Only a week after Elon Musk’s $55 billion Tesla payday was struck down by a Delaware decide, a New York court docket dismissed a problem to Apple CEO Tim Cook dinner’s compensation package deal, which clocked in at beneath $100 million. Some coincidence.
At face worth, the 2 instances appear to have quite a bit in widespread. Each have been shareholder fits waged towards among the highest-paid celebrity tech CEOs on the earth. And each have been filed amid a backdrop of elevated public scrutiny over govt compensation in recent times, which is close to all-time highs throughout S&P 500 corporations.
However for all their similarities, from a authorized standpoint the 2 instances are apples and oranges—and Cook dinner was at all times going to face a greater likelihood of holding on to his paycheck.
Elon Musk’s $55 billion compensation package deal at Tesla made headlines final month after Delaware chancellor Kathaleen McCormick dominated in favor of a shareholder who argued that Tesla was paying its CEO an unfairly excessive quantity with the moonshot grant. Plaintiff Richard Tornetta argued that as a result of Musk wields a lot energy at Tesla and maintains shut relationships along with his board members, the supposedly unbiased board of administrators’ vote approving his large pay scheme was something however.
“Chancellor McCormick discovered that the method for setting Elon Musk’s pay was primarily managed by Elon Musk,” stated Tulane College regulation professor Ann M. Lipton in an interview with Fortune. “The board didn’t interact in any sort of pushback or actual bargaining.”
In response, Musk has threatened to relocate Tesla from Delaware (the place virtually 70% of Fortune 500 corporations are integrated) to Texas, the place a extra favorable political local weather may depart him much less uncovered to a lot of these challenges.
Whereas the Musk case was centered on a broad, extra summary authorized query associated to the Tesla board of administrators’ diploma of independence, the Cook dinner case resolved yesterday was a lot less complicated.
“The query earlier than Delaware [in the Musk case] was merely, ‘Was the pay substantively unfair?’ whereas the query within the Tim Cook dinner case was solely, ‘Was the proxy assertion deceptive?’” stated Lipton.
The Teamsters’ pension fund sued Apple final 12 months, arguing that the corporate had misled buyers by misrepresenting Cook dinner’s 2021 and 2022 pay in its proxy statements and paying him greater than it had initially proposed.
As a result of Cook dinner and different Apple executives are primarily paid in fairness referred to as RSUs, the corporate enlists monetary fashions to estimate what Cook dinner’s precise pay might be for shareholders’ approval every year.
(For CEOs, being compensated primarily with inventory isn’t unusual. Mark Zuckerberg famously earns simply $1 in annual wage, however he’s made billions by way of Meta inventory grants included in his compensation package deal. The Financial Coverage Institute present in a report final 12 months that stock-related pay accounts for over 80% of CEO compensation.)
The pension fund that sued Cook dinner argued that Apple misrepresented its CEO’s precise compensation package deal by downplaying the worth of his fairness. Cook dinner and different Apple executives netted over $90 million in compensation for 2021 and 2022, increased than the $77.5 million estimate the corporate initially requested shareholders to vote on for approval.
(Each of these figures are nicely under Cook dinner’s present annual compensation; at his personal request, the Apple CEO took a 40% pay reduce final 12 months. That change was permitted by shareholders and the Apple board’s compensation committee, which counts former Vice President Al Gore as considered one of its members.)
The plaintiffs claimed that Apple used an uncommon monetary mannequin to artificially deflate Cook dinner’s pay estimate, and likewise buried the compensation tables in a colorless, grey part of the proxy assertion, the place shareholders can be much less more likely to discover it earlier than casting their Say-on-Pay votes. The court docket didn’t purchase it.
“What occurred with Tim Cook dinner is quite common in public corporations,” stated Marc Hodak, companion at govt compensation consultancy Farient Advisors. “They award efficiency shares based mostly on the face worth of the inventory. And every of these efficiency share items has a market worth that’s increased than the face worth inventory on the time of grant.”
One key distinction between the 2 instances was the dimensions of the contested pay package deal. Musk’s $55 billion award from Tesla was a part of the biggest compensation plan in company historical past. Whereas Cook dinner’s $100 million annual pay is under no circumstances a small sum, it’s on par along with his friends. In actual fact, Apple makes use of a bunch of its opponents, together with Meta, Netflix, Visa, and Cisco, to benchmark its executives’ compensation. (Notably, it added Tesla to that peer group final 12 months.)
“I don’t have any query that the dimensions and scale of [Musk’s] pay package deal was a driver, each when it comes to the litigation and the choice that we noticed,” stated Hodak. “[$55 billion] is mechanically going to draw an uncommon quantity of scrutiny.”
Taken collectively, these two instances do appear to trace at a broader pattern towards higher scrutiny of bloated CEO pay—however Lipton suggested towards studying the tea leaves prematurely.
“Elon Musk is thrashing this drum that everybody ought to depart Delaware, to recommend that someway it is a pattern,” stated Lipton. “I feel that is an Elon Musk downside. That Tim Cook dinner factor, it was a special regulation. It was a special argument.”
Representatives from Apple didn’t instantly reply to a request for remark.
This story was initially featured on Fortune.com