Apple CEO Tim Cook's 2012 comp package plummets

Apple boasts that Cook is paid 'significantly below the median;' doesn't ding him for Maps debacle

Apple raised CEO Tim Cook's salary by 55% for 2012 and awarded him a $2.8 million bonus, but said the chief executive's pay was still "significantly below the median" of comparable firms.

"Mr. Cook remains significantly below the median annual cash compensation level for CEOs at peer companies," Apple said in a preliminary proxy statement filed with the U.S. Securities and Exchange Commission (SEC) last week.

"Companies use the proxy to communicate with shareholders," said Don Lindner, the executive compensation practice leader at WorldatWork, an association of human resources professionals. "By saying Cook's pay is below the median, that gets a big positive from the shareholders."

But even taking into account Apple's size and its high-revenue year, Cook's compensation was certainly adequate, Lindner argued. "The single biggest factor in executive pay is the size of company, and Apple obviously is huge," Lindner said. "But Cook has not been in the job very long. It may take a period of years for him to be paid at the median."

He called that thinking typical of compensation committees and corporate boards.

Although Cook, 52, has been with Apple since 1998, he only assumed the CEO role in August 2011, just weeks before co-founder and former CEO Steve Jobs died of pancreatic cancer.

Another compensation expert saw Apple's boast of low CEO pay differently. "That's not something companies typically brag about, but it's part of the culture of Apple, that you work for the long-term benefit of the company," said Bob Buford, a Portland, Ore.-based compensation consultant.

Cook's compensation was drastically lower than the year before: His 2012 package was down 99% from 2011's.

That year's total was skewed by a massive retention grant of 1 million Apple shares. At the time, those shares were worth $376 million, the bulk of his $378 million total.

As of Monday's market close, the 1 million shares were worth over $532 million.

Because the shares, officially dubbed "restrictive stock units" (RSUs), vest in equal parts in 2016 and 2021 -- and then, only if Cook is still with the firm -- they're intended to keep him at Apple.

Cook's pay package was considerably less than four of his subordinates, who received large stock awards worth between $66.2 million and $83.1 million. Cook didn't receive stock for 2012 because of the large award he was granted when he was promoted to CEO.

"There was no competitive reason for [awarding stock this year]," said Buford. "They're already married to the guy for 10 years."

Both Buford and Lindner thought Cook would be awarded stock in 2014, the next time Apple will issue grants to its top executives. "They took him out of the normal cycle because of the mega-grant," said Lindner. "But I expect he'll be back in the cycle next time."

Cook's base salary rose from $900,000 to $1.4 million in 2012, with the remainder of his compensation coming from a performance-based bonus of $2.8 million. In the SEC filing, Apple said the company exceeded the performance goals for net sales and operating income that had been set earlier, and so Cook and others received the maximum bonus of twice each executive's annual salary.

Cook received the $2.4 million bonus even though Apple's stock has been hammered since September, and in the face of the Apple Maps backlash last summer when customers complained that the replacement for the long-standing Google-powered mapping app was substandard.

Boards can penalize executives for missteps on their watch, said the experts, but obviously didn't think Cook was the one responsible for the Maps mess.

"Rather than hammer Cook, they ignored it," said Buford, who speculated that the board concluded that the move to replace Google's technology with the company's own was former CEO Steve Jobs' decision. "They decided it wasn't on [the current team's] watch," Buford added.

That was in stark contrast to Microsoft, which last fall penalized Steven Sinofsky, the former head of the software giant's Windows division, by setting his 2012 bonus at 60% of the maximum. Microsoft's October proxy statement cited the 3% downturn in his division's revenues and its failure to include a browser ballot in Windows 7 Service Pack 1 (SP1) for European customers for the smaller bonus.

Because of the browser ballot gaffe -- Microsoft called it a "technical glitch" last summer -- the company faces fines that potentially could climb into the billions.

But Apple executives did not escape unscathed from the Maps fiasco. Scott Forstall, the former head of iOS development who lost his job in October amid the furor over Maps, was absent from last week's proxy statement. In November 2011, Forstall received 150,000 RSUs that were to vest in two chunks in June 2013 and March 2016. The award was then valued at $59.6 million, although at current prices it would be worth $79.8 million.

It's unclear whether Forstall will receive any of those shares, or part or all of a 2010 grant that gave him 100,000 shares which were to begin vesting in 2014. According to Apple, Forstall will leave Apple in 2013, but the company has not disclosed a date. Under Apple's policies, RSUs vest "subject to [an] officer's continued employment with the Company through the applicable vesting dates."

Cook's subordinates received more generous 2012 pay packages than their boss. CFO Peter Oppenheimer; lead counsel Bruce Sewell; head of operations Jeffrey Williams; and Bob Mansfield, who returned from retirement to run the new Technologies division, each received salary increases to $800,000, bonuses of $1.6 million, and stock awards valued between $66.2 million and $83.1 million.

The proxy statement also revealed that Cook recommended that Apple set stock ownership guidelines for the CEO and board members not employed by Apple. "Under the guidelines, Mr. Cook is expected to own shares of Company common stock that have a value equal to 10 times his base salary," the proxy stated.

Such guidelines were unnecessary before Cook's elevation to the CEO suite: Steve Jobs, who famously took an annual salary of only $1, owned approximately 5.5 million shares at the end of 2011.

By the new guidelines, Cook will be expected to retain at least $14 million in Apple stock, a way to insure that his fortunes remain tied to some extent with the company's.

"Stock guidelines, or even requirements, are very, very common, almost universal," said Lindner of WorldatWork. "Shareholders like to see that senior management has skin in the game. The board wants to make sure that [the CEO's] interest aligns with shareholders'. But 10 times base salary is very high -- typically it's five times -- and Apple is making a big statement here."

"Ten times for a CEO is a little bit above the norm, but it's not unheard of," countered Buford, the compensation consultant. "[Stock ownership guidelines] have been a growing trend, with most of the Fortune 100 having guidelines for top-tier management. And it's spilled over into most boards, too."

Apple also touted the 10-times benchmark. "This stock ownership requirement is among the highest of any CEO in the Fortune 100," the proxy stated.

The stock ownership guidelines may be just that, but for the CEO they're effectively requirements, the experts said. "A CEO is expected to follow them," said Lindner.

According to Apple, Cook currently owns shares worth about $7.35 million, meaning he will have to acquire almost as much again to meet the 10x guideline.

The ownership guideline and Cook's future stake in the company -- once his 2011 stock award vests -- is a way for Apple to maintain the philosophy that Jobs instilled, where top executives' paychecks, including the CEO's, were overshadowed by equity compensation or an existing equity position.

"There are other examples, including Apple's policy of not offering severance to executives, that shows they're proud that there are not a lot of frills [in compensation], and they're not just a bunch of [cash] greedy guys," said Buford. "They seem pleased to carry on that tradition."

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed. His email address is gkeizer@computerworld.com.

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