[CASE STUDY ON HOW STEVE JOBS NAIVELY SAID "MY PAY

November 29, 2010 AS CEO IS ALMOST NIL"

Considering Apple Inc. CEO Steve Jobs’ salary of $1.Some may argue that his compensation
ought to be a model for other executives. However, his modest cash compensation is more than
offset by his past equity awards, including stock options that were backdated. The U.S. Attorney’s
Office has opened a criminal investigation into the stock options backdating scandal at Apple.
Unfortunately for Apple shareholders, the company has been less than forthcoming about Jobs’
involvement in any improper backdating.

In June 2006, Apple announced that some of its past stock option grants were backdated,
including options awarded to Jobs. The company stated that it found no misconduct among its
current management, though separately it announced the departure of one of its directors and
former CFO Fred Anderson. Apple also admitted that Jobs was aware that “favourable grant dates
had been selected,” but then emphasized that he did not benefit from them.

Apple later noted there were two questionable grants to Jobs. One of them, dated Jan. 12,
2000, was not backdated, even though it received approval six days after it actually was granted.
Apple’s stock price on Jan. 12 happened to be its lowest level for a six-month period.

Apple noted that the other grant, dated Oct. 19, 2001, was backdated. This grant was
approved at a meeting that did not even take place, though no member of current management was
aware of the “irregularity,” and resulted in a $20 million charge to the company. Throughout this
affair, Apple has continued to maintain that Jobs did not benefit from this backdated grant;
however, a closer look suggests otherwise.

In January 2000, Jobs received a stock option mega-grant potentially worth $548 million if
Apple’s stock price increased just 5 percent a year. He also was given an aircraft that year worth $90
million. By October 2001, these options were underwater, meaning that the stock options would
have no cash value if they were exercised. Jobs received a new grant of stock options that month
potentially worth $86 million.

By 2003, both of Jobs’ 2000 and 2001 option grants were underwater, and he cancelled
these grants. Though they were cancelled when they were underwater, they were not worthless
because they did not expire until 10 years from their grant date. The Washington Post has reported
the estimated value of the two option grants was $81.3 million when they were cancelled.

After Jobs cancelled his option grants, Apple awarded him restricted stock worth $74 million
“in exchange.” The language used suggests that Jobs replaced one form of compensation for
another, and according to the director of Institutional Shareholder Services, these awards were
exchanged on a “roughly value-for-value basis.”

Thus it would be disingenuous to say that Jobs did not profit from the backdated options.
According to executive compensation expert Graef Crystal, backdating options could have translated
into more shares of restricted stock when the options were exchanged. Apple has not yet revealed
who was responsible for the backdated stock options.

Despite Apple’s effort to proclaim Jobs’ innocence, new details have emerged questioning
his role, including statements that the backdated options were approved by higher-ups and
revelations of stock options backdating at Pixar, a company co-founded by Jobs.
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Q1. What made Apple backdate the grants given to Steve Jobs?

Ans: Jobs, after his return to Apple in 1997 was interim CEO for almost 1.5 years and a
disclosed settlement was reached to acquire, grant 35 million shares in equity, which cannot be
liquidated in instalment, till 2001 to provide job security to Steve Jobs. However by 2001, where he
was receiving $548 million, now that grant was backdated as Wall Street predicted that dotcom
burst which made the value of $548 million + $2.7billion stock and equity grant to be sold and
backdate before the crisis. This not only proved beneficial for Jobs by raising his net worth from
$890million in 1997(assets) to $4.3 billion in 2000 due to dotcom bubble.

Q2. So why did he say $1 as his CEO pay?

Ans: By limiting his pay to just $1, he has proclaimed to the taxpayers in the US that he is not
so much influential employee of the company and hence he can be a major stake holder in the Apple
computers as the federal law of the state of California that “no employee company incorporated in
state of California can have a stake of not more than 10% complete stock option.” By accepting $1 as
‘not so financially attached’ to Apple computers and thus was theoretically not an employee of
Apple computers, Inc.

Q3. So what did Jobs do next?

Ans: After filing as a minor employee, he repurchased the backdated stocks again completely
at a stake of more than 11% of the company equity. This added more fortune to Mr Jobs in the Year
of 2009 when his net worth again raised from $4.3billion in 2001 to $6.4billion in 2009.

Q4. What extra benefits did Jobs get?

Ans: As CEO of the world’s largest animation company Pixar studios, he transferred approx
99% of his stake in Pixar to his wife Laurene Powell in 2005 so that he can repurchase more stocks in
Apple. He was also entitled a Learjet S-221 business charter, a $45million in Woodside, California
and also has returns as an angel investor worth $650 million. Today the unclassified combined
wealth of Steve Jobs’s family in $13.9billion, although officially his wealth as individual is stated as
$6.1billion.