UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

(Amendment No.     )

Filed by the Registrant x

Filed by a party other than the Registrant

Check the appropriate box:

Apple Inc.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

Apple Inc.

Notice of 2019 Annual Meeting of Shareholders and Proxy Statement

In this Proxy Statement, the terms “Apple,” “we,” and “our” refer to Apple Inc. Information presented in this Proxy Statement is based on Apple’s fiscal calendar, other than references to particular years in the biographies of our directors and executive officers, which refer to calendar years. The information contained on apple.com is not incorporated by reference into this Proxy Statement.

These materials were first sent or made available to shareholders on January 8, 2019.

Apple Inc.

Items of Business

Record Date

Close of business on January 2, 2019

Your vote is important. Please vote.

Apple Inc. | 2019 Proxy Statement

Table of Contents

Apple Inc. | 2019 Proxy Statement

Apple Inc. | 2019 Proxy Statement

Proxy Statement Summary

This summary includes the proposals to be acted upon at the Annual Meeting, as well as business highlights from 2018 and executive compensation and corporate governance information. In addition, this summary provides a brief description of Apple’s values.

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2018 Highlights

Apple’s 2018 financial results broke new records, and we achieved significant milestones across the company.

Financial Performance

2018 net sales set a new all-time record, and both net sales and operating income grew 16% compared to 2017. Earnings per share grew 29% compared to 2017.

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Executive Compensation Program

Our executive compensation program is designed to motivate and reward exceptional performance in a straightforward and effective way, while also recognizing the remarkable size, scope, and success of Apple’s business. The 2018 compensation of our named executive officers has three primary components: annual base salary, annual cash incentive, and long-term equity awards.

For a detailed discussion of our executive compensation program, please see the section entitled “Compensation Discussion and Analysis” beginning on page 28.

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Corporate Governance

Our corporate governance structure fosters principled actions, informed and effective decision-making, and appropriate monitoring of compliance and performance.

Board of Directors and Committees

 Chair    Member               

Audit and Finance Committee

Compensation Committee

Nominating  and Corporate  Governance Committee

Independent

# of Other Public             Company Boards

James Bell

✔

3

Tim Cook (CEO)

1

Al Gore

✔

0

Bob Iger

✔

1

Andrea Jung

✔

2

Art Levinson (Chairman)

✔

0

Ron Sugar

✔

3

Sue Wagner

✔

2

For a detailed discussion of our corporate governance and directors, please see the section entitled “Corporate Governance” beginning on page 7 and the section entitled “Directors” beginning on page 15.

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Apple Values

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Annual Meeting Proposals

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Corporate Governance

This section describes Apple’s corporate governance framework and the role and structure of our Board.

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Role of the Board of Directors

Apple’s Board oversees the CEO and other senior management in the competent and ethical operation of Apple on a day-to-day basis and assures that the long-term interests of shareholders are being served. To satisfy the Board’s duties, directors are expected to take a proactive, focused approach to their positions to ensure that Apple is committed to business success through the maintenance of high standards of responsibility and ethics.

The Board believes that Apple’s governance structure fosters principled actions, informed and effective decision-making, and appropriate monitoring of compliance and performance. Apple’s key governance documents, including our Corporate Governance Guidelines, are available at https://investor.apple.com/investor-relations/leadership-and-governance/default.aspx. The Board met four times during 2018, and each member of the Board attended or participated in 75% or more of the aggregate of (i) the total number of meetings of the Board held during 2018, and (ii) the total number of meetings held by each committee of the Board on which such member served during 2018.

Board Committees

The Board has a standing Audit and Finance Committee (the “Audit Committee”), Compensation Committee, and Nominating and Corporate Governance Committee (the “Nominating Committee”). The Board has determined that the Chairs of each committee and all committee members are independent under applicable rules of The Nasdaq Stock Market LLC (“Nasdaq”), the New York Stock Exchange LLC (“NYSE”), and the Securities and Exchange Commission (“SEC”) for committee memberships. Each committee operates under a written charter adopted by the Board, which is available at https://investor.apple.com/investor-relations/leadership-and-governance/default.aspx.

