Chipotle Fails Say on Pay with High TSR
Last week we saw the news come out of Chipotle failing the Say on Pay vote, and it was NOT because of performance. In fact, the company saw 1, 3 and 5-year TSRs in the 83rd, 77th and 95th percentiles as compared to peers, yet they received a "no" vote recommendation from ISS. It is fascinating how influential ISS has become this year. The reasoning behind the "no" vote recommendation was due to a high pay compared to the peer group at approximately a 3x multiple of peer group CEO median. In other words, ISS has made o matter how good your TSR is, if you are more than 3x the ISS peer median, you will get a fail from ISS.
So, moral of the story is you can absolutely blow up shareholder value, but if your Summary Compensation Table disclosure is more than 3x, you could still fail.
Another thought: If you are a company that is backed by private equity, for example, and you happen to receive a waterfall equity structure for a successful IPO, and your CEO gets $100MM in shares, but it’s not disclosed in Summary Compensation Table, rather in beneficial ownership, then you don’t have to worry about anything.