Chipotle 2012 Annual Report Download - page 112

The committee also considered that reducing the size of the SOSAR awards as compared to awards made in
previous years would effectively decrease the proportion of shareholder value creation reserved for the officers in
the 2012 awards, and therefore would represent a reduction in the compensation potential of the awards at a time
when the officers were driving superb company performance, which would not be consistent with the pay for
performance philosophy underlying the committee’s executive compensation determinations. As a result of the
committee’s analysis, it approved awards of 150,000 SOSARs to Mr. Ells and Mr. Moran, 50,000 SOSARs to
Mr. Hartung, and 16,000 SOSARs to Mr. Blessing, and Mr. Crumpacker.
As with SOSARs granted in 2011 and to include an additional performance element to the SOSARs, the
committee determined to impose performance vesting criteria on half of the SOSARs awarded to each executive
officer. Vesting for these Performance SOSARs is contingent upon our achievement of stated levels of
cumulative cash flow from operations prior to the fourth and fifth fiscal year-ends following the award date, with
vesting to occur no sooner than the second and third anniversary of the grant date (with half of each Performance
SOSAR subject to each such limit date). The committee believes that the cumulative cash flow from operations
targets add an additional performance-based element to awards that, as discussed above, are already dependent
on performance in order to return value to the recipient. This further reinforces the pay for performance
philosophy on which our compensation programs are based.
Executive Stock Ownership Guidelines
Our Board of Directors has adopted stock ownership guidelines for our executive officers. These guidelines
are intended to ensure that our executive officers retain ownership of a sufficient amount of Chipotle stock to
align their interests in a meaningful way with those of our shareholders. Alignment of our employees’ interests
with those of our shareholders is a principal purpose of the equity component of our compensation program.
The ownership guidelines, reflected as a targeted number of shares to be owned, are presented below. The
guidelines are reviewed for possible adjustment each year and may be adjusted by the committee at any time.
Position # of shares
Co-Chief Executive Officers ......................................... 31,000
Chief Financial Officer .............................................. 7,000
Other executive officers ............................................. 3,000
Shares underlying unvested restricted stock or restricted stock units count towards satisfaction of the
guidelines, while shares underlying SOSARs (whether vested or unvested) and unearned performance shares do
not count. Executive officers who do not meet the guidelines are allowed five years to acquire the requisite
number of shares to comply. All of our executive officers meet the stock ownership guidelines. We have adopted
a policy prohibiting our directors and certain employees, including all of the executive officers, from hedging
their Chipotle stock ownership or pledging their shares of Chipotle stock as collateral for loans.
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’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). However, a substantial portion of each covered
executive officer’s compensation remains deductible under Section 162(m).
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Proxy Statement