Do Apple Executives Have Skin In This Game?

Marc is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Today I opened up my Apple (NASDAQ: AAPL) shareholder proxy vote email.  I was taken back to see a few of the proposals we have to vote on as shareholders.  Here are two that stand out:

A NON-BINDING ADVISORY RESOLUTION TO APPROVE EXECUTIVE COMPENSATION.

On its own maybe not troubling but next was this more insidious proposal:

A SHAREHOLDER PROPOSAL ENTITLED "EXECUTIVES TO RETAIN SIGNIFICANT STOCK."

Huh? Why is this one so troublesome?  Well in companies that we Fool's like to invest in we prefer to see executives and insiders owning significant stakes in their company.  If they have no skin in the game their interests are not aligned with the shareholders.

So this got me thinking.  I had also wondered why Apple did not issue a special dividend before 2012 ended to help many avoid the tax hike.  They also did not even push up the Q1 dividend payable date so it would be taxed at the lower 2012 rates.  This move would not have even cost them anything.  Why would management and the board not do this?  It made no sense to me.  Don't they care?  Well if they owned shares they would care right?  So I took a look at some upper level executives holdings and board members.  The facts are disturbing if you are an Apple shareholder.

You can view the insider roster at the link below. I have pulled out some highlights.

http://finance.yahoo.com/q/ir?s=AAPL+Insider+Roster

Tim Cook – 13,817 shares.  Really?  This is all Cook held onto?  He dumped all his options when they vested back in March netting over 120 million dollars.

http://biz.yahoo.com/t/15/6289.html

Eddy Cue – 285 shares. He follows the pattern of exercising vested options and dumping them all.  Nice to see these execs holding onto stock, right?

http://biz.yahoo.com/t/29/8631.html

Phil Schiller – 257 shares held.  Such conviction in his company!  Dumped his 120k shares March 12 for $70 million.  But hey he continues to hold about $125 thousand worth! 

http://biz.yahoo.com/t/10/6289.html

Daniel Riccio – 0 shares (not a typo).  Dumped $14 million worth of stock in ’12. Holds zilch

http://biz.yahoo.com/t/55/8888.html

Peter Oppenheimer – 4793 shares owned.  That’s not much.  he dumped 150k shares for $90 million in march.  

http://biz.yahoo.com/t/11/6289.html

Robert Mansfield – 12,548 shares owned directly and 17,000 indirect for total of 29,548.  Dumped $50 million plus in stock.  

http://biz.yahoo.com/t/31/7675.html

 

As you can see the board members and executives are not holding significant long stakes in Apple stock and some have no stake whatsoever.  I even wonder why Cue and Schiller kept their 257 and 286 shares?  You can get an annual report with one share, right?

As an Apple shareholder this is a troublesome attitude the insiders have towards their own stock.  Furthermore they're only buying back $3.3 billion per year to offset option dilution.  This is the dilution caused by the options they are granting and flipping in their entirety without holding any of the shares long.

Will Tim Cook and his team belly up to the bar with their shareholders and plunk down some of their own cash to own Apple?  Will they decide to put some skin in the game so their fortunes are aligned with yours?  So far this is not the case and the proxy vote proposal coming up at the shareholder meeting where they want you to vote against the proposal so they can continue to keep their own skin out of the game is of major concern.

I will be voting my shares that they must indeed have a significant stake in Apple stock.  I don't want any top level executive or board member to be a sideline player.  They should have a significant portion of their net worth in Apple stock.  Right now it appears the majority of board members and key executives hold little to no stock.  This does explain why they seem to disregard the stock movement and had not taken action with their dividends at the end of 2012 like 100's of companies chose to do for their shareholders.  If you are not long Apple shares do you really care about a dividend or where the stock price is heading in the long run?

 

GET YOUR INTERESTS ALIGNED

When it comes to investing make sure your management team is aligned with your interests. If they are not you might start looking for the door.  For the first time in four years I am looking at that door for this reason alone.  I only kick myself I did not seek this lack of ownership engagement by the board and executives while the stock was higher.  Everyone disregards these signals when things are going good.  You just look past them and why not, things are great right?  Well, this is exactly the time when you have to dig deep and look at everything.

If you elected electronic voting you should have received your proxy vote and you may vote your preferences online.  If you don't you have nobody to blame when the executives continue to flip options and not own stakes in the company.  This could be a great question for somebody to ask at the annual meeting....why don't you guys own substantial stakes in the company you run?

 

(you can get a PDF copy of the proxy here)


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