You could find a lot of capable people willing to do the job for a lot less.
But if you pay them a fixed salary, even $1m, that isn't directly linked to the performance you're looking for, then the game is to avoid anything too risky, even if the expected value is very high, if it might endanger the CEO's job. The game would be to take the minimum risk and do well enough to not get fired, and that's it.
If Tim Cook manages to double the stock price, he'll have $700m. If it drops to $100, he'll have $100m. It's a big difference, and his interests and risks are aligned with the shareholders.
Anyway, that's the theory. Give too much stock, and you're impoverishing the shareholders for little benefit. Don't give enough, and a superstar might decide he'd rather do a startup or an incubator LOL, or he may not want to pursue the same kind of risk-reward as the people who hire him.
$100m is still a great deal of money. I guess going to $700m, it's the difference between superrich for life, and a legacy of being a great leader and dynastic wealth LOL. Nice work if you can get it.
I've googled it, but it's hard to find the appropriate meaning, since search results seem to focus on the "laughing out loud" sense... "Limit of Liability" was the closest meaning I could find on the Wikipedia disambiguation page ( http://en.wikipedia.org/wiki/LOL_(disambiguation) ), but it doesn't seem to fit in this context.
Best translation I can think of: "ha ha only serious"
He is using it as the word that the Laughing Out Loud initialism became, which has slightly different usage and meaning. (e.g. in the common phrase "I did it for the lulz.")
Oh ok. I'm not a native English speaker, and I thought from the context that it was an abbreviation related to business / investing which I didn't know about. Thanks!
BTW: If Tim Cook can show that Apple can succeed without Steve Jobs (e.g. by launching something amazing in the next couple months), the stock could easily double, because it has been discounted by the predicted effect of Jobs leaving.
Yeah, when Apple ships something in September the press will say "I guess they can survive without Steve" even though those products have been ready to go for a while.
It could actually be that Steve's health has not changed radically but it's a move he needed to make sooner or later and he has huge confidence in the upcoming product cycle to cement Tim's new role.
I don't typically like to spread rumors, but I work as a bartender in Walnut Creek, CA and a guest that claimed to have close mutual friends with Steve said it was defintely because of his health. I obviously can't substantiate her claim, but she seemed extremely sad and elaborated quite a bit.
I definitely hope she is wrong and wish him the best.
@Steko: I saw a supposedly new, and saddening, photo of Steve Jobs in which he looks emaciated. Maybe it is the way he is dressed that makes him look so much worse than what we are used to.
I am no knowledgeable stock analyst, I'm not in that industry at all and I believe you could just as well pick stocks by flipping a coin or letting a parrot pick. And I am in no position to give and stock advice at all and you should just skip this and definitely not listen to it.
That being said, personally for me I do not see AAPL going anywhere but UP in the long run for the simple reason that I take my colleagues and friends for my "guesses" rather than "technical" analysis or nervous traders dropping shares when Mr Jobs says "boo!!". Those peers and subjective impressions were good enough so far when all of a sudden everyone wanted an iPod back in the day before iPhones and sure enough suddenly Apple got all successful and continued to grow.
Now I see the same situation with the iPhone and iPad - I see people here who never heard of Apple some 5 or 10 years ago going crazy over those products and they cross-buy into the Minis and Airs and iMacs and all those other products.
I do understand very well that the stock market is completely unpredictable and very random and good sales numbers can mean nothing but... my bottom line is: all those non-techs and former PC+Windows users jumping on the "ohmygod apple is so awesome!" train for some time now and everybody loves Apple here and they have built an excellent company and generally have a very good and positive public image as an innovator and they do not stop to amaze people with little awesome details and continue to do so in their Apple stores and on top of that I am convinced that they single-handedly CREATED the iPhone-smartphone market and tablet/iPad market[1] and I don't see that changing any time soon. And now with the "Mr Jobs" uncertainty out of the way and his very DNA and spirit woven so closely with that company on ALL levels and him still being on the board, I am not worried the slightest bit and just regret I don't have more money to invest right now.
