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Why Chipotle CEO’s $15.7 Million Payday Isn’t Quite As Nuts As You Might Think

Phil Wahba
By
Phil Wahba
Phil Wahba
Senior Writer
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Phil Wahba
By
Phil Wahba
Phil Wahba
Senior Writer
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March 31, 2017, 2:05 PM ET
Steve Ells
Chipotle Mexican Grill founder and CEO Steve Ells speaks during an interview with the Associated Press in a Chipotle restaurant on Tuesday Dec. 15, 2015, in Seattle. Ells was visiting restaurants in the Pacific Northwest to discuss new food safety protocols with employees after an E. coli outbreak sickened 50 people in the Northwest. (AP Photo/Stephen Brashear)Stephen Brashear—AP
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Chipotle Mexican Grill (CMG) CEO Steve Ells managed to land a bigger compensation package in 2016 despite the burrito chain’s awful performance in the wake of a devastating E. Coli breakout the year before.

Ells, who become sole CEO earlier this year after sharing the role with Monty Moran for years, was awarded $15.7 million, including salary and stock and option awards, last year even as sales fell 13.3% to $3.9 billion and profits all but vaporized. That compares to $13.8 million for Ells the previous year.

All the while, the company’s stock declined 8% last year as Chipotle struggled to recover from the fallout from the food safety incidents in 2015, with consumers’ exodus proving to be much longer lasting than feared. Ells and Moran were faulted for their response to the crisis which early on included blaming government health officials and the media for some of the damage and tardiness in addressing the crisis with customers.

For 2016, Ells’ compensation package included a $14 million stock award, but no cash bonus and no raise: his basic salary even edged down a bit to $1.54 million. Moran’s package was similarly more than last year’s.

Here’s the catch about the stock award: for it to have any value, Chipotle shares have to climb back up to $700 for at least 60 straight trading days before February 3, 2019, following changes made to executive compensation a year ago after outrage erupted over compensation in the wake of the sharp stock decline in 2015.

Getting shares to rise 57% in the next 22 months will be a Herculean task for the restaurant chain, whose stock was trading at $446 on Friday afternoon.

There have been signs of progress: same-store sales stopped falling in December and the company has forecast an increase in that metric for 2017. Still, Ells said earlier this year that Chipotle will eventually need to raise prices to cover minimum wage increases, and higher food costs. And he also recently said that only about half of his stores merited a ‘good’ grade, which could mean more expenses. And the truth is many customers are still AWOL.

What’s more, he raised eyebrows earlier this week when he slammed rivals like Panera Bread (PNRA) and McDonald’s (MCD) over their food quality in an interview with Business Insider, reawakening criticisms of management arrogance at a time Chipotle has its hands full with its own problems.

The company had earned brickbats in recent years from many critics over C-level executive compensation—in 2015, the New York Post reported Chipotle CEOs made 1,000 times more than the average worker’s salary.

Still, what is arguably more controversial about the 2016 executive compensation at Chipotle is that Mark Crumpacker, its chief marketing and development officer, got an 11% raise in his base salary, now $590,000, and a bigger stock award despite missing three months of work last summer after his arrest on charges of possessing cocaine.

 

About the Author
Phil Wahba
By Phil WahbaSenior Writer
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Phil Wahba is a senior writer at Fortune primarily focused on leadership coverage, with a prior focus on retail.

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