The "grim reaper" is somehow always around the corner in Cupertino, Calif. and was last spotted glancing over Tim Cook's "new" compensation package and wondering whether Steve Jobs would have approved of it. My gut says that he did. Let's go over the details of Apple's new "poison pill."
A recent Apple filing with the Securities and Exchange Commission revealed that Apple has made changes to Tim Cook's restricted stock unit award -- making it the main driver of Cook's compensation as CEO. The filing states:
First and foremost, let's understand that this is not a "new policy" that Apple has taken. Those who are proclaiming "Apple's death" and insisting that Steve Jobs is "turning over in his grave" because of this "new" pay structure must now acknowledge that Steve Jobs just might have signed off on this. The filing clearly states that this is an amendment, a term that typically means that a declaration (of sorts) already existed.
Further, the date on the document says that the original agreement was drawn on August 24, 2011, almost three months before Steve Jobs' death. And there's no debate that Jobs picked Cook as his successor. I'm not as skilled as others are in speaking on what Steve Jobs "would have done," but I'm inclined to believe that he would have been consulted on Cook's pay structure and subsequently signed off on it.
So, the idea that Apple's culture is suddenly falling apart because Cook has agreed to adjust his pay is complete nonsense. I say "agree" here because (again) there already was an existing agreement, so he didn't have to accept the amendment, and he wasn't forced to accept it.
Before we continue, let's not pretend that anger over CEO compensation, at any company, is a new issue -- it's not.
What CEO's are paid has been a hot topic for as long as I can remember. Not too long ago we were complaining about how the American taxpayer saw his or her money being used to bail out companies and banks that were on the brink of failure. The government was perceived as rewarding companies for poor performance because they were "too big to fail."
Around the same time, a Forbes study revealed that the top 500 CEOs in 2009 earned an excess of $4 billion in total compensation (on aggregate).
According to my math, that equated to more than $8 million each, which often includes countless pay options designed to reward both short- and long-term performances. I don't have an issue with this model.
However, after all of the "perks", stock options, cash bonuses, etc. are adjusted in, investors would still need a financial degree to truly understand what CEOs actually earn. This "engineered system" was not by accident, though. Although some of the pay is structured for tax reasons, it's also a form of "financial engineering" designed to mask the truth about top executive pay and shield companies from criticism as the gap from CEO-pay to low-level worker widens.
How many times do we hear shareholders complain about "golden parachutes," those generous severance packages that CEOs take with them even after they've driven their companies into the ground. How can we forget the $1.5 million per year pension that Bernie Ebbers received after the former WorldCom CEO destroyed the company?
There was also the $210 million early retirement package that Bob Nardelli received after stepping down in 2007. This was also after he eroded Home Depot's shareholder value by as much as 70% during his tenure. It seems odd, then, that we can complain about the examples above and yet criticize executives -- in this case Tim Cook -- who have chosen to accept responsibility by tying their companies' stock performance to their compensation. Cook is not "giving in" to Wall Street. He's aligning himself with his shareholders.
The ridiculous notion that he's never "been poor" does not diminish his wanting to do what's right. More to the point, let's also try to understand what's in that SEC filing beyond just a cursory view. The first line of the document references "restricted stock units." Many are still unaware, but RSUs are what's about to overtake stock options as the method for executive pay.
The good news for shareholders, though, is that unlike stock options, RSUs can't easily be "manipulated." This is because the value of the RSU can't be timed, whereas stock options can serve as "golden parachutes" (of sorts) because the stock market is expected to generally go up over time.
Along similar lines, the filing also states:
TSR stands for total stockholder return, which includes the rise of the stock price plus the dividends paid during that period. When compared to the examples cited above such as Home Depot and WorldCom, Tim Cook is actually making it harder on himself to earn his full pay since the performance is tied to 10 years.
Look, I can talk about this forever. But the bottom line is, we can't have it both ways.
We can't demand accountability and then nitpick at the type of reform that we receive.
In the case of Cook's compensation package, which really isn't "new" at all, Apple is not dead, nor is the company falling behind. The company is actually leading the way in shareholder protection and executive compensation reform.
In describing Apple's stock performance earlier this year, Cook said to shareholders "I feel your pain" -- he meant it. And Steve Jobs wouldn't have wanted it any other way -- if I may speak for him.
At the time of publication, the author was long AAPL.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
"Effective June 21, 2013, the Compensation Committee of the Board of Directors of Apple Inc. approved the amendment of the restricted stock units awarded on August 24, 2011 to Timothy D. Cook, the Company's Chief Executive Officer. The amendment does not change the original grant date fair value of Mr. Cook's award as originally reported in the Company's Proxy Statement filed with the SEC on January 9, 2012. It does, however, align Mr. Cook's potential realizable compensation from the award with Company performance, and reflects the Committee's intent to have a portion of future equity awards be performance-based for the Company's executive officers, and for Mr. Cook to lead by example."
"The relative TSR criteria will be applied to each 80,000 RSU tranche scheduled to vest on each anniversary of the original Aug. 24, 2011 grant date, and will compare Apple's TSR to the TSR of the companies in the S&P 500 using public data derived from Standard and Poor's."