updated 04:00 pm EDT, Thu October 12, 2006
Jobs should give back $85m
Apple CEO Steve Jobs should return about $85 million he earned from stock option grant to stockholders, because it was an indirect benefit of option backdating, according to one columnist. The company, which said that Jobs knew of some favorable stock grants but did not know the implications, has closed its internal investigation regarding the stock option backdating by simply implicating two former execs, despite a recent report that indicated that some of the special committee members may have conflicts and other industry reports that say Jobs may still be involved. Bloomberg's Graef Crystal believes that Apple's statement about the stock "irregularities" from Jobs--who apologized for the accounting scandal, but said he did not benefit--is a bit disingenuous and that Apple should require that Jobs give back the money he indirectly earned because of favorable stock option backdating.
"Some $85 million or so that the chief executive officer collected because of a sleight-of-hand the maker of the iPod music player and Macintosh computers engaged in when it awarded Jobs some mammoth stock option grants," Crystal said. "That's money that should go back to the shareholders." The columnist calculated the value of the "voluntarily cancelled" 55 million option shares to be $77 million--in exchange for which Jobs was offered a stock grant of about 10 million split-adjusted shares.
Earlier this year, Jobs used part of his stock grant to pay $296m in taxes, leaving him with nearly 5.5 million. Jobs "net-share settled" about 4.5 million shares on the same day that the shares vested to meet his tax obligations, but still retains a majority of shares--worth over $400 million based on a $75 per share stock price--given to him by Apple three years ago.
The stock grant-for-underwater option exchange was based on favorably chosen "backdated" dates, according to the columnist, and should be adjusted to the average instead. Jobs, he claims, was not direct benefiting from the "favorably" chosen dates, but did benefit from the stock option grant deal due to the exchange value of those options, which in all likelihood were based on backdating.
"The strike price of that grant was equal to the lowest closing price of Apple stock in the 56- and 30-calendar day periods preceding the grant and in the 30- 56- and 90-day periods following the grant," the columnist wrote. "In other words, perfectly timed to Jobs's advantage."
The columnist calculates that the company should have granted Jobs about 8.7 million shares (versus the 10 million share grant) based on the average value of the stock. The "extra" 1.3 million shares given to Jobs are worth about $85 million, according to Crystal.
"Under this scenario, Jobs's free shares would have been worth $557 million as of March 19, 2006, when the restrictions on his free shares lapsed, not $640 million. On that basis, an appropriate remedy could be for Jobs to give back to the company's shareholders that difference, or a rounded $85 million."
"Jobs may be innocent of wrongdoing. But that doesn't mean he should be the beneficiary of wrongdoing," Crystal concluded.