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Old Jun 21, 2013, 04:41 PM   #1
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Apple Board Modifies Tim Cook CEO Bonus Stock Award to Be More Performance Based




Apple's Board of Directors has elected to modify the award of restricted stock that Tim Cook received after being promoted to CEO in August 2011. The modification, made at Cook's request, changes the award of 1,000,000 restricted stock units -- originally supposed to be awarded in two lump sums over 10 years -- to a more performance-based compensation system.

A restricted stock unit, or RSU, is a form of compensation valued in terms of company stock, but the stock is not issued at the time of the grant. Instead, the recipient gets shares of stock at a later date, generally only if they are still employed by the company.

According to a filing with the SEC today, the Compensation Committee of the Apple Board of Directors approved the amendment of the award from August 2011, though the amendment does not change the fair value of the grant as of the day it was rewarded.

The Committee intends for future stock awards to Apple executives officers to be performance-based and Cook will lead by example. However, though normal performance-based compensation normally has both an upside and downside, at his request, Cook's award will solely have a downside component.
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Under the adopted modification, Mr. Cook will forfeit a portion of the 2011 CEO equity award, which was previously entirely time-based, if the Company does not achieve certain performance criteria. While the Committee generally believes that a performance-based award should have both a downside and an upside component, at Mr. Cook's request, the modification does not contain an upside opportunity for overachievement of these criteria. As a result of implementing a modification with only downside risk, the Committee has determined that a portion of the original grant should vest earlier than originally scheduled. This modification will not change the award's original value for accounting expense purposes.
The original award would have given Cook 500,000 shares of Apple stock in August 2016, with another 500,000 in August 2021.

The new, amended package will give Cook 100,000 RSU's in August 2016, another 100,000 RSU's in August 2021, and the remaining 800,000 RSU's in ten equal allotments over the ten-year life of the initial award.

In order to receive the 80,000 share annual award, Apple's 'total shareholder return' will be compared to companies in the S&P 500. If Apple's performance is within the top third of that group, the award for that year will vest in full. If its performance is in the middle third, the award will be reduced by 25%, and the bottom third, the the award will be reduced by 50%.

As a result of the changes Cook will receive at least 672,877 shares of Apple stock by the end of the award in 2021, with the possibility of 1,000,000 shares total if Apple continues to outperform its peers. The Form 8-K filing that Apple filed with the SEC today contains additional information about the modifications to Cook's award.

Article Link: Apple Board Modifies Tim Cook CEO Bonus Stock Award to Be More Performance Based
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Old Jun 21, 2013, 04:44 PM   #2
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class act
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Old Jun 21, 2013, 04:47 PM   #3
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Is more symbolic than anything else but it is clear that Apple is not the same company and that there is not actual innovation.

1. The Mac Pro... it is just hardware but the shape is not wow at all.
2. iOS7 new interface looks weak
3. The rest of the peripherals are just thinner.

So... yeap, a consumer company but not innovative and the CEO has to keep it that way.
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Old Jun 21, 2013, 04:48 PM   #4
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Worst Decision Possible

Can't innovate if you're focused on stock price...
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Old Jun 21, 2013, 04:48 PM   #5
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If he doesn't want it that bad ill have it!
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Old Jun 21, 2013, 04:57 PM   #6
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Originally Posted by badmac78 View Post
Worst Decision… Can't innovate if you're focused on stock price...
So you'd rather have a caretaker CEO who can focus on nothing and still get paid as much?

I see this as entirely positive with no real downside. The job of the board and the shareholders is to determine if he's innovating and to fire him if not. This is just an added bonus if the company does well (and, historically, Apple has prospered the most during times of innovation, so innovation and stock price aren't mutually exclusive).
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Old Jun 21, 2013, 04:58 PM   #7
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Quote:
Originally Posted by badmac78 View Post
Can't innovate if you're focused on stock price...
Apple is a publicly owned corporation. It may publicly state that all it wants is to make good products, but in reality, the goal of any publicly owned corporation is to increase its value over time. Apple is no exception.

