Apple’s Board of Directors has elected to modify the award of restricted stock that Tim Cook received after being promoted to CEO in August 2011. The modifications made at Cook’s request, changes the award of 1,000,000 restricted stock units, originally supposed to be awarded in two lump sums over 10 years, to a more performance-based compensation system. A restricted stock unit, or RSU, is a form of compensation system.
According to a filing with the SEC, the Compensation Committee of the Apple Board of Directors approved the amendment of the award from August 2011, though the amendment doesn’t change the fair value of the grant as of the day it was rewarded. The Committee intends for future stock awards to Apple executive officers too be performance-based and Cook will lead by example. However, though normal performance-based compensation normally has both an upside and downside, at his request, Cook’s award will solely have a downside component. The following was mentioned in the filing regarding the topic:
Under the adopted modification, Mr. Cook will forfeit a portion of the 2011 CEO equity award, which was previously entirely time-based, if the Company does not achieve certain performance criteria. While the Committee generally believes that a performance-based award should have both a downside and an upside component, at Mr. Cook’s request, the modification does not contain an upside opportunity for overachievement of these criteria. As a result of implementing a modification with only downside risk, the Committee has determined that a portion of the original grant should vest earlier than originally scheduled. This modification will not change the award’s original value for accounting expense purposes.
In order to receive the 80,000 share annual award, Apple’s “total shareholder return” will be compared to companies in the S&P 500. If Apple’s performance is within the top third of that group, the award for that year will vest in full. If its performance is in the middle third, the award is set to be reduced by 25%, and the bottom third will reduce the award by 50%.
As a result of the changes made, Cook will be receiving at least 672,877 shares of Apple stock by the end of the award in 2021, with the possibility of 1,000,000 shares total if Apple continues to outperform its peers. The Form 8-K filing that Apple filed with the SEC today contains additional information about the modifications to Cook’s award for anyone interested in reading more about it (just hit the source link below).