Despite Apple's (AAPL +3.26%) uneventful annual shareholder meeting last Wednesday, the company has made some changes to its corporate bylaws (link opens PDF).
Leading up to the meeting, Greenlight Capital's David Einhorn scored a victory in his suit against Apple, whereby Apple could not bundle three separate matters into one single vote. Apple had proposed some changes that it felt were in the best interests of shareholders and corporate governance advocates, but Einhorn wasn't keen on the provision on preferreds. Apple had to remove the vote just days before the meeting.
As it turns out, Apple had actually decided to change its mind on another proposed measure, quietly instituting a change at the beginning of February that was just now noticed. Apple is tightening its golden handcuffs on executives.
Expensive handcuffs
The Mac maker is now requiring high-level executives to maintain certain equity holdings relative to their base salaries. The California Public Employees' Retirement System had been seeking a similar move. Apple had initially opposed it but has now adopted a modified version of that proposal.
These are the ownership requirements now being implemented on employees and directors.
|
Role |
Ownership Requirement |
|---|---|
|
CEO |
10 times annual base salary |
|
Executive officers |
3 times annual base salary |
|
Non-employee directors |
5 times annual retainer |
Source: Apple.
Qualifying ownership includes any shares that these individuals own directly, own jointly or separately by a spouse, or hold in a trust. Equity awards only count once they're vested, so that 1 million restricted stock unit grant that Tim Cook received upon becoming CEO won't count quite yet.
The company expects these requirements to be satisfied for Cook and the board by November 2017, and other executives have until February 2018. Any new executive that becomes subject to the requirements has five years to meet the compliance requirement.
Here are the salaries and retainers and related requirements for 2013.
|
Role |
Annual Base Salary or Retainer |
Ownership Requirement |
|---|---|---|
|
CEO |
$1.4 million |
$14 million |
|
Executive officers |
$875,000 |
$2.6 million |
|
Non-employee directors |
$50,000 |
$250,000 |
Source: Proxy statement.
Cook's most recent Form 4 shows that he owns 13,858 shares directly, which is worth just under $6 million at current prices. However, remember that Cook was holding over 1.1 million restricted stock units, or RSUs, as of the proxy date. He became CEO in 2011 and he will have 500,000 shares vest in 2016. Once that happens, that ownership requirement will look like a drop in the bucket. At current prices, half a million shares are worth $216 million. The only way that those shares vesting will fail to meet his holding requirement is if Apple declines by 96% over the next three years, so I think he's safe.
CFO Peter Oppenheimer is currently the proud owner of 4,834 shares, valued at $2.1 million, so he's not too far away from his $2.6 million requirement anyway. Including his trust, exec Bob Mansfield has over 29,000 shares worth $12.8 million, so he's already good to go.
Good guy Cook
The ownership guidelines are meant to instill confidence in shareholders that management is going to stay on their side. It was widely reported that at the annual meeting Cook commented on the plunging share price and added, "I don't like it either." That's a shocker, since I would have thought him to be simply thrilled that his net worth (including unvested RSUs) has declined by over $300 million since September. Headlines of his disappointment were news to me.
It may be worth noting that Cook has voluntarily chosen to have his hefty RSU holdings be excluded from dividend equivalent payments, while others' RSU holdings receive payments. With the prospect of an increased dividend as the most imminent catalyst, it's encouraging to know that a payout boost won't cost shareholders more in the form of additional compensation for Cook.
Apple currently pays out $10.60 in dividends annually, and at over 1.1 million shares, Cook is already giving up nearly $12 million per year -- over eight times his base salary. If Apple theoretically doubles its dividend, Cook would be missing out on $24 million in dividend equivalents annually, or 17 times his base salary. That's what I call noble.
Skepticism aside, the changes are improvements in corporate governance, even if they have no immediate impact. They won't help support shares right now, but at least it's a positive gesture.