[1] I realize there were smartphones long time before the iphone and I know there were kinda tablet-thingies before but in my book, Apple created products that simply did not exist before and oh boy did they get it RIGHT and thereby they created two completely new markets and now the masses are buying into it like crazy - none of this existed before. Those are Apple markets and you can see how similar any competitors' products are to Apple's products, no matter how good or bad those "clones" might be. Apple created those markets and they have displayed an excellent and sell-able understanding of both.
I actually wonder if instead, Apple might be peaking.
I remember seeing, in academia, a lot of macbooks appearing around about when Mac OS X 10.1 first came out. This then later seems to have spread.
In a possibly similar way, I now see a lot of grumbling about macs, people going back to windows and linux, and android phones popping up everywhere. Not a guarantee of failure, but I think a lot of people are getting annoyed, particularly by the limitations of the iPad, which feels increasingly crippled the longer you use it (can't just quickly edit a LaTeX file, run LaTeX on it, and then submit it to svn).
This is just one tiny sample, at one university. It will be interesting to see if it spreads, or dies.
I think Apple's plan is to have a stream of new product categories. Already, the iPods make a shrinking contribution to revenue; the iPhone is being overtaken by android; but the iPad is still far, far ahead and growing. What will be next? And can they keep having a "next"? It's tough to keep on creating revolutions (but enormous fun if you can do it).
Going from macs to linux puzzles me, because the mac OS is unix (though not linux) underneath: you have the best of both worlds, usability + power.
The iPad is a simplified product (at present, anyway). Awkward for power users, but great for the huge mainstream who value simplicity over power. Apple is a consumer electronics company these days; a Sony. Geeks are a much smaller and less lucrative market.
While Mac OS X is unix underneath, Apple are not open-source friendly. They have not updated gcc in about 5 years, and even though they now provide clang, they still provide no C++0x support, unlike linux and windows.
The various package managers (brew, ports, fink) seem to often brake, and have packages broken for months.
I'm not a stock advisor, or even a savvy investor. This is just parroting general stuff I've heard elsewhere. Don't take it as investment advice.
You could look at the P/E. It's certainly not the only thing you should look at (a company can boost profits by creative accounting, or by cutting research to make short term gains and boost the CEO's bonus, and there's other factors too), but if you want a back-of-the-envelope way to see whether the price is right, P/E is the obvious choice.
Microsoft is cheap - under 10. People figure it will earn lots of dough, but gradually lose out. If you think Microsoft will reinvigorate itself, and start capturing large and profitable new markets, it may be underpriced.
Apple at ~15 is pricey, but not really high. People figure it will continue to grow (compared to Microsoft), but it's no longer a hot new thing with huge growth potential.
Then there's Dell, which is making money, but with a lower P/E people figure it's likely to be bled dry before Microsoft.
Of course, this is comparing three tech companies. The P/E of all these companies will be hit by broader market factors (which I don't understand). But by comparing similar stocks, you can ask which one the market seems to have been most wrong on. Will Apple go on strongly but not really grow much, while MS limps, and Dell fizzles?
You can't afford a decent jet, a yacht and houses on $100M.
On $700M you can.
small jets start in the single digit millions. Decent jets (10+ people) are $50M easily, costing $1M+ a year. yachts can get extreme. Add in a few homes throughout the world and you've burnt through that $100M easily.
Think of it as comparing a toyota to a bentley.
You can buy better toys but I very much doubt that the quality of life improves much. The difference between $100m and $700m is at any rate much, much smaller than the difference between $15m and $100m.
Maybe that’s why so much has to be payed. A million or so more doesn’t cut it.
I don't know about that. There's a lot of things I'd like to do that would be possible with $5b that wouldn't be possible with $500m. I could start a good ISP, or make a big stab at commercializing spaceflight, or attempt a viable and powerful mind-machine interface... Big Money buys Big Things, and if I were in Cook's position I'd care less about yachts and more about really damned cool things that I could do with that kind of cash.
$500m would be more than sufficient to do all of those things you've outlined. If you can put up 25% (random percent) of the money then you'd be able to get investors to put in the rest. Only a nut would invest the entire amount themselves.
