The Director Compensation Project: APPLE

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation.  We are including companies from 2010’s Fortune 500 and using information found in their most recent proxy statements.  In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence.  

Under NYSE Rule 303A.01, all listed companies must have a majority of independent directors sitting on their boards.  Directors are not independent if they received over $120,000 in direct compensation, other than director’s fees, in any one year period over the last three years pursuant to Rule 303A.02(b)(ii).  This is a looser restriction than the equivalent NASDAQ Rule, 5605(a)(2), which includes "any compensation."  Rules 303A.06 and 5605 also require that, in addition to the general independence standards, audit committee members must comport with the requirements of  Rule 10A-3 (C.F.R. §240.10A-3).  See also IM-5605-4. Audit Committee Composition.

According to Apple’s (NASDAQ: AAPL) 2011 proxy statement, all of its board members are independent except Mr. Jobs.  The proxy statement shows that the company paid its directors the following amounts in 2010:

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
William V. Campbell	62,500	199,980	606,854	4,350	873,684
Millard S. Drexler	50,000	199,980	821,082	5,196	1,076,258
Albert A. Gore, Jr.	50,000	199,980	1,020,326	8,125	1,278,431
Steven P. Jobs	0	0	0	0	0
Andrea Jung	35,000	0	0	2,214	52,214
Arthur D. Levinson	62,500	199,980	580,034	7,069	849,583
Ronald D. Sugar*	0	0	0	0	0
Jerome B. York**	37,500	199,980	606,854	0	844,334

*Mr. Sugar was appointed on November 16, 2010 to fill one of two vacancies on the Board. The other vacancy has yet to be filled.

**Mr. York passed away on March 18, 2010

Director Compensation.  Apple’s Board of Directors met 4 times during 2010 and its three Committees met 19 times throughout the year.  Each board member participated in at least 75% of the aggregate number of board meetings and committee meetings of which the director was a member.  Non-employee directors received a $50,000 annual retainer, paid in quarterly installments. The chair of the Audit Committee received an additional $25,000 annual retainer.  No other committee members or chairs received an additional retainer.

Director Tenure.  The longest serving board members are Mr. Jobs and Mr. Campbell, who have both held their positions since 1997.  The board’s newest director, Mr. Sugar, recently retired as the Chairman and CEO of Northrop Grumman and has also served as a director of Amgen Inc. and Chevron Corporation. The Company does not have a Chairman of the board. Instead, the Company believes the co-lead structure enhances the board’s oversight and independence from management and allows the CEO to focus on operating the company and leveraging the experience of both co-lead directors.  The two co-lead directors of the board, Mr. Levinson and Ms. Jung, have been on the board since 2000 and 2008, respectively.   

Executive Compensation.  Since rejoining the company in 1997, Mr. Jobs, Apple’s CEO, has received an annual salary of $1.  Because he owns approximately 5.5 million shares of the Company’s common stock, the Company believes that Mr. Jobs’ interests are significantly aligned with those of shareholders’ despite his negligible compensation.  The other executive officers received a compensation program consisting of three parts: long-term equity awards, annual performance-based cash bonuses, and base salaries. The target bonus is 50% of base salary, which is substantially lower than the common range of 125% to 150%.  In September of 2010, the salary of Apple’s highest paid executive, COO Timothy Cook, was increased from $800,000 to $900,000.  Mr. Cook was also awarded a $5,000,000 discretionary bonus and a special restricted share unit award in light of his “outstanding performance” for assuming responsibility over day-to-day operations while Mr. Jobs was on medical leave.