How Apple CEO Steve Jobs traded away over $2.5 billion

“The great seer of tech trends [Apple CEO Steve Jobs] had no idea what was coming – indeed, no idea how much his company, or he himself, was really worth,” Geoff Colvin reports for Fortune.

“When Fortune ran a 2001 cover story (by yours truly) called “The Great CEO Pay Heist”, we put Jobs on the cover because the previous year he had received a mammoth grant of stock options that we calculated was worth $872 million, making it the largest one-year pay package any CEO had ever received,” Colvin reports.

Colvin reports, “Jobs wasn’t ready to give up on Apple options, though; he accepted another huge grant in 2001. Then, in 2003, with Apple (Charts) stock deep in the doldrums, he finally abandoned hope and surrendered both options grants, accepting from the board in their place a big chunk of restricted stock.”

“Now, with benefit of hindsight, let’s get out the calculator and see how smart Jobs looks. That bag of restricted stock he got in 2003 is today worth about $848 million. Not bad. But what about the options he gave up? His first mega-grant, the one that landed him on our cover, would today be in the money not by… the $872 million we said it was worth, but by just over $2.5 billion,” Colvin reports.

Colvin reports, “The other option grant he gave up would today be in the money by just over $1.1 billion. That’s more than $3.6 billion of gain that he traded away for shares that today are worth less than $1 billion… [Steve Jobs] made a trade that will be immortalized as one of the worst ever.”

Full article here.
Whew, that’s a lot of iPod Socks!

Related article:
Jobs exchanges options for 5 million restricted shares – March 21, 2003

18 Comments

  1. Of course, had he not traded those away he’d be in bigger trouble at the moment for the back-dating issues. So, assuming he may have faced criminal charges otherwise, how much is freedom worth to SJ? 2.6 Billion?

  2. sd said it exactly as it would be today. Jobs would be in a legal mess if he had those options still because of the backdating issue. The fact that he never exercised them or kept them is what lets him off the hook in the backdating scandals.

    3.6 billion doesn’t do a lot of good when your in jail, except make you a target.

  3. In 2003, and at $13.1/share I could have bought 4000 shares of Apple stock but didn’t. Would these guys write an article about me too?

    MW is “bummed” as in I’m totally bummed out I did not buy 4000 shares of Apple stock at $13/share

  4. And all the negative articles about SJ, accusing him of stealing fortune away from Apple by trading his worthless stock options for the restricted stocks are now forgotten.

  5. Remember that an option is the right to buy a stock at a set price. When you calculate the value of the stock, don’t forget to deduct the option price to get the value of the capital gain. The real question here, with respect to their calculation is, how much of that $3.6 billion would have been an actual capital gain. How many hundreds of millions would Jobs have had to lay out, at a time of depressed stock price in order to reap that capital gain three years later?

    As has already been pointed out, hindsight is 20/20. With the benefit of hindsight, anyone can point out that you made a bad move. I wonder how many thought Jobs was foolish at the time?

    Most execs don’t take stock options so that they can buy the stock and increase their position in the company. They take them so that when the stock increases above the options price they realize the gain. That’s why the back dating issue has been such a prickly one for the justice department. The theory behind options is that if you perform well, as an executive, the stock will perform well and you will share in the benefit of your good work. Options are not supposed to be guaranteed compensation, but a performance bonus set by the market, not an executive committee. From an accounting perspective, the most flagrant abuse of options dating, has been by companies that used the method to grant compensation to execs without reporting the full value of that compensation on the financial statements. Essentially, inflating the company’s financial performance, by under reporting a significant cost, hence the reason why so many of the company’s caught up in the practice have had to restate earnings in past quarters, and even years!

    As for Steve Jobs, the lesson to be learned from him here is: Just make great products, and the just and fair compensation will come and stop worrying about what might have been.

  6. I love how these guys report about options.

    True, the gross value, at grant, for those options was over $800 million. However, IIRC, the strike price (the price Jobs would have had to pay for them if he had been able to — and had — bought them on the daty the options were granted) was well over $700 million. Thus the actual value to Jobs — at the time of the initial grant — was less than $100 million.

    As the publicly traded stock price dropped over the next several months the value of the stock dropped to well below the strike price. At it’s low point (if Jobs had retained the options) the strike price would have been more than four times what the stock was worth. You any of these “analysts” have puchased stock for four times what they could sell it for? In this sense the value of the options became ZERO. It’s very interesting that NONE — absolutely NONE — of these analysts ever report this little fact.

    In fact, when the stock price dropped and a prominant analyst still was quoting the gross value and ingnoring the strike price Jobs offered — in writing — to sell 100% of his then worthless options to that analyst for $1.00. The analyst did not take Jobs up on the offer. Why? because it would have cost the analyst more to buy the stock than it was worth.

    Where’s the story about that analyst stupidly giving up on the chance to now be worth over $3.6 billion?

    Even now with this silly report, they never mention the strike price that Jobs would have had to pay for the stock even if he had actually kept the options. The “more than $3.6 billion” sounds so much better than the real “less than $2.3 billion”.

  7. The loss of an opportunity by Steve Jobs reminds me of a quote about money and happiness by California Govinator Arnold Schwarzennegger:

    “I have $50 million. But I’m no happier than when I had only $48 million.”

    Face it, kids, Steve won’t be hurting for his next vegan meal, with or without the hypothetical amount speculated on by Colvin. At this point in his amazingly successful career and life, I think other things motivate Steve Jobs. And I have a hunch they always have, like creating insanely wonderful inventions that make the world a better place. And THAT kids, is what separates Steve Jobs from many of us.

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