8-KLeadership Changes

Apple Inc. 8-K Report, Executive Changes (Jun 21, 2013)

Filed June 21, 2013For Securities:AAPL

Summary

This 8-K filing from Apple Inc. announces a significant change to CEO Timothy D. Cook's outstanding restricted stock units (RSUs) awarded in 2011. Effective June 21, 2013, a portion of Mr. Cook's award has been modified to incorporate performance-based vesting criteria, specifically tied to Apple's relative Total Shareholder Return (TSR) compared to companies within the S&P 500. This move aligns Mr. Cook's compensation more closely with company performance and reflects a broader shift by Apple to include performance elements in future executive stock awards. The modification was driven by shareholder feedback and Apple's ongoing commitment to enhance corporate governance. While the original award was entirely time-based, 50% of the annual RSUs are now subject to forfeiture if certain relative TSR thresholds are not met. Importantly, this modification introduces downside risk for the CEO but does not include an upside opportunity for overachievement. The change does not alter the original grant date fair value for accounting purposes.

Key Highlights

  • 1Apple Inc. modified CEO Timothy D. Cook's 2011 RSU award to include performance-based vesting tied to relative Total Shareholder Return (TSR).
  • 2This change aligns a portion of CEO compensation with company performance, a move influenced by shareholder feedback.
  • 350% of the annual RSUs are now at risk, subject to forfeiture if Apple's relative TSR performance falls in the bottom third of the S&P 500.
  • 4The modification introduces downside risk for Mr. Cook but no upside opportunity for overachievement.
  • 5Apple plans to incorporate performance elements into future equity awards for its executive officers.
  • 6The modification does not change the original grant date fair value of the award for accounting purposes.
  • 7The relative TSR measurement period for vesting tranches will gradually increase from one year to three years.

Frequently Asked Questions

The main purpose of this 8-K filing is to inform investors about the modification of CEO Timothy D. Cook's 2011 restricted stock unit (RSU) award. The modification introduces performance-based vesting criteria tied to Apple's relative Total Shareholder Return (TSR), aligning his compensation more closely with company performance and corporate governance objectives.

Previously, Mr. Cook's 2011 RSU award was entirely time-based, vesting solely upon continued service. The modification makes 50% of the annual RSUs subject to forfeiture if Apple's relative TSR performance over specified periods does not meet certain thresholds. This introduces a downside risk for Mr. Cook, meaning he could forfeit a portion of his award based on performance, but it does not offer an opportunity for additional gains from overperformance.

The change reflects Apple's ongoing efforts to enhance corporate governance and respond to shareholder feedback. Many large shareholders expressed a desire to see performance criteria attached to a portion of executive stock awards, which have historically been entirely time-based. Apple agrees with this sentiment and is implementing performance elements starting with this modification to Mr. Cook's award and for future executive awards.

No, according to the filing, this modification will not change the original grant date fair value of the award for accounting expense purposes. The value reported for accounting will remain consistent with the initial grant.