Tim Cook is receiving a lot of press for asking the board to alter his compensation plan to better match performance (or lack thereof): see here (CNBC), here (CNN), and here (Mercury News).
In “The Fascinating Part of the Changes to Tim Cook’s Restricted Apple Stock”—so far the only journalistic piece I’ve seen that doesn’t just shovel boilerplate—Tim Worstall digs deeper. First he discusses how this model might infuriate fellow CEOs whose only real desire is to have their hand in the corporate till (my words), and how this move by Tim Cook and Apple’s board exhibits real leadership on executive compensation.
Second, he also exposes that Tim Cook isn’t actually exposing himself to too much financial peril, which is the true point of that article, and makes it a fascinating read.
I think that instead of leadership and altruism, a different motivating factor is at work: self-preservation.
Tim Cook knows he’s not Steve Jobs, that he cannot make evolutionary products seem revolutionary, which causes irrational exuberance. That doesn’t mean that at its peak the stock price was inflated. A stock price reflects the total expected future earnings of a company, and with the hype stirred up by Steve Jobs that surrounded Apple’s products and services, those earnings would have seemed likely/possible. But the sheen has worn off.
That doesn’t mean that Apple’s products aren’t any good—they are very good—but they are once more being evaluated on their merits, and there simply is a lot of competition out there.
Given Apple’s precipitous stock decline, and North American boards’ and shareholders’ unwillingness to have a long-term view, Tim Cook would normally have been fired by now. He’s certainly not gaining friends in the investment community (stock price of $1,000, anyone?).
Tim Cook can now be the CEO for the next ten years, not outperform the market but keep his job, and still out-earn all of us in one year what we cannot even earn in a lifetime. Per his comp plan, even if Apple is in the bottom-third of S&P 500 performance, he will still be granted 50% of his RSUs. That means, written into his contract now is that he can be a shitty performer, yet still receive 50% of his bonus compensation. It also means the board cannot really fire him for under-performance since it has agreed to these terms. Very shrewd bargaining indeed.
Tim Cook possibly faced getting fired soon, so instead he bought himself time (literally) and a ten-year revenue stream in the process. Tim Cook is probably a good shepherd, but not necessarily a great leader. He is, however, very wise: he knows when he has enough, and that more isn’t necessarily better. And he certainly knew how to package and sell that. If only he could do that for Apple, not just himself.
What’s really broken in executive compensation is tying it exclusively to shareholder needs, instead of the broader stakeholder needs (triple bottom-line stuff). Stakeholders include employees, customers, suppliers, the environment, etc. With a ten-year CEO runway Tim Cook can now ignore quarterly results. That’s actually very good, because he can focus on the real needs of the company. But he could also have put a real leadership stake in the ground by incorporating the larger universe of needs in his bonus plan, instead of just focusing on his own.
[Lest we forget the point of this blog…lesson to marketers: don’t hoodwink your audience.]
marcsimony 