UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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☒ | Definitive Proxy Statement | |
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☐ | Soliciting Material Pursuant to §240.14a-12 |
CHIPOTLE MEXICAN GRILL, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Chipotle Mexican Grill, Inc.
610 Newport Center Drive
Newport Beach, CA 92660
April 1, 2019
Dear Shareholder:
You are cordially invited to attend the annual meeting of shareholders of Chipotle Mexican Grill, Inc., which will be held on May 21, 2019 at 8:00 a.m. local time at the Hyatt Regency Newport Beach, 1107 Jamboree Road, Newport Beach, CA 92660 in the Garden II ballroom. Details of the business to be conducted at the annual meeting are given in the notice of meeting and proxy statement that follow.
Your vote is important. Whether or not you plan to attend the annual meeting, we encourage you to vote by telephone, by Internet or by signing, dating and returning your proxy card by mail. You may also vote in person at the annual meeting. Full instructions are contained in this proxy statement or in the Notice of Internet Availability of Proxy Materials that was sent to you.
On behalf of the Board of Directors and Chipotles management, thank you for your commitment to Chipotle.
Sincerely,
Chief Executive Officer
NOTICE OF MEETING
The 2019 annual meeting of shareholders of Chipotle Mexican Grill, Inc. will be held on May 21, 2019 at 8:00 a.m. local time at the Hyatt Regency Newport Beach, 1107 Jamboree Road, Newport Beach, CA 92660 in the Garden II ballroom.
Shareholders will consider and act on the following matters:
1. | Election of the ten director nominees named in this proxy statement, each to serve a one-year term; |
2. | An advisory vote to approve the compensation of our executive officers as disclosed in this proxy statement (known as say-on-pay); |
3. | Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2019; and |
4. | Such other business as may properly come before the meeting or any adjournments or postponements of the meeting. |
Information about these matters is contained in the proxy statement that accompanies this notice.
Only stockholders of record at the close of business on March 26, 2019 are entitled to notice of and to vote at the annual meeting. This Notice and the accompanying Proxy Statement are first being distributed to stockholders on or about April 1, 2019.
If you would like to attend the annual meeting in person, you will need to obtain an admission ticket in advance. You can obtain a ticket by following the instructions beginning on page 60.
Your vote is important. Please note that if you hold your shares through a broker, your broker cannot vote your shares on the election of directors or on the approval, on an advisory basis, of our executive compensation unless they have your specific instructions on how to vote. In order for your vote to be counted, please make sure that you submit your vote to your broker.
By order of the Board of Directors
Executive Chairman of the Board
April 1, 2019
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INFORMATION ABOUT THE ANNUAL MEETING
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Date and Time: |
Tuesday, May 21, 2019 8:00 am (PDT)
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Location: |
Garden II ballroom Hyatt Regency Newport Beach 1107 Jamboree Road Newport Beach CA 92660
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Record Date for Shareholders entitled to vote:
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March 26, 2019
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MATTERS TO BE VOTED ON AT THE ANNUAL MEETING AND BOARD RECOMMENDATIONS
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1. Election of the ten Director nominees named in this proxy statement (page 6)
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For
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2. Advisory Say on Pay vote (page 23)
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For
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3. Ratification of Ernst & Young LLP as independent auditors (page 24)
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For
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HIGHLIGHTS OF DIRECTOR NOMINEES |
NAME
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YEARS
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INDEPENDENT
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BOARD
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AUDIT
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COMPENSATION
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NOMINATING
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Albert Baldocchi
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22
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Yes
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FOR
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Chairperson
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Paul Cappuccio
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2
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Yes
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FOR
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✓
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Chairperson
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Steve Ells Executive Chairman
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23
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No
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FOR
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Patricia Fili-Krushel(1)
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| Yes
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FOR
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Neil
Flanzraich
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12
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Yes
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FOR
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Chairperson
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✓
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Robin Hickenlooper
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2
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Yes
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FOR
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✓
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Scott Maw(1)
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Yes
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FOR
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Ali Namvar
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2
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Yes
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FOR
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✓
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✓
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Brian Niccol
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1
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No
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FOR
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Matthew Paull
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2
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Yes
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FOR
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✓
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| Designated as Audit Committee Financial Expert under SEC rules. |
(1) | Ms. Fili-Krushel and Mr. Maw were elected to the Board on March 13, 2019 and will be considered for appointment to one or more Committees after the annual meeting. |
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT | i |
Proxy Statement Summary (continued)
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SUMMARY OF CORPORATE GOVERNANCE HIGHLIGHTS
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Nine of the 11 members on our current Board of Directors are independent. | ||
Independent directors are led by an independent Lead Director. | ||
All directors stand for re-election on an annual basis. | ||
Directors are elected by majority vote in uncontested elections and any director who does not receive a majority of votes cast is required to submit his or her resignation, for consideration by the Board. | ||
Independent Board members meet in executive session at each quarterly Board meeting. | ||
Board and Committee performance is reviewed in an annual self-assessment, with reporting to and evaluation by the full Board. | ||
We do not have a shareholder rights plan or poison pill. | ||
All executive officers and directors are prohibited from hedging/pledging shares of our common stock. | ||
Bylaws contain proxy access provisions, which enables qualifying shareholders to nominate directors for election to our Board. | ||
We have robust stock ownership requirements for executive officers and directors, with the highest CEO and CFO ownership requirements amongst our peer group of companies, as described in Compensation Discussion and Analysis. | ||
Bylaws permit holders of at least 25% of our outstanding common stock to call special meetings of shareholders. | ||
See the Compensation Discussion and Analysis section of this proxy statement for significant compensation policies and procedures we employ to motivate our employees to build shareholder value and promote the interests of all our shareholders. |
ii | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT |
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT | iii |
(continued)
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iv | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT |
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ANNUAL MEETING INFORMATION
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This proxy statement contains information related to the annual meeting of shareholders of Chipotle Mexican Grill, Inc. to be held on Tuesday, May 21, 2019, beginning at 8:00 a.m. (PDT) at the Hyatt Regency Newport Beach, 1107 Jamboree Road, Newport Beach, CA 92660 in the Garden II ballroom. This proxy statement was prepared under the direction of Chipotles Board of Directors to solicit your proxy for use at the annual meeting. It will be made available to shareholders on or about April 1, 2019. |
Who is entitled to vote and how many votes do I have?
If you were a shareholder of record of our common stock on March 26, 2019, you are entitled to vote at the annual meeting, or at any postponement or adjournment of the annual meeting. On each matter to be voted on, you may cast one vote for each share of common stock you hold. As of March 26, 2019, there were 27,725,468 shares of common stock outstanding and entitled to vote.
What am I voting on?
You will be asked to vote on three proposals:
Board Recommendation: | ||||||
PROPOSAL 1 | Election of the ten director nominees named in this proxy statement | FOR | ||||
PROPOSAL 2 | An advisory vote to approve the compensation of our executive officers as disclosed in this proxy statement (say-on-pay). | FOR | ||||
PROPOSAL 3 | Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2019. | FOR |
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT | 1 |
Annual Meeting Information (continued)
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2 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT |
Annual Meeting Information (continued)
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT | 3 |
Beneficial Ownership of our Common Stock
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BENEFICIAL OWNERSHIP OF OUR COMMON STOCK
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The following tables shows the beneficial ownership of shares of our common stock as of March 26, 2019 by:
| each person (or group of affiliated persons) known to us to beneficially own more than 5 percent of our common stock; |
| each of the executive officers listed in the 2018 Summary Compensation Table appearing later in this proxy statement; |
| each of our directors; and |
| all of our current executive officers and directors as a group. |
The number of shares beneficially owned by each shareholder is determined under SEC rules and generally includes shares for which the holder has voting or investment power. The information does not necessarily indicate beneficial ownership for any other purpose. The percentage of beneficial ownership shown in the following tables is based on 27,725,468 outstanding shares of common stock as of March 26, 2019. For purposes of calculating each persons or groups percentage ownership, shares of common stock issuable pursuant to the terms of stock options, stock appreciation rights or restricted stock units exercisable or vesting within 60 days after March 26, 2019 are included as outstanding and beneficially owned for that person or group, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person or group.
Name of Beneficial Owner | Shares Beneficially Owned (Outstanding) |
Shares Beneficially Owned (Right to Acquire) |
Total Shares Beneficially Owned |
Percentage of Class Beneficially Owned | ||||||||||||||||
Beneficial holders of 5% or more of outstanding common stock |
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The Vanguard Group, Inc.(1) |
2,911,960 | | 2,911,960 | 10.50 | % | |||||||||||||||
Pershing Square Capital Management L.P.(2) |
1,880,799 | | 1,880,799 | 6.78 | % | |||||||||||||||
BlackRock, Inc.(3) |
1,615,632 | | 1,615,632 | 5.83 | % | |||||||||||||||
Susquehanna Securities(4) |
1,441,778 | | 1,441,778 | 5.20 | % | |||||||||||||||
Directors and Executive Officers |
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Brian Niccol(5) |
5,065 | 55,976 | 61,041 | * | ||||||||||||||||
Steve Ells(6) |
208,339 | 175,000 | 383,339 | 1.38 | % | |||||||||||||||
Jack Hartung(7) |
35,272 | 60,000 | 95,272 | * | ||||||||||||||||
Curt Garner(8) |
| 48,500 | 48,500 | * | ||||||||||||||||
Scott Boatwright(9) |
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Christopher Brandt(9) |
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Albert Baldocchi(10)(11) |
72,918 | 792 | 73,710 | * | ||||||||||||||||
Paul Cappuccio(12) |
500 | 277 | 777 | * | ||||||||||||||||
Patricia Fili-Krushel(13) |
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Neil Flanzraich(10) |
3,631 | 792 | 4,423 | * | ||||||||||||||||
Robin Hickenlooper(12) |
| 277 | 277 | * | ||||||||||||||||
Scott Maw(13) |
| | | * | ||||||||||||||||
Kimbal Musk(14) |
501 | 542 | 1,043 | * | ||||||||||||||||
Ali Namvar(12)(15) |
3,000 | 277 | 3,277 | * | ||||||||||||||||
Matthew Paull(12) |
516 | 277 | 793 | * | ||||||||||||||||
All directors and executive officers as a group (19 people) |
324,677 | 286,734 | 611,411 | 2.21 | % |
* | Less than one percent. |
4 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT |
Beneficial Ownership of our Common Stock (continued)
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(1) | Based solely on a report on Schedule 13G/A filed on January 10, 2019. The address of The Vanguard Group, Inc. is 100 Vanguard Blvd., Malvern, Pennsylvania, 19355. The Vanguard Group, Inc. has sole voting power with respect to 30,167 shares of common stock, shared voting power with respect to 6,000 shares of common stock, sole dispositive power with respect to 2,876,031 shares of common stock and shared dispositive power with respect to 35,929 shares of common stock. |
(2) | Based solely on a report on Schedule 13D/A filed by Pershing Square Capital Management, L.P., PS Management GP, LLC, and William A. Ackman (collectively, Pershing Square) on August 30, 2018, as well as a Form 4 filed by Pershing Square on February 14, 2019. The address of Pershing Square is 888 Seventh Avenue, 42nd Floor, New York, New York, 10019. |
(3) | Based solely on a report on Schedule 13G/A filed on February 4, 2019. The address of BlackRock, Inc. is 55 East 52nd Street, New York, New York, 10022. BlackRock, Inc. has sole voting power with respect to 1,407,615 shares of common stock and sole dispositive power with respect to 1,615,632 shares of common stock. |
(4) | Based solely on a report on Schedule 13G/A filed on February 14, 2019 by G1 Execution Services, LLC, Susquehanna Investment Group and Susquehanna Securities. The address of Susquehanna Investment Group and Susquehanna Securities is 401 E. City Avenue, Suite 220, Bala Cynwyd, Pennsylvania, 19004 and the address of G1 Execution Services, LLC is 175 W. Jackson Blvd., Suite 1700, Chicago, IL 60604. G1 Execution Services, LLC, Susquehanna Investment Group and Susquehanna Securities have shared voting power and shared dispositive power with respect to 1,441,778 shares of common stock; G1 Execution Services, LLC has sole voting power and sole dispositive power with respect to 900 shares of common stock; Susquehanna Investment Group has sole voting power and sole dispositive power with respect to 42,578 shares of common stock; and Susquehanna Securities has sole voting power and sole dispositive power with respect to 1,398,300 shares of common stock. |
(5) | Shares beneficially owned by Mr. Niccol include 55,976 shares underlying vested stock appreciation rights. |
(6) | Shares beneficially owned by Mr. Ells include 175,000 shares underlying vested stock appreciation rights. |
(7) | Shares beneficially owned by Mr. Hartung include: 19,782 shares in a revocable trust for Mr. Hartungs benefit and of which his spouse is the trustee; 35 shares beneficially owned by his children; and 60,000 shares underlying vested stock appreciation rights. Mr. Hartung disclaims beneficial ownership of the shares beneficially owned by his children. |
(8) | Shares beneficially owned by Mr. Garner include 48,500 shares underlying stock appreciation rights that are vested or will vest within 60 days of March 26, 2019. |
(9) | Mr. Boatwright joined us in May 2017 and Mr. Brandt joined us in April 2018. Both have equity awards that will begin to vest later in 2019 or 2020. |
(10) | Shares beneficially owned by Messrs. Baldocchi and Flanzraich include 792 shares underlying unvested restricted stock units, which are deemed to be beneficially owned because each such director is retirement-eligible, and the vesting of the awards accelerates in the event of the directors retirement. |
(11) | Shares beneficially owned by Mr. Baldocchi include 69,648 shares he owns jointly with his spouse. |
(12) | Shares beneficially owned by Ms. Hickenlooper and Messrs. Cappuccio, Namvar and Paull include 277 shares underlying restricted stock units that will vest within 60 days of March 26, 2019. |
(13) | Ms. Fili-Krushel and Mr. Maw were elected to the Board on March 13, 2019. They will receive their first equity grant as directors on the date of the annual meeting. |
(14) | Shares beneficially owned by Mr. Musk include 542 shares underlying restricted stock units that are vested or will vest within 60 days of March 26, 2019. |
(15) | Mr. Namvar disclaims beneficial ownership of the shares beneficially owned by Pershing Square Capital Management L.P., PS Management GP, LLC and William A. Ackman, and accordingly such shares are not reported above as beneficially owned by Mr. Namvar. |
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT | 5 |
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Our Board of Directors currently has eleven members, with each director serving for a one-year term. At the annual meeting, shareholders will vote on the ten nominees named below, each of whom is an incumbent member of the Board. Each of the director nominees was elected at the 2018 annual meeting of shareholders, except for Patricia Fili-Krushel and Scott Maw, who were elected to our Board of Directors on March 13, 2019.
