Apple CEO Tim Cook’s Big Raise from Apple and Trends in CEO Compensation

It was reported from SEC filings that Cook was awarded 1 million shares of Apple Stock. The shares will vest half in five years and the other half five-years later. So for Cook to collect on all shares, he’ll need to remain with the company for 10 years from the date he succeeded Jobs. Based on the value per share at the time of the SEC filing, Cook received a deferred bonus of $383 Million.

The stakes are high at Apple which in terms of stock value is one of the most valuable companies on the planet. It is also riding an all-time high thanks greatly to the forward thinking leadership of Jobs. He is without a doubt a nearly impossible act to follow. A school of thought exists that a CEO’s job performance is often perceived negatively or positively based on something as simple as point of entry. Point of entry means the timing of when he takes the position. In this case, Cook may be coming in at the worst possible time as far as his perceived performance. Although he has expressed confidence and has disagreed with the media assessments that there is nowhere to go but down, he has unique challenges due to his difficult point of entry. There is little doubt that his new compensation package reflects the challenges ahead.

The nature of his new compensation package is also interesting because the deferred nature of the stock ties the package to the performance of Apple as a whole. Although we are definitely talking a lot of zeros, more than many can fathom, this is far different than massive golden parachutes being delivered to CEOs who were shown the door during business downturns that were prominent starting with the recession of 2008. In those cases, companies were publicly embarrassing themselves with rewards of multi-generational wealth guarantees for people who had basically failed in their position, while many employees wondered how to make ends meet each week.

Obviously the stakes are different (along with responsibilities) the higher up you go up the hierarchy of a corporation. Basic working and middle-class employees at the foundation of the pyramid are less likely to have an issue with a situation where performance of the whole company ties into massive CEO bonuses. In the case of Cook, Apple smartly applied this standard knowing that a better Apple will please employees, making it more likely they will look at the breathtaking numbers in a CEO compensation package with more of an open mind.

The use of incentive based equity compensation, rather than a raise in traditional salary, is actually a continuation of a trend that has grown in popularity among companies since World War 2. According to a 2007 Vanderbilt University study by Carola Frydman and Raven Saks, the largest 50 public companies surveyed in 3 different decade increments post WWII including the 1990s, exhibited an increasing correlation between CEO and top executive compensation and the performance of a company as a whole.

The obvious difference between the 1990s and today is the increased access to information and corresponding media saturation of business-related topics. The effect has been increased scrutiny and pressure on a CEO to grow the business in shorter time-frames to please not only stock holders but employees leery of being the first victims of a downward cycle. It’s a war of perceptions and even if actual compensation isn’t growing beyond normal patterns over time (as studies indicate), a CEO and his large compensation arrangement has more to answer for now than at any time in history. The part that makes it even more difficult is the people he’ll be answering to are as informed and possibly as sophisticated as he is.