When Tim Cook became CEO of Apple in 2011, he received a compensation benefit that looked lucrative at the time: 1 million restricted stock units valued at $376 million.
Eleven years later, the pay package looks like a steal. Sure, Cook’s shares have vested and skyrocketed in value, totaling $1.7 billion on the day they vested and about $4 billion as of this week’s stock price. But Apple’s market cap has increased $2.2 trillion under Cook, whose leadership helped make the company into the world’s most valuable property.
As Fortune’s Geoff Colvin wrote on Thursday, Cook’s large stock grant opened the floodgates for similar deals across multiple industries, helping to enrich CEOs in C-suites throughout the country. And while Apple’s stock award appears prescient in hindsight, other deals of similar size haven’t been nearly as wise, fueling criticism about exorbitant executive pay.
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The article serves as a timely reminder on the importance of accountability by multiple parties—board members, shareholders, executives, media members—as so-called mega grants of restricted stock continue to populate CEO contracts.
As a matter of principle, restricted stock awards aren’t necessarily objectionable. They represent a valid tool for incentivizing CEO retention and performance—especially when shares are tied to meaningful longevity and outcomes-based benchmarks.
In Cook’s case, the shares vested over 10 years and were partially linked to Apple’s stock performance relative to other S&P 500 members. The share values certainly reached eye-watering levels for a layman, but as Colvin wrote, Cook’s total compensation during his long, highly successful CEO tenure is equal to less than 0.1% of Apple’s market cap increase.
“It’s hard to argue that the shareholders got a bad deal,” Colvin wrote. Put another way: Apple’s board delivered value to investors.
Other corporate boards, however, have signed off on mega grants to non-founder CEOs with unnecessarily friendly terms.
Lucid CEO Peter Rawlinson collected roughly $250 million worth of shares that vested following last fall’s irrational spike in the stock prices of upstart electric vehicle manufacturers, Bloomberg reported. Lucid shares are down 70% from their November 2021 peak.
Frank Slootman, who took over as CEO of software company Snowflake in 2019, received 13.7 million shares that vest monthly over a four-year stretch. The Financial Times reported last December that Slootman sold more than $600 million worth of shares in 2021, a remarkable haul for the leader of a company with $1.2 billion in revenue in the prior fiscal year.
Ultimately, it falls on board members and shareholders to ensure fair compensation for CEOs.
While boards face pressure to attract high-performing executives, they are under no obligation to provide mega grants that quickly vest or aren’t tied to consequential performance metrics.
“A huge grant with three-year time-based vesting is hard to defend; it’s little more than a gift,” Colvin wrote. “By contrast, a five- to 10-year grant with at least partial performance-based vesting—though one featuring a heavier performance component than in Cook’s plan would be better—forces a CEO to think long-term.”
Investors, meanwhile, can signal their approval or displeasure over executive pay through their voting power.
Apple shareholders, for example, voted in March to support an updated compensation package for Cook, which could give him another 1 million shares by 2025, and re-elected the company’s board. General Electric investors, meanwhile, voted last year to reject a stock-heavy compensation package worth up to $230 million for CEO Larry Culp. A leading shareholder advisory group, Glass Lewis, urged Amazon shareholders Friday to oust that board’s compensation committee chair, citing excessive stock grants given to CEO Andy Jassy.
While CEOs and the news media don’t have ultimate authority over pay deals, both groups also serve a vital purpose in this space.
High-ranking executives would be wise to recognize the reputational and institutional damage done by egregiously high mega grants, particularly given the growing executive-employee pay disparity. News reporters also should continue to diligently document restricted stock grants over time, tracking which awards vest and which never come to fruition.
As Colvin wrote, there’s no one-size-fits-all answer to the wisdom of mega grants. As long as the shares continue to flow, accountability is the order of the day.
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Jacob Carpenter
NEWSWORTHY
Looking for an exercise partner. Embattled fitness company Peloton might sell a minority stake in the company to raise capital for its turnaround efforts, The Wall Street Journal reported Friday, citing sources familiar with the matter. Peloton executives are considering offering a stake of 15% to 20% to private-equity firms and companies in the fitness sector. Peloton initially thrived during the pandemic, but management errors and changing consumer habits led to a 90% drop in the company’s share price since late 2020.