One of our current directors, Kimbal Musk, has decided to not stand for re-election at the annual meeting. Mr. Musk has served on our Board since 2013 and Chipotle extends its heartfelt appreciation to Mr. Musk for the tremendous contributions he has made to our success through his leadership in innovation and experience with fast-growing companies. It is anticipated that the size of the Board will be reduced from eleven members to ten members following the annual meeting.
Each of the nominees was nominated by the Board upon the recommendation of the Nominating and Corporate Governance Committee and has consented to serve if elected. If any nominee is unable to serve or will not serve for any reason, the persons designated on the accompanying form of proxy will vote for other candidates in accordance with their judgment. We are not aware of any reason the nominees would not be able to serve if elected. Patricia Fili-Krushel initially was recommended to our Board by one of our incumbent directors, and Scott Maw initially was recommended to our Board by a member of our executive management team, and both were evaluated by an executive recruiting firm retained by the Board to assist in identifying, evaluating and conducting due diligence on potential director candidates. There are no family relationships among our directors, or between our directors and executive officers.
Re-election of each nominee for director requires that such nominee receive a majority of the votes cast FOR his or her election. Abstentions and broker non-votes are not counted as votes cast and will have no effect on the outcome of any of these proposals.
The Board of Directors recommends a vote FOR the election of each of the director nominees.
INFORMATION REGARDING THE BOARD OF DIRECTORS
The following is biographical information about each nominee, including a description of the experience, qualifications and skills that have led the Board to determine that each nominee should serve on the Board. The current terms of all directors expire as of the date of next years annual meeting of shareholders or continue until their successors are elected and have qualified. The age of each director is as of May 21, 2019, the date of the annual meeting.
DIRECTORS STANDING FOR RE-ELECTION | ||||
Albert S. Baldocchi
Age: 65
Director Since: 1997 |
Background:
Mr. Baldocchi has been self-employed since 2000 as a financial consultant and strategic advisor for, and investor in, a variety of privately-held companies. He holds a Bachelor of Science degree in chemical engineering from the University of California at Berkeley and an MBA from Stanford University. |
Qualifications:
Mr. Baldocchis extensive involvement with restaurant companies for more than 25 years has given him an in-depth knowledge of restaurant company finance, operations and strategy. He also has considerable experience with high-growth companies in the restaurant industry and in other industries, and his experience as a senior investment banker at a number of prominent institutions, including Morgan Stanley, Solomon Brothers and Montgomery Securities, helped him develop solid capabilities in accounting and finance as well. | ||
6 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT |
Proposal 1 (continued)
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Paul T. Cappuccio
Age: 57
Director Since: 2016 |
Background:
Mr. Cappuccio served as Executive Vice President and General Counsel of Time Warner, Inc., a global media and entertainment company, from 2001 through 2018. In this capacity, he oversaw the worldwide management of Time Warners legal functions, collaborating with all of its operating businesses. From 1999 to 2001, Mr. Cappuccio was Senior Vice President and General Counsel at America Online (AOL). Before joining AOL, he was a partner at the Washington, DC office of law firm Kirkland & Ellis LLP, where he specialized in telecommunications law, appellate litigation, and negotiation with government agencies. From 1991 to 1993, Mr. Cappuccio was Associate Deputy Attorney General at the United States Department of Justice. Prior to his service at the DOJ, Mr. Cappuccio served as law clerk at the United States Supreme Court for Justices Antonin Scalia and Anthony M. Kennedy, and as a law clerk to Judge Alex Kozinski of the United States Court of Appeals for the Ninth Circuit. Mr. Cappuccio earned a law degree from Harvard Law School and a Bachelors degree from Georgetown University. He previously served on the board of directors of Central European Media Enterprises Ltd. (NasdaqGS: CETV) until December 2018. |
Qualifications:
Mr. Cappuccios contributions to the Board include strong experience in legal and regulatory compliance, risk management, and public company corporate governance. | ||
Steve Ells
Age: 53
Director Since: 1996 |
Background:
Mr. Ells founded Chipotle in 1993 and served as Chief Executive Officer until Mr. Niccol was appointed to that role in March 2018, at which time Mr. Ells became Executive Chairman. From 2009 through 2016, Mr. Ells served as Co-Chief Executive Officer and Chairman. Prior to launching Chipotle, Mr. Ells worked for two years at Stars restaurant in San Francisco. Mr. Ells vision that food served fast doesnt have to be low quality and that delicious food doesnt have to be expensive is the foundation on which Chipotle is based. Mr. Ells graduated from the University of Colorado with a Bachelor of Arts degree in art history, and is also a graduate of the Culinary Institute of America. |
Qualifications:
Mr. Ells visionary thinking has led Chipotle to extraordinary accomplishments, such as growing from a single restaurant to over 2,500 and leading us to become the only national restaurant brand to prepare its food with no added flavors, colors or preservatives. This progressive thinking has also resulted in Mr. Ells remaining a principal driving force behind making our company innovative and striving for constant improvement, and he continues to provide important leadership to our executive officers, management team, and Board. He is also one of the largest individual shareholders of our company. | ||
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT | 7 |
Proposal 1 (continued)
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Patricia Fili-Krushel
Age: 65
Director Since: March 2019 |
Background:
Ms. Fili-Krushel has served as Chief Executive Officer of the Center for Talent Innovation, a New York Citybased think tank that focuses on global talent strategies since January 2019. From 2011 to 2016, she served as an executive at Comcast Corporation, a global media and technology company; as Division Chairman, NBCUniversal News Group; and as Executive Vice President, NBCUniversal. Prior to that, Ms. Fili-Krushel served as Executive Vice President and Chief Administrative Officer of Time Warner Inc., a global media and entertainment company, from 2001 to 2011; as President & CEO, WebMD Health Division, of WebMD Health Corp., from 2000 to 2001; as President, ABC Television Network, and President, ABC Daytime, Disney ABC Television Group, of The Walt Disney Company, a diversified worldwide entertainment company; and as Senior Vice President, Programming of Lifetime Entertainment Services, an entertainment and media company, from 1988 to 1992. She serves as a director of Dollar General Corporation (NYSE: DG). Ms. Fili-Krushel received a Bachelors degree in communications from Saint Johns University, and an MBA from Fordham University. |
Qualifications:
Ms. Fili-Krushel has extensive leadership experience and her contributions to the Board include broad experience in managing global businesses, developing business strategy, talent management and creating organizational cultures. She also brings experience serving on the boards of directors of other public companies. | ||
Neil W. Flanzraich
Age: 75
Director Since: 2007
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Background:
Mr. Flanzraich is the Executive Chairman of Cantex Pharmaceuticals, Inc. (formerly ParinGenix, Inc.), a privately-owned biotech company, where he previously served as Chief Executive Officer and Chairman, and additionally, is the Executive Chairman of Alzheon, Inc., a privately-owned biotech company. He also has been a private investor since February 2006. From 1998 through its sale in January 2006 to TEVA Pharmaceuticals Industries, Ltd., he served as Vice Chairman and President of IVAX Corporation, an international pharmaceutical company. From 1995 to 1998, Mr. Flanzraich served as Chairman of the Life Sciences Legal Practice Group of Heller Ehrman LLP, a law firm, and from 1981 to 1994, served as Senior Vice President, General Counsel and member of the Operating and Executive Committees of Syntex Corporation, an international pharmaceutical company. He was a director of Equity One Inc. (NYSE:EQY) and served as its Lead Independent Director until it was acquired on March 1, 2017. Mr. Flanzraich also previously served as a director of a number of additional publicly-traded companies. He received an A.B. from Harvard College and a J.D. from Harvard Law School. |
Qualifications:
Mr. Flanzraichs executive experience has helped him develop outstanding skills in leading and managing strong teams of employees, and in oversight of the growth and financing of businesses in a rapidly-evolving market. His legal background also is valuable to us in the risk management area, and Mr. Flanzraich brings to us extensive experience serving as an independent director of other public and privately-held companies. | ||
8 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT |
Proposal 1 (continued)
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Robin Hickenlooper
Age: 40
Director Since: 2016 |
Background:
Ms. Hickenlooper is Senior Vice President of Corporate Development at Liberty Media Corporation, an owner of media, communications and entertainment businesses, and has served in senior corporate development roles at Liberty Media and its affiliates since 2010. Prior to joining Liberty Media in 2008, Ms. Hickenlooper worked at Del Monte Foods and in investment banking at Thomas Weisel Partners. Ms. Hickenlooper serves on the board of directors of FTD Companies, Inc. (Nasdaq: FTD). She earned an MBA from Kellogg School of Management at Northwestern University and a Bachelors degree in Public Policy from Duke University. |
Qualifications:
Ms. Hickenlooper brings to the Board significant experience in marketing and new media, as well as public company corporate governance. | ||
Scott Maw
Age: 51
Director since: March 2019 |
Background:
Until his retirement near the end of 2018, Mr. Maw was Executive Vice President and Chief Financial Officer at Starbucks Corporation, a global roaster and retailer of specialty coffee, from 2014. He also was Senior Vice President, Corporate Finance at Starbucks from 2012 to 2013, and Senior Vice President and Global Controller from 2011 to 2012. From 2010 to 2011, he was Senior Vice President and CFO of SeaBright Holdings, Inc., a specialty workers compensation insurer. From 2008 to 2010, he was Senior Vice President and CFO of the Consumer Bank at JP Morgan Chase & Company. Prior to this, Mr. Maw held leadership positions in finance at Washington Mutual, Inc. from 2003 to 2008, and GE Capital from 1994 to 2003. Prior to joining GE Capital, Mr. Maw worked at KPMGs audit practice from 1990 to 1994. Since 2016, he has been a member of the board of directors of Avista Corporation (NYSE: AVA). Mr. Maw holds a Bachelor of Business Administration in Accounting from Gonzaga University. |
Qualifications:
Mr. Maw brings to our Board expert knowledge in finance, accounting, risk management and public corporate governance and has extensive experience leading global teams. | ||
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT | 9 |
Proposal 1 (continued)
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Ali Namvar
Age: 49
Director Since: 2016 |
Background:
Mr. Namvar is a private investor focused on growth companies. He is also an advisory board member and partner emeritus of Pershing Square Capital Management, an investment firm that currently is a significant shareholder of Chipotle. From January 2006 through April 2018, Mr. Namvar was an active partner and senior member of the investment team at Pershing Square. Prior to joining Pershing Square, Mr. Namvar held positions at Blackstone Group and Goldman Sachs Group, Inc. Mr. Namvar holds a Bachelor of Arts degree from Columbia University and an MBA from the Wharton School at the University of Pennsylvania. |
Qualifications:
Mr. Namvar has significant experience with investments in the restaurant industry as well as the overall consumer goods sector, and also brings to the Board a deep knowledge of finance, strategic transactions and investor relations. | ||
Brian Niccol
Age: 45
Director Since: 2018 |
Background:
Mr. Niccol has served as our Chief Executive Officer and a director since March 5, 2018. From January 2015 to February 2018 Mr. Niccol served as Chief Executive Officer of Taco Bell, a division of Yum! Brands, Inc., a global restaurant company. He joined Taco Bell in 2011 as Chief Marketing and Innovation Officer and served as President from 2013 to 2014. Prior to his service at Taco Bell, from 2005 to 2011 he served in various executive positions at Pizza Hut, another division of Yum! Brands, including General Manager and Chief Marketing Officer. Before joining Yum! Brands, Mr. Niccol spent 10 years at Procter & Gamble Co., serving in various brand management positions. Mr. Niccol holds an undergraduate degree from Miami University and an MBA from the University of Chicago Booth School of Business. He serves as a director of Harley-Davidson, Inc. (NYSE: HOG) |
Qualifications:
Mr. Niccol brings us extensive experience in brand management, marketing and operations, as well as a proven track record of driving outstanding results at multiple restaurant brands. He also adds to the Boards experience in corporate governance and public company oversight. | ||
10 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT |
Proposal 1 (continued)
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Matthew H. Paull
Age: 67
Director Since: 2016 |
Background:
Mr. Paull was Senior Vice President and Chief Financial Officer of McDonalds Corp., a global foodservice retailer, from 2001 until he retired from that position in 2008. Prior to joining McDonalds in 1993, Mr. Paull was a Partner at Ernst & Young, LLP. Mr. Paull currently serves on the boards of directors of Air Products and Chemicals, Inc. (NYSE: APD), and Canadian Pacific Railway Limited (NYSE: CP). Mr. Paull previously served as a member of the board of WMS Industries, Inc. until 2013, Best Buy Co. until 2013 and KapStone Paper and Packaging Corp. (NYSE: KS) until 2018. He also serves on the advisory board of Pershing Square Capital Management, L.P. Mr. Paull holds a Bachelors degree and a Masters degree in Accounting from the University of Illinois. |
Qualifications:
Mr. Paull brings to our Board substantial restaurant industry experience and expert knowledge in finance, accounting, and public company corporate governance. | ||
Board Qualifications, Skills and Attributes
In evaluating current and prospective directors, our Board strives for a highly independent, well-qualified directors, with the diversity, experience and background to be effective and to provide strong oversight and thought leadership to management. In addition to the specific qualifications, skills and experience described above, each director is expected to possess personal traits such as candor, integrity and professionalism and to commit to devote significant time to the Companys oversight.
