I was hoping that perhaps I might be done writing about Apple for a while. Then I saw CNET's news.com, "Apple execs underpaid, board says." I just had to respond.
My heart absolutely bleeds for these executives. I worked at Apple for nearly twenty years. Consistently the people doing the real work at Apple have been shortchanged while the executives have been swimming in cash, mostly from options. The scary thing is that these same executives have been unable to get Apple beyond 2% market share in computers. In April 2004 six Apple executives cashed in $46M in options according to a story in tech-edge. At the time Apple according to tech-edge had the following comment.
"A major part of Apple's senior management compensation is based on stock appreciation," Apple said in a statement. "It's great to see some members of our management team get rewarded for their incredibly hard work by selling some of their stock."
According to tech-edge, Tim Cook had a net gain of $14.75 million and Jonathan Rubinstein's gains were $12.67 million. Other executives gained between $10.11 million and $2.67 million. Then according to another story, an additional $65 million in executive options were sold in January. In most worlds this would be a lot money. Apparently not at Apple, since we have learned from CNET that the board thinks the executives are underpaid.
According to salary.com, Apple executive salaries range from makes $450K to almost $2M. I guess that's not enough even with the huge profit on options. This probably has to do more with Apple moving away from options for executives than anything else. The unfortunate thing is that the executives have had the lion's share of the options. Though I have no exact statistics, I suspect very few have made it down in the ranks compared to some other companies that I have talked with since I left Apple. This really is hard to believe.
"The company hired a consultant to examine its pay practices last year. Apple said that while base salaries and stock grants were at or above the median for similar companies, the absence of a cash bonus program left the company's executive vice president and senior vice presidents with a cash compensation program that "is not competitive."
The problem has gotten worse and worse over the years. I suspect Apple has practically eliminated options except for a favored few. Certainly I haven't heard of any field people who do the real selling at Apple being recommended for bonuses. but I continue to read about executives carting home millions of dollars in options.
"Apple Computer Inc. disclosed Tuesday that Jonathan Rubinstein, senior vice president of its iPod division, realized $26.3 million in value from exercising 3 million stock options last year."
"For 2004, Rubinstein's compensation included a restricted stock grant valued at about $6.3 million and a salary totaling $485,216."
"In its annual proxy statement filed with the Securities and Exchange Commission, the Cupertino, Calif.-based company also said Timothy D. Cook, executive vice president of worldwide sales and operations, realized nearly $14.2 million in value from exercising 2.7 million stock options in 2004."
Before anyone gets excited, Rubinstein was in charge of all hardware for years at Apple and certainly can't take full credit for the iPod. While the hardware designs are great products, I don't see that he needs another cash bonus. While Apple has benefited greatly from the iPod, what's next, and why is Apple's computer market share stuck at under 2%. If the iPod gravy train ends, I don't see much other success to fall back on these days. Who is to blame for that, the same executives the board has decided are underpaid.
Perhaps CNET should do a survey of Apple customers and find out if they believe that Apple vice presidents and executives deserve cash bonuses. I know more than a few who would like to see Apple executives make similar efforts at visiting customers in the field as is common in the Windows world. Just try to get Steve Jobs to come out and meet a customer, something that Michael Dell does regularly.
I would suggest CNET surveying Apple employees in the field to see if they feel they are well paid, which I know they aren't, but I suspect Apple would be going after CNET to get the names of any employees that replied.
Perhaps Apple executives should check out today's Wall Street Journal Manager's Journal, "When CEOs Roamed the Earth."
"What's needed now is a different kind of CEO: Men and women who shed the trappings of imperial power, work with their boards of directors in new, dynamic relationships and find fresh ways to unleash the creative potential of their people, from middle managers to front-line workers."
"This will require a big shift in attitude from change-averse managers. They'll need to get off their private jets and fly with everyone else, shed the large personal staffs that coddle and isolate them and spend real time with the workers who are on the factory floors, behind the sales counters or in the office cubicles."
