Does Chipotle Lack Executive Pay With Integrity?

Chipotle Mexican Grill (NYSE: CMG  ) investors have been spoiled in a climate that has been tricky for most of its competition, but it seems that even the halo of success has its limits. Shareholders gave their opinion on the burrito roller's executive pay proposal at today's annual meeting. Chipotle executives aren't going to like what they hear.

Just 23% of Chipotle's investors voiced approval for the new executive pay package. The vote itself is not binding, but it's hard to ignore that kind of investor mandate. If investors feel that salaries and stock option grants are too extreme, does Chipotle really want to go against their wishes? 

It's true that Chipotle does pay its executives handsomely. Co-CEOs Steve Ells and Monty Moran combined to make nearly $50 million last year. This happened despite a then-surprisingly high 27% of Chipotle shareholders voting against the say-on-pay measures last May after Ellis and Moran took home $38.8 million in combined compensation in the preceding year. If the message wasn't clear then, it's carnitas clear now.

One can argue that Chipotle did this to itself. Parading the "food with integrity" mantra as it paints itself as the good guys in fast-casual comes with more than just additional scrutiny. Investors drawn to Chipotle because it does the right thing in the kitchen will expect those same principles to apply to executive pay.

Bulls will argue that Ells and Moran earned their hefty paydays. That's a fair argument. Chipotle has been a market beater since going public eight years ago. It's been bucking the trend that has seen many formerly leading fast-food, fast-casual, and casual-dining operators post negative comparable-restaurant sales growth in recent quarters. Even McDonald's -- the world's largest burger chain and former Chipotle parent before spinning it off in a 2006 IPO -- has felt the pinch.

Comparable sales fell 1.7% at McDonald's during the first three months of this year. The company blamed the weather. Many chains have followed suit, making the recent winter a popular scapegoat to explain away the performance indigestion. However, Chipotle stunned the market when it revealed a 13.4% spike in comps during the same period.

This doesn't mean you hand executives at the 1,637-unit chain a blank check. Then again, history has proven that it's better to trust Ells and Moran than to bet -- and vote -- against them. Chipotle's response to the vote will go a long way in determining whether it's a good guy or villain here.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 15, 2014, at 6:53 PM, SHFriendly wrote:

    Michael Pryce-Jones of CtW presented this proposal at Thursday’s Chipotle annual meeting and it won a majority vote:

    Proposal F

    An Advisory Vote On A Shareholder Proposal Requesting Chipotle To Adopt Simple Majority Voting

    Sponsored by James McRitchie and Myra K. Young.

    Chipotle took the unusual step of suing McRitchie and Young in Denver Federal Court in its failed attempt to keep this proposal off today’s ballot:

    Chipotle v. Chevedden [McRitchie and Young]: Colorado District Court Grants Defendants' Motion to Dismiss for Lack of Jurisdiction

    http://us.practicallaw.com/5-561-3445

  • Report this Comment On May 16, 2014, at 7:24 AM, WesChong wrote:

    It's a very positive development to see the shareholders flex their muscles and their rights. CEOs have had a blank check for too long. Even if they are running a growing business there should be some upper limits or at least performance justification to comp packages. So many CEOs and Execs get away with a large comp package simply because that is the going rate at other companies.

    http://www.GetItAllSecrets.com/

  • Report this Comment On May 16, 2014, at 8:44 AM, RxPro wrote:

    Great comments so far, I also see the trend where CEOs are just taking everything they can get. Ok sure their performance has been solid, but was it really that hard with the way securities have risen in the past few years? Come out on top after a bad-market year and they'll earn their pay, but by then they'll jump the figurative ship, right into the literal ship that they bought with their $100M+ compensation.

  • Report this Comment On May 16, 2014, at 12:50 PM, Luke721 wrote:

    I question the sincerity of the Company's "do-gooder" message when, at the same time, the CEOs are raking as much off the table as their pockets will hold. Also, the degree of their confidence in the long term prospects when they have sold virtually all option shares granted to them. Add to that the highly unusual and antagonistic action of filing suit to keep a fair shareholder proposal off the agenda. Mssrs. Ells and Moran are just another couple of CEOs, living in their CEO shells, where greed overcomes and overrules all.

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