Steve got paid a $1 base salary, and the rest of his extremely hefty compensation package was based in stock. We can all agree that Apple did just fine when Steve was at the helm. I don't think this change in of itself will have any downside affect on Apple's performance or ability to innovate.
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Old Jun 21, 2013, 04:58 PM   #8
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Originally Posted by rei101 View Post
Is more symbolic than anything else but it is clear that Apple is not the same company and that there is not actual innovation.

1. The Mac Pro... it is just hardware but the shape is not wow at all.
2. iOS7 new interface looks weak
3. The rest of the peripherals are just thinner.

So... yeap, a consumer company but not innovative and the CEO has to keep it that way.
i don't think you get apple. You're probably the same shill who argued that apple didn't invent the iphone and invent the ipod then come around and argue apple is all about looks that you don't agree with. Realize that looks are opinions and accept that people can agree/disagree with you. This reminds me of when they released the ipad, OH JUST A BIGGER IPHONE LOL INNOVATION, or when they released an ipod touch LOL JUST AN iPHONE W/O THE PHONE or released the retina display LOL ALL "MARKETING" TALK

ayway, back on topic. this is suspicious to me as tim cook also recently announced the stock buyback. it's obvioulsy good to have it be incentive based if he believes stock price will be going up and apple certainly will make sure of this.
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Old Jun 21, 2013, 05:00 PM   #9
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Originally Posted by koppie644 View Post
class act
So if Cook's leadership results in Apple's stock price being in the lower third of the S&P he still gets 400,000 RSUs.

The structure is all win and no lose for him, no matter how poorly he performs. What about that makes him a class act?

From a shareholder viewpoint - he has been and is a dismal performer. Wall Street's assessment of his leadership of Apple post WWDC is a big DUD.

The sooner he goes the better Apple will be.
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Old Jun 21, 2013, 05:00 PM   #10
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Originally Posted by badmac78 View Post
Can't innovate if you're focused on stock price...
I agree with you that it's a dangerous street to go down, although as a publicly traded company, it's not completely unreasonable to expect executive compensation to be in some way tied to corporate performance. It's worth noting that this is based on total shareholder return, which also factors in dividends, and therefore isn't simply a stock-price metric. I'd personally have preferred to see the metric be simply net income, or operating margin, or something like that, which factors out the stock market and its almost completely illogical treatment of AAPL.

All that said, requesting that you get penalized for your earnings/stock performance taking a hit but get no bonus for exceptional performance is rather impressive from a CEO, when nearly all of these guys seem to have some sort of internal manhood-measuring contest tied to how much they get paid. He's still getting positively fabulous amounts of money--more than any reasonable human being could ever dream of spending--but being the head of one of the most profitable corporations to ever exist gives you quite a bit of leverage that Cook apparently has the relative humility to not take full advantage of.

Oh, and of course since Apple executives have been getting paid in stock or options for a LONG time, their pay has ALWAYS been tied to the stock price. Not as explicitly to shareholder returns as in this case, but same difference--if the stock is up, you're getting paid more, period. So it's not really new if you look at it that way.

Last edited by Makosuke; Jun 21, 2013 at 05:07 PM.
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Old Jun 21, 2013, 05:03 PM   #11
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Originally Posted by rei101 View Post
Is more symbolic than anything else but it is clear that Apple is not the same company and that there is not actual innovation.

1. The Mac Pro... it is just hardware but the shape is not wow at all.
2. iOS7 new interface looks weak
3. The rest of the peripherals are just thinner.

So... yeap, a consumer company but not innovative and the CEO has to keep it that way.
1. Maybe not to you.
2. Maybe to you.
3. Innovation does not mean you revolutionize the mp3 market, phone market, tablet market every year.

