The NASPP Blog

Last Friday, Forbes published the full transcript of Steve Jobs’ deposition in the SEC’s backdating case against two Apple executives (Jobs is not a subject of the case). The 119-page document is an interesting exploration of Apple’s grant procedures back in 2001 and Jobs’ memory (or lack thereof). It also provides some perspective on why Apple, and Jobs in particular, has been so drawn to mega grants.

Don’t Do That!

We’ve never been a fan of mega grants here at the NASPP. If the stock increases in value, they are excessive and can result in overcompensation. If the stock declines in value, they are a waste of shares. This is especially true if granted in the form of stock options that end up underwater, but even restricted stock/units are wasteful in that the company recognizes an expense that could be several times higher than the benefit paid out to the executive (I use the term “executive” rather than employee, because, let’s be honest, there aren’t many mega grants issued to non-executives).

In the current climate, some mega grants have proven to be so worthless that executives are surrendering them for no compensation–see Rachel’s April 16 blog and the article “Executives ‘Donate’ ‘Mega’ Grants Back to the Plan” in the upcoming issue of The Corporate Executive (arriving in your mailbox this week).

Jobs on Mega Grants to Apple Execs

In 2001, Apple granted options to purchase 1,000,000 shares to four executives.  Jobs’ rationale for these mega grants was to grant four years’ worth of annual grants at once, with the idea of locking in the current FMV as the strike price, and with the hope that the extra-large grants would serve to retain the execs (with mixed success–at least two have since left). This works great in an up market, but if the stock price declines, it’s a disaster. Personally, I also think that people have short memories and if you grant them four years’ worth of annual grants today, in a few years, they’re going to be wondering why they haven’t received any grants recently. Apple did end up issuing grants of restricted stock units to some of the same execs just three years later, even though the options granted in 2001 were in-the-money at the time.

Jobs’ Own Mega Grant

As for Jobs’ own mega grant that was issued to him in 2001 (an option to purchase 7.5 million shares that ended up underwater and that he exchanged, along with another option to purchase 20 million shares, for 5 million restricted shares in 2004), according to his deposition, the 2001 option (the 2000 option was not a subject of the investigation) wasn’t about the money at all, it was just that his feelings were hurt because he felt like the Board wasn’t looking out for him.

All I can say is “wow”–that’s a lot of hurt feelings; it seems hard to believe that the board couldn’t have found a less expensive way to assuage Jobs. And is it the board’s responsibility to look out for Jobs or to look out for Apple and Apple’s shareholders? I suppose that, to some extent, looking out for the company and its shareholders involves keeping the CEO happy, but I don’t think those aims are one and the same. Then there is Jobs’ gripe that part of the reason he felt so hurt is that the option to purchase 20 million shares that he received the year before was underwater due to what he believed to be simply current market conditions rather than his or Apple’s performance. 1) See my above rant about not making mega grants and 2) it seems like if the stock price is down for whatever reason, and the shareholders are suffering, the CEO should feel their pain.

Read excerpts from the deposition at TechCrunch.com or read the full transcript at Forbes.com.

NASPP Blog Poll: Mega Grants

Early-Bird Rates on NASPP Conference
The deadline for our “half-price” offer on the NASPP Annual Conference expired last Friday, but NASPP members can still get a great rate through May 22. We’re offering a 2-for-1 price on members from the same company/location and half price on any members after the first two registrations. Even members that register on an individual basis still qualify for a substantial discount through May 22. But don’t put off registering any longer–we won’t be extending the deadline on these discounts.

NASPP “To Do” List
We have so much going on here at the NASPP that it can be hard to keep track of it all, so I keep an ongoing “to do” list for you here in my blog. 

• Register for the 17th Annual NASPP Conference–“2-for-1” on all member registrations received from the same company/location by May 22.
• Make your hotel reservations for the NASPP Conference.
• Renew your NASPP membership for 2009 (if you aren’t an NASPP member, join today).
• Register for the NASPP’s online course “Stock Plan Fundamentals.”
• Don’t miss this Thursday’s webcast on “Best Practices – Changing Service Providers Like a Pro.”

– Barbara