Apple Gives CEO Major Option Grant
In what may be the most generous compensation package in business history, Apple Computer rewarded Chief Executive Steve Jobs with stock options that on paper earned him more than $200 million in the last week.
Jobs has been taking an annual salary of $1 during two years of engineering a remarkable turnaround at the once-ailing computer company. Apple shares have more than tripled in 10 months and the company reported strong earnings again Wednesday, its ninth straight profitable quarter.
But some compensation experts regarded the decision by the company’s board to award him options to buy a staggering 10 million shares as irresponsible. The board also threw in a fully outfitted Gulfstream V jet that cost the company $90 million.
“It suggests a board that is just consumed with hero worship,” compensation expert Graef Crystal said. “It’s not a prudent thing to have done.”
Crystal said his calculations make it the largest CEO option grant in history, worth more than $400 million.
“It becomes a giant homing beacon” for other chief executives, Crystal said. “They’re adjusting their bibs and picking up their knives and forks.”
Apple directors and some compensation experts defended the option grant.
“You can’t overpay Steve Jobs,” said Chuck Sweet, president of A.T. Kearney Executive Search. “The plane is almost humorous.”
The options can be exercised at $87.19 each, the closing share price a week ago. Apple shares rose $2.63 to $106.56 in regular Nasdaq trading Wednesday, then surged to $111 in after-hours activity.
That means the marketing whiz has already earned more than $200 million on paper from the stock’s appreciation. Of course, Jobs already ranked among the world’s wealthiest individuals, ranking No. 199 on the most recent Forbes list, with a net worth of $1.2 billion.
In an interview in last week’s issue of Fortune magazine, Jobs said, “I didn’t return to Apple to make a fortune. I’ve been very lucky in my life and already have one. . . . I just wanted to see if we could work together to turn this thing around.”
What a difference a week makes.
“We did everything we could to get him to take a full compensation package,” said Apple Director Bill Campbell, who is also chairman of financial software firm Intuit.
“He felt more comfortable taking the stock--it’s the same as what the employees get.”
Well, not exactly the same.
If Jobs exercised all his options today, the Apple co-founder would become the largest shareholder, with more than 5% of the company.
By contrast, Louis Gerstner Jr., who added $69 billion to IBM’s stock market value in 1998, reaped an “exceptional” bonus of $7.5 million that year, on top of his $1.85 million salary. (Gerstner also owns or has options on more than 2 million shares.)
Apple declined to say when Jobs’ options vest and when they expire, or to estimate their value, although it will have to do that soon in regulatory filings.
Mathematical models that put a value on option packages take into account interest rates, the duration of the options and other factors. But they rarely reflect the take-home pay. More than anything else, that depends on what happens over time to the underlying stock and when the executive decides to exercise the options.
For example, a 1989 grant of options for 8 million Walt Disney Co. shares to Chairman Michael Eisner was valued by one model at about $180 million.
But the stock more than quadrupled by the record-setting day eight years later when Eisner exercised most of those options and netted $565 million.
Crystal bases his calculations on a seven-year expiration and average stock volatility and pegged the present value of Jobs’ options package at $434 million. The next-largest options grant, he said, was to Eisner.
With Jobs as chairman, the Cupertino-based company has introduced the hot-selling iMac computers and refocused its operations. Apple has come back from the brink of extinction and had a market value of $17 billion at Wednesday’s Nasdaq close.
Jobs also serves as CEO and is the largest owner of Pixar, the computer-animation company behind the “Toy Story” movies. At Pixar, he draws an annual salary of $50.
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* EARNINGS: C2, C3, C7
