AFL-CIO Proposal on Chipotle Vesting Rights Withdrawn

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Dec. 23 — The AFL-CIO Equity Index Fund withdrew its shareholder proposal concerning acceleration of vesting in equity awards for Chipotle Mexican Grill Inc. executives, because it didn't submit a required “custodial verification letter.” Chipotle, in turn, withdrew its request for no-action relief.

That's according to a Dec. 18 letter from the Division of Corporation Finance of the Securities and Exchange Commission (No-Action Letter, Chipotle Mexican Grill Inc., 12/18/15), which said “the matter is now moot.”

Resolution Language

The AFL-CIO Equity Index Fund proposed a resolution that asked the company's shareholders to request that the board adopt a policy that, in the event of a change in control, “there shall be no acceleration of vesting of any equity award granted to any senior executives.”

The proposal did allow the board's compensation committee to “provide in an applicable grant or purchase agreement that any unvested award will vest on a partial, pro rata basis up to the time of the senior executive's termination.”

Accelerating Vesting

The fund said in a Nov. 23 letter to Chipotle that, as of Dec. 31, 2014, a change in control could have accelerated the vesting of approximately $275 million worth of long-term equity to four senior executives, with approximately $220 million going to co-CEOs Steve Ells and Monty Moran.

“We are unpersuaded by the argument that executives somehow ‘deserve' to receive unvested awards,” the fund's letter said. “To accelerate the vesting of unearned equity on the theory that the executive was denied the opportunity to earn those shares seems inconsistent with a ‘pay for performance' philosophy worthy of the name.”

‘Did Not Satisfy' Requirements

Chiptole said in a Dec. 15 letter to the SEC that the fund's proposal could be excluded from proxy materials because the fund didn't satisfy the SEC Rule 14a-8(b)(1) requirement regarding proof of ownership of company stock for the requisite time.

On Dec. 17, the AFL-CIO Equity Index Fund withdrew its proposal by letter, explaining that an administrative error caused it's omission of the verification letter.

The no-action letter is available at http://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/2015/aflcio121815-14a8.pdf.