CNN/Money Asks If Apple CEO Stock Grants Are "The Next Outrage"

by , 3:45 PM EDT, April 24th, 2003

CNN/Money has published a piece looking at Steve Jobs' newest stock compensation plan. The article takes a critical look at how Apple traded in many millions of underwater stock options for a smaller grant of 5 million restricted stock options. From the article:

Apple Computer has always prided itself on being a trend-setting company. Still, CEO Steve Jobs couldn't have been happy when recent headlines trumpeted his revised compensation package as the latest innovation in corporate gluttony.

The story begins in January 2000, when Apple's board granted Jobs options to buy 20 million Apple shares at a strike price of US$43.59. When the tech bubble popped, that contract became worthless. So in October 2001, Jobs was granted another 7.5 million options, exercisable at $18.30.

Today, Apple shares are trading near $13 -- about their level of five years ago -- and in March, Jobs "voluntarily cancelled" the contract. He didn't walk away empty-handed, though. He exchanged the options for five million shares in restricted stock. Upon vesting over three years, he'll own them free-and-clear, regardless of Apple's stock price.

[...]

To illustrate the benefits to a CEO receiving such shares, let's pick on Apple's Jobs again. At today's prices, his five million free shares would be worth about $67 million when they vest. If Apple stock rises to $20 -- a 50 percent increase -- he'd make another $33 million.

Compare that to his earlier, now-cancelled grant of 7.5 million options. Under that contract's $18.30 strike price, the same gain in share value would earn Jobs just $12.7 million.

There's much more in the full article, including a look at the broader issues of CEO compensation.

The Mac Observer Spin:

Most of the articles that have been critical of Steve Jobs' compensation always look at his stock options, or his jet, as compensation that exists in a void. In particular, mainstream pundits like to pretend that any given compensation package he has been given was for one year only. In reality, all of the large stock option packages, as well as the jet itself, have been for Steve Jobs total career as CEO of Apple. It's going on 6 years now, where Mr. Jobs has earned a dollar a year, health insurance for him and his family, and an executive parking spot (sometimes known as a handicap spot).

By the time his current 5 million shares vest, at today's price, that comes out to US$6 million a year, and change, for 9 years of service. Of course, it would be a very bad sign if Apple's stock price was still the same as it is today three years from now, but that's another issue. At that same point in time, the jet will have been worth another US$10 million per year (and change) to Mr. Jobs. US$16 million a year is a lot of money, but is a far cry from what the crooks at Enron, Tyco, and other such CEOs were hauling in, and it's certainly a much different situation from the shenanigans that American Airlines' execs and board are up to. It's also a far cry from how some sensationalists have tried to paint Steve Jobs as receiving US$70-US$90 million in one year, because again, that didn't reflect his time served for a buck a year.

We are not going to say that Steve Jobs is perfect, and certainly there are lots of horrendous ethics problems with corporate boards all over Corporate America. It is our opinion, however, that Steve Jobs has earned the compensation he has been given so far, and that Apple is doing remarkably well all things considered. Most of the criticism leveled against that compensation is little more than sensationalist and opportunistic sabre rattling, and has little to back it up.

Lastly, as much as Apple has paid Steve Jobs, he could have earned a lot more at the helm of any of the entertainment firms that would love to have him at the helm. Accordingly, as a small Apple shareholder, this author fine with what Steve Jobs has gotten to head Apple.