May 21

Brian Niccol, who became CEO of Chipotle in March 2018, received total disclosed compensation of over $33 million dollars for the year. Per the company’s disclosure the median employee’s total compensation for the year was $13,779. The CEO pay ratio of 2,450 to one is among the highest of the year.  

Since his arrival the company’s done well and he’s been lauded for his role in bringing increased revenue, growing comparable restaurant sales, and a sharp rise in stock price from where it was a few years back. He also moved the company headquarters from Denver to Newport Beach, California. It is too early to say, however, whether the changes he’s made will make a long-term difference at the company. Some believe the market has over-responded to the change in management, noting that stock was at an astonishing 42 times earnings per share estimates in early 2019.

The company has a history of overpay, as I wrote about in 2015, and provides an example of how high executive compensation gets baked in at a company. Chipotle for many years had two CEOs, both with high compensation packages. Former co-CEO Steve Ells remains on the board as Executive Chairman and received total compensation last year of nearly $8 million dollars.

When Niccol joining Chipotle in March 2018, the company granted him 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, another one-time award of SOSARs with an exercise price equal to 110% of the stock price. In addition they gave him a restricted stock award to replace unvested equity at previous employer Yum Brands.

Shareholders might also object that the company granted “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.” Given Ells history with the company and his significant holdings that award seems unnecessary. Ells ownership at the company already gives him l in the stock price this year, but his ownership stake should already sufficiently do that. In fact, Ells stands to get a huge windfall should he exercise his stock options that were previously underwater.

I’ve been reading lately about “wealth extraction.” Looking at Chipotle I can’t help but wonder if reputation is one element of wealth that can be extracted. Time will tell.

Rosanna Weaver