Audit Committee

The Audit Committee assists the Board in oversight and monitoring of:

The Audit Committee appoints Apple’s independent registered public accounting firm and reviews the services performed by such firm. The Audit Committee met eight times during 2018.

Compensation Committee

The Compensation Committee reviews and approves the compensation arrangements for the CEO, Apple’s other executive officers, and, to the extent it deems appropriate, other employees; administers Apple’s equity compensation plans; reviews the Board’s compensation; and performs such other duties and responsibilities as

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set forth in its charter. The Compensation Committee’s authority to grant equity awards or to take any other action with respect to equity awards (other than the performance of ministerial duties) may not be delegated to Apple’s management or others. For a description of the Compensation Committee’s processes and procedures, including the roles of its independent compensation consultant and the CEO in support of the Compensation Committee’s decision-making process, see the section entitled “Compensation Discussion and Analysis” below. The Compensation Committee met five times during 2018.

Nominating Committee

The Nominating Committee’s duties and responsibilities include assisting the Board in identifying qualified individuals to become directors; making recommendations to the Board concerning the size, structure, and composition of the Board and its committees; and overseeing and making recommendations regarding corporate governance matters, including Apple’s Corporate Governance Guidelines. The Nominating Committee also oversees the annual Board performance evaluation process, including the format of the annual Board self-evaluation. The Nominating Committee met four times during 2018.

In accordance with its charter and Apple’s Corporate Governance Guidelines, the Nominating Committee has evaluated and recommended to the full Board each of the nominees named in this Proxy Statement for election to the Board.

Annual Board and Committee Self-Evaluations

Annual Board Self-Evaluations

The Board conducts an annual self-evaluation that is intended to determine whether the Board, its committees, and each member of the Board are functioning effectively, and to provide them with an opportunity to reflect upon and improve processes and effectiveness.

Dr. Levinson, the independent Chairman of the Board, leads the evaluation process. Dr. Levinson conducts one-on-one discussions with each director to obtain their assessment of the effectiveness and performance of the Board, its committees, and each member of the Board. Board members are also invited to discuss the performance of Dr. Levinson directly with the Chair of the Nominating Committee. A summary of the results is presented to the Nominating Committee on a “no-names” basis identifying any themes or issues that have emerged. The results are then reported to the Board, which considers the results and ways in which Board processes and effectiveness may be enhanced.

Annual Committee Self-Evaluations

In addition, each committee conducts its own annual self-evaluation and reports the results to the Board. Each committee’s report includes an assessment of the committee’s compliance with Apple’s Corporate Governance Guidelines and the committee’s charter, as well as ways in which committee processes and effectiveness may be enhanced.

Board Leadership Structure

The Board believes its current leadership structure best serves the objectives of the Board’s oversight of management, the Board’s ability to carry out its roles and responsibilities on behalf of Apple’s shareholders, and Apple’s overall corporate governance. The Board also believes that the separation of the Chairman and CEO roles

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allows the CEO to focus his time and energy on operating and managing Apple, while leveraging the Chairman’s experience and perspectives. The Board periodically reviews its leadership structure to determine whether it continues to best serve Apple and its shareholders.

Board Oversight of Risk Management

The Board believes that evaluating the executive team’s management of the various risks confronting Apple is one of its most important areas of oversight. In carrying out this critical responsibility, the Board has designated the Audit Committee with primary responsibility for overseeing enterprise risk management. In accordance with this responsibility, the Audit Committee monitors Apple’s significant business risks, including financial; operational; privacy; data security; business continuity; legal; regulatory; and reputational risks. The Audit Committee reviews the steps management has taken to monitor and mitigate these risks. With respect to privacy and data security, the Audit Committee reviews reports from Apple’s General Counsel and the heads of information security, business conduct and compliance, business assurance, and internal audit. These reports include updates on risk management, Apple’s privacy program, and relevant legislative, regulatory, and technical developments.

The Audit Committee is assisted in its risk oversight duties by a Risk Oversight Committee consisting of key members of management, including, among others, Apple’s Chief Financial Officer, General Counsel, and head of business assurance. The Risk Oversight Committee reports regularly to the Audit Committee. Senior members of management responsible for risk management across a wide range of areas and functions also report regularly to the Audit Committee.