The Board of Directors held six meetings in 2018. Each director who served in 2018 attended at least 75% of the meetings of the Board and of Committees of which he or she was a member during the time in which they served as a member of the Board in 2018, except for Kimbal Musk. The Board has requested that each of its members attend our annual shareholder meetings absent extenuating circumstances, and all directors serving on the Board following the date of the 2018 annual meeting attended the meeting.
Assuming all directors standing for re-election are elected at the annual meeting, the average age of our directors will be 57, and the Board will possess the skills, experiences and attributes reflected in the following table. We believe these skills, experiences and attributes are relevant and important to the companys achievement of its strategic goals, including making our brand culturally relevant and engaging, digitizing and modernizing the restaurant experience, continuing to ensure a culture of accountability and creativity throughout our organization, and enhancing our economic model to benefit our shareholders.
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Proposal 1 (continued)
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BOARD SKILLS, EXPERIENCE AND ATTRIBUTES |
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Proposal 1 (continued)
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Proposal 1 (continued)
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14 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT |
Proposal 1 (continued)
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Following is a description of our 2018 compensation program for non-employee directors. Directors who are employees of Chipotle do not receive compensation for their services as directors. Directors also are reimbursed for expenses incurred in connection with their service as directors, including travel expenses for meetings.
NON-EMPLOYEE DIRECTOR COMPENSATION | CASH RETAINER(1) | RESTRICTED STOCK UNITS(2) |
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All non-employee directors | $ | 75,000 | $ | 120,000 | ||||
Meeting fees: | ||||||||
Board of Directors meeting |
$ | 2,000 | ||||||
Committee meeting |
$ | 1,500 | ||||||
Committee meeting (telephonic participation at in-person meeting) |
$ | 750 | ||||||
Additional Compensation: | ||||||||
Lead Independent Director |
$ | 50,000 | ||||||
Audit Committee Chair |
$ | 20,000 | ||||||
Compensation Committee Chair |
$ | 15,000 | ||||||
Nominating and Corporate Governance Committee Chair |
$ | 10,000 | ||||||
Other Committees, if applicable |
$ | 5,000 |
(1) | All cash retainers are paid in arrears, on a pro rata basis, at the end of June and December. |
(2) | A restricted stock units (RSU) represents the right to receive shares of our common stock upon vesting. RSUs are granted to non-employee directors on the date of our annual shareholders meeting each year. The number of shares subject to the award is based on the closing price of our common stock on the grant date. |
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT | 15 |
Proposal 1 (continued)
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The compensation paid to each non-employee director who served in 2018 is set forth below. Patricia Fili-Krushel and Scott Maw were elected to our Board in March 2019, so they did not receive any compensation in 2018.
NAME | FEES EARNED OR PAID IN CASH |
STOCK AWARDS(1) | TOTAL | |||||||||||
Albert S. Baldocchi |
$ | 117,000 | $ | 120,063 | $ | 237,063 | ||||||||
Paul T. Cappuccio |
$ | 114,500 | $ | 120,063 | $ | 234,563 | ||||||||
Neil W. Flanzraich |
$ | 166,500 | $ | 120,063 | $ | 286,563 | ||||||||
Robin Hickenlooper |
$ | 97,000 | $ | 120,063 | $ | 217,063 | ||||||||
Kimbal Musk |
$ | 81,000 | $ | 120,063 | $ | 201,063 | ||||||||
Ali Namvar |
$ | 100,000 | $ | 120,063 | $ | 220,063 | ||||||||
Matthew H. Paull |
$ | 94,000 | $ | 120,063 | $ | 214,063 |
(1) | Reflects the grant date fair value under FASB Topic 718 of RSUs awarded for the equity portion of each non-employee directors annual retainer. RSUs in respect of 277 shares of common stock were granted to each non-employee director on May 22, 2018. The RSUs were valued at $433.44 per share, the closing price of Chipotle common stock on the grant date. The RSUs vest on the first anniversary of the grant date, subject to the directors continued service as a director through that date. Under the terms of the award agreements, vesting accelerates in the event of the retirement of a director who has served for a total of six years (including any breaks in service), or in the event the director leaves the Board following a change in control of Chipotle. Directors may elect to defer receipt upon vesting of the shares underlying the RSUs; however, none of the directors elected this deferral option with respect to 2018. As of December 31, 2018, Messrs. Baldocchi, Flanzraich and Musk each held 792 RSUs, Messrs. Cappuccio and Paull and Ms. Hickenlooper each held 543 RSUs, and Mr. Namvar held 277 RSUs. |
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Proposal 1 (continued)
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT | 17 |
Proposal 1 (continued)
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18 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT |
Proposal 1 (continued)
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT | 19 |
Proposal 1 (continued)
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responsibility. These exchanges were candid and constructive. Most of our engagement has been in person or via telephone, and Chipotle participants varied depending on the topics the shareholders wanted to discuss and included the Chairs of our Compensation and Nominating and Corporate Governance Committees and members of our executive leadership team. The Board or members of the appropriate Committee were updated about the discussions and considered any actions to be taken in response. The table below generally summarizes our engagement process.
ENGAGEMENT CHANNEL |
TIMING/ FREQUENCY |
CHIPOTLE PARTICIPANTS |
DISCUSSION TOPICS |
OUTCOMES | ||||
Annual meeting-related and issue-based engagement | Early in year, usually after fourth quarter and fiscal year earnings are announced and before our first quarter Board meeting | Depending on the agenda, our Lead Director, Chair of the Compensation Committee, Chair of the Nominating & Corporate Governance Committee, and/or representatives of our Investor Relations, Corporate Secretary/Governance and Compensation & Benefits functions may participate | Executive compensation, including award design & performance metrics Equity plan parameters Board composition, refreshment, nomination & election procedures and related matters Corporate governance Sustainability and diversity matters |
Adjustments to overall quantum of executive compensation, in certain instances Revisions to incentive award designs from year to year Publication of comprehensive sustainability report Adoption of enhancements to Lead Director role Enhanced proxy statement disclosures around Board skills, recruitment and related matters Implementation of proxy access | ||||
Investor meetings and conferences | Throughout the year (meetings with investors at company or investor offices, at analyst-sponsored conferences | Senior Management and Investor Relations | Company strategy Financial results and outlook |
Enhanced investor understanding of our business and strategy Understanding of financial metrics and other disclosures that are most meaningful to investors | ||||
Earnings calls | Quarterly and special calls from time to time | Senior Management and Investor Relations | Company strategy Financial results and outlook |
Enhanced investor understanding of our business and strategy Understanding of financial metrics and other disclosures that are most meaningful to investors |
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Proposal 1 (continued)
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT | 21 |
Proposal 1 (continued)
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22 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT |
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An Advisory Vote to Approve the Compensation of our Executive Officers as Disclosed in this Proxy Statement
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT | 23 |
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Ratification of Appointment of Ernst & Young LLP as Independent Registered Public Accounting Firm
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Proposal 3 (continued)
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Ernst & Young has served as our independent auditors since 1997. Representatives of Ernst & Young are expected to be present at the annual meeting and will have an opportunity to make a statement if they desire to do so, and to be available to respond to appropriate questions.
The aggregate fees and related reimbursable expenses for professional services provided by Ernst & Young for the years ended December 31, 2018 and 2017 were:
Fees for Services | 2018 | 2017 | ||||||||
Audit Fees(1) |
$ | 1,144,002 | $ | 943,578 | ||||||
Audit-Related Fees |
| | ||||||||
Tax Fees(2) |
19,960 | 37,451 | ||||||||
All Other Fees |
| | ||||||||
Total Fees |
$ | 1,163,962 | $ | 981,129 |
(1) | Includes fees and expenses related to the fiscal year audit and interim reviews, notwithstanding when the fees and expenses were billed or when the services were rendered. Audit fees also include fees and expenses, if any, related to SEC filings, comfort letters, consents, SEC comment letters and accounting consultations. |
(2) | Represents fees for tax consulting and advisory services. |
The Audit Committee and the Board of Directors recommends a vote FOR the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2019.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT | 25 |
Proposal 3 (continued)
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26 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT |
Executive Officers and Compensation
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In addition to Steve Ells, our Executive Chairman, and Brian Niccol, our Chief Executive Officer, whose biographies are included in Proposal 1 under the heading Information Regarding the Board of Directors, our executive officers as of April 1, 2019, are as follows:
EXECUTIVE OFFICERS | ||
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Marissa Andrada, 51, was appointed Chief People Officer in April 2018. Prior to joining Chipotle, Marissa was Senior Vice President of Human Resources & Chief Human Resources Officer at Kate Spade & Company, a fashion company, from July 2016 through October 2017, and Senior Vice President of Partner Resources for Starbucks Corporation, a global coffee roaster and retailer, from November 2010 to March 2016. Prior to Starbucks, she served as Senior Vice President of Human Resources at GameStop Corporation and Head of Human Resources at Red Bull North America. Marissa holds a Masters of Business degree from Pepperdine University. | |
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Scott Boatwright, 46, was appointed Chief Restaurant Officer in May 2017, and shortly thereafter assumed direct accountability for all restaurant operations. Prior to Chipotle, Mr. Boatwright spent 18 years with Arbys Restaurant Group, a quick serve restaurant company, in various leadership positions, including for the last six years as the Sr. Vice President of Operations, where he was responsible for the performance of over 1,700 Arbys restaurants in numerous states. Scott holds an MBA from the J. Mack Robinson College of Business at Georgia State University. | |
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Chris Brandt, 50, was appointed Chief Marketing Officer in April 2018. Prior to joining Chipotle, Chris was Executive Vice President and Chief Brand Officer of Bloomin Brands, Inc., a casual dining company, from May 2016 through December 2017; Chief Brand Officer/Chief Marketing Officer for Taco Bell, a subsidiary of Yum! Brands, Inc., a global restaurant company, from May 2013 to May 2016; and Senior Director and Vice President of Marketing for Taco Bell from November 2010 to May 2013. Chris holds an MBA from the Anderson School at UCLA. | |
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Curt Garner, 49, was appointed Chief Technology Officer in March 2017. Mr. Garner joined Chipotle in November 2015 as Chief Information Officer, and prior to that had worked for Starbucks Corporation, a global coffee roaster and retailer, for 17 years, most recently serving as Executive Vice President and Chief Information Officer. Mr. Garner has a Bachelor of Arts degree in economics from The Ohio State University. He serves as a director of Aerohive Networks, Inc. (NYSE: HIVE). | |
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John R. (Jack) Hartung, 61, is Chief Financial Officer and has served in this role since 2002. In addition to having responsibility for all of our financial and reporting functions, Mr. Hartung also oversees supply chain and Chipotles European operations. Mr. Hartung joined Chipotle after spending 18 years at McDonalds Corp., a quick serve restaurant company, where he held a variety of management positions, most recently as Vice President and Chief Financial Officer of its Partner Brands Group. Mr. Hartung has a Bachelor of Science degree in accounting and economics as well as an MBA from Illinois State University. | |
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Laurie Schalow, 51, has served as Chief Communications Officer since August 2017. Prior to joining Chipotle, Laurie served as Vice President of Public Affairs for Yum! Brands, a global restaurant company, overseeing Global Corporate Social Responsibility, PR, Crisis Management, Social Listening and Community Diversity programs for the 44,000 KFC, Pizza Hut and Taco Bell restaurants in 140 countries. Laurie holds an MBA from Case Western Reserve and Wayne State University. She currently serves on the Board of Directors for The Muhammad Ali Center and Chairs the Maryhurst Board. |
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT | 27 |
Executive Officers and Compensation (continued)
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Roger Theodoredis, 60, was appointed Chief Legal Officer and General Counsel in October 2018. Prior to joining Chipotle, Roger was General Secretary of Danone North America, with responsibility for legal, public affairs, communications, scientific affairs and corporate security. He previously served as Executive Vice President, General Counsel and Corporate Secretary of The WhiteWave Foods Company, a food and beverage company, until its acquisition by Danone, S.A. in April 2017, having been appointed as General Counsel of WhiteWave Foods in 2005. Prior to joining WhiteWave Foods, Roger served as Division General Counsel for Mead Johnson Nutritionals, a subsidiary of Bristol Myers Squibb, and in a number of legal roles for Chiquita Brands International. Roger holds a J.D. from Boston University School of Law. | |
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Tabassum Zalotrawala, 44, was appointed Chief Development Officer in December 2018. Prior to joining Chipotle, Tabassum spent over seven years at Panda Restaurant Group, Inc., a fast casual restaurant chain, as Chief Development Officer and Vice President Design, Construction, Facilities & Strategic Sourcing. She holds a Bachelor of Fine Arts in interior design from the School of Planning and Architecture and American Continental University, a Master of Fine Arts in architecture from Savannah College of Art and Design and an MBA from Emory University. Additionally, she is a LEED accredited professional. Most recently, Tabassum completed the Advanced Management Program at Harvard Business School. |
28 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT |
Executive Officers and Compensation (continued)
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As in prior years, during 2018 we conducted outreach calls with shareholders that collectively own a significant percent of our outstanding shares to solicit their feedback on our executive compensation program and other topics important to them.
