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Chipotle Mexican Grill, Inc Cuts Executive Compensation Packages After E-Coli, Norovirus Outbreak

Chipotle’s top two executives suffered big pay cuts after a series of food scares sent sales plunging toward the end of 2015

On Friday, Chipotle Mexican Grill, Inc. (NYSE:CMG) announced that it has suspended its executive bonuses for 2015 because of its ongoing foodborne illness crisis. This has affected its stores across the country and hammered the stock.

According to the regulatory filing, along with the bonuses, the pay packages of its co-chief executives, Steve Ells and Monty Moran has also been reduced. The package comprises of a salary, stock awards, and other perks.

Mr. Ells’s pay incentives have fallen 52% from $28.9 million in 2014 to $13.8 million in 2015. Mr. Moran has also witnessed fall in his total compensation from $28.1 million to $13.6 million. Still, both of them have got a raise because they have not received an increase since 2012.The company stated in the filings that it has made this decision after the restaurant retailer saw decline in its stock price due to the challenges it faced in the last half of 2015. Its future compensation will be partially associated with its stock performance.

Last month, Chipotle’s compensation committee awarded performance shares to its executive officials that were connected to “highly challenging absolute stock price performance goals over a three-year performance period.” The company also mentioned that it will not give bonuses to its executive officers for the year 2015 due to its foodborne illness crisis.

As per its filings, the company will design the new stock awards, if the share price rises back to $700 for 30 consecutive days, which is nearly a 38% jump from its current stock price of $507. Over the period of past one year, the company stock has fallen nearly 23%.

In its recent fourth quarter earnings result, the Mexican food retailer reported overall fall of revenue by 6.8% and decline of 14.6% in sales at its established outlets. This was the first time the company has witnessed a decline since it went public. Mr. Ells called the fourth quarter as the “the most challenging period in Chipotle’s history.”

The company also said that its compensation committee defines these performance awards “will continue to motivate our executive officers … thereby rebuilding customer confidence in the Chipotle brand. If that happens, we believe improved business results and stock price performance will follow.”

Since October, the Mexican food retailer is suffering from a food-safety crisis, which includes multistate-wide spread of E. coli and norovirus at a Boston location, causing illness among several eaters. In past six months, six different foodborne illness outbreak cases have emerged.

Due to the foodborne illness crisis, the company has not been able to meet its goals and hence no bonuses will be paid to executive officers.

Earlier this week, Chipotle’s restaurant in the town of Billerica, outside Boston was shut for a complete cleaning. According to the Massachusetts health department, the Mexican grill has voluntarily closed its restaurant after an employee was tested positive for Norovirus and another three showed symptoms of the viral disease.

Up till now, Denver-based restaurant chain has faced more than 100 civil claims by outbreak victims and their families. Even its stockholders have filled at least two federal court cases in order to seek class action status. These civil suits alleged that the company has violated Securities Exchange Act by making misleading statements.

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