Chipotle 2013 Annual Report Download - page 122

In most years, each of the company, team and individual performance factors could be adjusted downward
to zero based on company, team or individual performance, which could result in no AIP bonuses being paid or
an individual’s AIP bonus being significantly reduced. While adjustments downward have generally been much
less significant, the potential for one or more factors to be significantly reduced ensures that AIP bonuses will be
significantly reduced or not paid at all if our performance falls far short of our expectations, and enables us to
avoid unduly rewarding employees not contributing to our success.
We include the company performance factor in the calculation to reward participating employees when our
company performs well, which we believe focuses employees on improving corporate performance and aligns
the interests of our employees with those of our shareholders. We include the team performance factor to
promote teamwork and to provide rewards based on the areas of the company in which a participant can make the
most impact. We include the individual performance factor to incentivize individual performance and to ensure
individual accountability. Each of these components can reduce award levels when we, one of our “team” units,
or an employee participating in the AIP don’t perform well, which further promotes accountability. We believe
that as a whole, this structure results in the AIP rewarding our top performers, consistent with our goal of
building shareholder value.
To determine the company and team performance factors for each year, during the first quarter of the year
the committee approves targeted performance levels for a number of financial or operating measures (on a
company-wide basis for the company performance factor and for each of our operating regions for the team
performance factor), and key initiatives for improving our company during the year. The AIP formulas are
structured so that achievement at the targeted level of each financial and operating measure and achievement (as
determined subjectively by the committee) of the key initiatives would result in company and team performance
factors that would result in payout at 100 percent - in other words, at target. Achievement above or below the
targeted financial and operating measures, and over- or under-achievement of the key initiatives as determined
subjectively by the committee, results in adjustments upward or downward to the company and team
performance factors, on a scale for each measure approved by the committee at the beginning of the year. The
company and team performance factors to determine payouts are calculated after the conclusion of the year by
referencing actual company and regional performance on each of the relevant financial and operating measures,
and on the key initiatives, to the scales approved by the committee, and in unusual circumstances, following
additional adjustments that the committee deems to be appropriate to account for unforeseen factors during the
year. The company performance factor and the team performance factor for most corporate-level employees,
including the executive officers other than the Chief Development Officer, are capped at 150 percent. The team
performance factor for most corporate-level employees, including the executive officers other than the Chief
Development Officer, is the average of the regional team performance factors, subject to adjustment based on
other variables considered by the committee relating to our corporate employees. The team performance factor
for our Chief Development Officer has been based on company-wide measures established specifically for the
development department.
The individual performance factor is a function of the individual employee’s performance rating for the
year. The precise individual performance factor is set from zero to 130 percent following completion of the
employee’s performance review, within a range of percentages associated with the employee’s performance
rating. The committee evaluates the performance of the Co-Chief Executive Officers to determine each of their
individual performance factors, and approves individual performance factors for each other executive officer
after considering recommendations from the Co-Chief Executive Officers, in each case based on a subjective
review of each officer’s performance for the year.
The committee also sets maximums each year for the company, team and individual performance factors.
The committee may, in its discretion, authorize a deviation from the parameters set for any particular
performance factor in order to account for exceptional circumstances and ensure that AIP bonuses further the
objectives of our compensation programs.
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Proxy Statement