Sorry, Tim Cook Didn’t Take a 99 Percent Pay Cut

If Apple CEO Tim Cook had taken a 99 percent pay cut, that would be a dramatic and interesting story which has apparently led some news outlets to report that it happened even though it didn’t.

What actually happened is that when Cook took over last year he was randomly rewarded with a giant pile of Apple stock. One way to think of that is that it was typical insider self-dealing reflecting America’s broken system of corporate governance. After all, Cook already made a nice salary as Chief Operating Officer and got a raise when he was promoted to CEO. Nobody else was bidding on Cook’s services, Cook had no credible threat of leaving the company, and dozens of well-qualified experienced technology executives would have happily taken the job of Apple CEO. What you saw was a straightforward violation of marginal product theories of compensation as Cook and his pals on the Apple board took advantage of transition confusion to steal some money from the shareholders.

An alternative view is that Apple’s board, as trustworthy and responsible proxies for shareholder interests, wanted to make sure Cook’s incentives were properly aligned with those of the company’s owners. In order to ensure that Cook tries to manage the firm responsibly, it was necessary to turn him into a major shareholder so that his medium-term financial prospects would be intimately linked to Apple’s stock performance. So they gave Cook a giant one-off gift of restricted stock options to make it as if he was an Apple founder whose personal wealth is tied up with the company.

Either way you want to spin it, it’s obvious why the stock allocation would have happened in 2011 and then not been repeated in 2012. But that’s not a pay cut. It was always intended as a one-off measure to kick off Cook’s tenure as CEO.