Chipotle Mexican Grill

Chipotle Mexican Grill Proxy Guide

Chipotle Mexican Grill, Inc. (CMG), together with its subsidiaries, operates Chipotle Mexican Grill restaurants. As of December 31, 2017, it operated 2,363 Chipotle restaurants throughout the United States, as well as 37 international Chipotle restaurants; and 8 non-Chipotle restaurants. Most shareholders do not vote because reading through 70+ pages of the proxy is not worth the time for the small difference your vote will make.

Below, I tell you how I am voting and why. If you have read these posts related to my portfolio for the last 22 years, have values aligned with mine, and trust my judgment (or you don’t want to take the time to read it), go immediately to see how I voted my ballot. Voting will take you only a minute or two and every vote counts. The annual meeting is coming up on May 22, 2018. I voted with the Board’s recommendations 38% of the time. View Proxy Statement via SEC’s EDGAR system (look for DEF 14A). Read Warnings below. What follows are my recommendations on how to vote the proxy in order to enhance corporate governance and long-term value.

Chipotle Mexican Grill: ISS Rating

From the Yahoo Finance profile: Chipotle Mexican Grill, Inc.’s ISS Governance QualityScore as of May 1, 2018 is 9. The pillar scores are Audit: 2; Board: 10; Shareholder Rights: 3; Compensation: 9.

Corporate governance scores courtesy of Institutional Shareholder Services (ISS). Scores indicate decile rank relative to index or region. A decile score of 1 indicates lower governance risk, while a 10 indicates higher governance risk. Therefore, we need to pay closer attention to Board and Compensation.

Chipotle Mexican Grill: Board Proposals

1. Chipotle Mexican Grill Proxy Voting Guide: Directors

Egan-Jones Proxy Services recommends “For,” all board nominees, except Albert S. Baldocchi, Neil Flanzraich, Ali Namvar, and Matthew Paull. E-J considers the first two affiliated and no longer fit for committees requiring independent directors. The second two sat on compensation committee where E-J rates pay as “Needs Attention” and recommends voting against say on pay as well.  Since I voted against the say-on-pay, I also voted AGAINST the all the same directors, even though I do not have a fixed policy of voting against directors that have served more than ten years.

2. Chipotle Mexican Grill: Executive Compensation

Chipotle Mexican Grill’s Summary Compensation Table shows the highest paid named executive officer (NEO) was executive chair and former CEO Steve Ells at $11M. I’m using Yahoo! Finance to determine market cap ($12B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Chipotle Mexican Grill is a large-cap company.

According to the Equilar Top 25 Executive Compensation Survey 2015, the median CEO compensation at large-cap corporations was $10.3M in 2014, so pay was over that amount. Chipotle Mexican Grill shares underperformed the S&P 500 over the most recent one, two, and five year time periods. At least it did not appear on As You Sow‘s list of the 100 Most Overpaid CEOs. Prior reports have shown that being on that list is correlated with lower returns in subsequent years. The ratio of our CEO’s annual total compensation to our median employee’s annual total compensation was computed to be 814 to 1.

Egan-Jones Proxy Services takes various measures to arrive at a proprietary rating compensation score, which measures wealth creation in comparison to other widely held issuers. “Needs Attention” is their rating given on compensation issues for Chipotle Mexican Grill and they recommend “Against” the say-on-pay item.Egan-Jones Given above median pay, E-Gs recommendation, and my concern with growing wealth inequality: I voted “AGAINST” the say-on-pay item and the members of the compensation committee.

3. Chipotle Mexican Grill: Ratify Auditors

I have no reason to believe the auditor has rendered an inaccurate opinion, is engaged in poor accounting practices, or has a conflict of interest. However, Egan-Jones notes that Ernst & Young, LLP has been serving as the Company’s auditor for more than seven years and their independence is compromised. I have not set a specific number of years but since it has been more than 20 years, I voted “Against.”

4. Chipotle Mexican Grill: Stock Incentive Plan

Since E-J and half the institutional investors disclosing their votes recommended or voted Against, I did as well.

Chipotle Mexican Grill: Shareholder Proposals

5. Action by Written Consent

This is my proposal (James McRitchie), so of course I voted FOR. The proposal is good governance, simply requesting our Board to allow shareholders to act by written consent. Given our company’s underperformance relative to the Nasdaq for many years, we believe it is time for this good governance reform. Hundreds of major companies enable shareholders to act by written consent, including 64% of the S&P 500 and 55% of the S&P 1500.
In their opposition statement, our Board raises several concerns. Minority shareholders could be deprived of information regarding the matter approved by written consent; the proposal does not require information to be provided to shareholders prior to the consent becoming effective; it would not limit the ability of a group of shareholders to accumulate a short-term voting position by borrowing shares, etc. Keep in mind; this is an advisory vote.
A vote FOR simply conveys your wish for a written consent provision. We intentionally left the specifics provisions to be included in such a right to our Board. They can include whatever safeguards they deem appropriate. Vote FOR.

Chipotle Mexican Grill CorpGov RecommendationsProxy Insight

Proxy Democracy is still down. I am starting to look for contributions to bring it back to life. Proxy Democracy provided information on votes cast in advance of annual meetings by institutional investors at thousands of companies. If you think that is worth of financial support, please contact me.

As I write this, Proxy Insight had reported on Texas Teachers, Calvert, CBIS and Domini. Texas Teachers voted for all items. CBIS voted for all items, except the auditor. Domini voted against Ells, pay and the stock plan. Calvert voted against Cappuccio, Flanzraich, Namvar and the stock plan. CorpGov Votes:

  1. Directors: AGAINST Albert S. Baldocchi, Neil Flanzraich, Ali Namvar, and Matthew Paull
  2. Ratify Executive Pay: AGAINST
  3. Auditor: AGAINST
  4. Stock Incentive Plan: AGAINST
  5. Provide Written Consent: FOR

Chipotle Mexican Grill: Issues for Future Proposals

SharkRepellentLooking at for other provisions unfriendly to shareowners:

  •  No action can be taken without a meeting by written consent.
  • Proxy access provisions are Lite.  A shareholder or group of no more than 20.
  • Special meetings can only be called by shareholders holding not less than 25% of the voting power.

Chipotle Mexican Grill: Mark Your Calendar

Any proposal of a shareholder intended to be included in our proxy statement and form of proxy/voting instruction card for the 2019 annual meeting of shareholders pursuant to SEC Rule 14a-8 must be received by us no later than December 3, 2018, unless the date of our 2019 annual meeting is more than 30 days before or after May 22, 2019, in which case the proposal must be received a reasonable time before we begin to print and send our proxy materials. All proposals must be addressed to Chipotle Mexican Grill, Inc., 1401 Wynkoop Street, Suite 500, Denver, CO 80202, Attn: Corporate Secretary.


Be sure to vote each item on the proxy. Any items left blank are voted in favor of management’s recommendations. (See Broken Windows & Proxy Vote Rigging – Both Invite More Serious Crime). I generally vote against pay packages where NEOs were paid above median in the previous year but make exceptions if warranted.

According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay), aggregate compensation by public companies to NEOs increased from 5 percent of earnings in 1993-1995 to about 10 percent in 2001-2003. Few firms admit to having average executives. They generally set compensation at above average for their “peer group,” which is often chosen aspirationally. While the “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average,” it doesn’t work well for society to have all CEOs considered above average, with their collective pay spiraling out of control. We need to slow the pace of money going to the 1% if our economy is not to become third world.

The rationale for peer group benchmarking is a mythological market for CEOs. For more on the subject, see CEO Pay Machine Destroying America.


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