Inside Steve's Brain, Expanded Edition by Leander Kahney

Author:Leander Kahney
Language: eng
Format: epub, mobi
Publisher: Penguin USA, Inc.

A Wealth of Stock Options

One of the best perks is Apple’s employee stock options, which have become very valuable as Apple’s stock has surged a split-adjusted 1,250 percent since Jobs returned as CEO, according to Business Week. At Apple, there are few corporate indulgences. Jobs has his own personal Gulfstream V jet, but most officers and executives fly coach. There are no generous expense accounts. The lavish retreats of Apple’s early days—where hundreds of salespeople would be entertained at a Hawaiian resort for a week—are long gone.

But most of Apple’s full-time employees have grants of stock options, which are awarded to them when they join the company. After a vesting period, usually a year, staffers are allowed to buy chunks of stock at a discounted price, typically the price of the stock when they were first hired. When they sell the stock, the difference between the purchase price and the selling price is kept as profit. The higher the stock rises, the more money they make. Stock options are a popular form of employee compensation in the technology industry. It’s noncash compensation, which makes it cheap to issue, and it more or less guarantees that employees will work hard to raise the stock price.

Engineers, programmers, managers, and other mid-level staffers who make up the majority of Apple’s payroll are typically awarded several thousand stock options. At 2007 prices, several thousand stock options could be worth anywhere between $25,000 and $100,000—or considerably more, depending on the stock price and the employee’s vesting schedule.

Higher-level managers and executives have much larger grants. In October 2007, Apple’s senior vice president of retail, Ron Johnson, cashed in 700,000 shares worth about $130 million before taxes. According to regulatory filings with the Securities and Exchange Commission, Johnson exercised the options at about $24, and immediately sold them for about $185 apiece. In 2005, Johnson made about $22.6 million on stock options, and in 2004, $10 million, according to reports.

Apple also has a popular stock-purchase plan. Employees can buy discounted stock in chunks based on their salary. The stock is priced at the lowest price in the last six months, plus a percentage discount, which is guaranteed to make a little money, and quite often a lot of money. I received reports of Apple staff buying fancy cars, making down payments on houses, and salting away large sums of cash in the bank.

“At Apple we gave all our employees stock options very early on,” Jobs told Fortune in 1998. “We were among the first in Silicon Valley to do that. And when I returned, I took away most of the cash bonuses and replaced them with options. No cars, no planes, no bonuses. Basically, everybody gets a salary and stock. . . . It’s a very egalitarian way to run a company that Hewlett-Packard pioneered and that Apple, I would like to think, helped establish.”

Indeed, Apple did help establish stock options as standard Silicon Valley compensation procedure. During the boom, options became the norm at companies all across the tech sector.

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