Last year we received 96% support from our shareholders on our say-on-pay vote with respect to our 2017 compensation programs. This successful vote confirmed that shareholders are supportive of our executive compensation program, including the recruiting package for our new CEO, Brian Niccol. In last years CD&A, we provided forward-looking disclosure of the details of Mr. Niccols new hire package and compensation actions taken in 2018 with respect to the other executive officers named in the proxy statement, which we believe provided important context and for which we believe shareholders expressed support in last years say-on-pay vote. Mr. Niccols 2018 compensation was primarily comprised of performance-based and highly motivational stock incentive grants that the Compensation Committee developed to recruit him to join Chipotle.
While our 2018 say-on-pay support was very strong, we conducted numerous additional shareholder outreach calls in the first quarter of 2019 to receive input on our 2019 executive compensation program. Based on this feedback and an assessment conducted by our new Chief People Officer, our 2019 executive compensation program which will be fully disclosed in next years CD&A retains many attributes of the 2018 executive compensation program as well as several key changes that sustain our highly motivating and shareholder aligned focus (for example, we retained our comparable restaurant sales and restaurant level cash flow metrics and added a food safety metric to our annual cash incentive plan).
Our say-on-pay proposal is Proposal 2, and our Board recommends that you vote FOR this proposal. In support of this recommendation, we invite you to read the Compensation Discussion and Analysis that follows for further information on our compensation philosophy and decisions. We are confident that our programs are clearly linked to performance and aligned with shareholder interests, while appropriately incentivizing our management team. We look forward to maintaining ongoing dialogue with our shareholders.
In closing, the members of the Compensation Committee would like to thank the shareholders with whom we spoke for their insights and candor. We value the support and input of our shareholders, and look forward to continuing to have an open dialogue. We have great confidence in the abilities of our new CEO and the entire executive leadership team at Chipotle to further enhance shareholder value and continue to grow the company.
Neil Flanzraich, Lead Independent Director and Chair of the Compensation Committee Ali Namvar Matthew Paull
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COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis describes the objectives and principles underlying our executive compensation programs, outlines the material elements of the compensation of our executive officers named in the 2018 Summary Compensation Table (the named executive officers or NEOs), and explains the Compensation Committees determinations as to the actual compensation of our named executive officers for 2018. In addition, this Compensation Discussion and Analysis is intended to put into perspective the tables and related narratives regarding the compensation of our named executive officers that appear following this section.
This Compensation Discussion and Analysis is intended to provide shareholders with an understanding of our compensation policies and practices with respect to our Chief Executive Officer (CEO), Chief Financial Officer (CFO) and our three other most highly compensated executive officers for the year ended December 31, 2018. Two individuals served as CEO for part of 2018, so this proxy describes the compensation of both executives. These executive officers, who are referred to as the named executive officers or NEOs, and their current positions are:
| Brian Niccol, Chief Executive Officer |
| Steve Ells, Executive Chairman and former CEO |
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT | 29 |
Executive Officers and Compensation (continued)
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| Jack Hartung, Chief Financial Officer |
| Curt Garner, Chief Technology Officer |
| Scott Boatwright, Chief Restaurant Officer |
| Chris Brandt, Chief Marketing Officer |
Performance Overview for 2018
In 2018 we made significant organizational, strategic and operational progress that we believe translated into significant shareholder value creation. Key highlights include:
Organizational
In 2018, we developed a new executive leadership team, beginning with Mr. Niccols appointment as CEO and a member of the Board in March 2018. We believe that each member of the executive leadership team brings a unique set of experiences that will allow Chipotle to deliver on its strategy of winning today and cultivating a better future. The following executives were added to the executive leadership team in 2018:
| Brian Niccol was hired as our CEO in March 2018 |
| Steve Ells transitioned from Chairman and CEO to Executive Chairman upon Mr. Niccols appointment as CEO in March 5, 2018 |
| Chris Brandt joined as our Chief Marketing Officer in April 2018 |
| Marissa Andrada joined as our Chief People Officer in April 2018 |
| Roger Theodoredis was hired as our Chief Legal Officer in October 2018 |
| Tabassum Zalotrawala was hired as our Chief Development Officer in December 2018 |
Strategic
| Launched For Real advertising campaign |
| Opened 137 new restaurants |
| Digitized make lines are now in over 1,000 restaurants (on track to be in all restaurants by the end of 2019) |
| Digital pickup shelves are in approximately 1,000 restaurants (on track to be in all restaurant by the end of 2019) |
| Increased app downloads (+72% versus 2018) and delivery sales |
| Achieved promising results related to our tests of mobile order pickup lanes |
| Continued to develop and enhance our food safety practices, including continuous improvement processes, implementation of quarterly training for all crew members, and planning for improved sanitation of food preparation equipment. |
Operational
| Revenue increased 8.7% to $4.9 billion |
| Comparable restaurant sales increased 4% |
| Digital sales increased 42.4% and accounted for 10.9% of total sales |
| Restaurant level operating margin increased from 16.9% to 18.7% |
The above actions and results translated into $3.8 billion of increased shareholder value over 2018, as measured by the increase in our market capitalization and a 49% return to shareholders. This 49% total shareholder return was the highest among our peer group and 54% above the S&P 500. From January 1, 2019 through March 15, 2019, our market capitalization increased an additional $5.8 billion.
Performance Impact on 2018 Compensation
As a result of the aforementioned strong performance in 2018, the annual cash incentive payouts for our named executive officers ranged from 113% to 132% of target and the premium-priced stock-only stock appreciation rights (SOSARs) granted in 2018 to our executive officers were in-the-money as of December 31, 2018 (although these SOSARs do not start to vest until the second anniversary of the grant date).
30 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT |
Executive Officers and Compensation (continued)
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CEO Transition: Timeline of Events and Compensation Decisions
Date/Event |
Compensation Decision(s) |
Rationale for Compensation | ||||||
November 28, 2017 Announced CEO search and transition of Mr. Ells to Executive Chair (upon hire of new CEO) |
The Company announced that Mr. Ells would become Executive Chairman following the completion of a search to identify a new CEO. Mr. Ells entered into an Executive Chairman Agreement with the Company that contained compensation provisions; however, none of the provisions became effective until 2018 (see below).
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The Committee wanted to ensure an effective transition of the CEO role. Further, Mr. Ells knowledge and understanding of the Company is deep and the Committee wanted Mr. Ells to continue to focus on bringing innovation to the way Chipotle sources and prepares food through high quality ingredients that are raised responsibly. | ||||||
January 5, 2018 SOSAR award granted to Mr. Ells per his Executive Chairman Agreement |
In-lieu of an annual long-term incentive (LTI) award, Mr. Ells was granted a one-time award of premium-priced SOSAR with an exercise price of $500 per share, which equated to a nearly 60% premium to the grant date stock price of $313.79. The SOSAR will vest on July 4, 2019 based on continued service, and will be exercisable from January 5, 2021 until January 5, 2022.
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The structure of the SOSAR award was based on the Committees desire to align pay with long-term performance and the companys value creation. The Committee decided that the strike price should be set at a significant premium to the price at the time of grant to motivate increasing shareholder value. | ||||||
January 9, 2018 The Company entered into retention agreements with select employees including three of our 2018 NEOs |
Mr. Hartungs agreement provided for a cash retention bonus of $1 million that vests on March 5, 2019 (one-year anniversary of Mr. Niccols hire). Messrs. Garner and Boatwrights agreements provided for cash retention bonuses of $500,000 and $400,000, respectively (each vesting in four quarterly installments during 2018) and equity awards structured as 50% RSUs and 50% SOSARs of $3 million and $2.4 million, respectively (vesting on the second and third anniversaries of the grant date). |
The Committee determined that because of the uncertainty caused by our search for a new CEO, it was critical to retain Messrs. Hartung, Garner and Boatwright given their essential skill sets and organizational knowledge and to avoid further disruption to the organization. The Committee also wanted to give the new CEO time to evaluate the incumbent leadership team and decide if changes were warranted. The size of the cash retention bonuses and equity awards for Messrs. Garner and Boatwright were based on the Committees assessment of (i) their unvested equity value (which was $0 at the time of the awards), (ii) historical LTI awards, and (iii) expected cost and impact on the organization if they were to leave. The size of the cash retention bonus to Mr. Hartung was based on the Committees assessment that Mr. Hartung was critical to the organization during the CEO transition process and it was imperative that he be retained.
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT | 31 |
Executive Officers and Compensation (continued)
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Date/Event |
Compensation Decision(s) |
Rationale for Compensation | ||||||||||||
March 5, 2018 Mr. Niccol was hired as CEO |
Annual Compensation ($000)
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Mr. Niccols annual compensation package was based on a competitive compensation analysis of CEO pay levels at our peer group. The amount of Mr. Niccols make-whole award was based on an assessment by the Committees independent compensation consultant of the unvested equity awards that Mr. Niccol would forfeit from his prior employer. Further, the structure of the make-whole award was entirely equity in the form of premium-priced SOSARs given the Committees commitment to aligning pay with performance and with the creation of shareholder value. The amount and structure of Mr. Niccols inducement award was to further incentivize Mr. Niccol to join Chipotle and based on the Committees desire to link pay to shareholder value creation. The cash sign-on award provided to Mr. Niccol was to offset forgone cash and other compensation at his prior employer and to facilitate his transition to Chipotle. | ||||||||||||
Base Salary
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$1,200
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Target Annual Incentive(1)
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150%
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Performance Shares Target Value
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$3,000
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SOSARs
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$2,000
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Total
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$8,000
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Make-Whole Award ($000)
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SOSARs 10% premium strike price
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$9,650
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RSUs
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$9,650
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Inducement Award(2) ($000)
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SOSARs 25% premium strike price
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$4,000
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Sign-On Award ($000)
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Cash
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$1,000
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(1) Expressed as a percentage of base salary. |
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(2) Inducement in this instance refers to a recruitment award and is not describing the employment inducement exemption under the NYSEs Listed Company Manual Rule 303A.08.
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March 5, 2018 Changes to Mr. Ells role and compensation are triggered per his Executive Chairman Agreement
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Mr. Ells officially transitioned to Executive Chairman given Mr. Niccols appointment as CEO. Reduced Mr. Ells base salary from $1.54 million to $900,000. Reduced Mr. Ells target annual incentive from 150% of base to 100% of base salary.
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The reductions in Mr. Ells base salary and annual incentive plan target were commensurate with his reduced responsibilities upon Mr. Niccols appointment as CEO. |
Shareholder Outreach in 2018
At our 2018 annual meeting of shareholders, 96% of the votes cast by our shareholders supported our say-on-pay proposal.
During 2018, the Chair of our Compensation Committee and members of management conducted outreach calls to discuss compensation and governance matters with shareholders owning almost 30% of our outstanding common stock. We view these discussions as an important opportunity to develop broader relationships with investors over the long-term and to engage in open dialogue on compensation and governance related matters. See Corporate Governance Shareholder Engagement for more details about our outreach efforts.
