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Salary, Stock Were Just One Incentive for Apple Executive

When Apple went looking for someone to manage its retail and online stores back in
2012, it was willing to richly compensate the new employee with valuable stock grants
and a nice salary. But when headhunters located the perfect candidate in Burberry CEO
Angela Ahrendts, they faced one major hurdleconvince her to leave the clothier,
where she was one of the UKs highest-paid executives, relocate her family back to the
United States, and successfully manage the most visible component of Apples worldwide operation. After weeks of negotiations, both sides reached a deal that both
matched and exceeded the compensation routinely awarded to Apples most-senior
executives. (I am an Apple stockholder.)
Apple crafted a compensation package for Sr. vice-president of retail and online stores,
a new position that combined responsibilities for the two sales divisions. Working
through the companys compensation committee, Apple covered all the bases with
future Apple stock grants, an annual salary and bonus, relocation expenses and an
unusual severance package to lure her to the company. Like many Apple executives
before her, Ahrendts was probably also enticed by the challenges of the new job and the
companys worldwide reputation. She officially began work on May 1, 2014, the first
woman ever appointed to the companys senior management team.
According to the proxy statement, Apple first offered Ahrendts $33 million in new hire
stock grants to encourage Ms. Ahrendts to join the Company and to provide her with a
meaningful equity stake in the Company. However, Ahrendts was already in line to
receive substantial future stock grants from Burberry, so Apple chose to match that
benefit. They awarded her so-called make whole grants totaling $37 million of Apple
stock.
In the only complexity of the deal, the new-hire grants were based on Apples traditional
performance metrics and would vest over several years. The make-whole grants were
structured using Burberrys metrics, which had different amounts and vesting dates.
Of course, Ahrendts was also offered a $1 million annual salary, and a $500,000 hireon bonus intended to offset some of the Burberry compensation she would lose upon
leaving that company.
And then she would have to move back to the United States with her family. The
relocation offer amounted to $457,615. But Ahrendts would have to pay taxes on that
amount, reducing the benefit. So interestingly, Apple offered Ahrendts another $323,903
to pay the taxes on the relocation payment, whats known in finance as a gross up
payment. The money would allow Ahrendts and her family to move closer to the
Companys headquarters, the company filing said, although its unknown if Ahrendts is
living in northern California.

The last component of the compensation package seems to have been the most
important to Ahrendtsa severance payout. Perhaps she recalled the short tenure and
quick departure of Apples previous Sr. VP Retail John Browett, who lasted just six
months managing only the retail stores. To alleviate any anxiety, Apple did what it has
not done for its other executivesit offered her a severance package.
The Company does not generally enter into severance arrangements with executive
officers, the proxy statement explained. However, in this case they would do so,
Because Ms. Ahrendts was not otherwise expected to have left Burberry. Under the
arrangement, if within the first three years Apple terminates Ms. Ahrendts employment
other than for cause, or if she resigns for good reason, the company will pay her the
amount of her final base salary for the remainder of the three-year period. Ahrendts
stock grant vesting would also be accelerated under the severance plan.
Ahrendts real performance record would be evident after the launching of Apples watch
at its retail stores, a move that will undoubtedly test the companys choice of executive
and whether their compensation offer was justified and sufficient.
The Review Year After
We're learning just how much Apple's top executives get paid. Here is the breakdown of
Apples top executive compensation and benefits:
Tim Cook, the CEO made $9,222,638 in 2014, more than double what he pulled in the
year before. None of Cook's stock vested this year, but in 2011 he was awarded about
$376 million in restricted stock units that will turn into shares he can sell over the next
decade.
Luca Maestri joined Apple in 2013 and was promoted to CFO last year. He made over
$14 million in 2014. His pay from 2012 and 2013 is omitted because he wasn't an
executive officer then.
Angela Ahrendts made $73.3 million in 2014, most of it in Apple stock. Apple said
Ahrendts' stock package was based on her high salary and unvested equity at Burberry,
where she was CEO before coming to Apple last May. Her pay from 2012 and 2013 is
omitted because she wasn't working for Apple yet.
Eddy Cue pulled in a neat $24.4 million in 2014, most of it from a $20 million stock
award. Cue didn't have any stock awards in 2013 but was given $50 million in Apple
shares in 2012.
Jeff Williams is Tim Cook's right-hand man at Apple. Williams also recieved a $20
million stock award last year, bringing his total pay to around $24.4 million.
For the full fiscal year, Apple generated $182.8 billion in sales, a new record for the firm,
with $38.5 billion in net income. In fiscal 2013, Apple made $35 billion on $170.9 billion

in sales. In 2014, Apple sold 18.9 million Macs and just shy of 14.4 million iPods, its
lowest total for that category since 2004.
It sold a record 169.2 million iPhones on the year, up 150 million from 2012, and the
company has now sold more than 590 million smart phones in total. It sold 68 million
iPads in 2014 and the company has now sold 237.2 million tablets.
"Our fiscal 2014 was one for the record books, including the biggest iPhone launch ever
with iPhone 6 and iPhone 6 Plus, said Tim Cook, Apples CEO. With amazing
innovations in our new iPhones, iPads and Macs, as well as iOS 8 and OS X Yosemite,
we are heading into the holidays with Apples strongest product lineup ever. We are also
incredibly excited about Apple Watch and other great products and services in the
pipeline for 2015.
Apple's guidance for the first quarter of fiscal 2015 includes expected revenue of $63.566.5 billion and gross margin between 37.5 and 38.5 percent.
Total employees of Apple already reached 92,600, and net sales revenue is 10.2 billion
US $. Spends 6 billion US $ in research and development.
Question: Critically evaluate Apples compensation and benefits policy.