Ethics in Action Apple Style: Tim Cook Cuts His Salary

Yes, I know. Tim Cook, the CEO of Apple, has a total compensation package that amounts to about $40 million per year. I completely understand that some of us might be inclined to dismiss the fact that he imposed a $4 million punishment on himself last year because the company’s stock underperformed.

We might be inclined to say that $4 million a year is a literal drop in the bucket or that the “punishment” is mere window dressing; but is it?

The Ethical Way

I do not subscribe to arguments that say a CEO should be limited insofar as the amount of salary she or he should be paid – providing, of course, that the salary has been earned in a transparent and ethical manner. If we were to limit CEO’s salaries, should we not also cap the salaries of NFL quarterbacks, or highly respected surgeons, or how about Reality Tv stars?

The difference between Tim Cook and an NFL quarterback was that he voluntarily cut his salary because Apple’s stock price under-performed, while a QB making more than $20 million annually whose team fails to make the playoffs will still be paid $20+ million.

Not a fair comparison? Consider this: Apple employs about 80,000 people worldwide. The QB needs to only worry about getting 53 players to the playoffs.

Yes, I know. It’s not the same thing; it’s more complicated than that. According to writer David Goldman in a December 30, 2013 article for CNN Money entitled:“Tim Cook docks himself $4 million in pay,” we learn that:

“Apple’s board decided this past year to align its CEO’s pay with the company’s performance. If the company performs better than the other stocks in the S&P 500 stock index, the CEO takes home more. If Apple’s stock performs worse than the index, Cook takes home less.”

That’s the official policy and as the stock underperformed for a good chunk of the year, Mr. Cook was in for a fairly substantial penalty. The article continued:

“Apple said its compensation committee didn’t want to place too heavy a burden on Cook. The committee only wanted less than half of Cook’s annual stock grants to be subject to the new performance-based metric. At Cook’s urging, however, the committee placed half of his stock grants at risk.” (The italics are mine)

Can you imagine if a QB’s salary was linked to performance – and further, can you imagine if, after a dismal year, the QB voluntarily reducing his compensation even more?

In Tim Cook’s case, his total compensation package consists of $1.4 million in salary, a $2.8 million cash bonus and another $36.4 million in stock grants. Therefore, he put his stock payments on the line to show to everyone else in the company that he was taking full responsibility for the failures the company experienced in the first part of the year.

But Is It Fair?

For those of us not convinced that Tim Cook did much of anything, I would like to point out that 80,000 employees is a lot of people. Not all of them are store clerks or “Apple Geniuses.” Some of them are pretty high-powered people with very hefty salaries and bonus structures and certainly, some of them were capable of recommending and making poor decisions that ultimately affected stock price.

Did any of these people reduce their benefits or salaries or options? When, as the article points out, “Apple’s stock fell 26% between August 2012 and August 2013,” at the same time the market was rising, how many of Cook’s executives were lined up outside his door with their self-shredded paychecks as a token of their sorrow for their own failures? Not many, I would wager.

Personal responsibility is an element that is lacking in many quarters of present day society. Personal responsibility is a moving target; the QB who blames everyone but himself for the team’s poor performance; the surgeon who denies the fact that she might have committed an error than led to a patient’s paralysis; the Reality Tv star saying that his DUI was not due to alcohol at all, but a reaction to antacids. While some of the examples above might sound far-fetched, bits and pieces of them have graced our media in the recent past.

I applaud Tim Cook. He stepped up. That’s all any of us has the right to ask in an ethical sense.

YOUR COMMENTS ARE WELCOME!