Running head: APPLE'S COMPENSATION AND BENEFIT STRATEGY 1

Apple's Compensation and Benefit Strategy

Faisal O. Ba Sharahil

McDaniel College

Author Note

This paper was prepared for Compensation and Benefits Design, HRD 542, taught by Julie

Develin.
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Apple’s Compensation and Benefit Strategy

Introduction

Most of people believe that Apple’s success comes from a combination of many factors.

These factors include the unusual leadership skills of the CEO, the high-tech products, and the

corporate culture of enthusiasm and innovation. Also, Apple focuses more on its employees by

giving them the best compensation and benefit programs. These services have empowered and

enabled Apple to stay a competitive corporation for a long time. Today, Apple brand embodies

quality, innovation, and prestige. Apple is the most valuable brand worldwide. Apple is one of the

most challenging places to work at. Apple’s 100,000 workers are dedicated to making the best

products on earth, and they are committed to make the world a better place than we found it.

The History of Apple

Apple, Inc. was established and found by two men called Steve Jobs and his friend Steve

Wozniak. They were two high school dropouts living in the Silicon Valley. They started making the

first Apple computer on April 1, 1976 in Jobs' home. From this date, they have revolutionized the

way that many people all over the world use computers, listen to music, search the internet, and

even talk on the phone (Scholar, Johnson, & Singer, 2012). In 1997, Apple’s share price was $3.30

million, but in 2011 its share price had risen to $339.87 million. Today, Apple's location is in

Cupertino, California.

Apple’s Vision

According to the Apple’s website, its vision is “Apple is committed to bringing the best

personal computing experience to students, educators, creative professionals and consumers around

the world through its innovative hardware, software and Internet offerings” (Scholar et al., 2012, p.

.3)

Apple’s Mission
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:According to the Apple’s website, its mission is the following

Apple designs Macs, the best personal computers in the world, along with OS X, iLife,

iWork and professional software. Apple leads the digital music revolution with its iPods and

iTunes online store. Apple has reinvented the mobile phone with its revolutionary iPhone

and App Store, and is defining the future of mobile media and computing devices with iPad

(Scholar et al., 2012, p. 3)

Apple’s Values
:According to the Apple’s website, its values are as follows

We believe that we are on the face of the Earth to make great products, we believe in the

simple, not the complex, we believe that we need to own and control the primary

technologies behind the products we make, we participate only in markets where we can

make a significant contribution, we believe in saying no to thousands of projects so that we

can really focus on the few that are truly important and meaningful to us, We believe in deep

collaboration and cross-pollination of our groups, which allow us to innovate in a way that

others cannot, we don’t settle for anything less than excellence in every group in the

company, and we have the self-honesty to admit when we’re wrong and courage to change

(Scholar et al., 2012, p. 3)

Apple’s Organizational Structure

Under Apple’s CEO, there are eleven executives of management, who work directly under

Apple’s top leader. Apple’s CEO has the power to control all managements that are headed by the

Senior Vice Presidents of CFO, COO, Legal, Design, Operations, iOS software, Retail, Product

Marketing, Software Engineering, and Global Communication. The CEO and board of managers of

Apple make all the decisions, which will go directly down the line to every worker of the company

(Scholar et al., 2012). Unfortunately, the company lost the Founder and CEO, Steve Jobs on
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October 5, 2011, and this left the company looking for a new leader. Now, according to Apple's

website, the company hired Tim Cook the new CEO of Apple.

Apple's Corporate Culture

Apple’s transition from a computer to a consumer electronics company is unique and

difficult to replicate. Although many people can think about why Apple succeeded highly in the

business world, they tend to credit effective leadership abilities, highly skilled employees, and

powerful corporate culture (Daniels, 2011). Jobs established two cultural changes: he encouraged

discussion on ideas, and created a dream and vision that employees could believe in. By achieving

these two aims, employees felt that their contribution was very important, and that they were

essential and important members of Apple (Daniels, 2011). The administration has created a sense

of loyalty among the employees at Apple. Apple's environment has inspired the creative ideas and

innovative technology (Daniels, 2011). Apple's environment has attracted the best employees who

fit within its corporate culture (Daniels, 2011). It has supported its employees to provide

comprehensive training and better compensation than employees may receive at similar companies

(Daniels, 2011).

