Chipotle Mexican Grill (NYSE:CMG) doesn't just provide delicious burritos that make its heady sales and profits run. It is also a huge force in sustainability and education about where our food comes from. The company doesn't rely on traditional marketing. Instead, it embraces unique ways to spread its "Food With Integrity" ways. See: its Cultivate Festivals, the Scarecrow social media campaign, sponsorship of films like Food Inc., and its more recent Farmed and Dangerous show.
Now the burrito giant has revealed a wonderful initiative that displays a similar focus on underserved areas that many of us believe in strongly. Its cups will feature short works by well-known authors.
It's odd, though, that the literary cup news arrived on the scene on the exact same day that we learned about an epic fail despite the many victorious aspects of the business.
A landslide number of investors voted against Chipotle's CEO pay. To be difficult and critical, as I sometimes like to do, I've got some questions. In some ways, might the architecture of Chipotle not only boost growth and goodwill but have world-changing impacts, too?
Is their leadership worth every darn penny?
It's high, all right
The truth is, Chipotle co-CEOs Steve Ells and Monty Moran do rack up the kind of pay that many would drop in the top tier of insanely "overpaid," regardless of insane stock and business growth in recent years. Together, their total compensation added up to $50 million last year alone.
Chipotle's proxy statement also reveals some crazy perks. Although these are tiny dollar amounts in the grand scheme of things, paying for schooling for executives' children with shareholder money is a real bone of contention for anyone who wants to change corporate-governance policies for the better.
However, Chipotle's SEC filings underline what is probably an important point, to management's and directors' perspective for the worthiness of retaining talent, anyway (emphasis mine):
Our Chairman and co-Chief Executive Officer Steve Ells founded our company, has been the principal architect of our business strategy, and has led our growth from a single restaurant in 1993 to over 1,500 restaurants today. Monty Moran, our co-Chief Executive Officer, and Jack Hartung, our Chief Financial Officer, have also served with us for several years and much of our growth has occurred under their direction as well. We believe our executive officers, each of whom is an at-will employee without any employment contract, have created an employee culture, food culture and business strategy at our company that has been critical to our success and that may be difficult to replicate under another management team. We also believe that it may be difficult to locate and retain executive officers who are able to grasp and implement our unique strategic vision. If our company culture were to deteriorate following a change in leadership, or if a new management team were to be unsuccessful in executing our strategy or were to change important elements of our current strategy, our growth prospects or future operating results may be adversely affected.
As much as in many companies' cases the "retaining talent" argument is silly, I do think there's a point at which new management just might not get it. However, in another BS-detector aside, founders and managements who "architect business strategy" rarely want to leave. Passion is at play.
Say-on-pay votes are non-binding. Managements and boards of directors don't have to do or change anything at all. However, more and more companies are responding to negative shareholder votes, even when votes against their policies don't even stack up to a majority.
However, ignoring shareholder feedback casts managements in a poor light. Going public does mean having shareholder capital and a group of people who deserve a voice.
Here are some examples of gutsy CEOs, though, and it isn't displayed through their millions and billions in pay. They probably get less credit because to the media and shareholders, it isn't that interesting or worth voting against.
Some CEOs have made stands in the past to voluntarily reduce their pay or remain in the modest range of their industries and the prevailing pay schemes.
- Berkshire Hathaway's (NYSE:BRK-A) Warren Buffett makes peanuts. In 2013, his base salary was $100,000. Even counting the calculation of total compensation, he received less than $500,000. Charlie Munger's entire salary was $100,000. In an interesting aside, executive compensation is on page 9 of the proxy statement. It doesn't need much burying.
- In 2006, Whole Foods Market's (NASDAQ:WFM) John Mackey decided he didn't want to work for money anymore. Any money. He even rejected stock-based compensation (one of the tricky things about most CEOs who receive those $1 salaries).
- Kinder Morgan's (NYSE:KMI) Rich Kinder makes a buck. Again, a literal buck. He receives no bonuses, no stock options, nada. He reimburses the company for his health-care expenses. His pay package is at his request. In other words, he simply told the board that is what he wants to do.
- Morningstar (NASDAQ:MORN) CEO and founder Joe Mansueto views his pay in a similar vein. Mansueto's total compensation last year: a whopping $105,000.
These individuals aren't hippies who don't understand or care about economics. These are individuals who have done quite well through the companies they've founded. In some cases, maybe they do feel that the passion for the companies they've created is the real reward.
It's gutsy to save shareholder money by making voluntary decisions to preserve shareholder capital. It's gutsy because hardly anybody else in corporate America does this, much less thinks this way. For CEOs who are all about the boatloads of cash, it doesn't work in their benefit since many of them sit on boards of directors, in compensation committees crafting pay packages that float all the boats.
Getting a read
Even though I'm a shareholder who is continuously awed with the wonderful things about Chipotle -- the literary endeavor is one of those things -- it comes with enough corporate-governance negatives that I do feel disappointed. And that may be a nice way to put it.
Obviously, 77% of shareholders are furious about Ells' and Moran's pay packages. It doesn't help that more and more often, fast-food companies' rock-bottom worker pay puts a highlight on the other side of the company's employee spectrum.
Given some of the amazing stakeholder-friendly and holistic policies that make up part of the company's mission, they've left themselves open to be considered hypocrites. I feel bad when great companies leave themselves open to criticism that is by no means irrational. I feel especially bad about it when I'm a shareholder.
I can't wait to read some of Chipotle's literary cups while I enjoy my tasty burrito bowls, many of which will involve Chipotle's new sofritas.
However, I also can't wait to see what comes of this situation. Who knows. A management with lofty ideals may change the course of one area in which they look like almost everybody else.
Check back at Fool.com for more of Alyce Lomax's columns on environmental, social, and governance issues.
John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors.
Alyce Lomax owns shares of Chipotle Mexican Grill and Whole Foods Market. The Motley Fool recommends and owns shares of Chipotle Mexican Grill, Kinder Morgan, and Whole Foods Market. It also recommends Morningstar. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.