of eight percent, and 4,080 new weeks of operation. Consistent with our pay-for-
performance philosophy these targets represented stretch goals, the achievement of which would have generally
resulted in our financial results exceeding the base-level forecast results in our 2012 operating plan and equaling
or exceeding the full-year 2012 guidance we publicly issued to investors. Performance on operating income was
weighted most heavily in the computation of the company performance factor, because we believe profitability is
the most important measure of our success and driver of shareholder value.
In order to provide a strong incentive towards superior performance, the adjustment scales for the company
performance factor were set such that overachievement against each goal would have resulted in upward
adjustments at a higher rate than the rate at which equivalent levels of underachievement would have resulted in
downward adjustments.
The targeted performance and adjustments for each of these measures on a regional level, other than new
restaurant weeks of operation, were used to calculate the team performance factor for corporate-level employees
as well, except that the team performance factor for development employees, including Mr. Blessing, was based
on eight company-wide measures specific to the development department. The regional performance targets and
variance adjustments were set at the regional level consistent with the scales described above for the company
performance factor. We do not disclose operating results on a region-by-region basis. The measures used for the
development department’s team performance factor were new restaurant average daily sales at a similar target
level to the target for the company performance factor, new restaurant development costs for Chipotle restaurants
in North America, which were targeted at $798,799, 184 new restaurant openings, and measures of restaurant
reinvestment costs, the number of potential restaurant sites added to our pipeline, opening of 54 A-model
restaurants, and subjectively-determined key initiatives related to the department. Disclosure of the targeted new
restaurant reinvestment and the number of restaurant sites added to our pipeline would subject us to competitive
harm. The targeted number of restaurant sites added to our pipeline represented an expansion of our real estate
pipeline to a level that would enable us to open restaurants at a higher rate than, and at a rate that we believe
would allow our profit growth to exceed the profit growth of, our competitors. It would also represent an ability
to capitalize on a relatively high percentage of the suitable restaurant sites that we believe become available in a
given year. Targeted new restaurant reinvestment costs represented a low cost of operations that would require
high quality in initial builds. As such, we believe these targets represented a challenge to our development team
members, including Mr. Blessing, and although achievable, we believe meeting the targets was substantially
uncertain at the time they were set.
The key initiatives targeted for 2012 were developing Restaurateurs, developing outstanding crew,
increasing effectiveness of field support staff, improving restaurant throughput, treasuring every customer, and
development of our future growth opportunities. The committee’s discretionary determination of our level of
achievement against these initiatives results in a specified adjustment to the company performance factor, though
the adjustment attributable to the key initiatives is set at a maximum of five percent in either direction,
considerably less than most other metrics impacting the company performance factor.
Our actual results for 2012 exceeded the targeted operating income measure by about four percent, exceeded
targeted new restaurant average daily sales by about eight percent, and exceeded targeted new weeks of operation
by about four percent. Performance on these measures offset our falling short of target comparable restaurant sale
increases by nearly one percentage point. As a result, 2012 AIP bonuses throughout the company were based on
a company performance factor of 128 percent.
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Proxy Statement