Apple (AAPL)

C.    EXECUTIVE COMPENSATION OVERVIEW

1.

Three Components

The compensation program for the named executive officers consists of the following three components, in order of their importance:

•

Long-term equity awards in the form of RSUs under the shareholder-approved Employee Stock Plan



•

Annual performance-based cash incentives under the shareholder-approved Performance Bonus Plan (the CEO, however, does not participate in this plan and is not eligible for performance-based cash incentives)



•

Base salary

The named executive officers are also eligible to participate in Apple's health and welfare programs, Employee Stock Purchase Plan, 401(k) Plan, patent bonus program and other minor employee recognition programs on the same basis as other employees.

2.

Mix of Equity, Cash Incentives and Salary

Apple relies heavily on long-term equity awards because the Compensation Committee believes they are the most effective compensation element for attracting entrepreneurial, creative executives and promoting their long-term commitment to Apple. An RSU award generally vests only if the named executive officer continues employment until the specified vesting date, typically two to four years after the date of grant. Equity awards also help to ensure a strong connection between executive compensation and Apple's financial performance because the value of RSUs depends on Apple's future share price.

Although the Compensation Committee reviews the compensation practices of its peer companies as described in Section D6 below, the Committee does not adhere to strict formulas or survey data to determine the mix of compensation elements. Instead, as described in Section D, the Committee considers various factors in exercising its discretion to determine compensation, including the experience, responsibilities and performance of each named executive officer as well as Apple's overall financial performance. This flexibility is particularly important in designing compensation arrangements to attract new executives in highly-competitive, rapidly changing markets.

3.

Elements of Compensation Not Included In The Compensation Program

The current compensation program for the named executive officers, including the CEO, does not include the following:

•

Employment contracts

100

•

Cash bonuses other than the performance-based cash incentives under the Performance Bonus Plan and payments under the patent bonus program



•

Severance and change of control arrangements beyond what is available to all U.S. employees (with the exception of rights to accelerated vesting previously granted as part of equity awards that will fully vest in March 2008)



•

Perquisites or personal benefits that are not available to employees generally



•

Guarantees of the value of equity awards



4.

CEO Compensation

Apple's CEO, Steve Jobs, currently holds approximately 5.5 million shares of Apple common stock. Since rejoining Apple in 1997, Mr. Jobs has never sold a share of Apple stock. His last equity grant was awarded in 2003, and vested in full in 2006. Mr. Jobs currently holds no unvested equity awards. In fiscal 2007, Mr. Jobs's entire compensation consisted of his $1 annual salary. Because Mr. Jobs's continued leadership is critical to Apple, the Compensation Committee is considering additional compensation arrangements for him.

Mr. Jobs has received a $1 annual salary since he rejoined Apple in 1997 and began serving as interim CEO. In 1999, Apple awarded Mr. Jobs an aircraft as an executive bonus in recognition of his outstanding performance during the previous two years. Mr. Jobs also received two stock option grants, one in 2000 and another in 2001. Mr. Jobs never exercised these grants, and they were both cancelled in March 2003, when Apple awarded Mr. Jobs a grant of 5 million shares of restricted stock.

The 2003 restricted stock grant required Mr. Jobs to remain employed by Apple for three more years before it vested. This grant, which increased to 10 million shares when Apple's common stock split in 2005, vested in full in March 2006. After a portion of these shares was withheld for the payment of taxes, Mr. Jobs received the remaining 5,426,447 shares. Due in large part to Mr. Jobs's leadership, Apple's stock price (after accounting for a stock split) increased from $7.47 on the March 2003 grant date to $64.66 on the March 2006 vesting date—more than an eight-fold increase in three years. Under Mr. Jobs's continued leadership, Apple's stock price increased from $64.66 per share in March 2006 to $189.95 per share as of October 31, 2007—a three-fold increase in approximately 18 months.

When he was elected to Apple's Board of Directors in 1997, Mr. Jobs received the standard director's stock option grant for 30,000 shares. Because Mr. Jobs became employed later that year as Apple's interim CEO, he was no longer eligible for such director grants. When the 1997 director grant (which increased to 120,000 shares after two stock splits) was due to expire in August 2007, Mr. Jobs exercised the option and he currently holds these 120,000 shares.

