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Apple's Tim Cook Voluntarily Forgoes $75 Million Payout

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Picture by Valery Marchive (LeMagIT) (Photo credit: Wikipedia)

This is an interesting little turn up for the books. Apple's CEO, Tim Cook, is voluntarily giving up a potential $75 million in dividend payments over the next decade. It's a slightly complicated arrangement so bear with me:

Apple Inc Chief Executive Tim Cook will not be earning dividend income on the more than 1 million shares to which he is entitled, which will cost him about $75 million.

Apple said in a filing with the U.S. Securities and Exchange Commission on Thursday that Cook had asked to be excluded from a recently instituted company program through which employees can accumulate dividends on their restricted stock units that are still vesting.

So, Cook earns good money as the CEO already. Which is just fine. He's also got just over 1 million shares of that restricted stock. Some from past years but the vast majority of it is essentially a retention payment. Stay with the company until 2016 and some portion of the 1 million awarded vest, until 2021 and all of them do. Such restricted stock awards are the generally fashionable replacement for the stock options of yore. The idea being that stock options only motivate if they are in the money, or likely to be, while restricted stock motivates at any value.

However, there is that little problem about dividends. Usually, there's not really a problem with these as large awards of restricted stock grants tend to be in tech companies and they tend not to pay dividends. But here we are, Apple is paying a dividend (small in relation to the share price but $2.65 per share if you've a million of them is real money) and, well, who really owns those shares? They're restricted stock, they've not vested yet. So should the employee get the dividend? Or, given that they are restricted and thus the company still owns them, should the company get it (or not pay it, obviously)?

It's an interesting question and Apple has a program that means that dividends on restricted stock are paid to the employees. However, and this is the point of this announcement, Cook has opted out of doing so.

Quite why Apple refuses to say. It could indeed be that given that Cook stands to make half a billion or more over the next decade if the stock price holds up that he's just fine with not earning more.

It's also possible to be a little more cynical: and here I would turn to those who know more about the US tax code than I do. Tax is owed on restricted stocks when they vest similar to the idea that tax is owed on options when they are exercised as Mark Zuckerberg has just done (essentially, the stock that Zuckerberg sold in the Facebook IPO is sufficient only to pay the taxes on the options he exercised at the same time). But what does the IRS say about tax due on restricted stocks that are paying dividends? Does that bring forward the taxable date? I have absolutely no idea and would be happy if one of you readers would tell me.