Apple Inc. emerged victorious on Wednesday after a federal judge dismissed a lawsuit alleging the company overcompensated CEO Tim Cook and other top executives by tens of millions of dollars. The lawsuit, filed by a pension fund affiliated with the International Brotherhood of Teamsters, contested the methodology used to calculate performance-based stock awards, claiming it resulted in excessive payouts.
U.S. District Judge Jennifer Rochon in Manhattan dismissed the case on procedural grounds, finding the pension fund failed to adequately plead their claims. Specifically, the judge ruled the lawsuit lacked sufficient detail regarding the alleged flaws in the compensation formula and how they supposedly harmed shareholders.
Apple welcomed the court's decision, reiterating its confidence in its executive compensation practices. "We are committed to attracting and retaining talented individuals to lead our company," said a company spokesperson. "Our compensation programs are designed to align executive pay with company performance and shareholder value."
Apple described its pay methods before the court in detailed compensation tables in its 2023 proxy statement, "precisely" as securities laws and U.S. Securities and Exchange Commission rules require. However, the court found no proof that company's board of directors acted improperly in awarding pay.
The pension fund accuses Apple of overpaying CEO Tim Cook and 4 other executives a respective $92.7 million and $94 million of performance-based restricted stock units in 2021 and 2022, whereby its compensation committee planned to award just $77.5 million each year.
They attributed the alleged error to incorrect calculation of stock value (RSUs' fair values) at the time of the grants, misleading shareholders who voted on pay, known as "Say-on-pay." Cook's total compensation was around $99 million in both years, while $82 million of stock awards annually, the Apple proxy filings claim.
While Cook's total pay declined to $63.2 million for 2023, the other executives received over $26 million in the three years (i.e., in the year 2021, 2022 and 2023). Though the current case has been dismissed, the shareholders have the option to appeal the judge's decision. It remains to be seen whether they will pursue this course of action.
The lawsuit against Apple highlights the ongoing debate surrounding executive compensation in the United States. Critics argue that top executives are often overpaid, especially compared to the average worker. Proponents contend that competitive compensation packages are necessary to attract and retain top talent, ultimately benefiting shareholders.
While Apple has prevailed in this particular case, the issue of executive compensation is likely to remain a contentious one. Both corporations, businesses and shareholders will continue to grapple with balancing fair compensation with responsible corporate governance.
Details of the lawsuit are available in the case file: International Brotherhood of Teamsters, Garage Employees Local 272 Labor Management Pension Fund v Apple Inc et al, U.S. District Court, Southern District of New York, No. 23-01867.