But that aside, we're talking here about quality of life which does not equal being able to pay for the craziest most expensive ideas that you can come up with.
>Only a nut would invest the entire amount themselves.
Not everything I'd want to do would have an immediate commercial payoff, which would rule out investors. That, in turn, would rule out anyone else doing it, which is why having a wealthy backer is necessary.
>But that aside, we're talking here about quality of life which does not equal being able to pay for the craziest most expensive ideas that you can come up with.
If I'm retired, the ability to do those things would be a huge influence on quality of life for me.
> Not everything I'd want to do would have an immediate commercial payoff, which would rule out investors. That, in turn, would rule out anyone else doing it, which is why having a wealthy backer is necessary.
If something is a good idea, you can probably persuade some other people to contribute to it. If you can't persuade anyone, it's probably not a good idea. Even if $500M wouldn't get the job done, it'd be enough to fund a prototype or demonstrator that could attract more funding.
I'm sorry, but the comments on here stating "$58m is more than enough to retire upon" are naive when talking about the CEO of one of the largest (market cap) corporations in the world.
Is it a lot overall? Yes. Is it comparable to the same position in similar companies? Probably, I haven't done the comparison. I know a lot of banking CEOs have been making much more for nearly wrecking the economy.
I generally think the C-class officers to average employee salary is way out of whack. But, I think, given the job Tim Cook has been doing and the contribution to the valley and economy that has resulted due to Apple's success, I feel is is more than merited this generous plan.
If Apple were bleeding or just average? That would be one thing, they have been running on all cylinders and Tim Cook has been instrumental in that.
Leading one of the most exciting tech companies on the planet is the incentive.
But I really do wonder how much additional incentive all that money can offer. At a certain point it gets impossible to spend any of the additional money.
Don't discount philanthropy and how that factors in to someone's sense of gratification.
Take Bill Gates for example. He has accumulated far more money then he could ever spend on himself, so he went a different route and pledged to give much of his fortune away to causes he feels are worthy to give to. Remember, the process of Bill Gates giving away his money has spawned an entire business around that process:
I know I directly benefited from a Carnegie library as a kid. With philanthropy at this scale there is potential to benefit humanity in a way that may otherwise not happen. Compare this to other paths that wealthy people have taken, such as creating trusts that mostly benefit the family and still exist today (e.g. Rockefellers).
Wow, seriously, guys? Is there nobody around anymore who cares about helping the downtrodden of their own good will? Maybe it's naive, but I seriously think there are still some rich people out there who care to use their wealth for purposes other than selfish gratification, and without ulterior motives.
No, no – I didn't mean to suggest that altruism isn't alive and well! My point was that giving is an end unto itself – not a means to establishing a legacy. Also, I just wanted to point out that it takes a LOT of work to manage a big fortune. It's a huge responsibility.
It was Inevitable the stock would dip a little when Jobs announced he was stepping down. Considering he's still going to be the driving the force of the company as chairman of the board pretty much tells you all you need to know.
Secondly, he wouldn't hand pick someone who didn't share his vision. Cook is smart, he's not going to drastically change the course of the company like some other cough HP cough companies have done.
Considering these two things, I'd say the stock prices will stay the same if not continue to increase in value.
Anyone worth $58M is doing it for more than the money. Jobs most certainly wouldn't have hand picked a successor who would choose retirement over running Apple.
I put 'middle class' in quotes for a reason. I thought it was obvious it meant the lifestyle of buying your home and making sure your needs are met, but not doing anything particularly unusual or entrepreneurial.
Honestly, given the context of the comment, what did you think I meant?
"buying your home and making sure your needs are met" with $58 million? You're economic scale is widely out of whack. You could buy a house and meet your needs with $60K/year. With 58 million you could buy an entire neighborhood and provide for the needs of your entire family for several generations. I hope I'm mistaken on your intent.
Ironically, you're exhibiting the exact behaviour I'm talking about - thinking tightly in the box.
"I have a lot of money. At last I can buy a very nice home, have no debts, set up large trust funds for my kids/friends/whatever, maybe buy a yacht and scoot around in it" is what I mean by 'middle-class', aka 'living the way I always dreamed' kind of stuff.