32 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT |
Executive Officers and Compensation (continued)
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Based on our interactions with investors, we made the following changes to the 2018 annual long-term incentive award structure for our NEOs (excluding Mr. Ells):
| Added a restaurant level cash flow metric to our performance share design (to complement comparable restaurant sales growth) |
| Removed the absolute stock price metric from our performance shares |
| Added premium-priced SOSARs to the award mix |
Alignment of Executive Compensation with Shareholder Interests: What We Do and Dont Do
What We Do |
What We Dont Do | |||
☑ Conduct extensive shareholder engagement on compensation, governance and strategy related matters. Engage in careful consideration of the annual say-on-pay results and respond to shareholder feedback when deemed appropriate. |
☒ Executive officers and directors are prohibited from hedging or pledging shares of Chipotle stock or holding Chipotle stock in margin accounts. | |||
☑ Employ an annual LTI program based entirely on performance-based equity awards. |
☒ No stock option repricing, reloads, exchanges or options granted below market value without shareholder approval. | |||
☑ Align our executive compensation with achieving meaningful financial and operational goals and creating shareholder value. |
☒ No change-in-control severance agreements. | |||
☑ Designed our executive compensation program to discourage excessive risk taking, with design features including the incorporation of multiple performance measures in our incentive programs, robust executive stock ownership guidelines, long-term performance goals and at least three-year vesting periods on LTI awards, and a clawback policy related to LTI awards. |
☒ No single trigger; equity awards include double trigger vesting in order for an executive to receive benefits in connection with a change in control. | |||
☑ Retained an independent compensation consultant who is engaged directly by the committee to advise on executive compensation matters. |
☒ Engage the committees consultant for additional work for or on behalf of the executive officers. |
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Executive Officers and Compensation (continued)
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Executive Compensation Program Components and Structures
Our executive compensation program is comprised of three primary components:
BASE SALARY | ANNUAL INCENTIVE PLAN (AIP) | EQUITY COMPENSATION (LTI) | ||
Determined based on the positions importance within Chipotle, the executives experience, and external market data. | Determined under our company-wide Annual Incentive Plan, or AIP, which provides for variable payouts based on achievement against operating and financial performance goals approved by the Committee at the beginning of each year, as well as evaluations of performance against individual goals and objectives. | Aligns the incentives of our executive officers with shareholder interests and rewards the creation of shareholder value. |
The Compensation Committee allocates pay among these components in a manner designed to place performance at the forefront of our overall executive compensation program. Consistent with our performance-driven compensation philosophy, the Committee allocates a significant portion of our executive officers total compensation to variable, performance-based pay elements (performance-based AIP and LTI programs). As an employees responsibilities and ability to affect our financial results increases, base salary becomes a smaller component of his or her total compensation.
* | The charts for the Chief Executive Officer and the Other Named Executive Officers exclude one-time inducement, make-whole and retention awards, since those are not a component of our annual executive compensation program. |
** LTI consists of the one-time premium-priced SOSAR granted to Mr. Ells in lieu of his 2018 annual LTI award grant and in connection with his transition to Executive Chairman. |
34 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT |
Executive Officers and Compensation (continued)
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Factors in Setting Executive Officer Pay
The Compensation Committee sets compensation for the executive officers annually after considering the following factors:
| Chipotles performance relative to goals approved by the committee |
| Each executive officers experience, knowledge, skills and personal contributions |
| Levels of compensation for similar jobs at market reference points |
| The degree of difficulty in committee-approved goals |
| The business climate in the restaurant industry, general economic conditions and other factors |
The CEO makes recommendations to the Committee regarding compensation for the other executive officers after reviewing Chipotles overall performance and each executive officers personal contributions. The Committee is responsible for approving executive officer compensation and has broad discretion when setting compensation types and amounts.
With respect to the CEO, the Committee annually reviews and approves the corporate goals and objectives relevant to the CEOs compensation, evaluates the CEOs performance against those objectives and makes determinations regarding the CEOs compensation level based on that evaluation.
As part of its reviews of executive compensation, the Committee reviews tally sheets that show historical pay for each executive officer (including the CEO), as well as their accumulated equity. These tally sheets are used as a reference point to assist the Committee in understanding the overall compensation provided to each executive officer.
Roles and Responsibilities of the Committee, Compensation Consultant and the CEO in Setting Executive Officer Compensation
Compensation Committee The Committee is currently comprised of three independent directors and reports to the Board |
Retains independent consultants and counsel to assist it in evaluating compensation and fulfilling its obligations as set forth in its charter. Works with the CEO to set performance goals at the beginning of each year targeted to positively influence shareholder value. Evaluates CEO performance in relation to those goals and Chipotles overall performance. Determines and approves compensation for our executive officers. Reviews and approves overall compensation philosophy and strategy, as well as all compensation and benefits programs in which our executive officers participate. Reviews applicable peer group and broader market data as one of multiple reference points. Engages with shareholders and others to receive stakeholder input on executive compensation matters. | |
Consultant to the Compensation Committee Pay Governance, an independent compensation consultant, has been retained by the Committee to provide consulting advice on matters of governance and executive compensation |
Provides advice and opinion on the appropriateness and competitiveness of our compensation programs relative to market practice, our strategy and internal processes. Performs functions at the direction of the committee. Attends committee meetings when requested. Provides advice regarding compensation decision-making governance. Provides market data, as requested. Consults on various compensation matters. Confers with the Committee, the CEO, the CFO and the companys compensation and benefits team on incentive goals (annual and long-term). |
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Executive Officers and Compensation (continued)
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Chief Executive Officer With the support of other members of the management team, including the internal compensation and benefits team |
Works with the other executive officers to recommend performance goals at the beginning of each year that are targeted to positively influence shareholder value; goals are reviewed and approved by the Compensation Committee. Reviews performance of the other executive officers and makes recommendations to the Committee with respect to their compensation. Confers with the Committee concerning design and development of compensation and benefit plans for Chipotle executive officers and employees. |
Role of Market Data and Our Peer Group
Market Data and Impact on 2018 Pay Levels
The Compensation Committee believes the investment community generally assesses our company performance by reference to a peer group composed primarily of other companies in the restaurant industry; as such, the majority of the companies in our compensation peer group are companies in the restaurant industry. However, the Committee and management believe the talent pool for executives is broader than the restaurant industry and, for that reason, chose to include non-restaurant hospitality companies and other consumer brand companies in our compensation peer group.
Each year, the Committees independent compensation consultant provides the Committee with pay data for executive officer roles and the incentive plan structures of the companies in our peer group. The Committee considers this peer data in setting pay levels but does not explicitly target a specific percentile when setting pay levels for executive officers.
In setting 2018 pay levels, in addition to peer group data, the Committee also considered the progress of our turnaround, current base salaries, the value of outstanding equity awards and the design of our executive pay program. We believe our executive pay program has consistently demonstrated strong shareholder alignment and linkage to shareholder value creation. Our annual equity awards continue to be 100% performance-based and have always been comprised of performances shares and/or SOSARs (including performance-based SOSARs and, in 2018, SOSARs with premium strike prices).
2018 Peer Group
The Committee reviews the composition of the peer group on an annual basis and makes adjustments in response to changes in the size or business operations of Chipotle and of companies in the peer group.
The peer group used for 2018 was generally comprised of publicly-traded companies in the Restaurants or Hotel, Resorts & Cruise Line (focus on hotels) primary industries as defined by the Global Industry Classification Standard (GICS), with annual revenues generally between $2 billion and $11 billion (approximately 0.5x to 2.5x Chipotle). The Committee also included companies with whom we compete for executive talent above the upper end of this range (for example, our Chief Technology Officer was formerly an executive at Starbucks Corporation) and excluded companies serving a substantially different market or client base than we do. Chipotles revenues rank at the 77th percentile of this peer group, and our market capitalization ranks at the 65th percentile of this peer group (as of December 31, 2018), which confirmed for the Committee that this peer group is appropriate.
Data provided by S&P Capital IQ; $ in millions | ||||||||||
Company Name | Revenues(1) | Market Cap(2) | ||||||||
Starbucks Corporation | $ | 25,279 | $ | 79,895 | ||||||
McDonalds Corporation | $ | 21,025 | $ | 136,891 | ||||||
Darden Restaurants, Inc. | $ | 8,297 | $ | 12,394 | ||||||
YUM! Brands, Inc. | $ | 5,688 | $ | 28,707 | ||||||
Wyndham Destinations, Inc. (3) | $ | 5,176 | $ | 3,493 | ||||||
Bloomin Brands, Inc. | $ | 4,126 | $ | 1,644 | ||||||
Dominos Pizza, Inc. | $ | 3,242 | $ | 10,314 | ||||||
Brinker International, Inc. | $ | 3,174 | $ | 1,698 |
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Executive Officers and Compensation (continued)
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Company Name | Revenues(1) | Market Cap(2) | ||||||||
Cracker Barrel Old Country Store, Inc. | $ | 3,054 | $ | 3,842 | ||||||
Hyatt Hotels Corporation | $ | 2,498 | $ | 7,264 | ||||||
Texas Roadhouse, Inc. | $ | 2,397 | $ | 4,272 | ||||||
The Cheesecake Factory Incorporated | $ | 2,337 | $ | 1,912 | ||||||
Papa Johns International, Inc. | $ | 1,667 | $ | 1,256 | ||||||
Jack in the Box Inc. | $ | 870 | $ | 1,998 | ||||||
Peer Group Median |
$ | 3,208 | $ | 4,057 | ||||||
Chipotle Mexican Grill, Inc. | $ | 4,865 | $ | 11,998 | ||||||
Percent Rank | 77% | 65% |
(1) | Trailing 12 months, as of December 31, 2018. |
(2) | As of December 31, 2018. |
(3) | Known as Wyndham Worldwide Corporation until June 1, 2018. |
The Committee reviews the composition of the peer group periodically and adjusts the peer group in response to changes in the size, business operations or strategic focus of Chipotle and of companies in the peer group, companies in the peer group being acquired or taken private, and other companies in the GICS restaurant industry becoming public. For 2019, the Committee has determined to remove several companies (Jack in the Box, Papa Johns, Wyndham, Cracker Barrel and Texas Roadhouse) due to lack of revenue alignment and replace them with Hilton Worldwide Holdings Inc., Marriott International, Inc., Restaurant Brands International, Ulta Beauty, Inc. and Lululemon Athletica Inc. These additional peer group companies include non-restaurant companies that have some combination of high brand recognition, attractive growth opportunities, strong customer service and excellent operations, which align with Chipotles continued focus on customer service and operational excellence.
Base Salaries
We pay a base salary to compensate our executive officers for services rendered during the year, and also to provide them with income regardless of our stock price performance, which helps avoid incentives to create short-term stock price fluctuations and mitigates the impact of forces beyond our control such as general economic and stock market conditions.
The Committee reviews the base salary of each executive officer at least annually and adjusts salary levels as the Committee deems necessary and appropriate.
Recommendations for the executive officers (other than the CEO and the Executive Chairman) are provided to the Committee by our CEO. The Committee reviews the CEOs base salary and recommends any changes for review and approval by the full Board. Adjustments to base salaries, if any, typically occur during the first quarter of each year. Base salaries for each named executive officer are set forth below.
Name | Base Salaries | |||||||||||||||||||||||
2018 | 2017 | % Change | ||||||||||||||||||||||
Brian Niccol(1) | $ | 1,200,000 | | N/A | ||||||||||||||||||||
Steve Ells | $ | 900,000 | $ | 1,540,000 | (41.6)% | |||||||||||||||||||
Jack Hartung | $ | 800,000 | $ | 800,000 | 0.0% | |||||||||||||||||||
Curt Garner | $ | 523,631 | $ | 489,353 | 7.0% | |||||||||||||||||||
Scott Boatwright | $ | 430,994 | $ | 410,000 | 5.1% | |||||||||||||||||||
Chris Brandt(1) | $ | 600,000 | | N/A |
(1) | Messrs. Niccol and Brandt joined Chipotle in 2018. The amounts in the table reflect their annualized base salaries for 2018. |
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Executive Officers and Compensation (continued)
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Annual Incentive Plan
The AIP is our annual cash incentive program for all employees. The formula to determine payouts under the 2018 AIP consisted of a company performance factor (CPF), a team performance factor (TPF) and an individual performance factor (IPF):
Target goals for business performance metrics used to determine the CPF are set at the beginning of the year. Achievement at the target level of each performance metric would yield a CPF of 100%, equating to a payout at the target level. The CPF is adjusted up or down based on the performance versus the underlying performance metrics. As a result of a mix of underperformance and outperformance against the AIP performance metrics in 2018, as depicted below, the CPF was 126.8% of target.
Strategic objectives included in the CPF for 2018 were customer satisfaction and site assessment requests, in contrast to the strategic objectives included in the 2017 CPF of A/B Grade for restaurants, Max 15 Minute Transactions and Out of Store ADS. The 2018 strategic objectives were based on our 2018 strategic plan, which provided for enhanced focus on customer service and additional rigor when evaluating new sites for potential geographic expansion.
Financial objectives included in the CPF for 2018 consist of comparable restaurant sales (CRS) and restaurant cash flow (RCF) margin, which were the same objectives used in 2017. The CRS target goal is the highest amongst our peers (based on midpoint CRS guidance available at the time the goals were set) and over double the median midpoint (1.8%) CRS guidance of our peer group. Both our CRS and RCF goals for 2018 are slightly lower than those for 2017. For CRS, the actual performance in 2016 was a double-digit decline on a percentage basis and, as a result, the CRS targets for 2017 were established higher in comparison to our 2016 negative performance in order to reset targets to a more normalized growth rate. Since we set our 2017 CRS target against a prior year double-digit performance decline, our 2017 CRS performance metric was too aggressive and was not achieved. We believe that the 2018 CRS target, which uses as a base a more normalized prior years actual performance, is more realistically aggressive. For RCF, our 2018 target RCF margin goal was 50 basis points lower than our 2017 target RCF margin goal but represented a 190-basis point improvement when compared to our actual 2017 RCF margin performance. We believe that the achievement of the 2018 CRS and RCF targets will result in strong shareholder value creation if maintained for a three-year period and, for that reason, are appropriately robust targets.