Apple’s Business Strategy and Goals

Apple has a clear strategy and a set of goals. According to Apple's report, the company is

committed to bring the best user experience to its customers through its innovative software,

hardware, peripherals, and services (Scholar et al., 2012). Also, Apple’s business strategy

influences its unique ability to develop and design its own operating systems, application software,

hardware, and services to provide its customers modern products and solutions with superior ease-

of-use, seamless integration, and innovative design (Scholar et al., 2012). Apple believes constant

investment in developing researches, marketing, and advertising is important to the development

and sale of innovative products and technologies (Scholar et al., 2012).

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Apple's Ethics

Apple's success depends on creating innovative, high quality products and services, and on

demonstrating integrity in Apple's business world. According to Apple’s website, four prime

principles contribute to integrity: respect, honesty, compliance, and confidentiality (Daniels, 2011).

Apple's ethics includes four elements; these elements are business integrity, disclosure of

information, whistleblower protection and anonymous complaints, and protection of intellectual

property (Ahmad, 2013). In Table 1, these are the numbers, which determined the core violations in

Apple in 2008 revealed violations in other areas by monitoring program.

Table 1.
Some Status of Facilities Audited in 2008 (February, 2009)
Compliance Overview
Facilities In Compliance Limited Violations Frequent Violations
1 Work Hours and Days of Rest 41% 17% 42%
2 Wages and Benefits 59% 14% 27%
3 Occupational Illness Prevention 88% 2% 10%
4 Health and Safety Training and Awareness 94% 2% 4%
5 Ethics 97% 1% 2%
6 Fair Treatment 98% 1% 1%

Apple's Pay Design

Apple’s code addressed several areas of compensation, including base wages, overtime

wages, legally mandated benefits, the manner in which employees are paid, and prohibition of wage

deductions for disciplinary purposes (February, 2009). Apple ensures that all employees receive at

least the legally mandated minimum wages and benefits. Also, Apple offers vacation time, leave

time off, and periods for legally recognized holidays and compensate employees for overtime hours

at the legal premium rate. Moreover, Apple pays structure, periods, and accurate wages to all

employees in a timely manner. Wage deductions must not be used as a disciplinary measure (Apple

Inc., 2012).

Elements of the Compensation Program

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Compensation refers to all forms of financial returns and tangible services and benefits

employees receive as part of an employment relationship (Milkovich, Newman, & Gerhart, 2014).

The compensation includes two forms: monetary, such as cash, gift cards, and vouchers; and non-

monetary, such as gifts or promotional items, course credit, extra credit, or reward.

There were several elements of the compensation program and the company’s executive

compensation program was simple in its design. It consists of three components: long-term equity

awards in the form of time-based and performance-based Restricted Stock Units (RSUs) under the

Company’s shareholder-approved employee incentive plan, annual performance-based cash

bonuses, and base salaries (Apple Inc., 2015).

Apple emphasizes on long-term equity awards and annual performance-based cash bonuses,

so that a main portion of each executive’s total compensation opportunity is related directly to the

company’s stock price or driven by performance (Apple Inc., 2015). Moreover, all other programs

depend on the same basis as other employees (Apple Inc., 2015).

The Role of Long-Term Equity Awards

Apple emphasizes on RSUs because the company believes that long-term equity awards in

the form of RSUs are the most effective way to retain and attract a talented executive team, and to

align executives’ interests with those shareholders by tying an important portion of their

compensation to shareholder value creation (Apple Inc., 2015). Therefore, the Apple’s executive

compensation program in recent years has been weighted considerably toward long-term equity

awards rather than cash compensation (Apple Inc., 2015).

