June 22 (Bloomberg) -- Apple Inc.’s board is linking more of Chief Executive Officer Tim Cook’s compensation to the company’s stock performance, seeking to reassure investors who have seen the shares drop 41 percent from a record in September.
Cook, who received one of the largest stock-reward packages on record in 2011, requested the modification to his bonus, Apple’s board said in a filing yesterday. The change means about third of the CEO’s stock rewards will now be subject to a drop in value, the directors said.
Cook was given 1 million Apple shares vesting over a decade after succeeding Steve Jobs as CEO in 2011. As a result of the new plan, part of that bonus will now be based on stock performance, rather than just on Cook remaining at the iPhone maker. Investors including the California Public Employees’ Retirement System have urged Apple and other companies to link pay more to the stock price.
“There is quite a bit of pressure from the investor community on firms to put plans like this in place,” said Allan McCall, co-founder of executive-compensation consulting firm Compensia Inc. in San Francisco. The move indicates “how much pressure there is that Apple, which has historically done its own thing with respect to compensation, seems to be responding to these things.”
Apple is facing heightened competition from Samsung Electronics Co., Google Inc. and others in the smartphone and tablet markets. Apart from an updated line of MacBook Air laptops, Apple hasn’t introduced a new product since October, increasing pressure on Cook to release a new hit device that can live up to the success of the iPhone and iPad.
The size of Cook’s future stock awards will depend in part on how the company performs compared with other companies in the Standard & Poor’s 500 Index. Of the 1 million shares Cook was awarded two years ago, half were to vest in 2016 and the rest in 2021. After the changes, Cook will receive 100,000 shares in 2016 and another 100,000 in 2021 if he remains with the company, while the rest will be given out in annual increments.
“He’s gone out of his way to put stuff back on the table and you have to give him points for that,” said Brian Foley, an executive compensation consultant at Brian Foley & Co. “But the numbers are so large that the worst that could happen is he only gets 672,000 shares. You and I could live on that.”
Cook will get as many as 80,000 shares each year, half of which is tied to the stock price. If Apple’s share performance is in the top third of Standard & Poor’s 500 Index companies that year, Cook will receive the full amount. If it’s in the middle third, he’ll get 60,000 shares, and 40,000 for any year that Apple is in the bottom third.
“Mr. Cook is leading this initiative by example and has the full support of the board of directors,” the board’s compensation committee said in the filing. The changes are effective June 21, Apple said.
Apple fell less than 1 percent to $413.50 at yesterday’s close in New York, leaving it down 22 percent this year. The drop in the stock price may make it easier for Cook to succeed under the new stock plan, according to Foley.
“He has a fresh start,” Foley said. “Some of the hype has been taken out of the stock.”
Stock rewards for several Apple executives also vested yesterday, according to regulatory filings. Phil Schiller, Apple’s marketing chief, Peter Oppenheimer, chief financial officer, Jeffrey Williams, head of operations, and Bruce Sewell, general counsel, each received 75,000 shares. Bob Mansfield, Apple’s senior vice president of technologies, received 28,414 shares.
“Our executive team is incredibly talented and they are all dedicated to Apple’s continued success,” Steve Dowling, a spokesman for Apple, said. “Most of the executive team has worked together for more than a decade and have been extremely effective by any measure.”
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