In 2013, Apple executed a colossal corporate bond sale, borrowing an unprecedented $17 billion. The sources reveal that the primary purpose of this massive borrowing was not for direct investment in new productive capacity, but rather to buy back the company’s own shares. This strategy, increasingly prevalent in modern corporate America, has a clear aim: to boost share prices. Such buybacks represent a diversion of funds that, as the sources note, often flows not to the company for enlargement of its productive capacity, but to investors who are fortunate enough to buy low and sell high.
This practice of financial engineering, where companies prioritize increasing shareholder value through mechanisms like stock buybacks, stands in stark contrast to earlier corporate models. Historically, corporations were understood to have responsibilities to a broader range of “stakeholders”. However, the current system has seen an “unraveling of the kind of bargaining that characterized the American system of democratic capitalism”, leading to a shift where consumers and investors gain power, while other citizens lose it. This emphasis on maximizing share prices for investors places unrelenting pressure on CEOs.
The implications of this strategy are profoundly illustrated by the compensation awarded to Apple’s CEO, Tim Cook. On April 4, 2014, USA Today reported on his 2013 compensation. In that year, Tim Cook received a staggering $73.8 million, with the vast majority of this sum, almost entirely, in stock options. This echoes a broader pattern: stock options and restricted stock grants have become, by a significant margin, the largest component of CEO pay. Furthermore, his first two years as CEO (2011 and 2012) saw him accumulate $382 million, of which $376 million was in stock awards.
The rationale for such exorbitant compensation is, in a “perversely narrow sense,” tied to the stock market’s behavior. Share prices often rise just before CEOs cash in their options, as was observed even before the financial crisis of 2008. This system creates a powerful incentive for executives to engage in financial maneuvers that elevate share prices, rather than necessarily focusing on long-term performance or the “actual performance” of the company. For instance, IBM, a company that once prided itself on lifelong employment and long-term technological investments, shifted to laying off employees and scrimping on research, borrowing heavily to buy back its shares. This “financial engineering” masked stagnant revenues, yet its CEOs reaped substantial rewards through stock options. Hewlett-Packard followed a similar trajectory.
Such compensation packages, fueled by strategies like massive share buybacks, highlight a fundamental aspect of the “supercapitalism” era: the empowerment of consumers and investors to demand better deals, which in turn has eroded social equality and stability. This dynamic, as the sources underscore, suggests that corporations are no longer defined by their national origin or allegiances, but by their pursuit of profit wherever it can be found most efficiently. This involves everything from seeking low wages abroad to extensive lobbying efforts in Washington, D.C., where companies like Apple maintain a “platoon of lobbyists”.
In essence, the narrative of Apple’s record bond sale and its CEO’s vast compensation in 2013-2014 is a microcosm of a larger economic truth: the increasing detachment of corporate success from real economic production and job creation, and its entanglement with financial engineering that primarily benefits a select few at the top. The system, as it has evolved, prioritizes shareholder returns and executive enrichment, often at the expense of employees and broader societal well-being.