C.    EXECUTIVE COMPENSATION OVERVIEW

1.

Three Components

The
compensation program for the named executive officers consists of the following three components, in order of their importance:










•

Long-term
equity awards in the form of RSUs under the shareholder-approved Employee Stock Plan




•

Annual
performance-based cash incentives under the shareholder-approved Performance Bonus Plan (the CEO, however, does not participate in this plan and is not eligible for
performance-based cash incentives)




•

Base
salary

The
named executive officers are also eligible to participate in Apple's health and welfare programs, Employee Stock Purchase Plan, 401(k) Plan, patent bonus program and other minor employee
recognition programs on the same basis as other employees.










2.

Mix of Equity, Cash Incentives and Salary







Apple
relies heavily on long-term equity awards because the Compensation Committee believes they are the most effective compensation element for attracting entrepreneurial, creative
executives and promoting their long-term commitment to Apple. An RSU award generally vests only if the named executive officer continues employment until the specified vesting date,
typically two to four years after the date of grant. Equity awards also help to ensure a strong connection between executive compensation and Apple's financial performance because the value of RSUs
depends on Apple's future share price.





Although
the Compensation Committee reviews the compensation practices of its peer companies as described in Section D6 below, the Committee does not adhere to strict formulas or survey data to
determine the mix of compensation elements. Instead, as described in Section D, the Committee considers various factors in exercising its discretion to determine compensation, including the
experience, responsibilities and performance of each named executive officer as well as Apple's overall
financial performance. This flexibility is particularly important in designing compensation arrangements to attract new executives in highly-competitive, rapidly changing markets.










3.

Elements of Compensation Not Included In The Compensation Program

The
current compensation program for the named executive officers, including the CEO, does not include the following:








•

Employment
contracts

100

•

Cash
bonuses other than the performance-based cash incentives under the Performance Bonus Plan and payments under the patent bonus program




•

Severance
and change of control arrangements beyond what is available to all U.S. employees (with the exception of rights to accelerated vesting previously granted as part
of equity awards that will fully vest in March 2008)




•

Perquisites
or personal benefits that are not available to employees generally




•

Guarantees
of the value of equity awards











4.

CEO Compensation

Apple's
CEO, Steve Jobs, currently holds approximately 5.5 million shares of Apple common stock. Since rejoining Apple in 1997, Mr. Jobs has never sold a share of Apple stock. His last
equity grant was awarded in 2003, and vested in full in 2006. Mr. Jobs currently holds no unvested equity awards. In fiscal 2007, Mr. Jobs's entire compensation consisted of his $1
annual salary. Because Mr. Jobs's continued leadership is critical to Apple, the Compensation Committee is considering additional compensation arrangements for him.






Mr. Jobs
has received a $1 annual salary since he rejoined Apple in 1997 and began serving as interim CEO. In 1999, Apple awarded Mr. Jobs an aircraft as an executive bonus in
recognition of his outstanding performance during the previous two years. Mr. Jobs also received two stock option grants, one in 2000 and another in 2001. Mr. Jobs never exercised these
grants, and they were both cancelled in March 2003, when Apple awarded Mr. Jobs a grant of 5 million shares of restricted stock.





The
2003 restricted stock grant required Mr. Jobs to remain employed by Apple for three more years before it vested. This grant, which increased to 10 million shares when Apple's common
stock split in 2005, vested in full in March 2006. After a portion of these shares was withheld for the payment of taxes, Mr. Jobs received the remaining 5,426,447 shares. Due in large
part to Mr. Jobs's leadership, Apple's stock price (after accounting for a stock split) increased from $7.47 on the March 2003 grant date to $64.66 on the March 2006 vesting
date—more than an eight-fold increase in three years. Under Mr. Jobs's continued leadership, Apple's stock price increased from $64.66 per share in March 2006 to
$189.95 per share as of October 31, 2007—a three-fold increase in approximately 18 months.





When
he was elected to Apple's Board of Directors in 1997, Mr. Jobs received the standard director's stock option grant for 30,000 shares. Because Mr. Jobs became employed later that
year as Apple's interim CEO, he was no longer eligible for such director grants. When the 1997 director grant (which increased to 120,000 shares after two stock splits) was due to expire in
August 2007, Mr. Jobs exercised the option and he currently holds these 120,000 shares.