Monday, September 10, 2012

Gregg Easterbrook Distorts Tim Cook's CEO Restricted Stock Award

Ahhh the NFL season is upon us, which means that Gregg Easterbrook has his forum on ESPN to write misleading half-truths and totally point out when people prepare for Christmas too soon.

Anyway, a couple of weeks ago, Easterbrook took issue with Apple CEO Tim Cook's compensation.  Let's see if he played it straight, or if he was misleading (he was misleading).

Is Apple the New Exxon/Mobil?

Timothy Cook, CEO of Apple, received $378 million in compensation for 2011.

Well, that’s clearly a lot of money – imagine if your compensation was $377,996,537 of cold, hard cash – all of it “received” in 2011.  Pretty crazy!  Now, what if I told you that $376,180,000 of that compensation would be paid in stock? Does that change your opinion? Maybe not. Sell stock, convert to cash. Couldn’t be more simple, right? What if I told you that 50% of that stock (500,000 shares) wouldn’t be yours unless you’ve been successful at your job for 5 years (your job requires you to maintain Apple’s impossibly high growth rates and market share). You may reply, “okay, but I get the other 500,000 shares now?” No – you get the other 500,000 shares in 10 years.   A bit of a catch.  So what Gregg has done is he's latched onto the proxy compensation reported by Apple.  Not wrong, but horribly misleading.  Usually, it's a good proxy (see what I did there) for annual compensation.  But when I saw Gregg's note, I knew it was impossibly high, and quick control-f in the proxy would tell the real story.  Let's see...

This is appalling avarice: Cook could have paid himself half as much and still been the highest-paid CEO in the United States! Cook pulled down $126,000 per hour, more per hour than the typical American family makes in a year.

Does my above paragraph change your view on whether or not Tim Cook “PAID HIMSELF” $378 million in 2011? The board paid him $900,000 of salary, a $900,000 bonus and gave him 1,000,000 shares of stock, vesting 50% in 5 years and 50% in 10 years.

But how could I possibly know this information, and why the board decided to give him that award? Well, maybe we could read the public filing?

In connection with Mr. Cook’s appointment as CEO, the Board granted Mr. Cook 1,000,000 RSUs as a promotion and retention award. The RSUs are payable, subject to vesting, on a one-for-one basis in shares of the Company’s common stock. Fifty percent (50%) of Mr. Cook’s award is scheduled to vest on August 24, 2016 (five years after the award date) and fifty percent (50%) of Mr. Cook’s award is scheduled to vest on August 24, 2021 (ten years after the award date), subject to Mr. Cook’s continued employment with the Company through the applicable vesting date. In light of Mr. Cook’s experience with the Company, including his leadership during Mr. Jobs’s prior leaves of absence, the Board views his retention as CEO as critical to the Company’s success and smooth leadership transition. The RSU award is intended as a long-term retention incentive for Mr. Cook, and, accordingly, should be viewed as compensation over the 10-year vesting period and not solely as compensation for 2011.

Interesting, what else?

Except for the longer 10-year vesting term, Mr. Cook’s award is subject to the same standard terms and conditions that apply to the Company’s RSU awards generally. Accordingly, the award provides that Mr. Cook’s unvested RSUs will be forfeited if his employment terminates in any circumstances, other than death or disability.

Sounds like a nice gig, 500,000 shares of Apple in 5 years, and another 500,000 in 10 years. All you have to do it is keep cranking out world class performance as the CEO of Apple and making your shareholders richer and richer. Sounds easy enough.

Recently The Wall Street Journal reported that Hon Hai Precision Industry, manufacturer of the iPad, pays workers about $345 per month. So if Cook had merely taken half as much, the money saved could have been used to double the wages of 46,000 Chinese workers. So which is more important, a better life for 46,000 people or greed for Apple's CEO?

There was no money to do anything with. You either didn’t read the filing (lazy) or you did and you’re being intentionally misleading to your readers (asshole).

Workers in China are not the sole issue. Apple's U.S. retail workers are much more productive than Costco or Best Buy workers, yet earn significantly less. Cook might say his extremely high pay is based on his being productive. But Apple's U.S. employees are productive, and are shafted on pay.

I have two counter points: Apple products are easy to sell (high demand, despite high prices), and you don’t make money in retail sales.

Also, nowhere in that article does it say that Apple employees earn less than counterparts at Best Buy and Costco.   Though I didn't read the whole thing, I did some word finds.

Cook would probably say that his extremely high pay is based on Apple designing and manufacturing expensive products at a low cost that fly off of retail shelves.

Apple products are cool and offer value. But when the social equation is taken into account, Apple becomes disturbing. How did this happen to what was once a progressive firm?

Apple becomes disturbing when you cherry pick information and ignore material facts.

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