This excerpt taken from the AAPL DEF 14A filed Apr 16, 2007.
Annual bonus. Cash bonus award programs for executive officers, excluding the CEO, are designed to promote the Companys annual operating performance by aligning payouts with achievement of revenue and operating margin goals. The cash bonus awards qualify as performance-based compensation under
Section 162(m) of the Internal Revenue Code of 1986, as amended (the Code), as further outlined below in the section entitled Impact of Regulatory Requirements on Compensation.
· Determining cash bonus targets. The Committee approved the fiscal year 2006 Executive Bonus Program at its November 2005 meeting, including maximum bonus levels (expressed as a percentage of fiscal year end annual salary) and the formula (the Companys achievement against annual revenue and operating margin goals) for funding the officer bonus pool.
· Determining cash bonus payouts. The cash bonus award for each executive officer is determined by applying the payout formula to the level of actual performance. The payout target is 50% of the executive officers salary with a maximum payout of 100% of salary. The Committee, in its sole discretion, may eliminate or reduce the cash bonus awards payable to any executive officer that otherwise would be payable under the payout formula. In fiscal year 2006 all eligible executive officers earned cash bonus awards based on the payout formula.