Apple Inc. (AAPL:US) is requiring executives to hold more stock as a multiple of their salary, amid pressure from investors to more closely link pay to equity performance as slowing growth batters the shares.
Chief Executive Officer Tim Cook will be required to hold 10 times his base salary in shares, and other senior executive officers must own triple their base salary in stock, according to ownership guidelines that took effect Feb. 6 and are posted on the company’s website. Non-employee directors need to hold five times their annual retainer in stock.
The more than one-third drop in Apple’s stock since September has attracted increasing investor attention to the company’s strategy decisions. The influential proxy-voting service Institutional Shareholder Services Inc. recommended investors vote against executive compensation packages at Apple’s shareholder meeting this week.
“Apple is playing a little bit of catch up right now on pay for performance,” said Jonas Kron, director of shareholder advocacy and corporate engagement at Trillium Asset Management LLC, which owns Apple shares. “The basic premise is to align their financial interests with the financial interests of shareholders.”
Apple received the approval of about 60 percent of shareholders in a non-binding vote on the company’s compensation package, because of the criticism, Kron said. With the compensation guideline changes, that percentage will be higher next year, he said.
Steve Dowling, a spokesman for Cupertino, California-based Apple, declined to comment.
While Apple opposed a shareholder proposal that would have written similar rules into the company’s bylaws, the company had already mentioned the requirement that Cook hold 10 times his salary in stock in preliminary proxy materials. Cook had recommended the change to the compensation committee.
The proposal by shareholders lost with support of 30 percent of investors in a preliminary vote. The sponsor of the measure suggested executives hold 33 percent of their compensation in stock, though that figure isn’t in the actual proposal.
Formal requirements for executives to hold a certain amount of stock are unusual, said James Angel, a finance professor at Georgetown University in Washington. Instead, there is a “de facto expectation in a lot of companies,” he said.
“The whole idea behind executive compensation is that you want to design incentives that align management with shareholders,” Angel said. “Typically, this includes base compensation and options or something linked to the share price.”
The California Public Employees’ Retirement System had recommended votes in favor of more closely linking executive compensation to share performance.
“It’s in our principles and is something we support in all companies that we invest in,” said Joe DeAnda, a spokesman for Calpers.
Apple has used restricted stock to retain senior executives, giving Cook 1 million shares when he took over as CEO from co-founder Steve Jobs in 2011. In 2012, Cook received total compensation of $4.17 million, including $1.36 million in base salary and $2.8 million in other compensation.
The company’s executive team also has been awarded stock grants. In November 2011, hardware engineering head Bob Mansfield, Chief Financial Officer Peter Oppenheimer, marketing chief Phil Schiller, General Counsel Bruce Sewell and operations manager Jeff Williams each received 150,000 in restricted stock units, which vest between this year and 2016.
The pay guidelines are part of several governance changes Apple has made in recent years. The company has given shareholders a vote on executive compensation, though it is non- binding, and also has implemented majority-voting for approval of members of its board.
Investors also also clamoring for Cook to return more of the company’s $137.1 billion in cash and investments.
For the shareholder meeting, Apple was also planning to seek a vote on a measure that would require it to obtain shareholder approval before issuing a new class of preferred shares. That vote was scrapped after hedge fund Greenlight Capital Inc. pressured Apple to drop the vote, in order to make it easier for the company to issue preferred shares carrying a fixed dividend as a way to return more cash to shareholders.
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