Chipotle Exec Bonuses Take Hit in Wake of Multiple Outbreaks

Executive bonuses for Chipotle executives have been cancelled due to the rash of food-borne illness outbreaks at Chipotle franchises across the nation in the past year, the company announced Friday. The outbreaks, which have sickened thousands nationwide, have rattled the company’s stock and have investor confidence wavering.

In addition to denying the company’s corporate big-wig bonuses, Chipotle restructured options that it had already granted its executives so that the options will only pay off if management can fully restore the restaurant’s value to pre-outbreak levels.

On Friday, when the company filed its annual “Proxy Statement” with the Securities and Exchange Commission, the company boldly stated that it would be paying no bonuses to executive officers for fiscal year 2015 due to “food-borne illness incidents that negatively impacted our results beginning in the fourth quarter of 2015.”

Appearance Doesn’t Always Reflect Reality

Despite the fact that executives didn’t make any bonuses last year, that doesn’t mean that they weren’t paid more than well. The “C-Suite” (CEO, CFO, CAO, etc.) made out quite well, all things considered.

CEOs Ells and Moran netted $13 million each, some from stock awards granted during previous years. The CFO and “Chief Creative Officer” made $6 million and $4.3 million, respectively.

Six of seven non-employee board of directors made more than $200,000 total pay in 2015.

[Chipotle Lawsuit Norovirus]

The Outbreaks

Salmonella Outbreak (August)

The company’s initial woes began in August, when 64 Minnesotans were infected with Salmonella. The outbreak cases were spread among customers of 17 different Chipotle restaurants located primarily in the Twin Cities metro area. Minnesota Department of Public Health officials cited tomatoes as the cause of the outbreak, which led to nine hospitalizations.

California Norovirus (August)

At approximately the same time that the Salmonella outbreak was occurring in the northern United States, another outbreak was taking shape along the country’s west coast. In California, up to 300 individuals fell sick with norovirus after eating at the same Chipotle location. The prevailing theory is that the virus was spread by a single sick employee; this hypothesis, however, cannot be substantiated due to the fact that the establishment closed its doors for a full day, citing staffing problems, while likely scrubbing down the restaurant to rid it of any trace evidence of the contaminant. Chipotle is currently under federal criminal investigation for these activities.

E. coli O26 (STEC O26) Infections (December):

  1. Near the end of the year, two outbreaks tied to Chipotle again surfaced: a larger, more prolific outbreak that was first reported on December 1, 2015 and infected 55 people across 11 states. 21 individuals were hospitalized as a result of their illnesses.
  2. A smaller, almost simultaneous but unrelated outbreak of STEC O26 involved 5 infections across 4 states; one ill person was hospitalized.

The epidemiologic evidence collected during this investigation suggested that a common meal item or ingredient served at Chipotle Mexican Grill restaurants was a likely source of both outbreaks. The investigation did not identify a specific food or ingredient linked to illness.

Norovirus (December):

Roughly 140 students at Boston college were infected with norovirus during the month of December. The school issued a health alert.

The Meeting

The outbreaks were so severe, so prolific, and the impact to the company’s stock so stark, that the company closed all of its stores nationwide on February 8th to hold a “national staff meeting about food safety.” The company felt the measure was necessary in light of the outbreaks of E. coli. Salmonella and norovirus that had customers worried and had led to a stream of mockery and criticism on social media.

Chipotle: “What Problem?”

In its 8-K filing with the Securities and Exchange Commission, the company pledged to spend more advertising money to combat the perception that the company has a food poisoning problem. That message is being carried forward, as executives have said that “the outbreaks will not be referenced in their new consumer advertising campaign. Instead, the consumer campaign will feature the same kinds of ads Chipotle has previously used in broadcast and outdoor advertising.”

And, for best or worst, it seems to be working: perception of the company and their food safety has increased significantly since the campaign began.

For information about the Chipotle outbreaks or any other food poisoning outbreaks, call the lawyers at Ron Simon & Associates 1-888-335-4901.