Apple Puts $383 Million Handcuffs On CEO Tim Cook

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Apple Puts $383 Million Handcuffs On CEO Tim Cook

Posted by timothy on Saturday August 27, 2011 @12:32AM from the I'll-take-those-odds dept.

theodp writes "There are bonuses. And then there are bonuses. Apple's board, led by sadly frail-looking chairman Steve Jobs, signaled its long-term confidence in Tim Cook as the company's new leader, disclosing in a regulatory filing that it's awarding the new CEO one million restricted stock units that will vest over the next decade. Apple shares closed at $383.53 Friday. From the SEC filing: 'In connection with Mr. Cook's appointment as Chief Executive Officer, the Board awarded Mr. Cook 1,000,000 restricted stock units. Fifty percent of the restricted stock units are scheduled to vest on each of August 24, 2016 and August 24, 2021, subject to Mr. Cook's continued employment with Apple through each such date.'"

14 of 170 comments (clear)

This is the right way! by Kensai7 · 2011-08-27 00:35 · Score: 3, Insightful

This way if the company continues to win and prosper, he will become wealthy. Otherwise no honey. This is the right way!

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"Sum Ergo Cogito"
1. Re:This is the right way! by CharlyFoxtrot · 2011-08-27 02:27 · Score: 5, Insightful
  
  It's a message to the outside world more than anything else: Apple and Cook saying "We think this job is long term and we're going to make profit doing it together." Sort of a mutual vote of confidence to calm any anxiety outsiders might have.
  
  --
  If all else fails, immortality can always be assured by spectacular error.
2. Re:This is the right way! by ObsessiveMathsFreak · 2011-08-27 02:54 · Score: 5, Funny
  
  This way if the company continues to win and prosper, he will become wealthy. Otherwise no honey.
  This is an outrageous affront to the principles of merit and earned reward which made this country great. If CEOs cannot expect an honest $5 million bonus payment for liquidating divisions and rolling back R&D in the short term, how will we attract the best people to run our companies?
  It's no surprise to hear this from a company run by a known former hippie. This kind of peace and love "fairness" will sink Apple as it will sink that other great coropration, the U.S.A. Ambitious, driven people will be forced out by poor remunerations, to be replaced by steady, long-term focused, family men whose decisions will be stymied by their senses of "responsibility" or--God Almighty forbid--"fiscal prudence".
  That's not the America I know! The America I know gives 29 years olds a chance to run multi-million dollar companies and over three times their own age. It allows new technologies to be brought to market cheaply by giving their secrets to foreign contractors. It allows billions of dollars to soak up the economic chain to the righteous, hard-working, low-taxed millionaire hands where it belongs. The America I know embraces inequality as a founding principle!
  If this catches on, expect myself and the rest of your betters moving on to a better life in Shanghai, under a Government which recognises and rewards our ability.
  
  --
  May the Maths Be with you!
3. Re:This is the right way! by Runaway1956 · 2011-08-27 03:50 · Score: 3, Interesting
  
  I hate to say it - but, yes, you're naive. You must have missed the government bailout of my nation's largest banking corporations. Despite the fact that our largest banks were on the brink of bankruptcy and disaster, those same banks took bailouts in one hand, and paid their executives exorbitant bonuses with the other hand. There have been numerous news stories in the past decade, of executives being sacked, or even convicted, but still demanding (and getting) lucrative bonuses and/or severance packages. I have no idea how the rest of the world handles these things, but here in America, if you are one of the "Good Old Boys", you can't lose. Drive a good company into the dirt, and walk away with awesome bonuses.
  
  --
  "Windows is like the faint smell of piss in a subway: it's there, and there's nothing you can do about it." - Charlie Br
4. Re:This is the right way! by hawk · 2011-08-27 05:14 · Score: 4, Informative
  
  It's also the correct way to make him share in both success *and* failure.
  Options were a reform that failed; they only work upwards. Once they dip underwater, they encourage wild risk, as the executive has nothing more to lose.
  What we really need is a tax code adjustment. Right now, if an executive is paid in stock, the valuenis general immediately taxable. If half of his pay were in stock, he would have to either sell stock to pay these taxes or give up the bulk of his pay to pay them (and then pay capital gains on the amount by which they increased when he eventually sold them, the difference between the sales price and the "basis" [price he received them at and was taxed upon]).
  Instead, when stock is the majority of the compensation, and is restricted from transfer for several years, it should come at a basis of 0, with no current taxation. When sold, the entire amount would be capital gain (or, tax the amount that would have been basis as ordinary income). Now the exec can afford to keep the stock, and also feels the shareholders' pain.
  dochawk, economist
Oh look... by bmo · 2011-08-27 00:37 · Score: 5, Insightful

Motivation to look out for the long-term interest of the company instead of the next quarter.
Whoda thunk it?
Sadly, such motivation is missing from the portfolios of many CEOs.
These are not handcuffs. The only people who think these are handcuffs are day traders and speculators. Fuck them.
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BMO
Re:not like it's real money by macs4all · 2011-08-27 01:06 · Score: 4, Insightful

it's stock he can't sell for another 10 years. it's only worth 383 million if the stock price stays where it's at. Just look at GE after jack welch left. MS after bill gates. or almost any other company after an iconic CEO or founder steps down. the stock usually tanks.
usually it's the law of large numbers. you can't grow as fast when you're a huge company
Amazingly, even though "the market" is EXTREMELY jittery right now, Apple's stock only went down by 7%, and in two days is now trading HIGHER than the pre-announcement price.

