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$5 Million Bonus? Beware the Salary Czar!

Ara Trembly
Insurance Experts' Forum, March 15, 2010

The Associated Press is reporting that Apple is giving its chief operating officer a $5 million bonus for “outstanding performance” running the company while CEO Steve Jobs was on medical leave.

Timothy Cook, 49, also will receive 75,000 restricted stock units scheduled to vest in 2011 and 2012, says AP. Cook took the company reins when Jobs, a pancreatic cancer survivor, went on medical leave from January through June 2009. Jobs, one of the leading lights of the computer industry, limits his salary to $1 per year, which makes Cook the company's highest-paid executive. In 2009, Cook received an $800,400 salary.

Well, good for Mr. Cook. He seems to have done a stellar job in guiding Apple toward new product development and introduction, and from where I sit, the company hasn’t missed a beat despite the absence of its famed leader. Seems to me that it is well worth $5 million to keep a major company running smoothly and forging ahead during such a difficult period.

Apple is very fortunate that it wasn’t the recipient of federal bailout funds, however. That would have put it in the crosshairs of Obama administration pay czar Kenneth Feinberg, who oversees pay at several companies (including AIG) deemed to have received “extraordinary taxpayer assistance.” I can’t be sure, of course, but I’m guessing that if Apple were a bailout beneficiary, Mr. Feinberg would be looking askance at throwing $5 million of “taxpayer money” at an executive who simply took over for someone else who was out sick for six months. After all, couldn’t they just send a nice “thank you” card and a fruit basket?

So why am I even talking about this, since Apple is not under the watchful eye of the Obama administration’s version of Big Brother? The reason is that an extremely dangerous precedent has been set by our government’s takeover of a huge chunk of the auto industry, along with several other large firms.

First, it was completely wrong for the federal government to do anything to bail out private businesses that were failing or floundering primarily due to their own poor decisions. Our nation and our national economy are based on the notion of free markets that allow companies to flourish or perish based on their ingenuity and business smarts. If a company—even a large company—insists on making certain business decisions, then it must be allowed to reap the rewards, or suffer the consequences of those decisions. There are no do-overs in the world of commerce.

Once the government sinks its claws into an industry, however, it insists that companies in that industry run themselves in the same inane and inefficient ways that government runs itself. Much of the U.S. auto industry, for example, is now a ward of the State, which means the State will tell automakers how to make their products and what products they should make. So get ready for a lot of very small, very light, fuel-efficient vehicles—the kind that, just incidentally, have been shown to be a factor in the increased number of deaths from auto accidents. (It’s not that there are more accidents; just that more people die in those accidents.) The phrase “coffin on wheels” comes to mind, and if you’re a life insurer, you’re probably not enjoying this trend. 

As you can probably tell, I am a fan of the free market. Regulation certainly has its place where crimes are being committed, but apart from that, every company should be able to do whatever it wishes with the profits it makes. If a company wants to give someone a huge bonus, then that is the business of the company. On the other hand, if a company gives out lots of huge bonuses, then finds itself strapped for cash, that is also the business of the company. Taxpayers should never be on the hook for the decisions of private companies.

I imagine that some of you will point out to me that at least some jobs may have been saved by those bailouts, and that’s great for those who were rescued. By the same token, however, the bailouts have done nothing to increase the business acumen of the affected companies, which means they will continue doing foolish things because they can always count on the taxpayer to clean up their messes.

If a company wants to fail, it must be allowed to fail. Others will spring up like weeds to address the business left by such a company. Government needs to keep its nose out of the marketplace and let the chips fall where they may. That’s the way it works in a free country.

Ara C. Trembly (www.aratremblytechnology.com) is the founder of Ara Trembly, The Tech Consultant, and a longtime observer of technology in insurance and financial services.

Readers are encouraged to respond to Ara using the “Add Your Comments” box below. He can also be reached at ara@aratremblytechnology.com.

This blog was exclusively written for Insurance Networking News. It may not be reposted or reused without permission from Insurance Networking News.

The opinions of bloggers on www.insurancenetworking.com do not necessarily reflect those of Insurance Networking News.

Comments (2)

Agreed. Why is this so difficult for some people to understand?

Posted by: Daniel P | March 19, 2010 6:01 PM

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Amen to that Ara.

Posted by: jan s | March 16, 2010 9:35 AM

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