While the Audit Committee has primary responsibility for overseeing enterprise risk management and reports regularly to the Board, the other Board committees also consider risks within their areas of responsibility and apprise the Board of significant risks and management’s response to those risks. For example, the Nominating Committee reviews legal and regulatory compliance risks as they relate to Apple’s corporate governance structure and processes, and the Compensation Committee reviews risks related to compensation matters. While the Board and its committees oversee risk management strategy, management is responsible for implementing and supervising day-to-day risk management processes and reporting to the Board and its committees.

In establishing and reviewing Apple’s executive compensation program, the Compensation Committee considers whether the program encourages unnecessary or excessive risk-taking and has concluded that it does not. Base salaries are fixed in amount and thus do not encourage risk-taking. Annual cash incentives are capped and payouts are formulaic and tied to specific company financial performance measures. A substantial portion of each executive officer’s compensation is in the form of time-based and performance-based equity awards that vest over several years and help align their interests with those of Apple’s shareholders in creating long-term shareholder value. The Compensation Committee believes that these awards do not encourage unnecessary or excessive risk-taking because the ultimate value of the awards is tied to Apple’s share price performance over several years and because awards are subject to regular vesting schedules.

The Compensation Committee has also reviewed Apple’s compensation programs for employees generally and has concluded that these programs do not create risks that are reasonably likely to have a material adverse effect on Apple. The Compensation Committee believes that Apple’s cash bonus programs and long-term equity awards provide an effective and appropriate mix of incentives to help ensure performance is focused on long-term shareholder value creation and do not encourage short-term risk taking at the expense of long-term results.

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Audit Committee Financial Experts

The Board has determined that each member of the Audit Committee qualifies as an “audit committee financial expert” as defined under applicable SEC rules and also meets the additional criteria for independence of audit committee members set forth in Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Code of Ethics

Apple has a code of ethics, “Business Conduct: The way we do business worldwide,” that applies to all employees, including Apple’s principal executive officer, principal financial officer, and principal accounting officer, to the Board, and to independent contractors, consultants, and others who do business with Apple. The code is available at investor.apple.com/corporate-governance.cfm. Apple intends to disclose any changes in this code or waivers from this code that apply to Apple’s principal executive officer, principal financial officer, or principal accounting officer by posting such information to our website or by filing with the SEC a Current Report on Form 8-K, in each case if such disclosure is required by SEC or Nasdaq rules.

Review, Approval, or Ratification of Transactions with Related Persons

The Board has adopted a written policy for approval of transactions between Apple and its directors, director nominees, executive officers, greater than 5% beneficial owners, and each of their respective immediate family members, where the amount involved in the transaction exceeds or is expected to exceed $120,000 in a single calendar year and the related party has or will have a direct or indirect interest in the transaction. A copy of this policy is available at investor.apple.com/corporate-governance.cfm. The policy provides that the Audit Committee reviews transactions subject to the policy and determines whether or not to approve or ratify those transactions. In addition, the Audit Committee has delegated authority to the Chair of the Audit Committee to pre-approve or ratify transactions under certain circumstances. In reviewing transactions subject to the policy, the Audit Committee or the Chair of the Audit Committee, as applicable, considers among other factors it deems appropriate:

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The Audit Committee has considered and adopted the following standing pre-approvals under the policy for transactions with related persons:

A summary of new transactions covered by the standing pre-approvals, or approved or ratified by the Chair of the Audit Committee, if any, is provided to the Audit Committee for its review at each regularly scheduled Audit Committee meeting.

Transactions with Related Persons

Mr. Iger is Chairman and Chief Executive Officer of The Walt Disney Company. In the ordinary course of business, Apple enters into arms-length commercial dealings with The Walt Disney Company, including sales arrangements, digital services content licensing agreements, and similar arrangements. Apple does not believe that Mr. Iger has a material direct or indirect interest in any of such commercial dealings.

The Board has determined that all Board members, other than Mr. Cook, are independent under applicable Nasdaq, NYSE, and SEC rules. In making these determinations, the Board considered the types and amounts of the commercial dealings between Apple and the companies and organizations with which the directors are affiliated.

Attendance of Directors at Annual Meetings of Shareholders

Apple expects all of its directors to attend the Annual Meeting. All directors attended the 2018 annual meeting of shareholders.

