Chipotle (NYSE:CMG) now has the dubious distinction of having the highest shareholder vote of the year against its executive compensation practices, which have awarded more than $300 million to the company's co-chief executives in recent years. More than 75% of votes were in the "no" column when tallied on the so-called "say on pay" measure.
That is a stunning rebuke, especially given the growth of the chain over that period, and the tepid reponse the last time around, when only 27% of shareholders voted "nay."
But $50 million a year? $300 million over just a few years? Personal paid use of the corporate jet, and taxes paid on even that imputed income? Those co-CEOs own less than 1% of the company, so these days they're employees, not owners. One can just imagine Ben Graham, who rightly viewed shares as ownership of the company, saying "Wait, you want a salary of $50 million? Guys, it was a great idea. You started well, but then you sold the company! You chose to take your benefit. If you want to continue to reap those rewards, you should still own it. You don't."
Owners for life
Ray Kroc became fabulously wealthy, but that was because he kept sizable ownership stakes in McDonald's (NYSE:MCD), the company he bought and groomed throughout his life. Sam Walton, Bill Gates, Warren Buffett, even Dr. Dre grew their wealth because they started well, but also owned and kept significant stakes in the companies they founded. They may have done even better along the way, but at least they had skin in the game; that's why few people begrudge them for their great wealth.
Chipotle's executive compensation costs are about five times the quick-serve industry norm. If a comparison helps, Chipotle's top five execs earn 42% more than Coca-Cola's (NYSE:KO) executive team on sales that are a small fraction, and it's worth remembering that Coke just went through its own executive compensation outrage moment, so this is a stunning comparison indeed. A Bloomberg Businessweek analysis demonstrates that Chipotle has one of the worst pay-for-performance profiles in the Russell 3000, and that's based on past performance, not the future proposal.
A pending wage cut?
Sadly, this "no confidence vote" is non-binding, but with a little luck and more publicity, perhaps the compensation committee can be bludgeoned into reevaluating how they're doing their job. And perhaps other compensation committees around the corporate board rooms could take a lesson too.
It's far too soon to call a trend, but Domino's (NYSE:DPZ) shareholders recently voted 25% against executive pay proposals, and at least some Citigroup (NYSE:C) shareholders are advising a vote against executive pay there as well. (It may be remembered that in 2012 shareholders voted against a $15 million pay package of then-CEO Vikram Pandit. He was later forced out by the Citi board after the company's performance continued to decline.)
One of the features hotly debated of the Dodd-Frank legislation was its potential impact on outrageous executive compensation. It hasn't been much, but the provision calling for say-on-pay, while inadequate and non-binding, seems to be a start, at least.