Considering Apple Inc. CEO Steve Jobs’ salary of $1,[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.[2] 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.[3] 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 “favorable grant dates had been selected,” but then emphasized that he did not benefit from them.[4] 

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.[5] Apple’s stock price on Jan. 12 happened to be its lowest level for a six-month period.[6] 

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.[7] 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.[8]  He also was given an aircraft that year worth $90 million.[9] By October 2001, these options were underwater, meaning that the stock options would have no cash value if they were exercised.[10] Jobs received a new grant of stock options that month potentially worth $86 million.[11] 

By 2003, both of Jobs’ 2000 and 2001 option grants were underwater, and he cancelled these grants.[12] 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.[13]

After Jobs cancelled his option grants, Apple awarded him restricted stock worth $74 million “in exchange.”[14] 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.”[15] 

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.[16] 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[17] and revelations of stock options backdating at Pixar, a company co-founded by Jobs.[18]