Compensation Committee Interlocks and Insider Participation

Ms. Jung, Mr. Gore, and Mr. Iger were members of the Compensation Committee during 2018. None of the members of the Compensation Committee is or has been an executive officer of Apple, nor did any of them have any relationships requiring disclosure by Apple under Item 404 of SEC Regulation S-K. None of Apple’s executive

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officers served as a director or a member of a compensation committee (or other committee serving an equivalent function) of any other entity, an executive officer of which served as a director of Apple or member of the Compensation Committee during 2018.

Communications with the Board

Any matter intended for the Board, or for any individual member of the Board, should be directed to Apple’s Secretary at One Apple Park Way, MS: 169-5GC, Cupertino, California 95014, with a request to forward the communication to the intended recipient. In general, any shareholder communication delivered to Apple for forwarding to Board members will be forwarded in accordance with the shareholder’s instructions. However, Apple reserves the right not to forward to Board members any abusive, threatening, or otherwise inappropriate materials. Information regarding the submission of comments or complaints relating to Apple’s accounting, internal accounting controls, or auditing matters is available under our Policy on Reporting Questionable Accounting or Auditing Matters at investor.apple.com/corporate-governance.cfm.

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Directors

This section describes the experience and qualifications of our Board members and how they are compensated.

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Directors

Apple’s Board consists of a highly qualified, diverse group of leaders in their respective fields. Most of our directors have senior leadership experience at major domestic and multinational companies. In these positions, they have gained significant and diverse management experience, including strategic and financial planning, public company financial reporting, compliance, risk management, and leadership development. They also have experience serving as executive officers, or on boards of directors and board committees of other public companies, and have an understanding of corporate governance practices and trends. In addition, many of our directors have experience as directors or trustees of significant academic, research, nonprofit, and philanthropic institutions, and bring unique perspectives to the Board.

The Board and the Nominating Committee believe the skills, qualities, attributes, and experience of our directors provide Apple with business acumen and a diverse range of perspectives to engage each other and management to effectively address Apple’s evolving needs and represent the best interests of Apple’s shareholders.

The Nominating Committee considers candidates for director who are recommended by its members, by other Board members, by shareholders, and by management, as well as those identified by third-party search firms retained to assist in identifying and evaluating possible candidates. In evaluating potential nominees to the Board, the Nominating Committee considers, among other things: independence; character; ability to exercise sound judgment; diversity; age; demonstrated leadership; and relevant skills and experience, including financial literacy, antitrust compliance, and other experience in the context of the needs of the Board. The Nominating Committee is committed to actively seeking out highly qualified women and individuals from minority groups to include in the pool from which Board nominees are chosen.

The Nominating Committee evaluates candidates recommended by shareholders using the same criteria as for other candidates recommended by its members, other members of the Board, or other persons. In addition, our bylaws provide that a shareholder, or a group of up to 20 shareholders, owning at least 3% of our outstanding shares continuously for at least three years, may nominate director nominees constituting up to 20% of Apple’s Board that would be included in our proxy statement pursuant to our proxy access provisions. Nominating shareholders and nominees must satisfy the requirements set forth in our bylaws, which can be found at investor.apple.com/corporate-governance.cfm.

Nominees for Election

The following biographies describe the skills, qualities, attributes, and experience of the nominees that led the Board and the Nominating Committee to determine that it is appropriate to nominate these directors for election to the Board. Each of the eight nominees currently serves on the Board.

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Compensation of Directors

Members of the Board who are not Apple employees (“Non-Employee Directors”) receive compensation for their service. Mr. Cook, our CEO, does not receive any compensation for his service as a member of the Board. The Compensation Committee annually reviews the total compensation of our Non-Employee Directors and each element of our Non-Employee Director compensation program. As part of this process, the Compensation Committee evaluates market data provided by its independent compensation consulting firm, Pay Governance LLC, and makes a recommendation to the Board. The Board determines the form and amount of director compensation after reviewing the Compensation Committee’s recommendation. The Apple Inc. Non-Employee Director Stock Plan provides for an annual limit of $1.5 million for all compensation paid to a Non-Employee Director.