This reflects the fact that Tim Cook IS the right man for the Job, and in fact, already HAS a proven track record at Apple, since he has run the company twice (or is it three times?) during Jobs' other hiatuses (hiatii?). And Apple and Jobs' have been quite smart by pushing Tim's previous fill-ins out into the limelight. Not only did that signal to everyone that Apple had "a plan" for succession, but also let everyone get to know Tim Cook, and his managerial style.

Fortunately, Jobs' protracted illness has given both he and Apple time to do this right. If Jobs had died in a plane crash or something, and no one had ever heard of Tim, THEN there would have been a bigger drop. But not this way.

Apple's stock isn't going to be "tanking" anytime soon. Now go spread your FUD somewhere else.
Re:not like it's real money by bmo · 2011-08-27 01:12 · Score: 4, Interesting

I feel ya, bro, I feel ya.
She was of the same school as Scully. "We sell a brand, not products." We need to find the business schools where they learn this shit and burn them to the ground.
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BMO
Re:not like it's real money by flyingsquid · 2011-08-27 01:30 · Score: 4, Insightful

This reflects the fact that Tim Cook IS the right man for the Job, and in fact, already HAS a proven track record at Apple, since he has run the company twice (or is it three times?) during Jobs' other hiatuses (hiatii?).
What it probably reflects is that the news of Jobs departure was already factored into the stock price. Investors already knew how central Jobs has been to Apple, investors knew that Jobs had previously taken a medical leave for pancreatic cancer, and investors knew that Jobs had gotten a liver transplant which appeared to be an effort to treat a recurrence of that cancer. This wasn't insider information or anything, this was widely reported in places like Slate.com. Given that, it seemed like the question was not whether Jobs would leave but when, and everyone's been waiting for this to happen. Now it has, and the uncertainty is removed.
Speculators make the market by tepples · 2011-08-27 01:46 · Score: 3, Informative

Without someone willing to buy or sell a given security at any particular time, there is no liquidity and therefore no market. Speculators make the market by being willing to buy or sell.
Re:not like it's real money by mikael_j · 2011-08-27 02:15 · Score: 3, Interesting

I'm not going to speculate on the exact reasons for Jobs resigning as CEO but I suspect it was done now rather than later is so that Tim Cook gets a chance to prove to the rest of the world that he really is capable of running Apple. So should Jobs step down completely/die/whatever in the future the stock price won't tank because everyone has gotten over the whole "Apple needs Jobs to survive" thing.
In that way it's a smart move. If anything, Jobs is 56 years old, even if it wasn't for his illness that sounds like the age at which you'd at least be considering your retirement plan. For all we know he might be perfectly (well as perfect as you can be after a transplant and cancer) healthy but just knows that he doesn't want Apple to go down the drain when he retires and he doesn't want to keep working past 60 or 65.
I know a few people who ran their own companies and they all started putting things into motion for their retirement in similar ways when they were in their mid-50s, it just takes a while to step down when you're The Boss(tm).

--
Greylisting is to SMTP as NAT is to IPv4
Re:Can he sell covered puts... by Ancil · 2011-08-27 02:15 · Score: 3, Insightful

No, because you can't cover a put option with stock you don't own. He won't own any of this stock for 5 years.

Recall that US-style puts can be excercised any time before they expire. He also can't cover a "European" put option, because there's no guarantee he'll keep working for Apple and own the stock 5 years from now.
Re:not like it's real money by bmo · 2011-08-27 02:27 · Score: 4, Insightful

>Because Apple isn't selling a brand? An image?
No, they don't They sell products first. The brand, the reputation /follows/.
It's how they were brought back from the dead, because Apple had a shitty reputation back in the 90s because they did stupid shit like sell an '030 machine for $10,000 with a straight face (the 20'th anniversary edition Macintosh).
Scully was "brand first, product last" and it showed through the entire 90s until Jobs came back after learning hard lessons at NeXT.
"Brand first product last" kills companies. It was introduced at HP with Carly, and the effects of the Carly era are still being felt, because HP just decided they can't compete in the hardware arena anymore.
Another "brand first, product last" company is Nokia. Nokia built a reputation on innovative phones that worked. Now look at them. Instead of innovating in the smartphone space, they sat on their hands and phoned it in (hah) on their name, only to become a Microsoft puppet in the Trojan Horse CEO deal of the century.
I give HP 5 years, and then their stock is going to be pennies.
I give Nokia 2 years and they will cease to exist.
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BMO
Incentives are hard by sjbe · 2011-08-27 05:15 · Score: 4, Interesting

I might be naive on this, but isn't this how bonuses already work? I thought that bonuses were tied to performance or meeting other goals...
Not necessarily. Sometime bonuses are given out for no immediately obvious reason. Sometimes they are given out because the company board's compensation committee are a bunch of buddies who give the CEO a bonus even when the company loses money. Even if there are performance goals attached, all too often they are too easy reach. Goal oriented bonuses are difficult. Make them too easy and you don't accomplish anything. Make them too hard and they serve no incentive purpose - no point in reaching for a goal you can't actually achieve. In fact incentives in general are difficult to align with the goals of the company. For example, many salesmen are on commission based on revenue. The problem is that this motivates them to sell as much as possible, regardless of profitability. Companies have been ruined by misaligned incentives and management pay is no exception. There is an old saying that if you tell me someone's incentives I'll tell you their behavior.

I'd like to see an example of someone getting a bonus when they've been doing a shitty job (excluding the easy google result of the banks after the bailout).
How about Carly Fiorina who was given $180 million for what can generously be termed uninspired performance and a declining stock price. How about AIG awarding $165 billion in bonuses AFTER receiving bailout money. It's not remotely difficult to find examples of executives being handsomely rewarded for mediocre or even terrible performance.