Why Tim Cook shouldn’t tie his bonus to share price

We’ve spoken about the Apple share price before on Loosechange and now it’s emerged that Apple boss, Tim Cook has moved his bonus structure to be linked with the price of the stock. This is an interesting move:

When Cook took over as CEO in 2011, he was awarded a bonus of one million shares of Apple stock, half of which were set to vest in 2016 and the other half in 2021 — with the only condition being that Cook stay with the company. However, Apple’s board revealed in a filing with the Securities and Exchange Commission that it has approved a request from Cook to tie his bonus payout to the performance of the company’s stock — a move that seems intended to prove to investors that Apple’s leadership takes the stock price seriously.

“Mr. Cook is leading this initiative by example and has the full support of the Board of Directors,” Bruce Sewell, Apple’s SVP and general counsel, said in the filing. “He asked the Committee to apply a performance metric to his outstanding 2011 CEO equity award as well as any potential future awards. After careful deliberation, the Committee has approved a modification to Mr. Cook’s 2011 award.”

It’s interesting that Cook himself picked this option in order to prove his commitment to the company.

The share price has plummeted close on $300 per share in the past year and no one is really sure when or how it will improve. Share prices are usually linked to the potential earnings and growth of a company, the higher the potential, the higher the share price.

Now if Cook’s bonus is linked to the share price and Apple’s potential earnings are linked to innovation there will be a desperate need to release a multitude of amazing hardware and software products. It’s not impossible for Apple to do this, they had an amazing run with the iPhone, iPad and machines such as the Macbook Air. To continue that run, they’ll need to continue to release products that amaze.

The problem with constant innovation is potential quality issues associated with pumping out such high levels of innovation. Already we’re seeing some pretty wild changes with iOS 7. It’s great software and a brilliant departure from iOS 6 but we’re still to see whether the layman Apple user can cope with such a radical change. The same can be said for the announced Mac Pro; a machine that looks beautiful but is aimed at a market of hardcore professionals. There is a very large chance that they will be turned off by the new design.

Cook putting his bonus on the line is a brave move by someone trying to emulate Steve Jobs for being ballsy. Steve was a genius visionary, Tim is a genius operator. Apple is and always will be a great company but we’ll never see the share price at the heady levels of 2012.

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