Cash Retainers. Non-Employee Directors receive an annual cash retainer of $100,000. In 2018, the Chairman of the Board, Dr. Levinson, received an additional cash retainer of $200,000; the Chair of the Audit Committee, Dr. Sugar, received an additional cash retainer of $35,000; the Chair of the Compensation Committee, Ms. Jung, received an additional cash retainer of $30,000; and the Chair of the Nominating Committee, Mr. Iger, received an additional cash retainer of $25,000. All retainers are paid in quarterly installments.

Equity-Based Awards. A substantial portion of each Non-Employee Director’s annual retainer is in the form of equity. Under the Apple Inc. Non-Employee Director Stock Plan, Non-Employee Directors are granted restricted stock units (“RSUs”) on the date of each annual meeting of shareholders (each, an “Annual Director Award”). All Annual Director Awards vest on February 1 of the following year, subject to continued service on the Board through the vesting date. For 2018, the number of RSUs subject to each Annual Director Award was determined by dividing $250,000 by the per share closing price of Apple’s common stock on the date of grant.

A Non-Employee Director who is newly appointed to the Board other than in connection with an annual meeting of shareholders will receive a grant of RSUs upon appointment (an “Initial Director Award”), except that a Non-Employee Director who joins the Board on or after February 1 of a particular year and prior to the annual meeting for that year, or a director who was an employee of Apple immediately prior to first becoming a Non-Employee Director, will not receive an Initial Director Award. The number of RSUs subject to each Initial Director Award is determined in the same manner as described above for Annual Director Awards, but the award is pro-rated based on the portion of the year that has passed since the last annual meeting. Initial Director Awards are scheduled to vest on the next February 1 following the award.

Non-Employee Directors do not have the right to vote or dispose of the RSUs subject to these awards. If Apple pays an ordinary cash dividend on its common stock, each RSU award granted under the Apple Inc. Non-Employee Director Stock Plan will be credited with an amount equal to the per share cash dividend paid by Apple, multiplied by the total number of RSUs subject to the award that are outstanding immediately prior to the record date for such dividend. The amounts that are credited to each award are referred to as “dividend equivalents.” Any dividend equivalents credited to an award granted under the Apple Inc. Non-Employee Director Stock Plan will be subject to the same vesting, payment, and other terms and conditions as the RSUs to which the dividend equivalents relate. The crediting of dividend equivalents is meant to treat the RSU award holders consistently with shareholders.

Equipment Program and Charitable Gift Matching. Apple has an equipment program for the Board under which each Non-Employee Director is eligible to receive, upon request and free of charge, one of each new product introduced by Apple, and is eligible to purchase additional equipment at a discount. Additionally, each Non-Employee Director is eligible to participate in Apple’s charitable matching gifts program to the same extent as all Apple employees. For calendar 2018, the maximum match amount was $20,000.

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Non-Employee Directors do not receive any other compensation for serving on any committee or attending Board or committee meetings.

Stock Ownership Guidelines. Apple has stock ownership guidelines for our CEO, executive officers, and Non-Employee Directors. Under the guidelines, Non-Employee Directors are expected to own shares of Apple’s common stock that have a value equal to five times their annual cash retainer for serving as a director. Shares may be owned directly by the individual, owned jointly with, or separately by, the individual’s spouse, or held in trust for the benefit of the individual, the individual’s spouse or the individual’s children. Each Non-Employee Director currently satisfies the stock ownership guidelines.

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Director Compensation—2018

The following table shows information regarding the compensation earned or paid during 2018 to Non-Employee Directors who served on the Board during the year. The compensation paid to Mr. Cook is shown under “Executive Compensation” in the table entitled “Summary Compensation Table—2018, 2017, and 2016” and the related tables. Mr. Cook does not receive any compensation for his service as a member of the Board.

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Executive Officers

This section includes biographical information for Apple’s executive officers, other than Mr. Cook.

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Executive Compensation

This section describes the compensation program for our named executive officers and includes the required executive compensation tables.

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Compensation Discussion and Analysis

Apple delivered a year of extraordinary performance in 2018, as we shipped our 2 billionth iOS device, celebrated the 10th anniversary of the App Store, and achieved the strongest net sales in Apple’s history, among many other accomplishments and milestones. Net sales grew $36.4 billion to $265.6 billion, and operating income grew $9.6 billion to $70.9 billion, representing 16% year-over-year growth for each of these key performance measures. We also returned almost $90 billion to our investors through dividends and share repurchases.    