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Executive Officers and Compensation (continued)
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$ in millions
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Metric | Target | Actual | Impact on CPF |
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Average CSAT Jan Jun |
72.25% | 71.59% | (4.2%) | |||||||||
Average CSAT July Dec |
71.84% | 73.70% | 12.5% | |||||||||
Comparable Restaurant Sales |
4.9% | 4.0% | (4.9%) | |||||||||
Restaurant Cash Flow Margin |
18.84% | 18.74% | (1.7%) | |||||||||
Site Assessment Requests |
160 | 172 | 25% | |||||||||
A. Beginning CPF: | 100% | |||||||||||
B. Actual Perf. Impact to CPF: | 26.8% | |||||||||||
C. Final CPF (A + B) | 126.8% |
The TPF uses similar underlying performance measures as the CPF but is measured at the regional level. For 2018, the corporate TPF applicable to the named executive officers was based on a weighted average of regional results and was 78.7% of target. The TPF uses comparable restaurant sales growth and restaurant cash flow margin metrics, which are responsible for more than half of the outcome, and also store performance and digital sales. The variations amongst the targets for each region makes it difficult to summarize all TPF targets; however, the Compensation Committee believes the TPF targets for 2018 were challenging, evidenced by the below target payout.
In addition to the CPF and TPF, described above, an executives AIP bonus also depends on his or her achievement of individual performance objectives, which are reflected in the individual performance factor (IPF). The individual objectives for the CEO are approved by the Committee, and the objectives for other executive officers are set by the CEO with approval by the Committee. After the end of the year, the Committee evaluates the performance of the CEO against his objectives and approves an IPF from 0-130%, depending on its evaluation. The CEO evaluates the performance of each of the other executive officers against their objectives and provides a recommendation on IPF for each to the Committee, which then approves an IPF from 0-130% for each executive officer.
In determining the IPF for the CEO and executive officers, the Committee considered the CEOs individual accomplishments and the CEO considered each executives individual accomplishments that helped the Company achieve significant progress on its long-term transformation and growth strategy, including becoming more visible with culturally relevant communication and innovation, digitizing and modernizing the restaurant experience, running restaurants with great hospitality and fast throughput, ensuring discipline and focus with innovation through a stage gate process and building a great culture of accountability and creativity.
The leadership teams collective efforts resulted in achieving our 2018 financial goals, including increasing revenue by 8.7%, increasing comparable restaurant sales by 4.0%, net of a 0.8% decline in comparable restaurant transactions, and growing digital sales by 42.4% to 10.9% of sales. Some of the key accomplishments achieved by our named executive officers during 2018 that the Committee considered when determining the 2018 IPF include:
Brian Niccol | Recruited and onboarded a full executive leadership team made up of best-in-class, proven leaders in their fields Developed and implemented transformation and growth strategy initiatives and established a pipeline of validating strategic initiatives across the organization Focused continuous improvement on food safety standards and practices
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Jack Hartung |
Led Chipotles impressive unit economics, as well as a strong and clean balance sheet, and ensured a disciplined approach to capital deployment to enhance shareholder value Effectively communicated near-term and long-term strategy and financial information to investors
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Curt Garner |
Continued digital work to support mobile, delivery, catering and loyalty program, resulting in increased digital sales to over 10% of total sales; increased app downloads by 72% from 2017 Hired and retained talent to ensure system stability during transition and maintained 99%+ systems uptime on the digital platform
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Executive Officers and Compensation (continued)
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Chris Brandt |
Strengthened brand narrative through Chipotle For Real campaign and piloted new loyalty program; made Chipotle more visible and culturally relevant in social and traditional media channels and increased overall digital impressions by nearly 20% and social impressions by nearly 40% year-over-year from 2017 Established stage gate innovation process and validated product/promotional pipeline
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Scott Boatwright |
Strengthened restaurant operations and improved restaurant-related results, including customer satisfaction scores and restaurant level margin, which increased to 18.7% from 16.9% in 2017. Continued focus on food safety strategy and execution of enhanced food safety practices Modernized restaurant operations and increased efficiency; redesigned and launched throughput training
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The 2018 AIP payouts for each of our named executive officers, and their performance against their respective CPF, TPF and IPF, are set forth below.
Target 2018 AIP Bonus | Actual as % of Target |
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Name | % Base Salary | Dollar Value | CPF | TPF | IPF | Actual 2018 Bonus |
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Brian Niccol(1) | 150.0 | % | $ | 1,800,000 | 126.8 | % | 78.7 | % | 130 | % | $ | 2,381,684 | 132 | % | ||||||||||||||||
Steve Ells(2) | 104.5 | % | $ | 1,061,397 | 126.8 | % | 78.7 | % | 100 | % | $ | 1,202,518 | 113 | % | ||||||||||||||||
Jack Hartung | 85.0 | % | $ | 680,000 | 126.8 | % | 78.7 | % | 130 | % | $ | 899,747 | 132 | % | ||||||||||||||||
Curt Garner | 65.0 | % | $ | 340,360 | 126.8 | % | 78.7 | % | 125 | % | $ | 439,561 | 129 | % | ||||||||||||||||
Scott Boatwright | 65.0 | % | $ | 280,146 | 126.8 | % | 78.7 | % | 120 | % | $ | 352,916 | 126 | % | ||||||||||||||||
Chris Brandt | 65.0 | % | $ | 390,000 | 126.8 | % | 78.7 | % | 120 | % | $ | 491,306 | 126 | % | ||||||||||||||||
(1) | Mr. Niccols AIP bonus for 2018 was guaranteed at 150% of base salary, but his actual payout was higher due to strong company and individual performance. |
(2) | Mr. Ells target amount was prorated to reflect his two months serving as Chairman of the Board and Chief Executive Officer and 10 months serving as Executive Chairman. |
Long-Term Incentives
Fiscal 2018 Annual Long-Term Incentive Awards
Each year, the Committee evaluates the long-term incentive vehicles provided to our NEOs to evaluate whether they are properly aligned with the long-term growth of the Company and shareholder interests. For 2018, the Committee chose to grant a combination of performance share awards and stock appreciation rights because these vehicles are performance-based and reward management for enhancing long-term shareholder value. In March of 2018, the Committee determined a target grant value for each NEO, and split the value 60% in performance shares and 40% in stock appreciation rights. Details of these annual grants are provided below.
2018 Performance Share Awards
Annual performance share awards were granted to our NEOs (excluding Mr. Ells), on March 29, 2018. The performance share awards were subject to a 3-Year Comparable Restaurant Sales Growth (for the period from January 1, 2018 December 31, 2020) and 2-Year Average Restaurant Cash Flow Margin (for the period from January 1, 2019 December 2020). The number of shares that can be earned under the award is determined by multiplying the target number of shares by the payout percentage, as set forth in the table below:
2-Year Average RCF Margin | 3-Year CRS Growth | |||||||||||||||||||||||||||||||||
3.50% | 4.00% | 4.50% | 5.00% | 5.50% | 6.00% | 6.50% | 7.00% | |||||||||||||||||||||||||||
18.50% | 0% | 0% | 25% | 50% | 75% | 100% | 125% | 150% | ||||||||||||||||||||||||||
19.00% | 0% | 25% | 50% | 75% | 100% | 150% | 150% | 200% | ||||||||||||||||||||||||||
20.00% | 50% | 75% | 100% | 150% | 150% | 200% | 200% | 250% | ||||||||||||||||||||||||||
21.00% | 75% | 100% | 150% | 200% | 200% | 250% | 250% | 300% | ||||||||||||||||||||||||||
22.00% | 75% | 125% | 175% | 225% | 250% | 275% | 300% | 300% |
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Executive Officers and Compensation (continued)
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In no event will any Performance Shares be earned if either (i) the 2-Year Average RCF Margin is less than 18.5%, or (ii) 3-Year CRS Growth is less than 3.5%, and no more than 300% of the target number of shares can be earned. If the level of performance for either 3-Year CRS Growth, 2-Year Average RCF Margin or both falls between two stated performance levels in the performance goal table, the payout percentage shall be determined using interpolation. The measurement period for the 2018 PSU grants does not end until December 31, 2020; however, if the CRS and RCF results for 2018 (4.0% and 18.84% respectively) were applied across the entire performance period, the payout of the 2018 PSUs would be approximately 17%.
The Compensation Committee utilized comparable restaurant sales growth and restaurant cash flow margin as elements in both our AIP (one-year measurement period) and our long-term incentive program (two- and three-year measurement periods). When designing our 2018 executive compensation program, the Committee evaluated a range of performance metrics for purposes of our incentive programs and determined that because comparable store revenue growth and restaurant cash flow margin are core drivers of the companys performance and stockholder value creation, and because of the different performance periods, these measures remained appropriate for both the short-term and long-term incentive programs. In addition, the Committee continued its practice of supplementing these measures with additional performance measures in the AIP to strike an appropriate balance with respect to incentivizing top-line growth, profitability, non-financial business imperatives and stockholder returns over both the short-term and long-term horizons.
2018 Stock Appreciation Rights
Annual stock appreciation rights were granted to our NEOs (excluding Mr. Ells), on March 29, 2018. These awards were generally granted with an exercise price equal to 110% of the closing price on the grant date, with the exception of Mr. Niccol (as further described below under Agreements with our Executive Officers), and vest in two equal installments on the 2nd and 3rd anniversaries of the grant date, subject to continued employment. The stock appreciation rights were granted with a 7-year term and are disclosed in the Grants of Plan Based Awards Table for Fiscal 2018.
Other Long-Term Incentive Awards in 2018
In addition to the annual equity awards described above, there were other one-time equity awards provided to NEOs in connection with the hiring, transition, or retention of key management, as described below in the section titled Agreements with Executive Officers.
Long-Term Incentives 2016 Performance Share Award Vesting
The vesting of the 2016 performance share award was based on our absolute stock price performance during the three-year performance period from February 3, 2016 to February 3, 2019. The terms of this award stipulated that in order to receive a threshold payout, the average closing stock price of Chipotles common stock for 60 consecutive days during the performance period was at least $700, which was approximately 52% higher than the closing price of Chipotles common stock on the grant date. At the end of the performance period, it was determined that the threshold goal was not met and these awards were cancelled in December 2018 and paid out at 0%.
Benefits and Perquisites
In addition to the principal compensation elements described above, we provide our executive officers with access to the same benefits we provide all of our full-time employees. We also provide our officers with perquisites and other personal benefits that we believe are reasonable and consistent with our compensation objectives, but that are not available to all employees throughout our company.
Perquisites are generally provided to help us attract and retain top performing employees for key positions, and in some cases perquisites are designed to facilitate our executive officers bringing maximum focus to what we believe to be demanding job duties. These perquisites include relocation benefits and commuting expenses, company cars or car allowances and payment of certain legal expenses. These perquisites are identified in notes to the 2018 Summary Compensation Table. Executive officers have also used company-owned or chartered airplanes for personal trips, in which case we require the executive officer to fully reimburse us for the cost of personal use of the airplane, except where prohibited by applicable regulations. Our executive officers are also provided with personal administrative and other services by company employees from time to time, including scheduling of personal appointments, performing personal errands, and use of company-provided drivers. We believe that the perquisites we provide our executive officers are consistent with market practices, and are reasonable and consistent with our compensation objectives.
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Executive Officers and Compensation (continued)
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We also administer a non-qualified deferred compensation plan for our senior employees, including our executive officers. The plan allows participants to defer the obligation to pay taxes on certain elements of their compensation while also potentially receiving earnings on deferred amounts. We offer an employer match on a portion of the contributions made by the employees. We believe this plan is an important retention and recruitment tool because it helps facilitate retirement savings and financial flexibility for our key employees, and because many of the companies with which we compete for executive talent provide a similar plan to their key employees.
Actions Taken with Respect to 2019 Compensation
For 2019 the Compensation Committee approved base salaries and AIP targets in amounts consistent with 2018. We also streamlined our AIP design and added several key features based on feedback from shareholders:
| Result based solely on financial metrics. |
| Result is subject to two modifiers: (1) food safety performance and (2) individual performance. |
| Increased the weight of corporate and team performance on the overall payout. |
Full disclosure of the 2019 AIP design will be provided in our 2020 proxy statement.
In early 2019, the Compensation Committee granted annual equity awards to our executive officers that generally are consistent with the annual equity awards granted in 2018, including the total grant date fair values and the allocation of 60% PSUs and 40% SOSARs. The 2019 performance share matrix is similar in structure to the 2018 performance share matrix but (i) requires a minimum level of restaurant cash flow margin of 19% for any payout to occur (this is above the minimum level of restaurant cash margin of 18.5% that was used in the 2018 performance share matrix), and (ii) both the RCF margin and the CRS growth metrics have a three-year performance period (versus the RCF margin metric for 2018, which had a two-year performance period).
In addition, in February 2019, the Compensation Committee granted a one-time performance-based digital transformation equity award to the executive officers, excluding Mr. Ells, that is intended to incentivize the achievement of strategic business initiatives focused on expanding digital sales. The Committee believes that the strategic importance of gaining digital market share over the next three years warranted a one-time digital transformation award as further incentive for management to achieve the companys digital goals. The digital transformation PSUs will fully vest in 2023 only if and to the extent that the executive officer achieves the transformation goals by the end of 2020 and, if vested, will settle in shares of Chipotle common stock. Chipotle began a transformation in 2018 when Mr. Niccol joined the company and the Compensation Committee believed a separate incentive was appropriate and beneficial to achieve these longer-term goals. The digital transformation PSU granted to Mr. Niccol equaled approximately 17.7% of his total annual long-term equity incentive grant for 2019.