"I have a lot of money. I'm going to buy an NBA team and run it, and also fund a charitable organisation to eradicate malaria in Cambodia. Then I'm going to give patronage to an art school" is not.
If your idea for changing the world includes buying all the products and services the US economy produces in one year $58m is certainly not enough. I’m just not sure what kind of plan for changing the world that is.
Money is certainly handy when your plan is to change the world but it’s far from the only thing you need and probably not even the most important one. An idea and a plan seems quite important, for example. Just throwing money at a problem will seldom get you very far. Also, even a few billion won’t save you when some super power declares you a criminal, takes away all your money and throws you into prison or executes you.
No. If you really pushed the world forward (notice the scale involved), then you logically should have a significant positive effect on the $14.12 trillion dollars of production every year - e.g. increased it by 3% over 10 years. So your contribution to the world economy would be $423.5 billion over 10 years. At that scale, getting $58M is really nothing. In fact, only getting $58M back for $423.5 billion of contribution smells like communism.
I somewhere read that Tim Cook's salary was 800K and though - wow that's really not that much for a COO (and CEO-to-be) of the biggest corporation (by market cap) in the world. But then I found that total comp is more like 60M (http://people.forbes.com/profile/timothy-d-cook/6607) which looks more like I though it should be.
My point being, in 2010 Tim Cook already got 52M of restricted stock awards, so this number spread out through the years is nothing out of ordinary for him.
We're crossing into new cultural space. Would implies that its the way things have become, but it still deserves some thought about the ultimate social ethics involved. Should implies that yes, of course he should be paid at this scale, it would be unfair otherwise. I think its a distinction and conversation worth having.
No, you misquoted mynegation. He said "which looks more like I though[t] it should be." As in, "which is similar to (what I expected/what it ought) to be."
There's still ambiguity, like you said, but its different ambiguity
English is not my native language and I actually meant "would be". However, I am not prepared to discuss whether this amount is justified or not. To me it looks pretty close to what board of directors _should_ pay Cook in order to keep him.
Add this amount ($380 million or so at current Apple stock price) to the extrapolated salary for Cook over the next decade, and he will earn right around an even billion dollars in the next 10 years.
Not sure he will be getting this every year. The first 50% vests in 5 years and the next 50% vests 5 years after. This seems like a large deferred bonus to encourage Cook to maintain or increase the stock price for the long term.
I read that as the 380 million in 10 years deferred CEO bonus, in addition to his current 60 million/year total compensation, would total to around 1 billion at the end of 10 years. I'm going to go out on a limb and guess it will be well north of 1 billion, once stock price appreciation is accounted for. Hope he considers taking the http://givingpledge.org/ :)
RSUs are fairly standard as a bonus inside Apple (not this many though!). Typically, they vest over four years, twice a year as long as you stay an Apple employee.
If Tim Cook and Apple without Steve Jobs can continue innovating at the same pace, shareholders will see it as a small investment in Apple's future. And it seems like this was geared to appease the markets.
Folks seem to be mentally linking this news to Warren Buffett's comments about income tax disparity. Keep in mind that RSU's are taxed as earned income, valued on the day that they vest. Any appreciation above and beyond that would indeed be taxed at capital gains rates (15% if held longer than a year after vesting), but the core value will be taxed at his marginal rate of 35%.
Buffett's tax rate hovers around 15%, because the lion's share of his income comes from cap gains and qualified dividends. Cook will be paying more than double that on his income from this deal.
"In contrast, Steve Jobs earned a $1 annual salary every year since he rejoined Apple in 1997. While many $1-a-year CEOs reap big back-end stock and options packages, Jobs was almost a financial ascetic: He collected no stock awards most years, no cash bonuses and no perks, even turning down a 401(k) match from Apple."
I'm not sure it bodes well for Apple that the board feels like it has to incentivize Tim Cook with golden handcuffs. They gave Steve a lot in terms of stocks and gifts(like the free plane for example) but I can't ever rememberer him getting restricted stock to remain with Apple(except perhaps when he first came back and the company was on the verge of insolvency). Just having the ability to lead Apple always seemed like incentive enough for him.