Anyway, what big changes do you expect with todays hardware available for mass production?
Apple always was pulling the full potential out of available hardware and making every single competitor follow their example.
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Old Jun 21, 2013, 05:05 PM   #12
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Originally Posted by FrozenDarkness View Post
i don't think you get apple. You're probably the same shill who argued that apple didn't invent the iphone and invent the ipod then come around and argue apple is all about looks that you don't agree with. Realize that looks are opinions and accept that people can agree/disagree with you. This reminds me of when they released the ipad, OH JUST A BIGGER IPHONE LOL INNOVATION, or when they released an ipod touch LOL JUST AN iPHONE W/O THE PHONE or released the retina display LOL ALL "MARKETING" TALK

ayway, back on topic. this is suspicious to me as tim cook also recently announced the stock buyback. it's obvioulsy good to have it be incentive based if he believes stock price will be going up and apple certainly will make sure of this.
So how well has the stock buyback program been working? The buyback is more of a gimmick that will not help shareholders - I've opined on that in detail earlier. Apple needs to get the WOW factor back - what we learned at WWDC has certainly not increased Wall Streets view of Apple under Cook's leadership.
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Old Jun 21, 2013, 05:05 PM   #13
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The structure is all win and no lose for him, no matter how poorly he performs. What about that makes him a class act?
Because he already signed a contract that guaranteed him 1,000,000 RSUs so long as he kept the job. He voluntarily changed the terms so that if the shareholders suffer, he can lose as many as 600,000 of those RSUs.

He could easily--most would say "reasonably"--have asked for a tradeoff in the other direction. "I'm voluntarily putting 600,000 shares of contractually-guaranteed stock at risk if performance is bad, so how about I get something extra if performance is exceptionally good?" The board even said that for other executives, that would be the norm.

But he voluntarily said "no, I don't need the bonus if things go really well--just penalize me if they go badly." I would call that legitimately classy.
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Old Jun 21, 2013, 05:09 PM   #14
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Similar to what Steve did

Steve Jobs famously made $1 a year and therefore relied on increasing stock price to make money. Tim's doing a similar move, essentially saying 'hey, if we're not doing well compared to others in the market, then don't give me as much stock as you already awarded me'.

In a country where CEOs get golden parachutes and bonuses that don't match performance, this is signal from Cook that he believes in the future of Apple and is willing to bet his stock on it.
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Old Jun 21, 2013, 05:11 PM   #15
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So how well has the stock buyback program been working? The buyback is more of a gimmick that will not help shareholders - I've opined on that in detail earlier. Apple needs to get the WOW factor back - what we learned at WWDC has certainly not increased Wall Streets view of Apple under Cook's leadership.
Actually, Wall Street views Apple no longer as a growth stock, Apple stock is already battered down to that area. So ya, I do think stock buyback program will help.

I think as an Apple fan, I have no problem with them on course. They're making great phones that I like to use, that hasn't changed. I also realize I have a choice, if i want a bigger phone i can leave. Apple has never been about compromises and i don't see how now is any different for me. the only difference is steve jobs isn't selling it to you, it's jony ive. the concept is still the same, you like it you stay you don't you leave.

If I were a stock holder, I would like to see some wow, but no wow really matters now does it? Every piece of apple news gets battered sideways to oblivion. if i were apple, i'd wait for the dust to settle before coming back out.

Last edited by FrozenDarkness; Jun 21, 2013 at 05:21 PM.
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Old Jun 21, 2013, 05:11 PM   #16
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ayway, back on topic. this is suspicious to me as tim cook also recently announced the stock buyback. it's obvioulsy good to have it be incentive based if he believes stock price will be going up and apple certainly will make sure of this.
You may have missed that there is no upside in this for Tim Cook. Even if AAPL shoots through the roof, he won't get more money than with the current contract, he can only get less. On the other hand, I think he makes that much money, it doesn't make any difference.