Apple believes that when RSUs maximize retention, it creates more incentives for better

performance, and further align executives’ interests with those of shareholders because an RSU’s

value increases or decreases with the company’s stock price. Therefore, this way leads to enhance

the relationship between executive officers’ and shareholders’ interests (Apple Inc., 2015).
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Apple has reviews and redesigns the executive compensation program every two fiscal years

with its independent compensation consultant about market practices and peer company data. The

Compensation Committee decided to transition from biennial equity grants to annual grants starting

in 2014 (Apple Inc., 2015). This committee gave the awards granted in 2014 between 60% time-

based and 40% performance-based awards (Apple Inc., 2015).

The Role of Cash Compensation

Base Salaries. Base salaries offered by Apple are formal, help to attract the best executives

and employees, and retain them for a long time in organizations. According to Apple Inc. (2015):

“In February 2014, after reviewing peer company market data provided by its independent

compensation consultant, the compensation committee increased Mr. Cook’s base salary from $1.4

million to $2 million and the base salaries of the other executive officers from $875,000 to $1

million” (Apple Inc., 2015, p. 34). The change was the first increase to Mr. Cook’s salary since

November 2011.

Performance-Based Cash Bonuses. The compensation committee established goal

performance-based cash bonus awards on an annual basis to provide the executive officers with the

opportunity to gain compensation for achieving the company’s annual performance goals (Apple

Inc., 2015). The goal and maximum bonus levels for the executive officers grew in February 2014

to 200% and 400%, respectively, of each officer’s base salary (Apple Inc., 2015). The compensation

committee thought that the officers’ total cash compensation opportunities compared to the total

cash compensation opportunities for executives at peer organizations was reasonable and fair

(Apple Inc., 2015). Also, Apple emphasizes on long-term equity awards and the preference for

emphasizing long-term shareholder value creation over annual operating results. In addition, Apple

has no long-term cash bonus program. All long term incentives are delivered through equity awards

(Apple Inc., 2015).

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Performance Criteria. Performance criteria used to choose the annual bonuses for the

named executive officers were net sales and operating income as determined in accordance with

accepted accounting rules. These standards were determined because they reflect recognized

measures of overall company performance and are associated with shareholder value creation.

Performance Goals. Performance goals are set at targeted and maximum levels based on

objectives in the Company’s internal business plan. The maximum net sales performance goals for

2014 in Apple were approximately 5% and 6% higher than the target in 2013. Also, the target and

maximum operating income performance goals for 2014 were set approximately 4% and 6%, which

was higher than the target in 2013 (Apple Inc., 2015). In 2014, the goals and the company’s actual

performance, net sales, and operating income were both 7%, which was higher than the company’s

net sales and operating income in 2013 (Apple Inc., 2015).

Payout Structure. The payout structure depends on an equal weighting of operating income

and net sales because each measure is considered equally important in the Apple’s internal business

plan. The performance-based cash bonuses are determined as a percentage of the executive base

salary, and payouts are interpolated for accomplishment of performance between the maximum

goals and target .No payout is made relative to a particular performance standard unless the targeted

performance goal is accomplished with respect to that standard (Apple Inc., 2015). At the end of the

year, the compensation committee decides the amount of the bonus to be paid to each executive

officer by comparing the Apple’s financial results to the performance goals (Apple Inc., 2015).

Apple's Employee Benefits Programs

Employee benefits refer to compensation other than an hourly wage or salary. Employee

benefits include paid vacation, medical insurance coverage, and tuition reimbursement (Martocchio,

2014). Apple's employee benefits programs which include more value programs are 401(k) plan

(with company match), organic ingredients, café featuring local, commuter programs, including free
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shuttle to Cupertino (WiFi equipped), employee stock purchase plan, flexible spending, accounts

(for health care or dependent day care needs), fitness center, health insurance, holiday/vacation pay,

long-term care insurance, life insurance, long-term disability insurance, personal/family counseling,

product discounts, short-term disability insurance, financial education seminars, tuition assistance,

and wellness programs.

