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Apple strips CEO Cook of $4M in stock grants for poor share performance

First example of company's new stock vesting policy that Cook asked for in June

Apple CEO Tim Cook received a compensation package of $4.25 million for the 2013 fiscal year, a 2% increase over the year before.

But the board also dinged Cook to the tune of nearly $4 million in stock vesting reductions, citing Apple's subpar performance compared to the S&P 500's for the 12-month period.

In a preliminary proxy statement filed Friday with the U.S. Securities and Exchange Commission (SEC), Apple spelled out Cook's compensation for the period ending Sept. 28, as well as that for four other executives: Eddie Cue, who heads Apple's online efforts; CFO Peter Oppenheimer; Daniel Riccio, the company's hardware engineering lead; and Jeffrey Williams, chief of operations.

Riccio, new to the named executives in the proxy, was formerly the hardware lead for the iPad. In mid-2012 he was picked to take Bob Mansfield's place as head of all hardware engineering. Cue is also a proxy debutante.

Cook received $1.4 million in salary, $2.8 million in a bonus, and less than $60,000 for sundry expenses, including Apple's contribution to his 401(k) plan, company-paid life insurance, and $35,000 for vacation time converted to cash.

For fiscal 2013, Cook and the others received the maximum bonus, twice each man's annual salary. According to Apple, the company's net sales and operating income exceeded the targets set previously by the board, triggering the big bonuses.

Cue, Oppenheimer, Riccio and Williams were awarded bonuses of $1.75 million atop their $866,000 salaries, for a total of approximately $2.6 million each.

Apple touted what it called "internal equity" in pay for the executives just below Cook on the company's org chart. "Because the Company's executive officers operate as a team, the Compensation Committee considers internal pay equity to be an important factor in the Compensation Committee's decisions," the proxy read.

That practice is in contrast to that of other companies. At Microsoft, for example, top executives did not receive the same salary or bonuses in fiscal 2013. COO Kevin Turner's salary was 16% higher than the next-highest named executive (and 12% higher than CEO Steve Ballmer's), while his bonus was 35% greater than the next-largest.

While none of the Apple executives, including Cook, were granted stock awards in 2013, the CEO is still enjoying the fruits of the massive grant given him in 2011 when he assumed the chief executive role a month before co-founder Steve Jobs died. Then, the board locked in Cook with 1 million shares that would vest in equal parts in August 2016 and August 2021.

At the time those shares were valued at $383 million; their current worth, if all were to vest immediately, would be $560 million.

However, earlier this year Apple's board revised Cook's vesting schedule at his urging. Rather than the two monster stock handouts -- which only relied on his continued employment -- Cook asked that they be spread out over a 10-year period and tied to the company's stock performance.

Eighty-percent of the 1 million shares were covered by the new pay-on-performance deal, in which half of each year's vesting pool can be eliminated or reduced if Apple isn't in the top third of the S&P 500 as measured by the "total shareholder return" (TSR) metric.

TSR is a combination of share price appreciation and dividends paid to shareholders.

Because Apple's TSR was in the bottom third, Cook forfeited 7,123 shares, which were valued at $3.6 million on August 24, the day they were to vest. At Friday's closing price, the shares Cook lost would have been worth almost $4 million.

But no one should weep for Cook: The 72,877 shares that did vest on Aug. 24 were valued at $36.5 million at the time, and assuming he did not sell any, $40.8 million at Friday's closing.

So far, Cook's 2014 stock grant looks relatively safe, as Apple's TSR has kept pace with the S&P 500's. Since Aug. 25, 2013, Apple's TSR was +12%, while the S&P 500's average was +11.9%. Cook could still forfeit a quarter of the 80,000 shares slated to vest next August if Apple ends up in the middle third of the S&P 500, or 40,000 shares if the company lands in the bottom third.

Apple's shareholders will vote on several proposals at the February 28, 2014, meeting on the company's Cupertino, Calif. campus, including one submitted by trading activist Carl Icahn, who wants Apple to add $50 billion to its stock buyback program. Apple has recommended that shareholders reject the non-binding proposal.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, or subscribe to Gregg's RSS feed . His email address is gkeizer@computerworld.com.

mhamblen@computerworld.com.

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More about: Apple, Island, Microsoft, SEC, Securities and Exchange Commission, Topic, TSR
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