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Apple Shareholders Vote Against Management On Expensing Options

Apple Shareholders Vote Against Management On Expensing Options

by , 10:00 AM EDT, April 25th, 2003

A quiet revolution took place at yesterday's Apple shareholder meeting. AAPL shareholders voted for a shareholder initiative that would have Apple counting employee stock options as an expense.

Currently, companies are legally allowed to not expense options, something that helped contribute to the boom of the 1990s. Corporations large and small offered their employees compensation that was very heavy on the option side, allowing them to keep labor costs down (on paper), which helped raise profits. There has been a growing movement to change SEC regulations so that options would be counted as an expense. The goal is to make it so that corporations would be less able to manipulate their books through liberal stock option plans.

Yesterday's vote is not binding, but is rather more of a recommendation to Apple's board of directors. According to the San Jose Mercury News, Apple's BoD was against the measure. The argument Apple used in its communication with shareholders is that until there is a level playing field in the form of specific SEC regulations, Apple reporting options as an expense could lower its competitiveness when its competitors were not doing so. From the San Jose Mercury News:

Apple Computer could become the first Silicon Valley technology company to treat employee stock options as an expense, with shareholders approving the accounting change today over the objections of the company's board of directors.

The Apple board recommended against the proposal from the United Brotherhood of Carpenters and Joiners of America, saying it would hinder the company's ability to attract and retain key employees and would produce less accurate financial statements because there is no standard way to calculate the cost.

[...]

Preliminary results indicate that investors approved the measure, said Nancy Heinen, the company's secretary and general counsel. She said the company would disclose the formal vote tally in its next quarterly statement.

There is additional information in the San Jose Mercury News article, as well as coverage from C|Net.

The Mac Observer Spin:

C|Net's figures were very interesting:

For example, in the first fiscal 2003 quarter ended Dec. 28, 2002, Apple would have reported a loss of $61 million had it been required to account for options as an expense, compared with the $8 million loss it did report.

That's for a little perspective on how this would affect the company. It's likely that there is going to be a change in the way the SEC has companies look at options, and that's because there is a lot of concern about Corporate America. It seems that greed and avarice has run amok, though certainly not with every company, and it is reaction to this that is behind the drive to change the way options are handled.

The only problem with this is that execs will find some other way to get big compensation packages, and indeed, this is happening already. Look at the big flap with American Airline's board setting aside special funding for executive pension funds, while asking for US$1.8 billion in concessions from its unions. The people at the top will always find new ways to keep the money flowing, but it was stock options that allowed rank and file employees to cash in on their company's success. Forcing companies to report options as an expense will result in fewer options being granted, and that means it's the little guy who will suffer, not out of control execs. It's certainly not a simple issue.

So where does that leave Apple? It's interesting that shareholders would have voted for this initiative, because it will put Apple at a disadvantage until its tech competitors are following the same rules. Be that as it may, it wouldn't be all that smart of Apple's BoD to ignore the will of its shareholders, not in the current corporate governance climate, hence the quiet revolution reference at the beginning of this article.

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