Apple CEO Tim Cook will face more pressure to increase the company's… (Asa Mathat / All Things Digital )
In the latest move to appease investors anxious about its stock price decline, Apple announced Friday that it has restructured the stock awards it had previously granted to Chief Executive Tim Cook.
Under the new terms, the company will have to meet certain performance targets for Cook to receive the full number of shares he was originally awarded back in 2011.
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According to a filing made with the U.S. Securities and Exchange Commission, the changes came out of discussions with shareholders over ways to tie executive compensation more closely to the company's performance.
"In outreach discussions this year with many of our largest shareholders, we heard that they believe it is appropriate to attach performance criteria to a portion of our future executive stock awards that have been entirely time-based (i.e., vesting for continued service) in the past," the company says in the filing. "We agree and, beginning today, the Company will include a performance element in new stock awards to our executive officers."
Shareholders have grown restless as they watched the stock price fall from $702.10 per share last September to $413.50 on Friday. Earlier this year, Apple responded by announcing it would increase its dividend and stock buyback plans to about $100 billion.
The latest move targets the restricted stock units, or RSUs, that Apple awards to executives. In the filing, the company revealed that its board had added new performance metrics to future awards of RSUs.
However, in the filing, the company said that Cook had voluntarily asked the board to apply the new standards to the 1 million RSUs he received when he became CEO back in the 2011.
Under the original terms, those 1 million shares were scheduled to vest in two, five-year chunks. Cook could sell the first 500,000 RSUs in 2016, and the other 500,000 in 2021. Cook would have been able to sell them at a profit no matter what Apple's stock did during those years.
But according to the filing, Cook said he wanted to "lead by example" and have the new terms applied retroactively to 800,000 of his RSUs.
Under this new, complex scheme, two chunks of 100,000 RSUs will still vest no matter what happens in 2016 and 2021.
The remaining 800,000 will be eligible to vest in 80,000 increments over the 10 years of the award. Each year, 40,000 RSUs will vest no matter what happens with the stock price.
The other 40,000 will only vest if the company meets certain performance targets that are a combination of the stock price and dividends paid out, the so-called total shareholder return, or TSR. Apple's TSR will be compared with the TSR of companies in the S&P 500.
According to the filing: "If Apple’s performance is within the top third of that group, the RSUs in the tranche for that year will vest in full. If its performance is in the middle third, the RSUs in the tranche for that year will be reduced by 25%, and if its performance is in the bottom third, the RSUs in that tranche will be reduced by 50%."
The filing notes that there is no upside for Cook. He can not earn more than the original 1 million RSU grant. His award can only decrease in the coming years.