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Behind Tim Cook’s giant, unnecessary payday

By Ezra Klein,

So did Tim Cook really just get awarded $378 million by Apple’s board? Well, no. He got awarded much more than that. Or perhaps much less. At this point, it’s hard to tell.

Tony Avelar

Bloomberg

Timothy "Tim" Cook, chief operating officer of Apple Inc., speaks as a MacBook Air image is projected on a screen behind him during an event at Apple's headquarters.

Cook got a salary of $900,000 and a grant of Apple stock worth $376 million. But he can’t go out and spend it right now. He gets control of the first half if he remains as CEO for five years. He gets control of the second half if he remains CEO for 10 years. And whether his stock is worth more than $376 million in 2022 or less depends on how Apple performs over the next 10 years. This is supposed to incentivize Cook to do a good job. But Cook has, presumably, been doing a good job over the last few years, too. That’s why he got promoted to CEO. And he was doing that good job without $376 million in stock options as an incentive.

As Matthew Yglesias points out, “There’s no indication that Apple was in a bidding war over Tim Cook’s talents. Nor is there much indication that Apple set a price it was willing to pay for a CEO and then actively sought out the strongest candidate willing to take the position for the money on offer. Rather, it was decided (seemingly some time ago during one of Steve Jobs’ medical leaves) that Cook was the anointed successor and then a basically unrelated process determined that this should be his compensation package. And the thinking behind it largely seems to be that a great big rich company deserves to have a great big rich CEO, so here’s a generous offer.”

Nor, it should be said, is there any evidence that Cook demanded such a generous compensation package. Perhaps, given his relationship with the board and the prevailing practices in executive compensation, he knew he didn’t need to.

Further, I don’t have direct access to Cook’s contract, but I imagine he’s got some pretty strong protections in there. So if Cook does a horrible job and the board decides to remove him before his stock vests, he’ll still end up with a payout of many tens of millions of dollars — at the least. So it’s not as if the deal Cook is making is that he gets enormous upside if Apple performs well but if it performs poorly, he and his whole family agree to exile themselves to Siberia. Rather, there’s enormous upside if he does well and enormous upside if he performs poorly. Sweet deal.

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