Probably the most unlikely recommendation from the article for implementation at Apple is "Top managers must expect and be comfortable with disagreement and push back." Everyone knows that at Apple nothing happens from the bottom up. It is all top down. There are only a few people in the company that can make a decision, the rest have to wait for it to come down from on high. Perhaps the best description I have seen of Apple comes from Michael Malone at ABC in his recent personal opinion article, "Apple Springs a Leak" where he describes Apple as the "North Korea of the high tech world."
Apple VPs and executives are some of the most pampered on earth. I think standard issue for an Apple VP is someone to read his e-mail and a limo whenever they do leave Cupertino.
This is from a recently retired CxO, who struggled for years to work with Apple executives. He's not alone.
"Well, most of the front line field folks from Apple I have met have been about the best from any vendor. It is the folks in Cupertino who need to get their act together"
Executives that want their companies to succeed focus on the front line employees not their own pockets. The Apple board is completely blinded by the gleam from the the iPod. Some of these same executives who supposedly need more money have done little while Linux has passed Apple as a desktop OS. Some such as IDC think this happened a while ago as was reported in this ComputerWorld article.
"Industry research firm IDC in Framingham, Mass., said it believes that this has already happened. "Linux captured the No. 2 spot as desktop operating system in 2003," said IDC analyst Dan Kusnetzky in a recent interview."
There is little reward at Apple for the non-executive people who do their jobs really well. My last years at Apple I managed a team of people who with very few resources managed to triple Apple business in less than four years in what is Microsoft's greatest monopoly market, the US federal government. That team saw its earnings decline over those four years of increasing sales. I guess the Apple executives were more interested in cashing their options than in rewarding strong sales performances in a tough market. As I discussed in my article, "Integrity in Management," you need to treat more than your executives well if you are creating a company that plans to be more than a footnote in history.
"The very people who tend to be the bricks and mortar of great companies not only do not get a chance to rise to the top, they and their ideas are trampled on by people with zero integrity."
Of course Apple has been especially fond I what I like to calling roving VPs. These people who jump from one company to another are just another symptom of a corporate management culture headed for disaster. I based my "Rotten From Within" article on my experience at Apple with a number of these roving VPs. Of course for years Apple has focused on winning the "big deals" instead of doing the hard step by step work to be successful in a broader computer market. If you want more information on that check out my "Big Deals" article or some of my earlier Apple Peels articles.
There is little chance that this kind of destructive behavior will stop at Apple until the bottom falls out. Then Apple will have to face the facts that their type of management is completely out of touch with what the company needs if they want to become a serious player in the computer world. Being the "North Korea" of the high tech world may work as long as you as you are the darling of the consumer world, but it won't last forever, just ask Sony. Apple doesn't have nearly as many products to fall back on as Sony does.
Apple's management style will not create a sustainable company. Great companies are built on character which has to be ingrained in the management team. I cannot see that cash bonuses are necessary for millionaire executives while the field sales people struggle.
As far as I can tell this management team and the board that wants to reward it so heavily are grounded in greed and blinded by the iPod.
I still have Apple stock, which I would dearly love to see go up in value. While I may still harbor some dislike for executives that pushed me out of the company, I still love the products, and am trying hard to look at this problem based on what I know and what I believe would be good for me as an investor and for Apple as a company.
Paying executives who are already getting rich on options a cash bonus while Linux roars down the road like a freight train proves to me that Apple
has lost it way. Unfortunately when so many including the board are part of the reality
distortion zone, I don't think we can expect positive change any time soon.
Apple HR representatives have stated via email that stock options were currently only granted for Directors and above. Additionally, it was stated that the numbers of stock options had been maximized (again to Directors and above), and that Apple would have to request that the shareholders grant additional options in order to grant these to the rank & file employees.
Posted by: Stephen | March 16, 2005 at 07:47 AM