How Apple’s compensation tweak saved Tim Cook’s $373 million payday

“This week, Tim Cook celebrated his 5-year anniversary as CEO of Apple,” Stephen Gandel reports for Fortune. “And he did it by receiving a big payday.”

“His anniversary present: nearly $136.5 million worth of Apple stock, related to a deal that Cook struck when he became CEO back in 2011,” Gandel reports. “In all, Cook has been paid $373 million related to the initial share deal. And he could still cash in another $360 million in the next five years, based on Apple’s current stock price.”

“A good portion of the payday, particularly this year’s, might not have happened, if not for a nifty trick that Tim Cook and Apple’s compensation committee pulled off three years ago,” Gandel reports. “It turns out that Cook threw his lot in with Apple shareholders at the exact right time, catching the stock at its low. Apple’s shares rose by 61% the next year, and by another 32% after that. The S&P 500—Cook’s bar to clear—rose just 21% and 4% respectively those next two years.”

“In the past week, a number of commentators have defended Cook’s enormous pay package. In the five years since Cook became Apple’s CEO, the company has brought in nearly $200 billion in cash flow, and based on that, his $373 million payday, or even $700 million, doesn’t look like so much,” Gandel reports. “But that cash flow wasn’t really generated by Cook. Nearly all of that comes from the iPhone, which was Steve Jobs’ creation.”

Read more in the full article here.

MacDailyNews Take: CEO compensation, along with that of most of upper management, is obviously out of whack, but in order to retain quality people, you have to compete on the field of play as it is. What to do?

“There are creative ways — yet simple and easy to implement — to tie executives’ fortunes to the long-term health of their companies. Tying bosses’ pay to the levels of debt at the business, for instance, will dissuade them from taking risks that might alienate creditors,” Alex Edmans wrote for The Wall Street Journal in 2012. “Preventing executives from selling company stock until several years after it’s granted will give them a powerful incentive to think long term. And updating the compensation package to reflect changing conditions in the market and the company will ensure that managers’ interests are always aligned with those of the company and its shareholders.”

Read more in the full article here.

SEE ALSO:
Apple’s Tim Cook reaped $373 million in stock in 60 months as CEO – August 25, 2016
Tim Cook set to receive over $100 million on 5th anniversary as Apple CEO – August 24, 2016

5 Comments

  1. MDN, you are part of the problem. You identify a problem and then shrug your shoulders.

    “CEO compensation, along with that of most of upper management, is obviously out of whack, but in order to retain quality people, you have to compete on the field of play as it is. What to do?”

    The first step is to hold each corporate Board of Directors and senior management responsible for fulfilling their fiduciary responsibility to the shareholders…the owners. Corporate assets are not a convenient piggybank for those in power to enrich themselves.

    The second step is to stop putting these people on a pedestal. There are a large number of people in the U.S. capable of handling high-level positions. It is mostly a lack of opportunity that has held most of them back. You might be surprised how many would do a great job and work their butts off for a reasonable salary…say $5M per year?

    The third step is to break up the good old boy club that current dominates the U.S. corporate culture. How would *you* like to have a contract that guarantees a substantial amount of compensation no matter how poorly you do, ties your salary to other high earners in your profession (thus ensuring be fits escalation), and provides for a rich golden parachute if you are fired? You serve on my company’s BoD, I will serve on your, we each vote on compensation packages…you get it.

    Some of the people serving in theSE management positions are exceptional. But the results and news that I have seen over many decades would indicate that most are not exceptional, and that many others would do better if given the opportunity. Why do we cling to this perception of elitism, that these people have somehow earned their positions and no one else can do as well as even the worst among them…the ones who are fired, hired by someone else, fired again… It is like watching the musical chairs of NFL or NBA coaches.

    When the average salary at a company might be $50K or so, I find it obscene and a failure of fiduciary responsibility to pay top management $50M, or 1000x as much. You could hire hundreds of incredibly capable people for that amount and get a lot more return for our money.

  2. Obviously the manipulation stinks, Cook should know better than the to rig his options for a low point in the stock. cheating.
    Otherwise, i think he’s a very good CEO, but this sort of money-mongering makes me categorically angry at him.
    Criticism of his pay package is TOTALLY justified, seen it many times before. When the original deal doesn’t go as planned, they simply change it. So what’s the point board-members?????????

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