But really "performance" based compensation is a double-edged sword. Because what is rewarded is not actually whether the CEO benefits the company, but whether targets are reached, and that is not at all the same thing. Especially if someone prepares to leave and can do lots of things that bring up numbers short term but are long term damaging. Every second the CEO thinks about how to make his share options worth more, he doesn't think about what's good for the company.
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Old Jun 21, 2013, 05:12 PM   #17
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Steve Jobs famously made $1 a year and therefore relied on increasing stock price to make money. Tim's doing a similar move, essentially saying 'hey, if we're not doing well compared to others in the market, then don't give me as much stock as you already awarded me'.

In a country where CEOs get golden parachutes and bonuses that don't match performance, this is signal from Cook that he believes in the future of Apple and is willing to bet his stock on it.
Actually most of Steve Jobs' stock came from Disney and he was a billionaire. Tim Cook doesn't have that luxury. I can understand why a CEO would want to be paid if he wasn't an original founder with billions in stock.
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Old Jun 21, 2013, 05:13 PM   #18
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Steve Jobs famously made $1 a year and therefore relied on increasing stock price to make money.
Steve Jobs sold Pixar for several billion dollars. I think he didn't care about how much money he made from AAPL.
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Old Jun 21, 2013, 05:14 PM   #19
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You may have missed that there is no upside in this for Tim Cook. Even if AAPL shoots through the roof, he won't get more money than with the current contract, he can only get less. On the other hand, I think he makes that much money, it doesn't make any difference.

But really "performance" based compensation is a double-edged sword. Because what is rewarded is not actually whether the CEO benefits the company, but whether targets are reached, and that is not at all the same thing. Especially if someone prepares to leave and can do lots of things that bring up numbers short term but are long term damaging. Every second the CEO thinks about how to make his share options worth more, he doesn't think about what's good for the company.
to me, the upside will appear to be yearly allotments of the rewards, nobody likes vesting. I don't know if there are additional risks with maybe being fired or what have you.
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Old Jun 21, 2013, 05:21 PM   #20
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Interesting move for Tim Cook, hope it works out well for both him and Apple.
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Old Jun 21, 2013, 05:25 PM   #21
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Originally Posted by longofest View Post
Apple is a publicly owned corporation. It may publicly state that all it wants is to make good products, but in reality, the goal of any publicly owned corporation is to increase its value over time. Apple is no exception.

Steve got paid a $1 base salary, and the rest of his extremely hefty compensation package was based in stock. We can all agree that Apple did just fine when Steve was at the helm. I don't think this change in of itself will have any downside affect on Apple's performance or ability to innovate.
Hm, here's the thing.

I agree that the eventual bottom line needs to be about shareholder value.

I actually agree with what the person you're replying to is saying though. If Tim's compensation is based on the stock value, it changes his incentive to announce new products before his "reviews" and makes him much more PR conscious.

IMO, his compensation should be based on actual revenue growth to Apple, because Apple is an *extremely* polarizing company in the media and thus the stock is subject to temporary enormous swings if Tim makes an "unpopular" decision. Steve Jobs made "unpopular" decisions all the time believing that they would be better for the long term. He didn't care at all about temporary stock swings, just the long term.

Basing Tim's compensation on the stock value, rather than actual revenue/profit, seems a poor decision from an incentive perspective. They should base it on revenue/profit growth, IMO.
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Old Jun 21, 2013, 05:25 PM   #22
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Well Done.

Lead through example. This will help in Asia also.
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Old Jun 21, 2013, 05:26 PM   #23
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Actually there is a huge upside to him if he gets canned or quits before 2016 (which I doubt).
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Old Jun 21, 2013, 05:27 PM   #24
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Originally Posted by rei101 View Post
Is more symbolic than anything else but it is clear that Apple is not the same company and that there is not actual innovation.

1. The Mac Pro... it is just hardware but the shape is not wow at all.
2. iOS7 new interface looks weak
3. The rest of the peripherals are just thinner.

So... yeap, a consumer company but not innovative and the CEO has to keep it that way.
It appears you think innovation is all in the looks and outer shell. Perhaps look a little deeper than the skin and you might find something.
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Old Jun 21, 2013, 05:35 PM   #25
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He should probably pay any tax in Ireland!
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