Chipotle
Annual Meeting: May 19, 2020
Total disclosed compensation for Brian Niccol, Chairman and Chief Executive Officer of Chipotle, was $16,068,144, representing a significant decrease. In 2018, his compensation was $33,5210,940. Chipotle was number nine on As You Sow’s list of overpaid CEOs and 25.9% of shareholders voted against its compensation proposal. HIP investor calculated that Niccol’s pay was 174% percent higher than predicted by the regression they performed.
Shareholders will be pleased with the lower overall pay but there is an extremely problematic practice that may still inspire votes against. Niccol’s pay included $1,078,867 in “legal fees paid by the company arising from a commercial legal proceeding relating to Mr. Niccol’s employment by Chipotle, and the amount paid to settle the matter,” and $1,206,505 as reimbursement for the personal income taxes he would incur on these amounts.
The company presumably may have heard from shareholders on this. Chipotle issued a special explanatory note supplemental filing with an attempt to justify the payment. The board noted that they paid for settlement of the lawsuit because, it “believed that resolving the proceeding quickly would be in the best interests of Chipotle and its shareholders because it would minimize distractions to Mr. Niccol and the management team during a critical time in the company’s history.” In my opinion, the filing did not necessarily clear up matters. It failed to explain why Niccol’s could not pay for his own taxes. Also, there is no information in the proxy statement or subsequent filing on what the commercial legal proceeding was.
It is particularly striking at a company where the median employee is paid $14,155 per year and the CEO pay ratio is 1,136:1.
Shareholders at the meeting will also vote on a shareholder proposal that urges the Compensation Committee to disclose if, and how, it seeks to require that senior executives retain a significant percentage of shares acquired through equity compensation programs until reaching normal retirement age.
The proponent suggests several elements the company may wish to consider:
• Defining normal retirement age based on the Company’s qualified retirement plan with the largest number of participants,
• Adopting a share retention requirement of at least 25% of net after-tax shares awarded, and,
Whether this supplements any other share ownership requirements that have been established for senior executives.