Chipotle Mexican Grill Inc. (NYSE:CMG), a company that has worked very hard to project an image of social consciousness and responsibility to its customers, is under fire for excessive executive compensation, The Denver Post reports. The company, which has taken a number of progressive measures such as buying ingredients from local, sustainable or organic sources and giving jobs and English lessons to refugees re-locating from other countries, ironically, pays its typical restaurant employees 800 times less than its two CEOs.
A shareholder group has threatened to lobby fellow shareholders to vote no on a “say on pay” measure at Chipotle this year. The group, CtW Investment Group, which works with union pension funds and oversees $250 billion in assets, believes it can potentially lobby 40-50 percent of Chipotle’s shareholders to vote no on the measure, which shareholders will vote on May 15 in Denver, according to The Denver Post.
Shareholder outcry over Chipotle executives’ compensation comes as controversy heats up over a California bill that proposes companies that pay their chief executive officers more than 100 times the wages of a typical worker should be subject to higher tax rates, in an effort to reduce income inequality in the state.
“With this legislation, we hope we’re starting a national conversation around this, rather than just hope corporations do the right thing,” said Steve Smith, a spokesperson for the California Labor Federation, which supports the bill. “We see California as being on the forefront of progressive economic legislation,” he added, per a Bloomberg report Tuesday. Should California’s initiative succeed, it would become the first state ever to penalize or reward publicly traded companies based on their compensation practices.
Michael Pryce-Jones, a senior governance policy analyst with CtW Investment Group, says that Chipotle, which utilizes a pay-for-performance model to determine its CEOs’ take-home salary, “is becoming a poster child” for the model’s failures. The top five executives at Chipotle took home $67.3 million last year, more than 42 percent what Coca-Cola’s executive team brought in, according to The Denver Post, and Chipotle shareholders are paying more than 10 times the median for CEO duties compared with similar size companies generating similar revenues.
Two years ago, the Occupy Wall Street movement drew attention to the profound income gap between America’s rich and poor, and today the Standard & Poor’s 500 Index suggests that the average multiple of CEO compensation in comparison with that of the company’s rank-and-file employees is more than 200, according to Bloomberg data.
Advocates of Chipotle’s pay-for-performance model point out that Chipotle has given shareholders strong returns since 2008, and in fact, shareholder returns since then have been four times as much as the S&P 500 Index, according to The Denver Post.
Still, Pryce-Jones notes, Chipotle continues to provide perks to its executives that other companies have long done away with, such as car and housing allowances. CFO Jack Hartung received $50,000 for commuting expenses, for instance. Pryce-Jones adds that Chipotle’s equity grants are too large, and the company is setting the bar too low, making it easy for executives to obtain them. Co-CEOs Steve Ells and Monty Moran have received more than $300 million in equity awards in the past three years, he notes.
“Basically, we’re expecting a big showdown at the annual meeting,” Pryce said of the vote on May 15. As for the nascent bill in California, it passed the Senate Governance and Finance Committee Monday in a 5-2 vote, with (unsurprisingly) Democrats in favor and Republicans opposed.