Apple Inc. (NASDAQ:AAPL) stock has been taking a hit this year, ans it seems that CEO Tim Cook will be on the hook in terms of his compensation for the first time this year, thanks to some changes in the compensation structure. And this year may be the year where the timing for the compensation changes is not at a worse time for Cook, as the stock is down nearly 40 percent this calendar year alone.
This is all a result of the compensation committee of the Apple Inc. (NASDAQ:AAPL) board of directors changing its regarding compensation for executives through RSUs, or restricted stock units. Back in 2011, the board of directors submitted 1 million RSUs to Cook, with half to vest in 2016 and the other half to vest in 2021. Under the new rules, 80 percent of those units will be subject to the new plan, which vest a portion of the unites every August. And the trick is that the units are not awarded at the time of the grant, but at the time of vesting at the stock price at that time and not at the time of the grant.
That would not be such a big deal for Cook at this point. But under the new Apple Inc. (NASDAQ:AAPL) plan, Cook’s unit grant would be based on what is called TSR, or total shareholder return. This is a formula that accounts for stock dividends and share appreciation during a 12-month period. Under this new deal, 800,000 RSUs would be subject to the new plan, with about 7,000 shares considered “at risk” under the plan. The TSR is measured against the S&P 500 over the same time period; if Apple’s TSR is in the top third of the S&P, then Cook gets all of his units that vest that August; if the TSR falls into the bottom half or bottom one third, then he only gets 75 percent or 50 percent of the vested units.
And with Apple Inc. (NASDAQ:AAPL) not doing terribly well on the markets, this could have a chilling effect on Cook’s pocketbook. Since last August, Apple stock is down nearly 40 percent during that time, while the S&P is up 15 percent. What does that mean?