Chipotle 2012 Annual Report Download - page 89

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PROPOSAL B
AN ADVISORY VOTE TO APPROVE THE COMPENSATION
OF OUR EXECUTIVE OFFICERS AS DISCLOSED IN THIS PROXY STATEMENT
As required by Section 14A of the Securities Exchange Act of 1934, we are asking shareholders to cast an
advisory vote to approve the compensation of our executive officers as disclosed in this proxy statement. This
proposal, commonly known as a “say-on-pay” proposal, gives shareholders the opportunity to endorse or not
endorse our executive compensation programs and policies and the compensation paid to our executive officers.
We have committed to holding say on pay votes at each year’s annual meeting, until at least the annual meeting
to occur in 2017.
The say-on-pay vote is advisory and therefore will not be binding on the Compensation Committee, the
Board of Directors, or Chipotle. However, the Compensation Committee and Board will review the voting results
and take them into consideration when making future decisions regarding executive compensation.
Please read the “Executive Officers and Compensation” section of this proxy statement before determining
how to vote on this proposal. As described in more detail in that section, and particularly under the heading “—
Compensation Discussion and Analysis,” we believe our compensation programs emphasize performance and
accountability while maintaining alignment with shareholder interests.
Our Compensation Committee, which is advised by an independent compensation consultant that does not
perform other work for Chipotle, has structured and implemented executive compensation programs that
encourage achievement of our objectives and are fundamental to our business strategy and which we believe will
build long-term shareholder value. Determinations of base salaries and long-term incentive awards for 2012 were
made early in the year and were formulated in light of our past performance, including in particular our
extremely strong company and stock price performance during 2011, when our sales growth and total
shareholder return were at or above the 96th percentile of our restaurant industry peer group, and net income
growth was at the 72nd percentile of the restaurant industry peer group. During 2012, we once again grew
significantly and met or exceeded all of the operating and financial performance guidance we announced prior to
the beginning of the year. This strong operating performance resulted in payouts under our Annual Incentive Plan
that were above target, although not to the same degree as in 2010 and 2011. Against that backdrop, we believe
the compensation of our executive officers during 2012 was appropriate.
It is important to note that, although the total compensation of each of our executive officers as reflected in
the Summary Compensation Table has increased significantly over the past three years, that amount does not
reflect compensation actually realized by each officer. Rather, the increase from 2010 to 2011 and 2012 was
attributable largely to a significant increase in our stock price over the relevant period, which had the effect of
substantially increasing the economic value computed for stock-only stock appreciation rights, or SOSARs,
awarded in each successive year, and which resulted in a substantial majority of the increases in total
compensation reported from 2010 to 2011 and 2012. The economic value of SOSARs, which is used for the
accounting expense to be recognized in connection with the awards as well as the amount of compensation to be
reported under the SEC’s rules in connection therewith, does not reflect amounts actually realized by the
recipients. Instead, amounts will only be realizable in respect of those awards following a vesting period, and
only if our stock price increases from the grant date to the date of exercise. Our Compensation Committee
believes that this makes stock appreciation rights an inherently performance-based form of compensation, and
therefore makes these awards one of the principal foundations of the compensation of our executive officers,
consistent with our pay-for-performance philosophy. For additional discussion regarding amounts realized by our
executive officers from the exercise of SOSARs during 2012, please see the final paragraph beginning on
page 32 under “Executive Officers and Compensation—Compensation Discussion and Analysis—Executive
Summary.”
19
Proxy Statement