Text of Steve Jobs Deposition

The text of Apple CEO Steve Jobs' March 18, 2008 deposition is fascinating in a CEO-ish, me-first, don't-trouble-me-with-irritating-questions sort of way. The shorter version: He wanted more compensation and ended up in option trouble because he didn't think his board said "Atta boy!" often and nicely enough to him.

Relatedly, I'm particularly fond of the part where Steve says he has no idea what General Accepted Accounting Principles are all about, and the part where he says that he doesn't know board secretaries do. Details! Details!

Comments

[HardHead:]

For $1 a year salary - I'm sure he doesn't know much about options. DUH, neither does Homer Simpson!

HH

Apr 26 02:29 PM

[Johnnymack:]

Do people really get upset about "backdating options"?
So, to give someone something that ALREADY has value, is somehow morally wrong?
Couldn't they pay Jobs, or any employee in Krugerands if they wanted? They already have value, and may accrue MORE, or may plummet in value. So what?
Apple could just AWARD shares outright to an employee. Isn't that like awarding "options, with a strike price of zero dollars" ? Gee, when you look at it that way, doesn't all the sinister nature of this fizzle out like a leaky balloon?
Doesn't this "time shifting" occur in other cases in business? Ever hear of someone taking an early retirement because the company gave them "2 years towards retirement"? I've heard of that! And no one called any agency complaining that a company "backdated an employee's date of hire!".
So the question of how to account for all this... who knows? I don't, but that doesn't mean I can't run a company. That's what CFO's are for! So, suppose a stock is at $40, and I get "backdated " shares w/ a strike price of $30, exercisable in 2 years. But in 2 years, the stock is at $25, underwater! So they lapse and I get nothing. Who pays taxes, if anyone? Value was given, but not really. I have no idea, and neither do most readers here.
Backdating options is an EFFICIENT way to reward workers with both VALUE today, and POTENTIAL value tomorrow, with little tax consequences until a move is exercised. It's this efficiency that made it such an appealing business tool in High Tech companies.

Apr 26 03:25 PM

[another.ana...:]

Another column by a "financial" writer that proves out the old saying: "those than can; run companies well; those that can't; write financial columns." Poorly I might add. Poor, poor Paulie a 3rd rate writer for a 4th rate internet financial site; he'll show that Stevie Jobs, he will. Ha, sour grapes, priceless.

Apr 26 03:44 PM

[aapladay:]

All Jobs wants is compensation for doing an ACTUAL GOOD JOB! It amazes me the publicity this story is getting, when executives who have obliterated their companies and the economy are being "rewarded" just the same or better.
Yeah, Steve Jobs is not an accountant, neither is Bill Gates. They are tech geeks.
I guess we can count on another "Apple witch hunt" the next few weeks/months.

Apr 26 03:46 PM

[bearcharts:]

On Apr 26 03:25 PM Johnnymack wrote:

> Do people really get upset about "backdating options"?
> So, to give someone something that ALREADY has value, is
> somehow morally wrong?

Yes, people really get upset about it. Whether it's morally wrong has to do with your perception as to whether tax fraud is morally wrong. Because that's what it is, distilled down. Advantageous for firms and beneficiaries? Sure. Tax fraud often is.

If you don't like the arguably unintended bad effects of the current tax law (and I am one who does not), change the law; don't argue for usurping it surreptitiously in a way that tends to manipulate valuation transparency and markets.

N.B.: I'm not particularly talking about Steve Jobs. Nor am I talking about the original article here. I am responding only to Johnnymack's assertions quoted above.

Apr 26 04:28 PM

[Johnnymack:]

Bearcharts, you seem to be another of these finger wagging "tsk tsk"'-ers who SAY options backdating is morally wrong but NEVER explain what is wrong about it, and somehow bring up tax fraud. Nobody is talking taxes here. It's not an issue.
I remember one time my wife was awarded shares of the company she worked for. an outright AWARD, maybe vested over 2 years, I forget. Was that immoral to accept? I don't think so.
What if we instead given "options, with a strike price of $zero"?
Would there NOW be a moral crucible brewing? Is there any real difference?
I'm afraid you really don't have an answer for that. There's nothing about the tax law here. People or companies always want to make moves and decisions with the tax law in mind! Do you refuse to invest in any 401k available to you, because it seems like cheating?
Experts can't really agree on how to treat options, and so they devise those GAPP rules, so everyone works by the same rule book. Those rules change from time to time too, and I don't think a CEO of a company, any company should be expected to know those rules.
I don't know (and likely you neither) how to account for plain straight options, that mature in 2 years, if the stock goes from $20 to $10, and so never get exercised. Do you?
What do we do the first year? Does the company claim an expense? does the employee claim income?
In 2 years, the options are underwater. Effectively NOTHING happened! It's as though the options were never granted at all? How does the company account for this expense (or non-expense) or balance whatever it did 2 years prior, if nothing really changed hands (money or shares) Does the company or employee get a credit for any taxes paid?
I honestly don't know, and would love an explanation if you have one. No more empty finger wagging! It's not effective.

