Apple: Compensation and Benefits System

Apple: Compensation and Benefits System

Shala Cormican

MGMT 365 B

Kevin Pratt

15 February, 2016

        Compensation and benefits packages consist of salary or base pay in addition to a number of both direct and indirect rewards or benefits offered to employees in return for their contribution to the organization. Both intrinsic and extrinsic rewards combine to make up the organization’s total compensation system. (Martocchio 3) Designing compensation and benefits systems to align with desired business outcomes is necessary in order to support competitive strategy. It is also necessary to design competitive compensation systems in order to attract and retain talented employees. Through the result of research, I believe that Apple, Inc. has managed to combine both intrinsic and extrinsic rewards in the design of an excellent compensation system that closely aligns and even drives the organization’s desired business outcomes.

        The corporate climate of Apple promotes certain intrinsic rewards for its employees by encouraging employees to feel as if their work is changing the world as can be witnessed through the following statement found on their website. “The people here at Apple don’t just create products—they create the kind of wonder that’s revolutionized entire industries. It’s the diversity of those people and their ideas that inspires the innovation that runs through everything we do, from amazing technology to industry-leading environmental efforts. Join Apple, and help us leave the world better than we found it.” (Apple Inc) According to information gathered at payscale.com, Apple employees have high levels of job satisfaction even though they also report high levels of work stress. (PayScale, Inc.) Apple also receives a 4.0 star rating on glassdoor with 82 percent of those reporting saying they would recommend a friend to work for Apple, a 95 percent CEO approval rating, as well as reviews boasting about Apple’s “great benefits.” (glassdoor)

        Apple, Inc. is rated the most valuable company in the world claiming the largest sales, profits, and assets among other large technology companies making Apple the largest tech company as listed by FORBES Global 2000. (Chen) Additionally, Apple became the first U.S. company to be valued at over $700 billion in November, 2014. (Higgins, Ciolli and Bost) As of July, 2015, Apple employs ~115,000 people worldwide and operates 453 retail stores in 16 countries. (Yu) Considering the close tie between effective compensation systems and desired business outcomes, Apple must be doing something right considering all of their business success.

         In 2012, Apple introduced a new perks plan for employees including discounts on Apple products, a donation-matching program, and “Blue Sky,” a program in which employees are allotted work time to spend on their favorite engineering projects. In the opinion of Wharton management professor Adam Cobb, Apple may have been motivated to initiate an employee perk program because “they perceive that they are losing out on good candidates to Google and other similar firms, or that they are having a harder time recruiting and retaining people [and] these perks may be a way to potentially narrow that gap.” (Wharton ) Apple has recently adjusted its focus to more on people, not just products as can be evidenced through additions in employee perk plans. Apple’s vice president of Worldwide Human Resources, Denise Young Smith stated of Apple, “we’ve led with products for a long time and we always will…but we’re at a point where people are really important and experience is really important and how people experience our products is really important.” (Lev-Ram) The organization had just rolled out expanded benefits in an effort to attract top-notch employees. Those benefits included longer parental leave, education reimbursements, an expanded donation-matching program, subsidized student loan refinancing, and full acceleration of stock in the event of an employee’s death. (Lev-Ram) Payscale.com also indicates an average of 2.3 weeks of vacation offered to Apple employees as well as other popular perquisites to include 401(k), stock purchase plans, and casual dress and atmosphere. (PayScale, Inc.)

        It would seem that Apple came to the realization that, in the highly competitive field of technology, they would need to offer a compensation and benefits package that was sure to entice the best and brightest to join them in their quest for the top of their market. In addition to the benefits already discussed, Apple offers a host of other benefits to employees in a continuing effort to attract and retain quality employees in order to promote desired business outcomes. The list of benefits taken from glassdoor include:

Insurance, Health & Wellness

• Health Insurance
• Flexible Spending Account (FSA)
• Health Savings Account (HSA)
• Supplemental Life Insurance
• Mental Health Care
• Accidental Death & Dismemberment Insurance
• Dental Insurance
• Vision Insurance
• Life Insurance
• Disability Insurance
• On-Site Health Care

Financial & Retirement

• Retirement Plan
• Charitable Gift Matching
• 401(k) Plan
• Employee Stock Purchase Plan
• Stock Options

Family & Parenting

• Maternity & Paternity Leave
• Fertility Assistance
• Adoption Assistance
• Reduced or Flexible Hours
• Family Medical Leave
• Work From Home
• Dependent Care
• Childcare
• Military Leave

Vacation & Time Off

• Vacation and Paid Time Off
• Paid Holidays
• Sick Days
• Bereavement Leave

Perks & Discounts

• Employee Discount
• Employee Assistance Program
• Commuter Checks & Assistance
• Company Social Events
• Legal Assistance
• Free Lunch or Snacks
• Gym Membership
• Travel Concierge

Professional Support

• Diversity Program
• Professional Development
• Tuition Assistance

        Apple has recently made like changes to its executive compensation package as well. The principles behind the recent changes are a team-based approach, performance expectations, and internal equity. According to the company’s proxy statement, key changes to the 2014 executive compensation program included:

• Granting equity awards to executive officers (excluding CEO Tim Cook) on an annual basis rather than every two fiscal years.
• “To further enhance the link between executive officers’ and shareholders’ interests, 40% of the total grant date value of the annual equity award is delivered in performance-based RSUs. Between 0% and 200% of the target number of performance-based RSUs are eligible to vest at the end of each performance period, upon satisfaction of performance goals comparing the Company’s TSR to the TSR of other companies in the S&P 500. The remaining 60% of the total grant date value is delivered in time-based RSUs that vest in equal tranches over four years.” (Apple, Inc.)
• Increasing each executive officer’s base salary, increasing target and maximum cash bonus opportunities for each executive officer to 200 percent and 400 percent respectively, of each officer’s base salary. (Apple, Inc.)

Apple has managed to design a competitive compensation system for both employees and executives that has served to provide competitive advantage in order to attract and retain valuable highly-qualified employees and executives. The system they subscribe to is deemed successful since it receives high satisfaction ratings among employees and fits expertly within the organization’s competitive strategy. With Apple’s differentiation strategy, they must reach a balance between compensation costs and the cost of investing in other important strategic activities such as research and development. (Martocchio 144)