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Executive Officers and Compensation (continued)
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Executive Officers and Compensation (continued)
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44 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT |
Executive Officers and Compensation (continued)
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The Compensation Committee reviewed and discussed the Compensation Discussion and Analysis included in this Proxy Statement with management. Based on such review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement for filing with the SEC.
The Compensation Committee.
Neil W. Flanzraich, Chairperson
Ali Namvar
Mathew Paull
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Executive Officers and Compensation (continued)
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2018 Summary Compensation Table
Name and Principal Position |
Year | Salary | Bonus(1) | Stock Awards(2)(3) |
Option Awards(3)(4) |
Non-Equity Incentive Plan Compensation(5) |
All Other Compensation(6) |
Total | ||||||||||||||||||||||||
BRIAN NICCOL | 2018 | $ | 969,231 | $ | 1,000,000 | $ | 12,650,019 | $ | 15,683,006 | $ | 2,381,684 | $ | 837,000 | $ | 33,520,940 | |||||||||||||||||
Chief Executive Officer(7) | ||||||||||||||||||||||||||||||||
STEVE ELLS | 2018 | $ | 1,023,077 | $ | | $ | | $ | 5,626,075 | $ | 1,202,518 | $ | 103,372 | $ | 7,955,042 | |||||||||||||||||
Executive Chairman; former Chief Executive Officer(8) |
2017 | $ | 1,540,000 | $ | | $ | 9,324,505 | $ | | $ | | $ | 187,675 | $ | 11,052,180 | |||||||||||||||||
2016 | $ | 1,540,000 | $ | | $ | 14,002,740 | $ | | $ | | $ | 120,356 | $ | 15,663,096 | ||||||||||||||||||
JACK HARTUNG | 2018 | $ | 800,000 | $ | | $ | 1,800,046 | $ | 1,231,989 | $ | 899,747 | $ | 252,447 | $ | 4,984,230 | |||||||||||||||||
Chief Financial Officer | 2017 | $ | 800,000 | $ | | $ | 4,196,010 | $ | | $ | | $ | 209,150 | $ | 5,205,160 | |||||||||||||||||
2016 | $ | 792,308 | $ | | $ | 5,886,337 | $ | | $ | | $ | 175,559 | $ | 6,854,204 | ||||||||||||||||||
CURT GARNER | 2018 | $ | 518,358 | $ | 500,000 | $ | 3,119,990 | $ | 2,666,469 | $ | 439,561 | $ | 882,358 | $ | 8,126,734 | |||||||||||||||||
Chief Technology Officer(7) | 2017 | $ | 483,299 | $ | 426,501 | $ | | $ | 2,653,500 | $ | 139,786 | $ | 206,468 | $ | 3,909,555 | |||||||||||||||||
SCOTT BOATWRIGHT | 2018 | $ | 427,765 | $ | 400,000 | $ | 2,219,991 | $ | 1,944,290 | $ | 352,916 | $ | 366,207 | $ | 5,711,169 | |||||||||||||||||
Chief Restaurant Officer(7) | 2017 | $ | 236,538 | $ | | $ | | $ | 1,194,757 | $ | 69,624 | $ | 215,486 | $ | 1,716,406 | |||||||||||||||||
CHRIS BRANDT | 2018 | $ | 438,462 | $ | 500,000 | $ | 1,348,567 | $ | 2,082,836 | $ | 491,306 | $ | 178,115 | $ | 5,039,286 | |||||||||||||||||
Chief Marketing Officer(7) |
(1) | Amounts under Bonus for 2018 represent one-time sign on bonuses for Messrs. Niccol and Brandt, who joined the company in 2018, and one-time retention bonuses granted in January 2018 to Messrs. Garner and Boatwright to induce them to remain with the company during the pendency of the companys public search for a new chief executive officer. |
(2) | Amounts under Stock Awards represent the grant date fair value under FASB Topic 718 of performance share units (PSUs) for which vesting was considered probable as of the grant date. See Note 9 to our audited consolidated financial statements for the year ended December 31, 2018, which are included in our Annual Report on Form 10-K filed with the SEC on February 8, 2019, for descriptions of the methodologies and assumptions we use to value stock awards and the manner in which we recognize the related expense pursuant to FASB ASC Topic 718. The 2018 PSU awards will not pay out or have any value unless certain performance targets are achieved, which targets are based on three-year comparable restaurant sales growth from 2018 through 2020, and the two-year average restaurant cash flow margin over 2019 and 2020. The PSU awards reflect an assumed target outcome of the performance conditions and do not reflect the value that ultimately may be realized by the executive officer. The grant date fair value of the 2018 PSU awards, assuming maximum performance, is $9,000,229 for Mr. Niccol, $5,400,137 for Mr. Hartung, $4,860,221 for Mr. Garner, $3,060,175 for Mr. Boatwright and $2,600,675 for Mr. Brandt. For further discussion, see above under Compensation Discussion and Analysis 2018 Compensation Program Long Term Incentives 2018 Performance Share Award Design. The 2017 PSU awards will not pay out or have any value unless the price of our common stock exceeds an average of $600 for a period of 60 consecutive trading days before February 19, 2020. The 2016 PSU awards expired and did not payout because the price of our common stock did not exceed an average of $700 for a period of 60 consecutive trading days before February 3, 2019. |
(3) | In connection with Mr. Niccol joining Chipotle in March 2018, the company granted him (i) a one-time award of stock only stock appreciation rights (SOSAR) with an exercise price equal to 125% of the closing stock price of Chipotle common stock on the grant date as a sign-on inducement, and (ii) a one-time award of SOSARs with an exercise price equal to 110% of the closing stock price of Chipotle common stock on the grant date and a restricted stock unit (RSU) as a make-whole award to replace unvested equity awards Mr. Niccol forfeited when he terminated employment with his former employer. The SOSARs are reflected in the Option Awards column and the RSU is reflected in the Stock Award column. In January 2018, the company granted Mr. Ells a one-time award of SOSARs for 175,000 shares in connection with his agreement to transition from CEO of the company to Executive Chairman of the Board and in lieu of his annual 2018 long-term equity grant. The SOSARs are reflected in the Option Awards column and have an exercise price of $500 per share, which equated to a nearly 60% premium to the grant date stock price. |
(4) | Amounts under Option Awards represent the grant date fair value under FASB Topic 718 of SOSARs awarded in 2018. See Note 9 to our audited consolidated financial statements for the year ended December 31, 2018, as referenced in footnote 2, for descriptions of the methodologies and assumptions we use to value SOSAR awards and the manner in which we recognize the related expense pursuant to FASB ASC Topic 718. |
(5) | Amounts under Non-Equity Incentive Plan Compensation represent the amounts earned under the annual incentive plan (AIP) for the relevant year. |
46 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT |
Executive Officers and Compensation (continued)
|
|
(6) | Amounts shown in the All Other Compensation column for 2018 include the following: |
NAME | COMPANY CONTRIBUTIONS TO RETIREMENT PLANS(a) |
PERSONAL AIRCRAFT USE AND COMMUTING COSTS(b) |
HOUSING AND RELOCATION(c) |
HOME SECURITY(d) |
CAR ALLOWANCE(e) |
LEGAL FEES(f) |
TAX PAYMENTS(g) |
TOTAL | ||||||||||||||||||||||||||||||||
Brian Niccol |
$ | 0 | $ | 145,157 | $ | 26,189 | $ | 32,744 | $ | 28,350 | $ | 563,668 | $ | 40,894 | $ | 837,000 | ||||||||||||||||||||||||
Steve Ells |
$ | 40,923 | $ | 0 | $ | 0 | $ | 0 | $ | 57,503 | $ | 4,945 | $ | 0 | $ | 103,372 | ||||||||||||||||||||||||
Jack Hartung |
$ | 32,023 | $ | 50,731 | $ | 64,335 | $ | 0 | $ | 24,457 | $ | 0 | $ | 80,902 | $ | 252,447 | ||||||||||||||||||||||||
Curt Garner |
$ | 30,406 | $ | 23,313 | $ | 465,633 | $ | 0 | $ | 35,100 | $ | 0 | $ | 327,906 | $ | 882,358 | ||||||||||||||||||||||||
Scott Boatwright |
$ | 7,542 | $ | 0 | $ | 238,231 | $ | 0 | $ | 35,100 | $ | 0 | $ | 85,333 | $ | 366,207 | ||||||||||||||||||||||||
Chris Brandt |
$ | 0 | $ | 27,921 | $ | 48,899 | $ | 0 | $ | 25,660 | $ | 0 | $ | 75,635 | $ | 178,115 |
(a) | Consists of matching contributions made by the company to Chipotles 401(k) Plan and the Supplemental Deferred Investment Plan for the benefit of the executive. The Supplemental Deferred Investment Plan is a nonqualified deferred compensation arrangement for employees who earn compensation in excess of the maximum compensation that can be taken into account with respect to the 401(k) Plan, as set by the Internal Revenue Code. See Non-Qualified Deferred Compensation for 2018 for more details on this plan. |
(b) | Consists of commuting costs for new executives who joined Chipotle in 2018 and/or executives who commuted from home to our company headquarters for all or part of 2018, including in connection with Chipotles headquarters relocating to California from Colorado in 2018, and the cost of personal use of company-owned aircraft for commuting. Amounts for commercial travel include airfare, airport parking and ground transportation relating to travel between home and our company headquarters; amounts for use of company-owned aircraft include costs billed by a third-party operating company or, for company-operated flights, the hourly operating cost of the aircraft, consisting of fuel costs, an allocation of maintenance costs, and an allocation of other operating costs such as crew expenses, catering, landing fees, taxes, and other operating costs. On occasion, Mr. Ells and Mr. Niccol have used the company-owned aircraft for personal flights and have reimbursed the company for the aggregate incremental costs of those flights. |
(c) | Consists of relocation costs for executives who joined the company in 2018 and/or relocated in connection with the relocation of Chipotles headquarters from Colorado to California, as well as temporary housing expenses for executives who were commuting from home and our company headquarters location. Relocation costs include costs such as transportation, house hunting trips, packing and transportation of household belongings, and housing costs include monthly rent and utilities payments. The executive would be required to repay Chipotle for these relocation costs if the executives employment terminated before the one year anniversary of his start date or relocation. The aggregate incremental cost was based on the amount paid to the NEO or the service provider, as applicable. |
(d) | Consists of costs to install a security system in Mr. Niccols home, which includes one-time advisory fees and equipment installation, plus monthly monitoring costs. The aggregate incremental cost was based on the amount paid to the service provider. |
(e) | Consists of costs for company car used by the executive, including depreciation expense recognized on company-owned cars or lease payments on leased cars (in either case less employee payroll deductions), insurance premiums, and maintenance and fuel costs. Also includes car allowances paid to those executives who choose not to use a company car. |
(f) | Consists of legal fees and expenses paid by the company arising from a commercial legal proceeding relating to Mr. Niccols employment by Chipotle, and also legal fees paid by the company for legal review of employment-related agreements for Messrs. Niccol and Ells. |
(g) | Consists of the companys reimbursement of taxes payable by the executive in connection with housing, relocation and commuting costs that are taxable perquisites to the executives under rules of the Internal Revenue Service. |
(7) | Several executive officers became executive officers of Chipotle within the past two years, and their compensation is reported only for the years in which they were executive officers of the company: Mr. Niccol joined the company as Chief Executive Officer in March 2018; Mr. Garner was designated as an executive officer in March 2017; Mr. Boatwright was designated as an executive officer in September 2017; and Mr. Brandt joined the company in April 2018. |
(8) | Mr. Ells transitioned to Executive Chairman in March 2018, effective upon our appointment of Mr. Niccol as Chief Executive Officer. |
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT | 47 |
Executive Officers and Compensation (continued)
|
|
Grants of Plan-based Awards In 2018
Estimated Future Payouts
|
Estimated Future Payouts
|
All Other
|
All Other
|
Exercise Or
|
Grant
|
|||||||||||||||||||||||||||||||||||
Name
|
Award
|
Grant
|
Threshold
|
Target
|
Maximum
|
Threshold
|
Target
|
Maximum
|
||||||||||||||||||||||||||||||||
BRIAN NICCOL | ||||||||||||||||||||||||||||||||||||||||
AIP(4) | | $1,800,000 | $1,800,000 | $ | 3,024,000 | |||||||||||||||||||||||||||||||||||
RSUs(5) |
3/5/18 | 30,141 | $ | 9,649,943 | ||||||||||||||||||||||||||||||||||||
PSUs(6) | 3/29/18 | 2,321 | 9,285 | 27,855 | $ | 3,000,076 | ||||||||||||||||||||||||||||||||||
SOSAR(5) |
3/5/18 | 114,840 | $ | 352.18 | $ | 9,721,206 | ||||||||||||||||||||||||||||||||||
SOSAR(5) | 3/5/18 | 53,086 | $ | 400.20 | $ | 4,011,709 | ||||||||||||||||||||||||||||||||||
SOSAR(7) | 3/29/18 | 21,439 | $ | 323.11 | $ | 1,950,091 | ||||||||||||||||||||||||||||||||||
