Why Chipotle Execs Could Get Crushed at the Annual Meeting
Food safety issues that have sent the stock down 28% in the last year, egregious executive compensation and a poorly constructed board are three of the likely topics Chipotle (CMG) - Get Report executives will be pressed on at the company's annual meeting Wednesday.
Judging by Chipotle's first-quarter performance, officials at the company won't have much of argument against the criticisms from what is expected to be a very vocal shareholders gathering. The better burrito chain reported a loss of 88 cents a share in the first quarter, compared with a profit of $3.88 a share a year earlier. It was the first time in its history as a public company that Chipotle reported a quarterly loss. Same-store sales plunged 29.7% vs. estimates for a 28.4% decline as the company continued to see tepid traffic to its restaurants despite it offering free burritos to consumers.
Sales trends didn't improve much in April, either. Same-store sales for the first three weeks in April declined 22%. Excluding the sales lift related to the calendar shift of Easter vs. last year, Chipotle's sales in April were down 26%.
TheStreet took a brief look at three most of the most likely storylines.
1. Why are Chipotle execs still making so much money?
Despite a year of plunging sales and profit, and a declining stock price, Chipotle's top two execs still bathed in some lavish compensation.
According to a regulatory filing in March, Chipotle's co-CEO and founder, Steve Ells, earned $13.8 million in total compensation in 2015, down from a jaw-dropping $28.9 million in 2014. Monty Moran, Chipotle's other CEO, saw his total compensation decline to $13.6 million in 2015 from a whopping $28.1 million the year before.
To its credit, the company recently decided to change its compensation practice to tie it to the performance of the stock. But shareholders may still want more pronounced changes.
2. Are board members overthrown?
Chipotle's continued exorbitant CEO compensation and its high-profile operating stumbles last year are a reflection of a weak board of directors, said one investment group.
In mid-April, CtW Investment Group, which works with union-sponsored pension funds with more than $250 billion in assets under management, demanded several changes to Chipotle's board in a scathing letter. Citing a flawed recruitment process for board members, CtW said long-time Chipotle board members Patrick Flynn and Darlene Friedman shouldn't be re-elected at Chipotle's annual meeting.
The group also cited other issues with Chipotle's board such as excessively long director tenures (a median tenure of 17 years) and low demographic diversity (all-white and overwhelmingly male).
3. Will Chipotle lose some control over its board?
New York City Pension Funds has submitted a proposal that would allow an investor or group of investors holding 3% or more of the company's outstanding shares continuously for three years to nominate directors to the board. If approved, Chipotle's board could look radically different in 2020 than it does today.
