Chipotle 2013 Annual Report Download - page 126

a pre-determined number of shares of our common stock based on our achievement of cumulative adjusted cash
flow from operations over the performance period at a threshold, target or maximum level. The awards were
structured to pay out at the threshold level if cumulative adjusted cash flow from operations over the
performance period was between $1.425 billion and $1.489 billion; to pay out at the target level if cumulative
adjusted cash flow from operations over the performance period was between $1.489 billion and $1.584 billion;
and to pay out at the maximum level if cumulative adjusted cash flow from operations over the performance
period was greater than $1.584 billion. As a result of cumulative adjusted cash flow from operations over the
performance period exceeding the level calling for payout at the maximum level, shares of common stock at the
maximum award level were issued to the executive officers in October 2013.
Following payout of the 2010 performance shares, the committee approved a new grant of performance
shares to the four remaining executive officers in December 2013 to re-establish the longer-term incentive
element of their compensation. The 2013 performance share grant represents the right to receive shares of
common stock subject to achievement over the three year period beginning October 1, 2013 of specified levels of
cumulative adjusted cash flow from operations. Each executive may earn zero shares if cumulative adjusted cash
flow from operations over the performance period falls short of a threshold amount, and a stated number of
shares based on achievement of cumulative adjusted cash flow from operations at threshold, target and maximum
levels, with the number of shares to be issued to be pro-rated based on achievement of adjusted cash flow from
operations between the threshold and target or target and maximum levels. The number of shares potentially
issuable under these awards to each executive officer is reflected in the Grants of Plan-Based Awards in 2013
table below, and the terms of the awards are described in more detail under “Grants of Plan-Based Awards in
2013—Terms of 2013 Equity-Based Awards—Performance Shares.” Disclosure of the threshold, target and
maximum levels of cumulative adjusted cash flow from operations underlying the performance share awards
would subject us to competitive harm. The committee set performance levels that, to achieve threshold
performance, will require some degree of growth in our business without a significant deterioration in margins,
and that to achieve target or maximum performance will require strong revenue growth in conjunction with our
generally maintaining the margins we’ve achieved over the past two years. Given that our revenue growth and
margin achievement over the past two years has been at or near the top of our industry, the committee believes
that achievement of the threshold level will require continued strong performance and is substantially uncertain,
while achievement at either the target or maximum levels will require outstanding performance and therefore
represent goals that are, to achieve target performance, challenging, and to achieve maximum performance,
extremely challenging.
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 also 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.
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Proxy Statement