[Opinion] Norway Sovereign Wealth Fund Opposes Tim Cook's Compensation

Nam Gil-nam, Director of the Capital Market Office, Korea Capital Market Institute

At Apple’s regular shareholders’ meeting held virtually on March 4th, an unprecedented event occurred. Like other U.S. publicly traded companies, Apple conducts an annual shareholder approval vote on the compensation of its CEO and key executives. However, the world’s largest sovereign wealth fund, Norway’s Government Pension Fund Global, which manages about $1.3 trillion, opposed CEO Tim Cook’s compensation as excessive. Last year, shareholder support for Tim Cook’s compensation was overwhelmingly high at 95%, but the $98.7 million pay?1,447 times that of an average employee in 2021?received only 64.4% approval. Although Tim Cook’s compensation was not rejected, the low approval rate has prompted more cautious decisions regarding his pay in the future.

In the United States, social interest in corporate executive compensation began during the Great Depression in the 1930s. Before the Great Depression, executive pay was treated as private information, with neither disclosure nor even directors knowing exactly how much the CEO earned. However, as the economy sharply declined following the Great Depression, social backlash against high executive pay grew. In 1930, when it was revealed that baseball star Babe Ruth earned $80,000 annually?$5,000 more than then-President Hoover?public opinion deemed it excessive. A 1936 survey by Fortune magazine showed that more than half of respondents believed executive pay was excessive, underpinned by a social norm that compensation above $100,000 was inappropriate.

In this context, in the early 1930s, massive executive compensations at leading companies such as Bethlehem Steel and American Tobacco were disclosed during lawsuits, fueling calls for regulation. Bethlehem Steel had introduced bonuses from 1902 to attract talented executives, but the bonuses paid to a small number of executives grew so large that they exceeded three-quarters of the total dividends paid to shareholders. Similarly, American Tobacco, the largest tobacco company in the U.S. at the time, operated a bonus program that automatically paid 10% of net profits to six executives without shareholder knowledge. Its chairman received a staggering $2 million in 1931, during the height of the Great Depression, sparking public outrage. As a result, securities regulations established during the Great Depression required publicly traded companies to disclose compensation details for executives earning more than $20,000. Notably, the 2010 Dodd-Frank Act mandated shareholder approval votes on the compensation of key executives, including the CEO, of publicly traded companies.

Although shareholder approval votes are non-binding and companies are not required to follow the results, as seen in Apple’s case, the process of submitting executive compensation for shareholder approval inevitably reveals detailed pay information. A low approval rate serves as a warning signal to management. Currently, shareholder approval votes on executive compensation are adopted in about ten major advanced countries, and positive outcomes have been observed, including slower pay increases and stronger links between pay and corporate performance. In South Korea, social interest in high executive pay is growing, making it an appropriate time to consider adopting shareholder approval votes.

Nam Gil-nam, Director of Capital Markets Division, Korea Capital Market Institute

This content was produced with the assistance of AI translation services.