Image source: Chipotle Mexican Grill.
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There are a lot of things that need to change at Chipotle Mexican Grill (NYSE: CMG), but nothing more so than the ludicrous amount of money the burrito chain pays its executives. Even after their compensations were cut in half last year, its co-CEOs Steve Ells and Monty Moran earned nearly $14 million each.
That's unconscionable when you compare it to their counterparts at companies like McDonald's, Panera Bread, and Noodles & Co., to mention only a few. And the situation is magnitudes worse when you also factor in compensation for 2014.
*The CEO of McDonald's in 2014 was Donald Thompson. Data source: Company proxy filings.
Ells' and Moran's compensation packages are particularly egregious in the wake of its food safety crisis, which began last year with an E. coli outbreak at a number of its restaurants in the Pacific Northwest.
To a certain extent, it's to be expected that a company like Chipotle would have something like this happen at some point in its corporate existence. After all, it's happened at virtually every other major food company in the United States, be it fast food chains such as McDonalds, Taco Bell, or Jack in the Box or grocery stores such as Wal-Mart, Whole Foods, or Costco.
But what's important to appreciate is that Chipotle left itself especially vulnerable to food borne illness outbreaks. As Austin Carr points out in an incredibly detailed review of Chiptole's crisis for Fast Company magazine, while the chain served the equivalent of the population of Philadelphia on a daily basis prior to outbreaks, it had only four people assigned to its quality assurance team, tasked with tracking the quality of ingredients sourced from suppliers.
It's easy to draw a straight line between this and the fact that Chipotle had not one, but multiple foodborne illness outbreaks over the last year of E. coli, norovirus, and salmonella. Additionally, because it didn't have a system in place that adequately tracked its food supply when the outbreaks unfolded, it had no idea where they came from. To this day, it still doesn't know.
That's the responsibility of the CEO -- or, in this case, the co-CEOs. And it should be reflected in their compensations. Indeed, to put this in perspective, Chipotle as a whole earned only $7.8 million in the third quarter of this year. At that rate, the entire company is making about as much as its co-CEOs.
The good news is that Chipotle's board will presumably be under an enormous amount of pressure from analysts, investors, and commentators to more appropriately tailor its executives' compensation packages. That should leave more money for shareholders. At the same time, however, while I'm bullish on Chipotle's stock, exorbitant pay like this could certainly lead one to wonder whether the company is being run for the sake of its top executives or, as it should be, its shareholders.
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John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. John Maxfield owns shares of Chipotle Mexican Grill. The Motley Fool owns shares of and recommends Chipotle Mexican Grill, Costco Wholesale, Panera Bread, and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.