Tim Cook’s Dividends Not News

The interwebs are abuzz today with news and commentary about Tim Cook’s decision to forego receiving dividends on unvested shares of Apple stock. Here are just a few of the many articles:

Business Week

ABC News

All Things D (Wall Street Journal)

The Washington Post

The list goes on and on.

This is a total non-story, and shows two things about media in general and tech media in particular. First, the media has no grasp whatsoever on the mechanics of CEO compensation, especially equity compensation. Second, today’s tech media is much more interested in selling advertising via flashy headlines than it is interested in providing useful information to the reading public.

In my opinion (educated by years of sitting on boards of directors), the announcement that has resulted in all of these news stories is purely a PR move on the part of Apple – and not an especially subtle one. Every board of directors of every company pays close attention to the amount of compensation of the CEO. Why? Because there is a very active market of companies that are searching for talented leadership. A company that has a valued CEO works hard to ensure that it keeps that CEO so happy that he or she eschews even listening to overtures from other companies and recruiters. There is zero chance that the Apple board would see Mr. Cook turn down the dividend on his restricted shares and not quietly provide some additional compensation to him so as to avoid any negative feelings on the part of Mr. Cook. We can all be assured that the Apple board will do whatever is necessary to keep Mr. Cook very, very happy as long as the company continues to perform as it has been performing for years.

I find the headlines used by tech media in covering this story to be both interesting and troubling. Almost every story that I have seen (and I have seen many, many stories in many different media outlets) has included both “Apple” and “$75 Million” in the headline. While some stories do mention that the $75 million in dividends that Mr. Cook is giving up would be paid over the entire vesting period of his restricted stock, rarely do they mention the vesting period of the restricted stock. And I have seen no story at all that covered the amount of dividend given up by year to total the $75 million.

Mr. Cook is giving up $2.65 per share per year on the restricted stock (of which 1.125 million shares are currently unvested). Thus, Mr. Cook is giving up $2.98 million in dividends in the first year, and that amount decreases each year as shares vest. In August of last year, Mr. Cook received an equity-based bonus valued at $383 million (and worth much more than that today due to the increase in Apple’s stock price since August of 2011). So, Mr. Cook is giving up less than eight tenths of one percent (00.8%) of the value of one bonus received last year – not even taking into account his base salary or his participation in the regular bonus programs at Apple.

When the media focuses only on the largest number possible, we can be sure that the reason is to sensationalize the story. Similarly, many studies have shown that on-line news stories with Apple in the headline attract an inordinately large readership due to interest in Apple and its products. From this, I conclude that the media is much more interested in attracting page views (and thus inflating their readership numbers) when they use such headlines. There is a very good reason for that – the media is in the business of selling advertisements. And advertisements are worth more when the readership numbers are higher. Thus, headlines like those that we have seen this week have little or nothing to do with Apple, with Mr. Cook or with news. Instead, they have to do with large amounts of cash – not cash being given up by Mr. Cook but rather cash being paid to tech media by advertisers.



One response to “Tim Cook’s Dividends Not News”

  1. Dan Butterfield says :

    Thanks Graham … good insights per usual. I’m sure Tim Cook will be at the helm at Apple for many years to come.

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