This paper will address the most important Apple's employee benefits. Apple offers many

employee benefits programs such as longer parental leave, education reimbursements for all classes

taken by employee, subsidized student loan refinancing, a broader donation-matching program, and

full acceleration of stock in the event of the employee's death.

Parental Leave. Apple addressed its parental leave policy. Apple's employees in US have a

few more weeks of paid parental leave. Also, expectant mothers can take up to four weeks before a

delivery and upwards of 14 weeks after and expectant fathers (and other non-birth parents) can take

six-week parental vacation (Ram, 2014).

Discounts on Tech. Each year, employees can gain a 25% discount on an iPod, iPad, or

computer. Most Apple software can be purchased at a 50% discount, and Apple Care comes with a

25% discount. After 90 days on the job, workers can choose either $500 off the price of a Mac

(excluding the Mini) or $250 off an iPad, this offer can be repeated again every 3 years. Moreover,

Apple offers 15% off products for friends and family.

Health Insurance. Apple offers health insurance and flexible spending accounts that can be

used for health care or dependent day care. Also, Apple provides insurance coverage for employees

and their spouse, domestic, or same-sex partner. Apple covers 65% of each full-time employee, and

the same policy will reportedly be extended to part-time workers.

Wellness Center. The Human Resource (HR) department at Apple offers the corporate

wellness center at the campus in Cupertino, California. More than 43,000 workers have already
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visited for physician facility. This center includes seven primary care clinicians with whom workers

can schedule check-ups and other routine medical procedures. Also, Apple plans to open similar

clinics elsewhere throughout its empire (Cook, 2014).

Education Reimbursements. At Apple, educational assistance is available to all full-time

workers and part-time retail workers worldwide. This educational assistance covers courses related

to any job at Apple, including English language courses at any institution.

Refinancing Program. Apple offers a student loan refinancing program for U.S.

employees. This program can help employees pay future expenses for their college-aged children.

Donation Program. Since the Apple Matching Gifts Program began, it has matched over

$25 million of employees’ charitable contributions. This program is important for all Apple

employees around the world, and anyone can donate money or time. Apple is matching

philanthropic donations from workers, not just by matching the money employees donate.

Moreover, Apple matches hours spent on charitable endeavors; usually Apple matches up to $25 per

hour of non-profit work, with a cap of $10,000 per employee.

Apple is always looking for people who are very smart, creative, and adaptable to join their

team. Denise Young Smith, who is Apple's head of human resources retains and attracts top-notch

employees by giving them expanded benefits. Overall, based on hundreds of reviews on Glassdoor

and a few Quora posts written by former employees, it sounds like Apple treats its employees

extremely well.

Apple's Growth and Competitiveness

Apple has increased extraordinary success and growth between 2006 and 2012. For

example, “The company’s net sales increased more than six-fold between 2006 and 2012, from

$24.6 billion to $156.6 billion, with an average annual growth rate in excess of 36%. Apple is

among the largest publicly traded companies in the world by market capitalization and is one of the
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largest technology companies in the world by revenue and profit” (Apple Inc, 2013, p. 3). For

example, the number of Apple’s employees based in Cupertino has increased at an average annual

rate of 18% over the past five years. Also, around 7,400 employees will be hired between June 2013

and 2016 in Apple Campus 2, resulting in a projected total employee of 23,400 (Apple Inc., 2013).

According to a report from Distimo, “In 2013, Google Play’s revenue share has been

growing at Apple’s expense; in November 2013, the Apple App Store was still leading-though with

63% relative to 37% for Google Play. In June 2013, Google Play was only responsible for 30%, and

accordingly, Apple’s share was at 70%” (Nielson, 2014, p. 1).

Conclusion

Apple's success is due to the attractive advertisements and the new products that are getting

wider publically. Also, Apple decides to focus more on people, not just products by giving its

employees more and new compensation and benefits programs. These factors enabled Apple to stay

a competitive and lead corporation for a long time. Apple has earned first place among Fortune

magazine’s World’s Most Admired Companies. Most of people in the world seem optimistic about

Apple's future because of its protocols, strategies, and plans.

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