What's wrong with this picture? National unemployment is stuck at nearly 9 percent, millions have lost their homes, and a miserly Congress wants to take away overtime pay from IT workers. Meanwhile, Apple CEO Tim Cook was just awarded $376.2 million in stock, plus base earnings of $1.4 million, the highest salary in the history of American capitalism.
Did Apple's board of directors lose its collective mind? Not entirely. In a sane world, no one person would earn as much as 6,330 middle-class employees (paid an average of $60,000 a year, not including benefits). In fact, on average, CEO pay is 243 times that of the workers he or she manages -- a huge multiplier to be sure, but not astronomical as in Cook's case. However, too many sectors of the American business world are not sane.
Although I'd like to pillory Cook's outrageously rich payday, let's admit that Apple isn't doing anything qualitatively different than many of its competitors in the technology industry, not to mention investment banking and other parts of the economy. His payday is only the most egregious example of a system that's completely out of control.
Cook, at least, heads a company that creates real products that people enjoy and use to get real work done. Apple not only employs a lot of people directly -- and at the risk of sounding like a Republican presidential candidate -- it creates thousands, maybe tens of thousands of jobs, at companies that are part of its worldwide ecosystem and supply chain.
Compare that to the seven- and even eight-figure bonuses paid to the smartest guys in the room who blew up the American economy. Or to bring the discussion back to tech, you can't possibly forget that former Hewlett-Packard CEO Léo Apotheker, who practically destroyed one of Silicon Valley's oldest companies (after nearly doing the same to SAP), walked away with more than $7.2 million in severance and benefits, plus $2.4 million in performance (performance?) bonuses.
In that regard, Cook's salary isn't quite as anomalous as it first appears. I'm nonetheless outraged by the disproportionate reward given to Cook at a time when so many in the country are suffering. The award does defy at least some of the ordinary logic of corporate governance, which I'll explain in a bit. But before we get out the pitchforks and march on Cupertino, remember that Cook's windfall is a symptom of a much wider failure of values.
Biggest payday in American history
How big is $378 million on the scale of corporate compensation? Pretty darn big. In fact, it's the largest ever, more than twice as big as the previous record award given to John Hammergren, CEO of health care giant McKesson in 2010. And Oracle CEO Larry Ellison was paid just (!) $77.6 million in stock and cash in 2011.
Unlike Hammergren's award, Cook's is not necessarily pay for one year of work, notes Paul Hodgson, a senior research associate at GMI, a corporate-governance consulting firm. Half of the stock will vest in 5 years, and the remaining amount in 10 years. If the share price declines, his award will be worth less, though it could drop by 50 percent and still be worth an enormous amount of money. In effect, Apple has forged a set of golden handcuffs to keep Cook from giving in to the blandishments of another firm. There may appear to be some business sense in that approach.
Here's where the logic is off. Typically, says Hodgson, CEOs are not the targets of bidding wars. "You hire the No. 2 person, not the CEO, that way," he told me. What's more, there's no evidence that anyone is trying to hire Cook away.
But even if you buy the golden-handcuffs logic, there's the issue that Cook could get another grant next year or the year after. Over his time at Apple, he's generally been granted stock every other year, Hodgson told me. The notion that the $376 million in stock was an extraordinary event meant to bind him to Apple and encourage long-term performance doesn't hold water.
It's also worth noting that the board didn't set performance standards for Cook. He'll get that stock as long as he stays in Apple's employ, no matter how poorly he or the company's stock performs. In the unlikely event that he does a really bad job and is fired, he won't have to slink home empty-handed. He'd certainly be given a huge severance payment as Apotheker and his predecessor Mark Hurd were given at HP.
For Cook -- like many CEOs -- there's only an upside
Ezra Klein, one of my favorite commentators on the economy, put it well in his blog at the Washington Post: "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."
Exactly. But don't forget: Enormous, largely undeserved paydays have become the norm for executives in much of the American economy. Cook's stands out because it's so large -- if only Apple were the only company that's so rotten.
This article, "Tim Cook's crazy payday shows what's wrong in business," was originally published by InfoWorld.com. Read more of Bill Snyder's Tech's Bottom Line blog and follow the latest technology business developments at InfoWorld.com. For the latest business technology news, follow InfoWorld.com on Twitter.