Services

Chipotle CEOs Got $13 Million Each While Screwing Up the Company

Douglas A. McIntyre

Published: July 25, 2016 11:35 am

Last Updated: January 13, 2020 5:19 am

Chipotle Mexican Grill Inc.’s (NYSE: CMG) shares started to collapse in earnest last October and accelerated in December after another disclosure of food poisoning at the chain continued with the year-end outbreak in Boston. The news confirmed that the string of food poisonings at the chain had lingered for half a year. For some reason, the Chipotle board decided to give co-CEOs Steve Ells and Monty Moran over $13 million each in 2015 compensation.

Chief executive officers often get awarded large sums when their companies are troubled. The Chipotle CEOs should have been candidates to be replaced and still ought to be. In the past year, Chipotle shares are down 40%.

It will be interesting to see what the board does for the two men this year. First-quarter same-store sales fell almost 30%. In the second quarter, the figure was a drop of 24%. There is one school of thought that Chipotle will be a much smaller company when the crisis is fully ended, perhaps 75% the size it was in 2015, with profits down to the $100 million range, well than less than two-thirds of their 2015 figure.

Chipotle has reached the barrier that other, older retailers have reached. It has too many stores to support sales. Its 2,000 locations may shrink to 1,500 or less, if management and the board want to improve margins for next year. In that regard, Chipotle faces problems similar to other troubled retailers: rent and severance expenses.

Looking back, the company’s statement about its business may have been right:

Our focus has always been on using the kinds of higher-quality ingredients and cooking techniques used in high-end restaurants to make great food accessible at reasonable prices. But our vision has evolved. While using a variety of fresh ingredients remains the foundation of our menu, we believe that “fresh is not enough, anymore.” Now we want to know where all of our ingredients come from, so that we can be sure they are as flavorful as possible while understanding the environmental and societal impact of our business. We call this idea Food With Integrity, and it guides how we run our business.

Not anymore. To reflect the drop, the board needs to cut the pay of the people who run the company.