Does Chipotle Lack Executive Pay With Integrity?

Chipotle Mexican Grill investors have been spoiled in a climate that has been tricky for most of its competition, but it seems that even the halo of success has its limits. Shareholders gave their opinion on the burrito roller's executive pay proposal at today's annual meeting. Chipotle executives aren't going to like what they hear.

Just 23% of Chipotle's investors voiced approval for the new executive pay package. The vote itself is not binding, but it's hard to ignore that kind of investor mandate. If investors feel that salaries and stock option grants are too extreme, does Chipotle really want to go against their wishes? 

It's true that Chipotle does pay its executives handsomely. Co-CEOs Steve Ells and Monty Moran combined to make nearly $50 million last year. This happened despite a then-surprisingly high 27% of Chipotle shareholders voting against the say-on-pay measures last May after Ellis and Moran took home $38.8 million in combined compensation in the preceding year. If the message wasn't clear then, it's carnitas clear now.

One can argue that Chipotle did this to itself. Parading the "food with integrity" mantra as it paints itself as the good guys in fast-casual comes with more than just additional scrutiny. Investors drawn to Chipotle because it does the right thing in the kitchen will expect those same principles to apply to executive pay.

Bulls will argue that Ells and Moran earned their hefty paydays. That's a fair argument. Chipotle has been a market beater since going public eight years ago. It's been bucking the trend that has seen many formerly leading fast-food, fast-casual, and casual-dining operators post negative comparable-restaurant sales growth in recent quarters. Even McDonald's -- the world's largest burger chain and former Chipotle parent before spinning it off in a 2006 IPO -- has felt the pinch.

Comparable sales fell 1.7% at McDonald's during the first three months of this year. The company blamed the weather. Many chains have followed suit, making the recent winter a popular scapegoat to explain away the performance indigestion. However, Chipotle stunned the market when it revealed a 13.4% spike in comps during the same period.

This doesn't mean you hand executives at the 1,637-unit chain a blank check. Then again, history has proven that it's better to trust Ells and Moran than to bet -- and vote -- against them. Chipotle's response to the vote will go a long way in determining whether it's a good guy or villain here.