Apple shareholders in protest vote on pay

  A woman looks at a mobile phone inside an Apple store in Hong Kong on June 27.

Story highlights

  • A third of shareholders have declined to back Apple's executive compensation
  • Chief executive Tim Cook was given a 51% increase in his basic salary last year
  • Protest vote over pay is an increase over last year, when 83% supported pay increases

At least a third of Apple's shareholders have declined to back the company's executive compensation at its annual meeting, after chief executive Tim Cook was given a 51 per cent increase in his basic salary last year and other members of the management team were given big equity awards.

Based on votes cast before Wednesday's meeting began in Cupertino, California, investors holding 61 per cent of eligible stock approved the advisory vote on executive compensation.

That preliminary figure is based on shares comprising around 81 per cent of the company and constitutes a majority yes vote on executive pay. The final tally on the non-binding vote, which would include votes cast at the meeting, has not yet been compiled.

However, the protest vote over remuneration is an increase over last year, when 83 per cent of votes cast supported Apple's "say-on-pay" proposal.

During the meeting Mr Cook said he sympathised with shareholders who found Apple's recent stock-price performance a "disappointment", after the iPhone maker lost around a third of its market value since September's peak. Apple stock closed about 1 per cent lower at $444.57 on Wedneday.

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"I don't like it either," he said, noting that Apple's board and management agreed on the subject. "What we are focused on is the long term. This has always been the secret of Apple."

For the first time, Mr Cook indicated that Apple planned to enter new product lines beyond smartphones, tablets, music players and computers.

    "We are looking at new categories," he said, without specifying which. Recent rumours have suggested Apple is working on a new television set, a wearable "smart watch" device, and both cheaper and larger-screened iPhones. "The company is working as hard as ever. We have some great stuff coming," Mr Cook said.

    "We don't have our heads stuck in the sand", Mr Cook said, in reference to the growing competition from Google's Android smartphones, as he took a half-dozen questions from the floor and answered those submitted remotely to his iPad mini.

    Some shareholders are becoming impatient for those innovations amid an outlook from Apple last month which implied minimal earnings growth this year. That frustration appears to have manifested itself in the increased protest vote over executive compensation, amid growing debate about whether Apple should increase its payouts to shareholders.

    Last year, Apple's chief saw his total pay package fall by 99 per cent to $4.17m for the year to September 29, after a large one-off stock award in 2011, which vests over several years. However, his basic salary was increased by 51 per cent and he received a cash bonus of $2.8m, or 200 per cent of his salary, because Apple's operating performance exceeded the company's targets.

    Investors also pointed to the compensation arrangements for top executives other than Mr Cook. Peter Oppenheimer, Apple's chief financial officer, Bruce Sewell, general counsel, Bob Mansfield, head of technologies, and Jeff Williams, in charge of operations, all received the same restricted stock award worth around $60m.

    Apple said in its proxy filings ahead of the shareholder meeting that its executive compensation was intended to "attract, motivate and retain a talented, entrepreneurial and creative team of executives".

    Addressing a large group of mainly private shareholders at the meeting, Mr Cook -- sitting on a high stool, and dressed in a black shirt and jeans -- defended Apple's growth rate and recent performance.

    He said the $48bn increase in revenues in 2012 was in absolute terms "more than the growth of Google, Microsoft, Dell, HP, Amazon, Lenovo, RIM and Nokia combined".

    He made no announcement about an increased dividend or other return of cash to shareholders, an issue of current concern to Apple investors. However, he did say the company was in "very, very active discussions" about what to do with its $137bn cash pile.

    Mr Cook said that Apple's cash was a "serious subject" but repeated his opinion that a lawsuit from activist shareholder Greenlight Capital was a "silly sideshow", despite a judge finding in favour of David Einhorn's hedge fund last week.

    The New York judge granted Greenlight an injunction that prevented Apple from holding a vote on corporate governance changes which, according to a representative from shareholder Calpers, had broad support from other shareholders.

    Sizeable equity grants to executives in 2012 are not linked to performance conditions, long-term vesting requirements, or sizeable stock retention requirements

    - Alexis Cheang, head of corporate governance for F&C

    Anne Simpson, head of corporate governance at Calpers, the Californian state pension fund, urged Apple to "keep calm and carry on" with the changes it had proposed, and not to be swayed by "side conversations with a single shareholder". Apple has said it will reintroduce the measures as soon as it can.

    Before the annual meeting some shareholders expressed concern over Apple's pay arrangements for executives.

    Alexis Cheang, head of corporate governance for F&C, said the asset manager intended to vote against. "Sizeable equity grants to executives in 2012 are not linked to performance conditions, long-term vesting requirements, or sizeable stock retention requirements."

    Apple's stock awards vest over long periods -- up to 10 years in the case of Mr Cook -- but as long as executives remain with the company, they are granted regardless of performance. Ms Cheang said F&C wanted bonuses to be linked to financial metrics, as well as factors that promoted "responsible manufacturing of company products".

    Apple said in its proxy statement that its generous stock awards reflected the team nature of its executives' work, and was based on two principles: that each "must demonstrate exceptional personal performance in order to remain part of the executive team" and that each must contribute to Apple's overall success "rather than focus solely on specific objectives".

    This is the third year that investors have been granted an advisory "say-on-pay vote" at US companies as part of reforms that followed the financial crisis. Such votes have become partly a way for investors to express frustration with company or share-price performance.

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