Back in the game. The hit video game Fortnite became available again on Apple devices Thursday after a two-year hiatus marked by a bitter legal fight between the developer and tech giant, Bloomberg reported. Gamers can now play Fortnite through Microsoft’s Xbox Cloud Gaming service, accessible via web browsers on Apple’s operating system. Apple and Alphabet unit Google banished Fortnite developer Epic Games from their respective app stores in 2020 after the gaming company offered in-app purchases through its web browser, a violation of app store rules. Epic Games is appealing a federal judge’s ruling that upheld Apple’s legal right to kick out the developer.
Bouncing around. Bitcoin prices remained volatile after a huge selloff Thursday that exceeded the broader equities market drop. The cryptocurrency’s value settled late Friday afternoon at $36,341, down 3% over the past 24 hours and off 11% from early Thursday morning prices. The decline continued Bitcoin’s correlation with the fortunes of tech stocks, which investors unloaded at higher rates Thursday than other equities.
The orders keep coming. DoorDash shares rose 4% in mid-day trading Friday after the food delivery company topped analysts’ first-quarter revenue estimates, CNBC reported. DoorDash posted a 35% year-over-year increase in sales, providing more evidence that consumers will continue to use food delivery services as the pandemic wanes. The Friday bump helped DoorDash recover from a 10% decline in share price Thursday.
FOOD FOR THOUGHT
Those poor IT workers. The battle of economic nationalism between the U.S. and China took another step forward Thursday. Bloomberg reported that Chinese officials have ordered government agencies and state-backed companies to remove personal computers produced by American corporations and replace them with equipment from domestic companies. The state-mandated order is expected to result in the removal of about 50 million computers. California-based HP and Texas-based Dell are expected to lose the most future business from the mandate, which follows a U.S. crackdown on Chinese telecommunications and software companies.
From the article:
The push to replace foreign suppliers is part of a longstanding effort to wean China off its reliance on American technology—a vulnerability exposed after sanctions against companies like Huawei Technologies Co. hammered local firms and businesses.
That initiative has accelerated since 2021, when the Chinese central government quietly empowered a secretive government-backed organization to vet and approve local suppliers in sensitive areas from cloud to semiconductors.
IN CASE YOU MISSED IT
Bank of America is pushing a surprising new set of FAANG stocks to beat the bear market after yesterday’s $1.3 trillion wipeout, by Bernhard Warner
The Bored Ape Yacht Club metaverse sale was such a mess that it tanked the price of Bored Ape NFTs by 25%, by Taylor Locke
Elon Musk lays out Twitter hiring plans after job interest skyrockets on the back of his takeover bid, by Colin Lodewick
Kraken promises to fix two major pain points for trading NFTs—just read the fine print, by Christiaan Hetzner
Blockchain security firm accuses token of crypto rug pull resulting in $1.3 million in losses, by Chris Morris
A 22-year-old TikToker accepted by MIT, Yale, and Stanford is making six figures helping kids get into their dream colleges, by Amiah Taylor
Elon Musk wants to eliminate salaries for Twitter’s board. But most directors at large companies rake in six-figures, by Aman Kidwai
BEFORE YOU GO
Storming the Rockies. The Fortune Brainstorm Tech 2022 speaker line-up went live this week, and it features heavy hitters from Silicon Valley, Washington, D.C., and beyond. The annual event, scheduled from July 11-13 in Aspen, Colo., includes featured speakers Prabhakar Raghavan, senior vice president at Google; Lili Ibrahim, chief operating officer of DeepMind; Jen Rubio, founder and CEO of Away; and Jonathan Kanter, the Department of Justice’s antitrust chief. Top executives from Arm, Box, Slack, and YouTube will join emerging entrepreneurs and important investors at the glorious St. Regis Aspen Resort. To apply to attend, click here.
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