Chipotle 2013 Annual Report Download - page 125

Based on these determinations, and taking into consideration the number of SOSARs awarded to each
officer in recent years, the committee made a subjective determination to grant the same number of SOSARs to
each officer as in 2012, (and for officers other than Mr. Crumpacker, for several years prior to that). In arriving at
the size of SOSAR awards for 2013, the committee considered in particular that the economic value computed
for these awards, which is used for the accounting expense to be recognized and the amount of compensation to
be reported under the SEC’s rules in connection with the awards, would be above the top end of our restaurant
industry peer group. The committee determined that awards at that level were appropriate in light of the
remarkable period of profitable growth over which our executive officers have presided, and the committee’s
belief that that growth was attributable substantially to the contributions of the officers. Moreover, rather than
considering the value of these awards solely on the basis of the computed economic value for accounting and
SEC reporting purposes (which has nothing to do with the amount of compensation actually realized from the
award), it is also important to consider that SOSARs reserve for the recipients a portion of the shareholder value
created subsequent to receipt of the award. Because rewards from SOSARs will only be received if the stock
price appreciates, they only result in realized rewards if shareholder value is created. The awards to each
executive equate to the potential for each executive to realize proceeds between 0.48 percent (for our co-CEO’s)
and 0.05 percent (for our Chief Development Officer and Chief Marketing Officer) of the overall value created
over the term of the award, based on the percentage of total outstanding shares of common stock represented by
each SOSAR award. We believe that this is an appropriate allocation of shareholder value creation as between
our overall shareholder base and the executive officer team. 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 2013 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 since 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 adjusted 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 adjusted 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.
As of December 31, 2012, the performance criteria on the first tranche of Performance SOSARs granted in
2011 was satisfied, and accordingly in February 2013 the awards became subject only to time-based vesting. The
performance criteria on these awards was the achievement of cumulative adjusted cash flow from operations in
the period from January 1, 2011 to December 31, 2014 of at least $975 million.
Additional SOSAR Grant for Position Change
In connection with his assuming the role of Chief Development Officer following Mr. Blessing’s retirement
in October 2013, the committee awarded Mr. Crumpacker SOSARs in respect of an additional 4,000 shares of
common stock. The committee determined the size of the award subjectively in recognition of Mr. Crumpacker’s
additional duties.
Performance Share Payout and New Three-Year Performance Share Grants
The end of the third quarter of 2013 represented conclusion of the three-year performance period for
performance shares awarded in December of 2010. The performance share awards consisted of a right to receive
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Proxy Statement