Is Tim Cook really worth as much as 580 regular Apple employees? Really?
Tim Cook alone is taking home 5% of all the money Apple spends on employee compensation worldwide. If you cut down Cook's compensation a little bit, everyone else at Apple could get a couple percent raise.
Which one would REALLY be better for the company: paying every single Apple employee a couple percent more enabling Apple to hire better people across the board, or paying it all to the CEO?
People need to recognize how grotesque it is that you have a CEO making $160,000 per day, every day.
"If you cut down Cook's compensation a little bit, everyone else at Apple could get a couple percent raise."
Or they could use the money they have and give everyone including Cook huge raises. Or cut everyone's pay and make their stuff cheaper. Or pay their suppliers 20% more. Or put a huge check in some charity basket. Statements like these are pointless.
I'll suggest that it's very likely that Tim Cook would have never come to work at Apple if they paid executives 40-60% less then they do as you suggest. And that would have been a net loss for Apple.
Ask the shareholders. And since I am one I'll answer.
I don't have a problem with this at all. $300M is about 1/1000 of the current market cap. The rewards are spread over 10 years. So 1/10000 per year to have a world class CEO running the company. Would I pay that? Gladly.
I agree. I think pg's equity equation[1] is applicable here. If Tim Cook keeps Apple on the trajectory it's on now, Apple's shareholders will get a great return on this investment.
Give me a break, you don't think you could've gotten him cheaper?
What's the difference between 580 million and, say, 200 million? It's funny money either way, and the person's quality of work is going to depend on other motivations.
Right - because chiseling the incoming CEO is exactly what you want to be doing when the entire world is looking at you for signs of confidence. You've got a market cap that's a third of a trillion dollars, and THIS is how you handle the most sensitive transaction imaginable?
Christ, what total lunacy.
And what if Cook decided this is bullshit, and goes? Then what? That's right, total implosion. And for nothing.
And by the way, since when is 'cheap' a part of anything that Apple does?
Again, what makes you think 'cheap' is how Apple wants to be perceived?
Pay more, demand more, get more. Only idiots (or the truly broke) focus on cheap when they're standing in the spotlight. What you really want is value. And given that their stock didn't crater in what is, again, the most sensitive transition imaginable, their non-asshole savvy already paid for itself several times over in the last 48 hours alone.
If you're going to cut corners, play lowball, or just or drive a hard bargain, fine. But be sure you're doing it in places where you can afford to lose he deal.
The actual situation seems to be that they're throwing an absurd amount of this guy because they want it to look good.
Look, I'm not an Apple investor and I haven't bought any apple products in the last couple years or so, I really don't care and it's not my business. But with my read on human nature, the guy would do the same exact job for 10 mil a year as he would for 58 mil a year.
> People need to recognize how grotesque it is that you have a CEO making $160,000 per day, every day.
People need to recognize how grotesque it is that you have a CEO barely being taxed on their income compared to what they would've been taxed during the greatest economic boom of the past twenty years.
I'm an AAPL shareholder, and I support the board's largesse. Pay him more for all I care, as long as he delivers and my stock appreciates. I would love it if the US government would, relative to the current situation, tax the shit out of me and Tim, both.
> enabling Apple to hire better people across the board
I'll make an assertion of my own: I don't think this is true for a second.
Totally agree. I'm guessing that those options are spread over the 10 years, so we're talking roughly $37m a year if the stock remains at the same price. It's just paper money until those options become liquid, and he's working at a big discount when compared to Jobs' 5.5+ million shares from 1997 until today (14 years).
So yeah, taking into consideration that Apple is suddenly working with a CEO that arguably requires less compensation than Jobs, my issue isn't with the amount, but rather how he's taxed and more broadly, the large divide between the top income tax bracket (35%+) and capital gains (15%) which is really terrible, considering that it consitutes an enormous tax loophole for people who earn their income via investments, rather than a traditional wage.
