I could fill up this post with examples of CEOs that got raises when the performance of the company they were running got worse. But, that’s too depressing.
Rather, here’s a story about Tim Cook and other Apple executives getting their pay cut because the company did not hit its numbers. Sure, Cook and the others are not going to start clipping coupons any time soon, but it is an all-too-rare example of executive compensation being linked to actual company performance. In this instance, profit was down 16%, so pay got cut 15% (though I doubt whatever formula was used was quite that simple). In this case, the cut is not receiving 100% of a cash incentive, which had been paid out in full previously.
Cynics will say that the cut amounts to change in the cushions for the Apple executive team, which I guess is true. However, it does send a message to employees (and shareholders) that if executives are accountable for the overall performance of the company. And this type of message is important in establishing a culture of accountability.
What this step also does is establish the purpose of executive variable compensation—to reward provide a reward based on recent company performance. This is separate from any gains/losses in the stock price, which is supposed to be a forward looking metric. Is this going to make Tim Cook work any harder? Probably not. Does it tell Apple employees that senior executives are accountable for the development and execution of business strategies? Absolutely.