Apple CEO Tom Cook Takes a 40% Pay Cut after the Stock Sagged in 2022

Apple (NYSE: AAPL) CEO Tim Cook requested the company for a 40% pay cut in 2023 which was granted. The move comes after a dismal 2022 where AAPL stock lost around 28%.

2022 was a tough year for US stocks and FAANG names in particular. None of the FAANG stocks outperformed the S&P 500 last year as the once coveted group lost market leadership.

Apple was still the best-performing FAANG stock of the year and the only one in the pack to outperform the tech-heavy Nasdaq Composite which lost a third of its value last year. In absolute terms, though AAPL was the biggest loser last year as the company lost $846 billion in its market cap.

Apple’s performance might still look better when compared with other FAANGs. Netflix and Meta Platforms lost over half of their value last year while Amazon stock also lost just under 50%.

Tim Cook requested a pay cut at Apple

Coming back to Cook’s compensation, the targeted package for 2023 is $49 million as compared to $99.4 million in the previous year. In its SEC filing Apple said, “Taking into consideration Apple’s comparative size, scope and performance, the compensation committee also intends to position Mr. Cook’s annual target compensation between the 80th and 90th percentiles relative to our primary peer group for future years.”

To put that in perspective, the median compensation for Apple employees was $84,493 in 2022, and Cook’s 2022 earnings were 1,177 times that.

For 2023, more of Cook’s stock awards are linked to the company’s performance. In its filing, Apple said, “The percentage of performance-based RSUs granted to Mr. Cook was increased from 50% to 75% of his 2023 target equity award and the percentage of his performance-based RSUs will be at least 75% of his target equity awards for future years.”

AAPL stock outperformed under Cook

To be sure, Apple stock has outperformed the S&P 500 by a wide margin since Cook took over as the CEO in 2011. The stock has gained over 13x over the period while the S&P 500 is up only about 290%.

Under Cook’s leadership, Apple became the first company ever to hit a market cap of $1 trillion, $2 trillion, and $3 trillion. However, after the crash last year, it lost its position as a $3 trillion dollar company. AAPL’s market cap fell below $2 trillion on the first trading day of 2023 but has since recovered.

Under Cook’s leadership, Apple has positioned itself as a services and software company and not merely a hardware company. This has resulted in the expansion of its valuation multiples. While the multiples have come off the post-pandemic highs, they are still much higher as compared to historical averages.

Berkshire Hathaway chairman Warren Buffett added more Apple shares in the first half of 2022 after a gap of more than three years. Buffett instead sold some shares over the period, which he has admitted was a mistake.

Now with APPL stock falling to the lowest level since 2021, markets are wondering if the Oracle of Omaha would buy it again. Berkshire Hathaway would release its fourth quarter 13F in mid-February which would provide us insights into Buffett’s stock buying and selling activity for the quarter.

Apple stock fell in 2022

While US stock markets were weak throughout 2022 and hit one low after the other, Apple stock held off relatively well. Wall Street analysts see Apple along with Alphabet as relatively safe bets. The two have somewhat justified the status and were the best-performing FAANGs last year in that order and have fallen much less than tech peers.

Supply chain issues

Apple has been hit by supply chain issues due to the rise in COVID-19 infections in China, its biggest sourcing hub. Apple previously admitted to supply chain issues amid the outbreak at Foxconn’s facility in China. Several shoppers complained about the unavailability of the iPhone 14 during Cyber Week.

While Foxconn has resumed near-normal production, reports suggest that Apple has asked suppliers to cut production amid weak demand for iPhones. We’ll get more updates on iPhone demand and supply when Apple reports its fiscal first quarter 2023 earnings later this month.

Analysts on AAPL stock

Wall Street analysts are somewhat divided on Apple stock. Yesterday, UBS reiterated it as a buy even as it expressed concern over the fall in App store revenues. In its note, UBS said, “As customary in January, Apple provided a year-end in review (link) of many of the company’s entertainment and Service offerings. While many of the updates cannot be extrapolated to financial metrics, we believe Apple’s App Store disclosure provides a read into the health of that important offering that we estimate comprises almost 25% of Services.”

Earlier this month, Morgan Stanley also reiterated AAPL stock as overweight and said it sees a good buying opportunity.

Barclays meanwhile lowered its target price from $144 to $133 and said that it estimates that Apple’s Services revenues fell 2% in the December quarter. The Services segment has been Apple’s fast-growing segment for the last many quarters but growth has tapered down in recent quarters.

However, BNP Paribas downgraded it from outperform to neutral and said that given the current environment, the valuations look premium and are not justified.