This excerpt taken from the AAPL DEF 14A filed Jan 12, 2010.
Determining Compensation for the Other Named Executive Officers
Team-Based Approach and Performance Expectations. Each of the named executive officers is a member of the Companys executive team. The compensation program for the named executive officers rests on two principles. First, each executive officer must demonstrate exceptional personal performance in order to remain part of the executive team. The Company believes that executives who underperform should be removed from the executive team and have their compensation adjusted accordingly, or be dismissed from the Company. Second, each executive officer must contribute as a member of the team to the Companys overall success rather than merely achieve specific objectives within that officers area of responsibility. Because of this team-based approach, the Company carefully considers the relative compensation levels among all members of the executive team. Accordingly, the Companys executive compensation program is designed to be internally consistent and equitable in order to further the Companys success and achieve the goal of the executive compensation program. The reasons for differences in the amounts awarded to each of the named executive officers relate primarily to the experience, responsibilities and performance of each named executive officer.
Emphasis on Long-Term Equity Awards. The Company relies on long-term equity awards in the form of time-vested RSUs because the Company believes RSUs are the most effective compensation element for attracting entrepreneurial, creative executives and promoting their long-term commitment to the Company. An RSU award vests only if the named executive officer continues to provide services to the Company until the specified vesting date. To help promote retention, the Companys RSU awards to the named executive officers typically vest approximately four years after the date of grant, with no partial vesting prior to four years (except upon the death or disability of the executive officer). Exceptions are made for executives who are promoted to the executive team or are recent hires, and in special cases as determined by the Compensation Committee. The emphasis on long-term equity awards also is designed to align the interests of the named executive officers with the Companys shareholders by ensuring that executives have a significant portion of their compensation tied to long-term stock price performance.
Discretion and Judgment of the Compensation Committee. The Compensation Committee determines all compensation for the named executive officers. All four Compensation Committee members are independent directors under the applicable NASDAQ and SEC rules. Each year, the Compensation Committee conducts an evaluation of each named executive officer to determine if changes in the officers compensation are appropriate based on the considerations described below. Mr. Jobs does not participate in the Compensation Committees deliberations or decisions with regard to his compensation. At the Compensation Committees request, Mr. Jobs reviews with the Compensation Committee the performance of the other named executive officers. The Compensation Committee gives considerable weight to Mr. Jobss evaluation of the other named executive officers because of his direct knowledge of each executive officers performance and contributions. No other named executive officer has any input into executive compensation decisions.
As described below, the Compensation Committee also retains an independent compensation consultant to conduct a comparative study of the Companys executive compensation relative to peer companies. This year, the Company also is providing its shareholders with the opportunity to cast an advisory vote on executive compensation as described in Proposal No. 4 below. The Compensation Committee will consider the outcome of the vote when making future compensation decisions for named executive officers.
In exercising its discretion to determine compensation, the Compensation Committee carefully considers the experience, responsibilities and performance of each named executive officer and the Companys overall financial performance. The Company recognizes that executive compensation practices are influenced by a wide range of complex factors, including changes in strategic goals, changing economic and industry conditions, accounting requirements and tax laws, and evolving governance trends. As a result, the Compensation Committees discretion and judgment are critical to designing an executive compensation program that achieves the Companys goal while also addressing these factors.