STEVE ELLS | ||||||||||||||||||||||||||||||||||||||||
AIP | | $204,319 | $1,061,397 | $ | 2,388,142 | |||||||||||||||||||||||||||||||||||
SOSAR(8) | 1/5/18 | 175,000 | $ | 500.00 | $ | 5,626,075 | ||||||||||||||||||||||||||||||||||
JACK HARTUNG | ||||||||||||||||||||||||||||||||||||||||
AIP | | $130,900 | $680,000 | $ | 1,428,000 | |||||||||||||||||||||||||||||||||||
PSU(6) | 3/29/18 | 1,393 | 5,571 | 16,713 | $ | 1,800,046 | ||||||||||||||||||||||||||||||||||
SOSAR(7) | 3/29/18 | 14,742 | $ | 355.42 | $ | 1,231,989 | ||||||||||||||||||||||||||||||||||
CURT GARNER | ||||||||||||||||||||||||||||||||||||||||
AIP | | $65,519 | $340,360 | $ | 714,756 | |||||||||||||||||||||||||||||||||||
RSU(7) | 1/5/18 | 4,780 | $ | 1,499,916 | ||||||||||||||||||||||||||||||||||||
PSU(6) | 3/29/18 | 1,254 | 5,014 | 15,042 | $ | 1,620,074 | ||||||||||||||||||||||||||||||||||
SOSAR(7) | 1/5/18 | 18,386 | $ | 313.79 | $ | 1,557,662 | ||||||||||||||||||||||||||||||||||
SOSAR(7) | 3/29/18 | 13,268 | $ | 355.42 | $ | 1,108,807 | ||||||||||||||||||||||||||||||||||
SCOTT BOATWRIGHT | ||||||||||||||||||||||||||||||||||||||||
AIP | | $53,928 | $280,146 | $ | 588,307 | |||||||||||||||||||||||||||||||||||
RSU(7) | 1/5/18 | 3,824 | $ | 1,199,933 | ||||||||||||||||||||||||||||||||||||
PSU(6) | 3/29/18 | 789 | 3,157 | 9,471 | $ | 1,020,058 | ||||||||||||||||||||||||||||||||||
SOSAR(7) | 1/5/18 | 14,709 | $ | 313.79 | $ | 1,246,146 | ||||||||||||||||||||||||||||||||||
SOSAR(7) | 3/29/18 | 8,354 | $ | 355.42 | $ | 698,144 | ||||||||||||||||||||||||||||||||||
CHRIS BRANDT | ||||||||||||||||||||||||||||||||||||||||
AIP | | $75,075 | $390,000 | $ | 819,000 | |||||||||||||||||||||||||||||||||||
RSU(5) | 3/29/18 | 1,548 | $ | 481,676 | ||||||||||||||||||||||||||||||||||||
PSU(6) | 3/29/18 | 697 | 2,786 | 8,358 | $ | 866,892 | ||||||||||||||||||||||||||||||||||
SOSAR(5) | 3/29/18 | 22,567 | $ | 403.89 | $ | 1,521,016 | ||||||||||||||||||||||||||||||||||
SOSAR(7) | 3/29/18 | 7,372 | $ | 355.42 | $ | 561,820 |
(1) | Each executive officer was entitled to a cash award to be paid under our 2014 Cash Incentive Plan; however, as a matter of practice, the Compensation Committee exercises discretion to pay each executive officer a lesser amount determined under the AIP as described under Compensation Discussion and Analysis 2018 Compensation Program Annual Incentive Plan. The Threshold column reflects amounts that would be paid under the AIP if each executive officer achieved the plan goals at the minimum level required to receive any payout. Amounts under Target reflect the target AIP bonus that would have been paid to the executive officer if each of the company performance factor, team performance factor and individual performance factor under the AIP had been set at 100 percent. Amounts under Maximum reflect the AIP bonus that would have been payable had each of the company performance factor, team performance factor and individual performance factor been at the maximum level. Actual AIP bonuses paid are reflected in the Non-Equity Incentive Plan Compensation column of the table labeled 2018 Summary Compensation Table above. |
(2) | All equity awards are denominated in shares of common stock and were granted under the Amended and Restated Chipotle Mexican Grill, Inc. 2011 Stock Incentive Plan. See Terms of 2018 Annual Performance Share Unit Awards and Terms of 2018 Annual SOSAR Awards below for a description of the vesting terms for the Performance Shares and SOSARs granted during 2018. |
(3) | See Note 9 to our audited consolidated financial statements for the year ended December 31, 2018, which are included in our Annual Report on Form 10-K filed with the SEC on February 8, 2018, for descriptions of the methodologies and assumptions we used to value equity awards pursuant to FASB Topic 718. |
48 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT |
Executive Officers and Compensation (continued)
|
|
(4) | In connection with his joining Chipotle in March 2018, the company guaranteed Mr. Niccols AIP for 2018 at no less than 150% of his base salary. The guarantee does not apply to 2019 or any future years. |
(5) | Grants of equity awards as make-whole or inducement awards when the executives joined Chipotle in early 2018. The SOSARs granted to Mr. Niccol have exercise prices equal to 110% and 125% of the closing stock price of Chipotle common stock on the grant date, and all awards granted to Mr. Niccol vest ratably over three years beginning on the first anniversary of the grant date. The awards to Mr. Brandt vest ratably on the second and third anniversary of the grant date. |
(6) | PSUs vest in March following the end of the performance period (January 1, 2018 December 31, 2020) if and to the extent that both of the two performance goals are achieved. |
(7) | The SOSAR and the RSU awards vests 50% on the second anniversary and 50% on the third anniversary of the date of grant. |
(8) | The SOSAR vests in full on July 4, 2019 and can be exercised only between January 5, 2021 and January 5, 2022. |
Terms of 2018 Annual Performance Share Unit Awards
Performance share unit awards (PSUs) granted to the executive officers in 2018 will vest only if and to the extent that both of the two performance goals specified in the awards are achieved. The performance goals are comparable restaurant sales growth over a three-year performance period (2018 through 2020), and average restaurant-level cash flow margin over a two-year performance period (2019 and 2020). The payout range for the PSUs is 0% to 300%, and none of the PSUs will vest if either performance goal is below the threshold target of an average of 3.5% for comparable restaurant sales growth or 18.5% for average restaurant-level cash flow margin.
Vesting and payout of each PSU is subject to the recipients continued employment through the vesting date, subject to the potential pro-rata payout to the recipient or his estate in the event of termination due to death, disability or retirement, and to potential accelerated vesting in the event of certain terminations within two years of certain change in control transactions.
Terms of 2018 Annual SOSAR Awards
Each stock only stock appreciation right (SOSAR) represents the right to receive shares of common stock in an amount equal to (i) the excess of the market price of the common stock at the time of exercise over the exercise price of the SOSAR, divided by (ii) the market price of the common stock at the time of exercise. The exercise price of the SOSARs for all executive officers, except Mr. Niccol, is equal to 110% of the closing price of our common stock on the date of grant. The exercise price of the annual grant of SOSARs to Mr. Niccol for 2018 is equal to the closing price of our common stock on the date of grant. The SOSARs are subject to vesting in two equal amounts on the second and third anniversary of the grant date, subject to potential acceleration of vesting in the event of termination due to death, disability, or retirement, and to potential accelerated vesting if the SOSARs are not replaced in the event of certain in control transactions. When he joined the company, Mr. Niccol was granted two one-time SOSAR grants as a make-whole award and an inducement award, and the exercise price of these SOSARs was 110% and 125% of the closing price of our common stock on the date of grant.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT | 49 |
Executive Officers and Compensation (continued)
|
|
Outstanding Equity Awards at Fiscal Year End 2018
Option Awards
|
Stock Awards
|
|||||||||||||||||||||||
Name
|
Number Of
|
Number
Of
|
Option
|
Option
|
Equity Incentive
|
Equity Incentive
|
||||||||||||||||||
Brian Niccol |
| 114,840 | (3) | $ | 352.18 | 3/24/2025 | 2,321 | (3) | $ | 1,002,185 | ||||||||||||||
| 53,086 | (2) | $ | 400.20 | 3/4/2025 | 30,141 | (2) | $ | 13,014,582 | |||||||||||||||
| 21,439 | $ | 323.11 | 3/28/2025 | ||||||||||||||||||||
Steve Ells |
| 175,000 | (4) | $ | 500.00 | 1/5/2022 | 10,000 | (5) | $ | 4,317,900 | ||||||||||||||
87,500 | $ | 543.20 | 2/3/2021 | |||||||||||||||||||||
87,500 | $ | 543.20 | 2/3/2021 | |||||||||||||||||||||
Jack Hartung |
25,000 | | $ | 318.45 | 2/7/2020 | 1,393 | (3) | $ | 601,483 | |||||||||||||||
| 14,742 | $ | 355.42 | 3/28/2025 | 4,500 | (5) | $ | 1,943,055 | ||||||||||||||||
25,000 | | $ | 318.45 | 2/7/2020 | ||||||||||||||||||||
30,000 | | $ | 543.20 | 2/3/2021 | ||||||||||||||||||||
30,000 | | $ | 543.20 | 2/3/2021 | ||||||||||||||||||||
Curt Garner |
| 18,386 | $ | 313.79 | 1/4/2025 | 1,254 | $ | 541,465 | ||||||||||||||||
11,000 | | $ | 554.86 | 12/15/2022 | 4,780 | $ | 2,063,956 | |||||||||||||||||
| 25,000 | $ | 427.61 | 2/19/2024 | ||||||||||||||||||||
| 13,268 | $ | 355.42 | 3/28/2025 | ||||||||||||||||||||
12,500 | 12,500 | $ | 417.22 | 4/26/2023 | ||||||||||||||||||||
Scott Boatwright |
| 14,709 | $ | 313.79 | 1/4/2025 | 789 | (3) | $ | 340,682 | |||||||||||||||
| 8,354 | $ | 355.42 | 3/28/2025 | 3,824 | $ | 1,651,597 | |||||||||||||||||
| 10,090 | $ | 475.70 | 5/29/2024 | ||||||||||||||||||||
Chris Brandt |
| 22,567 | (2) | $ | 403.89 | 3/28/2025 | 697 | $ | 300,958 | |||||||||||||||
| 7,372 | $ | 355.42 | 3/28/2025 | 1,548 | (2) | $ | 668,411 |
(1) | Calculated Based on the closing stock price of our common stock on December 31, 2018 of $431.79 per share. |
(2) | Represents grants of SOSARs and RSUs awarded as make-whole or inducement awards when the executives joined Chipotle in early 2018. The SOSARs granted to Mr. Niccol have an exercise price equal to 110% and 125% of the closing stock price of Chipotle common stock on the grant date and vest ratably over three years beginning on the first anniversary of the grant date. The awards to Mr. Brandt vest ratably on the second and third anniversary of the grant date. |
(3) | Represents the annual grant of performance share units for 2018, assuming achievement at the threshold level (which would require achievement of threshold comparable restaurant sales growth over a three-year performance period (2018 through 2020) and threshold average restaurant-level cash flow margin over a two-year performance period (2019 and 2020)). The terms of the 2018 performance share awards are further described above under Terms of 2018 Annual Performance Share Unit Awards. |
(4) | Represents a one-time SOSAR grant to Mr. Ells under this Executive Chairman Agreement in connection with his transition from Chief Executive Officer to Executive Chairman. The SOSAR was granted in lieu of Mr. Ells annual 2018 long-term equity award, has an exercise price of $500, which equates to an almost 60% premium to the closing stock price of Chipotle common stock on the grant date and vests in full on July 4, 2019, subject to Mr. Ells continued employment through the vesting date. |
(5) | Represents the annual grant of performance share awards for 2017, assuming achievement at the threshold level (which would require that our average closing stock price for any period of 60 consecutive trading days during the performance period equals at least $600, in addition to achievement of comparable restaurant sales goals). |
50 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT |
Executive Officers and Compensation (continued)
|
|
Option Exercises and Stock Vested In Fiscal 2018
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||
Name | Number Of Shares Acquired On Exercise(#) |
Value Realized On Exercise($) |
Number Of Shares Acquired On Vesting(#)(1) |
Value Realized On Vesting($)(2) |
||||||||||||||||||||||||||||||
Brian Niccol | | | | | ||||||||||||||||||||||||||||||
Steve Ells | | | 11,537 | $ | 3,679,265 | |||||||||||||||||||||||||||||
Jack Hartung | | | 4,845 | $ | 1,545,119 | |||||||||||||||||||||||||||||
Curt Garner | | | | | ||||||||||||||||||||||||||||||
Scott Boatwright | | | | | ||||||||||||||||||||||||||||||
Chris Brandt | | | | |
(1) | Reflects the number of shares of Chipotle common stock acquired on vesting of restricted stock units. |
(2) | Equals closing price the Chipotles common stock on the vesting date multiplied by the number of shares vested. |
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2019 PROXY STATEMENT | 51 |
Executive Officers and Compensation (continued)
|
|
The table below presents contributions by each executive officer, and our matching contributions, to the Supplemental Deferred Investment Plan during 2018, as well as each executive officers earnings under the plan and ending balances in the plan on December 31, 2018.
Name | Executive Contributions In Last Fy(1) |
Registrant Contributions In Last Fy(2) |
Aggregate Earnings In Last Fy(3) |
Aggregate Withdrawals/ Distributions |
Aggregate Balance At Last Fye(4) |
|||||||||||||||||
Brian Niccol | | | | | | |||||||||||||||||
Steve Ells | $ | 37,404 | $ | 29,923 | $ | 4,706 | $ | 567,069 | $ | 302,169 | ||||||||||||
Jack Hartung | $ | 135,500 | $ | 27,100 | $ | 58,799 | $ | 0 | $ |