Apple’s CEO Tim Cook is taking a more than 40% pay cut this year, and he approves. This year Cook will make a total of $49 million. That includes a $3 million salary, a $6 million cash incentive, and $40 million in equity awards. Compare that to 2022, when Cook made $83 million in stock awards, $12 million in incentives, and $3 million in salary.
Why is this happening?
The company is adjusting how it calculates Cook’s compensation after Cook recommended the company re-evaluate his pay. The compensation committee says the change was made official after last year’s say-on-pay vote. In that vote, 64% of shareholders approved of Cook’s compensation which was down from the 95% that approved it for Apple’s 2020 fiscal year. Even though a significant percentage of shareholders disapproved of Cook’s compensation, they maintained they were satisfied with Cook’s performance and confident in his decisions. The Compensation Committee also hints that more CEO salary cuts are being considered.
This is nothing out of the ordinary for a company to do. History shows CEOs typically take a pay cut when the company is in trouble. However, Apple is not in real trouble. According to CNBC, executive compensation has come under increasing pressure. Institutional Shareholder Services recommended that Apple shareholders vote against Cook’s pay package at last year’s annual meeting.
Cook’s pay cut comes amid the company’s announcement to freeze hiring to cut costs. Studies also show companies tend to perform well when the CEO takes a pay cut. The study Vienna University of Economics and Business highlights how the company performs well when a CEO takes a pay cut.
Studies show employees are likely to put in extra time and effort when the boss’ salary is used to support employees’ salary. Financial performance tends to rebound, and cutting a CEO’s pay produces the same improvements if a company eliminates a CEO completely.
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