Apr 26 05:05 PM

[JamesApple:]

Stock option backdating is not taxible because there is no income involved. How can that be a tax fraud? Just like stock dividend is not taxible as in the case of cash dividend.

Apr 27 01:23 AM

[Zoltan L. K...:]

As far as I know, the backdated options covered only a part of the time frame, in which Steve Jobs worked and delivered top results for Apple.

Apr 27 01:26 AM

[Bill Youngs:]

Bottom Line: Steve Job's running Apple for many years at one dollar per year; his receiving options long ago (and no bonuses since) whose value today is largely due to his own great work; and his devotion to the company.... all of these add up to one of the great management bargains in the history of American business. As a long-term Apple shareholder, I couldn't be happier with his vision and dedication!

Apr 27 03:17 AM

[bearcharts:]

On Apr 26 05:05 PM Johnnymack wrote:

> Bearcharts, you seem to be another of these finger wagging
> "tsk tsk"'-ers who SAY options backdating is morally wrong but
> NEVER explain what is wrong about it, and somehow bring up tax
> fraud. Nobody is talking taxes here. It's not an issue. I
> remember one time my wife was awarded shares of the company she
> worked for. an outright AWARD, maybe vested over 2 years, I
> forget. Was that immoral to accept? I don't think so. What if
> we instead given "options, with a strike price of $zero"?

First of all, your off-the-cuff assessment of my moral compass is way off. Be wary of being overly conclusory from a few sentences.

Second, if we gave the options a strike price of zero we'd have a different situation. There are regs, and there are words in them, and words mean things. If that would solve the problem, then do it that way. The point is that intent and authority to act, or its lack, distinguish moral from immoral acts all the time.

> Would there NOW be a moral crucible brewing? Is there any real
> difference?
>
> I'm afraid you really don't have an answer for that. There's
> nothing about the tax law here.

I do have an answer, but I don't have another hour to type in my thoughts here further than I'm about to. Suffice it to say that I was an investor in companies tainted badly by the options-backdating scandal early on. For one, maybe you remember the international fugitive-CEO Kobi Alexander, of Comverse Technology? That was one of the early incidents drawn to light by the options backdating scandal in its nascence. CMVT is now a pink-sheeted shadow of its former self. (Granted, lots more was going on there than options backdating, though.)

The rules are far from perfect. I am not a schoolmarm when it comes to rules. I am all for transparency wherever possible, however. The current debt crisis owes its origin in great part to the propensity of companies to seek opaqueness and avert oversight.

You want to pay retention bonuses to draw and keep good people? Pay them bonuses, then. Why structure it in a convoluted way to avoid -- well, you tell me what is being avoided, then. In any case, the shareholder-owners have a right to know and discern the bottom line.

Our ex-Fed Chair and Randian follower Alan Greenspan admitted only the other month before Congress how surprised and dismayed he was to learn that the naked market alone is not enough to curb excesses and corruption, that regulatory balance is called for after all, and that his entire Weltanschauung was, essentially, flawed.

Apr 27 07:38 AM

[Johnnymack:]

<You want to pay retention bonuses to draw and keep good people? Pay them bonuses, then. Why structure it in a convoluted way to avoid -- well, you tell me what is being avoided, then.>

No. What's being avoided? taxes? Isn't there a whole aspect of financial planning and estate planning devoted to tax implications of your financial activity? Are 401k and Roth plans, and company matching contributions "convolutions" that should be ended, and let employers simply "pay bonuses? and be done with it?
Again, you're acting like any motion to maximize the award and minimize the tax implications, or an admission of doing that, is some kind of "gotcha!".
The powers that be tell us, over and over, that backdating options is FINE, but they just need to be accounted for correctly, which I find to be confusing anyway. It seems the general public hears about it and gets overwhelmed with the sense that something unnatural was done, a clock was turned back, or books were cooked. I'm just saying that there should be no moral problem with it. Also, if someone DID backdate an option 2 months prior to awarding, and DIDN'T pick the lowest price in those 2 months, then they are INCOMPETENT, not to mention being a jackass!

Apr 27 10:58 PM