CHIPOTLE MEXICAN GRILL, INC.
NYSE:  CMG      Annual Meeting: 5/13/2015

While Chipotle has generally made headlines for strong performance and supply chain management, the company’s governance practice have brought some (likely unwanted) attention. The 2014 annual meeting was hardly business as usual, with amendments to the equity plan and the advisory vote on executive pay failing to receive majority support at the same time that several shareholders proposals received fairly strong (and in one case majority) support. These results have placed sharp focus on a barrage of new shareholder proposals, the board’s responses and the revised compensation programs.

For one, the company joined the parade seeking ‘no-action’ relief from the SEC to exclude a shareholder proposal on proxy access, as well as for other proposals regarding performance metrics and the acceleration of equity compensation upon a change in control. In the wake of the SEC’s decision in January to temporarily refrain from granting no-action relief to issuers on the basis of conflicts between shareholder and management proposals, the SEC unsurprisingly refused to express an opinion on Chipotle’s requests.

Although the fast-casual giant could not prevent the five shareholder proposals from reaching the ballot, the company proposed a number of changes to spice up its governance structure. Management sponsored its own proxy access proposal including a beneficial ownership requirement of at least 5% of the Company’s common stock for a minimum of three years to propose nominees to the board, versus the shareholder proponent’s suggestion of a 3% requirement. The board proposed the elimination of the two-thirds voting thresholds in its certificate of incorporation, acting on the strong support for a related 2014 shareholder proposal, and also proposed an amendment to remove its plurality vote requirement for the election of directors in favor of a policy whereby incumbent directors will either be elected by a majority vote or required to tender their resignation.

On the compensation front, Chipotle publicly committed to engaging with investors and reviewing its pay practices on the heels of an activist “vote-no” campaign that resulted in a failed say-on-pay in 2014 – the lowest support level, in fact, for any S&P 500 company last year.

The most recent proxy statement delves deeply into the compensation committee’s engagement efforts and their results, with both the executive pay program and the equity plan having been subject to considerable amendment. The company has promised leaner, more performance-based future pay arrangements while moderately reducing its request for additional shares for grant, among other changes. However, it remains to be seen whether shareholders will see the broad-reaching changes as palatable improvements despite co-CEO and chairman Steve Ells’ $3.8 million jump in disclosed compensation, or write them off as window dressing on overstuffed pay packages.

Additional contributions from Julian Hamud

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