Apple Shakes Up its Executive Incentive Structure

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The actions of participants in a free-market economy are pretty much dictated by incentives. Profit motive fuels most investors and compensation fuels most executives, and the relationship between money and behavior is at the heart of nearly every market success and failure.

Compensation packages for top executives came into sharp focus during the financial crisis and throughout its aftermath. Critics indicated that bonus pay incentivized risky behavior, and suggested a myriad of patches aimed at aligning compensation with company performance instead of individual performance. A favorite strategy was to award equity instead of cash payments, meaning the value of a bonus was directly linked to the market value of the company. In short: what’s good for the shareholders is good for employees and executives.

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Ostensibly this strategy solves the incentive problem. Most people in the corporate world will only work as hard as they are paid to, and this way people get paid more the more their company is worth. Following this logic, Apple (NASDAQ:AAPL) recently announced new stock ownership guidelines, which mandate that executives and non-employee directors own stock at a multiple of their base salary or retainer…

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