Tuesday, January 11, 2011

How does Steve Jobs live on $1 a year when he doesn't sell any Apple shares and why Tim Cook is walking home with $59 million.

It was revealed last week from Apple's 2011 Proxy Statement that Steve Jobs the iconic CEO of Apple took home his usual 1 buck a year salary and that Tim Cook was awarded a total of $59 million in salary and bonuses.

Steve Jobs' Jet N2N (Photo Coolspotters)

Steve Jobs got no bonuses and basically his only perk was expenses for his Gulstream jet which came up to $248,000. He was awarded the jet in 1999. Steve Jobs has a $1 a year salary since his return to Apple in 1997. He has not been awarded any new shares since 2003. He owns about 5.5 million in Apple shares now which is valued around $2 billion. He has not sold any Apple shares since his return except some for tax purposes. 

So what does Steve Jobs live on?

It has been speculated he lives on his other investments. For example after selling Pixar to Disney he is Disney's biggest shareholder. He owns 138 million in Disney shares which has been calculated on Seeking Alpha to give him $48 million a year in dividends. Apple shares don't provide dividends.

It's amazing that Steve Jobs works for a dollar a year while making Apple into the second largest company by market-cap in the world. In the last decade Apple stock has soared over 4000%. In 2010 Apple's net income jumped by 70%, overtook it's long time rival Microsoft in market-cap and last quarter overtook it in revenue.  

Tim Cook's $59 m and Cook's Value to Apple

Tim Cook (Photo: Apple)

Tim Cook Apple's COO received in total compensation $59.1 million. This is made up of 52.3 million in stock awards, a $5 million cash bonus, about $800,000 in salary and perks. (Bloomberg says cooks $59 m is from an Associate Press calculation : "includes salary, bonus, performance-related bonuses, perks, above-market returns on deferred compensation and the estimated value of stock options and awards granted during the year.")  In March 2010 a disclosure to the SEC stated that Apple's compensation committee had awarded Tim Cook 75,000 restricted stock units and a one time discretionary bonus of $5 m for leading Apple while Steve Jobs was way on medical leave for six months in 2009. Steve Jobs had specially requested the award. Apple stock has risen over $100 a share since then. 

I won't comment on the fairness and amounts of executive compensation but would just like to point out that in 2009 Cook took home $1.6 m and the large 2010 award was due in part to extraordinary circumstances in standing in for Steve Jobs.

Over he years Cook has done an extraordinary job for Apple. Previously he worked at IBM as director of North America fulfillment and worked at Compaq as the VP for Corporate Materials. Brought over from Compaq Cook has been credited for straightening out Apple's manufacturing and supply chain. In 2010 Apple was nominated by AMR as the company with the top supply chain. That's the third year in a row Apple has won it beating out every other U.S company. 

Supplychaindigital: "The company’s supply chain strategy has been greatly admired for many years now but to remain in the No. 1 position of AMR’s findings is unprecedented."

Dell was always known as the supply chain king, able to manufacture and deliver cheaper than anyone else and Apple beat them. Apple beat Wal-mart as well! Beating Dell and Wal-mart in supply chain is no small accomplishment and one heck of a competitive advantage. I suspect that if Cook wasn't around Apple products like the iPad would cost a lot more (remember before launch analysts said it would come in around $1000). Now a 10 inch wifi iPad is $499, the Dell Streak 1 at 5 inches launched at $599.

(Of course there have been problems with Apple's supply chain recently as not being able to keep up with demand. But some of these problems are beyond Cook's or anyone else's prediction or control. For example most analysts estimated iPad sales initially be around 1 to 2 million a year based on generous extrapolation of previous sales of PC tablets but iPad have been selling millions of units a quarter. Demand for it and the iPhone has been so high manufacturing facilities have not been able to keep up. That's why Apple is taking action like setting up a joint venture with Toshiba to make screens.)

Cook is a valuable asset to Apple. It has been rumored that companies have been trying to hire him as their CEO just as Jon Rubenstein an Apple exec became the CEO of Palm. Personally I think Apple really needs Cook. He can stand in as CEO in emergencies, he does an extraordinary job as COO and most of all he frees Steve Jobs to focus what he's good at which is dreaming up new 'Insanely Great Things'.