What is the primary purpose of the Performance Bonus Plan approved by Apple shareholders?

The primary purpose of the Performance Bonus Plan is to motivate and reward executive officers and key employees by providing bonuses tied to the achievement of specific corporate and business unit performance objectives. Crucially, it is designed to ensure that these bonuses qualify as 'performance-based compensation' under Section 162(m) of the Internal Revenue Code, allowing Apple to maintain the tax deductibility of these compensation expenses.

Who is eligible to participate in this bonus plan?

Eligibility for the Performance Bonus Plan is at the discretion of the Compensation Committee. Executive officers and key employees chosen by the committee are eligible. For fiscal year 2005, all executive officers, excluding the CEO, were designated to participate.

What types of performance metrics will be used to determine bonus payouts?

The performance metrics can be varied and may include one or more of the following: annual revenue, cash position, earnings per share, net income, operating cash flow, operating income, return on assets, return on equity, return on sales, total shareholder return, and individual performance objectives. These criteria can be tailored for different participants or business units and must be objectively determinable.

Is there a limit to how much an individual can receive under this plan?

Yes, the plan sets a maximum bonus payment of $5,000,000 for any single participant in any given fiscal year.

AAPL 8-K: Material Agreements

Summary

This Form 8-K filing from Apple Computer, Inc. (AAPL) on April 25, 2005, reports on the shareholder approval of the Apple Computer, Inc. Performance Bonus Plan. This plan is designed to allow the company to pay bonuses to executive officers and key employees that qualify as "performance-based compensation" under Section 162(m) of the Internal Revenue Code, thereby preserving tax deductibility for the company. The plan outlines eligibility criteria, with executive officers and key employees chosen at the Compensation Committee's discretion. Performance metrics can include a variety of financial targets such as revenue, earnings per share, and operating income, as well as individual performance. The Compensation Committee administers the plan, establishing performance targets and certifying achievement, with specific provisions for directors who may not qualify as "outside directors" under IRS rules to recuse themselves. The maximum bonus a participant can receive annually is capped at $5,000,000, and the Compensation Committee retains the discretion to amend or terminate the plan.

Key Highlights

1Shareholder approval obtained for the Apple Computer, Inc. Performance Bonus Plan on April 21, 2005.
2The plan is structured to comply with IRS Section 162(m) for "performance-based compensation" to maintain tax deductibility.
3Eligible participants include executive officers and key employees, at the discretion of the Compensation Committee.
4Performance criteria for bonuses can be based on corporate and business unit objectives like revenue, earnings per share, and operating income.
5The Compensation Committee administers the plan, sets targets, and certifies performance.
6A maximum bonus of $5,000,000 per participant is established for any fiscal year.
7The Compensation Committee has the authority to amend or terminate the plan, with certain limitations on increasing compensation awards.

Apple Inc. 8-K Report, Material Agreement (Apr 26, 2005)

Summary

Key Highlights

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