BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

Apple's Executive Cash Bonus Plan

Following
This article is more than 6 years old.

Apple’s executive cash bonus plan is based on revenue and operating profit goals. There are Threshold, Target and Maximum levels with payouts of 100%, 200% and 400% of their base salaries. The revenue dollar differences between the Threshold and Target and then the Target and Maximum levels are close to the same amounts while the operating profit differences have been close to the same over the past two years. (Note that I own Apple shares and have sold Put options).

It is a leveraged plan as there are no payouts if the threshold targets are not reached and the payouts between the Target and Maximum levels is worth twice the amount between the Threshold and Target. Apple describes the levels as follows:

  • Threshold: Minimum level of performance expected
  • Target: Financial results that would be challenging to achieve
  • Maximum: Exceptional financial performance

I’ve developed a Google Doc spreadsheet with the three levels, the percentage increases or decreases vs. the prior year’s results and the actual revenue and operating profits. I’ll cite some of them in my note below but for all of them click on this link. I’ve also highlighted in yellow where the actual results lie in comparison to the goals.

Execs hit maximum bonus level in fiscal 2015

Fiscal 2014 had seen 7% revenue and operating growth. When looking in hindsight the 2015 goals look on the low side since the iPhone 6 and 6 Plus were being launched. The Threshold, Target and Maximum revenue growth goals were 3%, 9% and 15% vs. what wound up being a 28% increase. The operating profit results were even stronger. The goal levels were 0%, 5% and 7% above the prior year vs. what wound up being a huge gain of 36%. This allowed executive management to qualify for its Maximum bonus of 400% of their base salary.

Most of the 2016 goals were lower than 2015’s results

The 2016 goals took into account the strong 2015 results. The revenue levels were 13% and 4% lower and 4% higher with the operating profits goals down by 29%, 15% and flat.

Actual revenue wound up falling 8% so it was between the Threshold and Target levels while operating profits fell 16%, which was very close to the Target level. This resulted in Apple’s execs getting 89.5% of the Targeted amount.

Goals and payouts increased in 2017

After 2016 being a down year the levels for 2017 were fairly subdued. Revenue growth was targeted at flat, 4% and 9%. Operating profit levels were even more muted at down 13% and 4% and up 5%.

Revenue and operating profit fell between the Targeted and Maximum levels. Revenue increased 6% and operating profits posted a positive 2% gain. This resulted in the company’s execs receiving 155.5% of the Targeted amount.

2018 projections

We won’t see what goals the Board put in place until a year from now but it will be interesting to see how aggressive or conservative they were since the iPhone 8 and X will have a major impact on the results. I would expect the levels to be at least in-line with the 2015 goals if not higher due to the strong results that were posted by the iPhone 6 and 6 Plus.

In the Google Doc I’ve outlined what the levels would be if they were to match fiscal 2015’s and two more of my own. When you use 2015’s Maximum level of 15% revenue growth that would be $263 billion, which is $11 billion BELOW the Street’s projection of $274 billion (20% growth).

In keeping with Apple’s history of making the differences between the three levels the same my first scenario has bonus levels use 4%, 12% and 20% revenue growth rates. At the Maximum level this would match the current Street estimate while the Threshold level at 4% would have revenue $36 billion below the analysts. Even the Targeted level would be about $18 billion below.

To have levels that are closer or above the Street projections the second scenario has revenue growth rates of 8%, 15% and 22%. This would put the Threshold $27 billion below the Street, the Target at $11 billion below and the Maximum at $5 billion above. Unless Apple knows something significant that would keep it from making the analyst projections I believe the Maximum levels are at least close to or above the Street expectations.