Good point, but the issue still stands - it's less stock per year than Jobs' compensation, not taking into account any other standard compensation that Cook will receive. My understanding of a grant is that the stock can be vested or restricted, although I assume that after a 5-year wait it will be vested when Cook receives it, so he'll owe taxes on it.
That's probably why a 5-year period also favors Cook because Apple will be required to withhold tax on the market value of the stock, and it's tricky how that withholding is paid - for cash grants they withhold a percentage of that sum to satisfy the estimated tax, but unfortunately for stock grants, sometimes the grantee is required to pay that estimated withholding to his/her company if they don't have enough cash compensation to offset it. I'm interested to hear how Cook gets around that $100m+ tax liability, but he has 5 years to prepare.
So which is it: either Apple needs to pay people a shit-ton of money to come work for them, or they don't.
Most of the commenters in this thread feel, as you do, that CEOs need to be paid a shit-ton of money, or else they would never work for Apple, but the rank-and-file do not need to be paid a lot of money, because Apple is such a great company to work for. Can you explain the discontinuity? Why is Apple great to work for as a peon, but terrible to work for as a CEO? Why does extra money paid to a CEO definitely and absolutely result in a better CEO, but extra money paid for employees won't get them better employees?
Keep in mind the studies that show highly paid CEOs underperform low-paid ones when you answer.
Apple's software engineering salaries appear to be commensurate with Google's[1]. At the high end, Apple may pay less, but this might be an artifact of having 25% of the data points that are provided for Google.
> Why does extra money paid to a CEO definitely and absolutely result in a better CEO
When did I say this?
> Keep in mind the studies that show highly paid CEOs underperform low-paid ones when you answer.
I'd love to see these studies. I'm very curious to see how these CEOs' compensation packages are structured.
If you go back through my comments from the past week, you'll run into this one: http://news.ycombinator.com/item?id=2907364. Although you didn't mention this, I think it's still relevant to this conversation.
The key difference between Tim Cook and, say, Leo Apotheker is that Tim's been at Apple for 12 or 13 years, and plans to be there for another 10 at least. He's been inculcated in the culture, and still has to answer to one of the co-founders. I doubt Leo lasts longer than three years. What does Leo care if the company's long-term strategic positions are weakened as long as he maximizes his compensation package?
This is a symbolic vote of confidence between Tim Cook and Apple more than anything. When you consider the effect on the stock price if there was any uncertainty about the future leadership of the company, this is a bargain.
Besides, that is not his salary or anything. Who knows, he might follow in the tradition of Steve Jobs and take a $1 salary.
Apple is the most valuable company in the world. Why do you find it surprising that it takes hundreds of millions of dollars to retain someone qualified to run such a company? Plus, the position of CEO is arguable the place where Apple is the weakest and companies spend to shore up their weaknesses. In contrast, they don't need to bump pay by 5% to get the best engineers and designers. It's a good use of the money that Apple has and it is amortized over a a decade.
many Apple shareholders would agree wholeheartedly with this statement.
With that said, all that cash they are sitting on is really interesting, considering they've been hoarding it for a while. Jobs was criticized for this in the financial arena, but his position always referred back to the days when Apple almost went down the drain. That has made them ultra-conservative from a financial perspective.
You could find a lot of capable people willing to do the job for a lot less.
But if you pay them a fixed salary, even $1m, that isn't directly linked to the performance you're looking for, then the game is to avoid anything too risky, even if the expected value is very high, if it might endanger the CEO's job. The game would be to take the minimum risk and do well enough to not get fired, and that's it.
If Tim Cook manages to double the stock price, he'll have $700m. If it drops to $100, he'll have $100m. It's a big difference, and his interests and risks are aligned with the shareholders.
Anyway, that's the theory. Give too much stock, and you're impoverishing the shareholders for little benefit. Don't give enough, and a superstar might decide he'd rather do a startup or an incubator LOL, or he may not want to pursue the same kind of risk-reward as the people who hire him.
$100m is still a great deal of money. I guess going to $700m, it's the difference between superrich for life, and a legacy of being a great leader and dynastic wealth LOL. Nice work if you can get it.