The Director Compensation Project: Apple Inc.

This post is part of an ongoing series that examines the way stock exchange independence rules relate to director compensation.  We are for the most part including companies from 2011’s Fortune 500 and using information found in their 2011 proxy statements.

 Nasdaq and the NYSE have similar rules with respect to director independence.  NYSE Rule 303A.01 requires that each listed company’s board of directors be comprised of a majority of independent directors.  A director does not qualify as “independent” if he or she has a “material relationship with the company.”  NYSE Rule 303A.02(a).  In addition, the director is not considered independent under NYSE Rule 303A.02(b)(ii) if the director received more than $120,000 in direct compensation, other than director’s fees, during any of the previous three years.  NYSE Rule 303A.06 imposes a higher independence standard for directors serving on the company’s audit committee by requiring them to comport with Rule 10A-3 (C.F.R. §240.10A-3).

 Independent directors are compensated for their service on the board.  The amount of compensation can be seen from examining the director compensation table from the Apple Inc. (NYSE: AAPL) 2011 proxy statement.  According to the proxy statement, the company paid the directors the following amounts: 

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	All Other Compensation* ($)	Total ($)
William V. Campbell	50,000	200,090	0	5,230	255,320
Millard S. Drexler	50,000	200,090	0	13,675	263,765
Al Gore	50,000	200,090	0	10,639	260,729
Robert A. Iger **	0	0	0	0	0
Andrea Jung	50,000	200,090	248,148	3,787	502,025
Arthur D. Levinson	50,000	200,090	0	6,706	256, 796
Ronald D. Sugar	75,000	255,884	0	2,615	333, 499
Steve Jobs***	-	-	-	-	-
Timothy D. Cook****	-	-	-	-	-

*These amounts include one or more products that are made available through the company’s board of directors equipment program. 

**Mr. Iger was appointed to the board on November 15, 2011 after the end of the fiscal year. As a result, Mr. Iger did not receive any compensation from the company in the 2011 fiscal year.  

***Mr. Jobs passed away on October 5, 2011 and, at his request, received no compensation for his services as a member of the board.  

****Mr. Cook received no compensation for his services as a member of the board.

 Director Compensation. During 2011, Apple Inc. held five board of directors meetings.  Each member of the board attended 75% or more of the total number of board meetings and the total number of meetings held by all committees of the board on which that person served.  The Director Plan, amended in 2009, provided for the non-employee directors to receive a one-time prorated stock option grant.  This was done in order to provide compensation for periods of service that would not otherwise be covered due to conflicting timing in the distribution of the annual grants with the director’s anniversary of joining the board and the date of the shareholders annual meeting. 

 Director Tenure and Leadership.  During 2011, there were many changes on the board.  After Mr. Jobs’s resignation as Chief Executive Officer on August 24, 2011, the board appointed him Chairman of the Board, a position he held until he passed away on October 5, 2011.  Mr. Cook was appointed to the board and to CEO on August 24, 2011.  Mr. Cook has been with the company since March 1998.  Dr. Levinson, who has served on the board since 2000, was appointed as Chairman of the Board on November 15, 2011.  Mr. Iger was appointed to the board on November 15, 2011.  Since October 2005, Mr. Iger has been the President and CEO of The Walt Disney Corporation.  Mr. Campbell, Chairman of Intuit Inc. since August 1998, had the longest tenure on Apple’s board, having served since 1997.

 Executive Compensation.  Apple believed that Mr. Jobs’s level of stock ownership, which totaled approximately 5.5 million shares at the end of 2011, significantly aligned his interest with that of the shareholders.  Therefore, his total compensation consisted of a salary of $1 per year.  Mr. Cook, the newly appointed CEO, earned a total of $377,996,537 during the 2011 fiscal year.  This included 1,000,000 restricted stock units (RSUs) at a current stock price of $376.18, totaling $376,180,000 in stock awards.  In determining Mr. Cook’s compensation, the board considered his promotion to CEO, the importance of retaining him, the ten-year vesting period of the RSUs, and the company’s belief that a CEO’s large equity investment aligns with shareholder interests.  In 2011, the board promoted Eduardo H. Cue to Senior Vice President of Internet Software and Services.  This promotion included a stock award of $51,852,000.  Mr. Cue’s total compensation for 2011 was $52,952,975, which included a $607,704 salary, $444,615 from Incentive Plan Compensation, and $48,656 of other compensation.  Mr. Cue’s other compensation consisted of 401(k) contributions of $12,798, life insurance premiums of $1,242, and a cash-out on accrued and unused vacations worth $34,616.