It was humorous timing that the morning news on March 15th contained pay updates for both theCEO of Apple Computer, Steve Jobs, and theCEO of Expedia, Dara Khosrowshahi. Mr. Jobs´ salary continues to be $1 per year as it has been for the past 3 years. Mr. Khosrowshahi received a salary increase of 82% to $1,000,000 from $555,000. That percentage increase is a bit above the survey data averages, by seventy-some percentage points.
Before you feel sorry for Mr. J (I mean no disrespect but am going to abbreviate their names for the remainder of this), remember that he is the CEO of two companies - Pixar (being acquired by Disney) and Apple. Also note that he has just finished his 3-year vesting period on a grant of restricted stock from 2003 which at Apple´s fiscal year-end stock price was worth about $532 million. If you agree with my 3-year average method to analyzing executive compensation, Mr. J earned about $177 million per year for his CEO work at Apple which one might argue is a part-time job.
Mr. K, who oversees a company with less than 15% of the revenue and market cap of Apple, received a restricted stock unit grant of 800,000 units, worth about $45 million at today´s price and he´s eligible for annual cash bonuses. But unlike Mr. J´s restricted stock grant, vesting of 80% of Mr. K´s units is contingent on performance goals, while the other 20% vests after one year. In the worst case scenario and excluding any bonus payments, Mr. K will earn $10 million next year even if the goals are not achieved and Expedia´s stock price stays flat. Of course, if Expedia stock quintuples over the next two years as Apple´s stock just has over the past two - and we assume that this would only happen if he meets his financial performance goals - he´ll earn about $113 million per year. If he hits his goals but the stock stays flat he´ll get about $23 million per year.
Who´s the higher-paid CEO? The headlines this morning say Mr. K by a million to one. History says Mr. J. by 10 to 1 or 20 to 1, but that gap could be closed if Expedia stock soars like Apple did. I still don´t know what to do with the part-time issue for Mr. J. It would take a good compensation analyst the better part of a day to really figure this out and that analyst probably has better things to do.
And whose pay is more aligned with shareholder value creation - Mr. K´s high salary and performance-based stock or Mr. J´s $1 salary and free stock? These are the questions of our time and the reason that pay for members of Compensation Committees of Boards of Directors has increased substantially over the past few years.
