Tim Cook is the CEO of Apple Inc (NASDAQ:AAPL), which has recently grown to a market capitalization of US$1.04t. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. Incentives can be in the form of compensation, which should always be structured in a way that promotes value-creation to shareholders. I will break down Cook’s pay and compare this to the company’s performance over the same period, as well as measure it against other US CEOs leading companies of similar size and profitability.
Did Cook create value?
Profitability of a company is a strong indication of AAPL’s ability to generate returns on shareholders’ funds through corporate activities. In this exercise, I will use profits as a proxy for Cook’s performance. Over the last year AAPL released an earnings of US$56.12b , which is an increase of 20.3% from its last year’s earnings of US$46.64b. This is a positive indication that AAPL has strived to maintain a good track record of profitability in the face of any headwinds. As profits are moving up and up, CEO pay should represent Cook’s hard work. In the same year, Cook’s total remuneration increased by a mere 0.01% to US$12.8m. Moreover, Cook’s pay is also made up of 1.29% non-cash elements, which means that variabilities in AAPL’s share price can move the real level of what the CEO actually receives.
Is AAPL’s CEO overpaid relative to the market?
While no standard benchmark exists, since remuneration should be tailored to the specific company and market, we can estimate a high-level thresold to see if AAPL deviates substantially from its peers. This outcome can help direct shareholders to ask the right question about Cook’s incentive alignment. On average, a US large-cap is worth around $64.9B, produces earnings of $3.6B and pays its CEO circa $12.2M per annum. Based on the size of AAPL in terms of market cap, as well as its performance, using earnings as a proxy, it appears that Cook is paid on a similar level to the average US large-cap CEO This indicates that Cook’s pay is fair.
Hopefully this article has given you insight on how shareholders should think about AAPL’s governance policies such as CEO pay. As an investor, you have the right to understand how the board thinks about management incentives, and also the right to vote for and against substantial CEO pay changes. Governance is a big factor in investing, and I encourage you to dig deeper into those that represent your voice on the board. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
- Governance: To find out more about AAPL’s governance, look through our infographic report of the company’s board and management.
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of AAPL? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.
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