We believe the compensation paid to our named executive officers for 2018 appropriately reflects and rewards their contribution to our performance.

This Compensation Discussion and Analysis explains the guiding principles and practices upon which our executive compensation program is based and the compensation paid to our 2018 named executive officers:

Guiding Principles

Team-Based Approach. We apply a team-based approach to the compensation of our named executive officers with internal pay equity as a primary consideration.

Performance Expectations. We establish clear, quantitative performance goals focused on Apple’s overall success rather than on objectives specific to each named executive officer’s areas of responsibility.

Emphasis on Long-Term Equity Incentives. We emphasize long-term performance, retention, and alignment between the interests of our named executive officers and shareholders by significantly weighting their compensation toward long-term equity awards.

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Compensation Practices

Executive Compensation Policies and Practices. We are committed to sound executive compensation policies and practices, as highlighted in the following table.

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Discretion and Judgment of the Compensation Committee

The Compensation Committee, consisting entirely of independent directors, reviews and approves the compensation of Apple’s named executive officers and acts as the administering committee for Apple’s employee equity compensation plans.

Each year, the Compensation Committee conducts an evaluation of Apple’s executive compensation program to determine if any changes would be appropriate. In making this determination, the Compensation Committee may consult with its independent compensation consultant and management, as described below; however, the Compensation Committee uses its own judgment in making final decisions regarding the compensation paid to our named executive officers.

The Role of the Compensation Consultant. The Compensation Committee selects and retains the services of its own independent compensation consultant and annually reviews the performance of the consultant. As part of the review process, the Compensation Committee considers the independence of the consultant in accordance with SEC and Nasdaq rules.

Since 2014, the Compensation Committee has engaged the services of Pay Governance, an independent compensation consulting firm. During 2018, Pay Governance provided no services to Apple other than services for the Compensation Committee, and worked with Apple’s management, as directed by the Compensation Committee, only on matters for which the Compensation Committee is responsible.

At the Compensation Committee’s request, Pay Governance regularly attends Compensation Committee meetings. Pay Governance also communicates with the Chair of the Compensation Committee outside committee meetings regarding matters related to the Compensation Committee’s responsibilities. In 2018, the Compensation Committee generally sought input from Pay Governance on a range of external market factors, including evolving compensation trends, appropriate market reference points, and market compensation data. Pay Governance also provided general observations about Apple’s compensation programs and about management’s recommendations regarding the amount and form of compensation for our named executive officers.

The Role of the Chief Executive Officer. At the Compensation Committee’s request, Mr. Cook provides input regarding the performance and appropriate compensation of the other named executive officers. The Compensation Committee considers Mr. Cook’s evaluation and his direct knowledge of each named executive officer’s performance and contributions when making compensation decisions. Mr. Cook is not present during voting or deliberations by the Compensation Committee regarding his own compensation.

The Role of Peer Companies and Benchmarking. The Compensation Committee reviews peer group composition each year. With the assistance of Pay Governance, the Compensation Committee identified groups of companies to serve as market reference points for compensation comparison purposes for 2018. A primary peer group was developed for reference consisting of U.S.-based, stand-alone, publicly traded companies in the technology, media, and internet services industries that, in the Compensation Committee’s view, compete with Apple for talent. The threshold revenue and market capitalization requirements for a company to be considered for the primary peer group for 2018 were $15 billion and $35 billion, respectively.

A secondary peer group of premier companies that have iconic brands or are industry or category leaders, rely on significant research and development and innovation for growth, and require highly-skilled human capital was also developed as an additional reference set for the Compensation Committee.

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The chart below lists the companies in the primary and secondary peer groups. References in this Compensation Discussion and Analysis to peer companies include both the primary and the secondary peer group companies.

The Compensation Committee’s executive compensation determinations are subjective and the result of the Compensation Committee’s business judgment, which is informed by the experience of the members of the Compensation Committee as well as input from, and peer group data provided by, the Compensation Committee’s independent compensation consultant. The Compensation Committee reviews compensation practices and program design at peer companies to inform its decision-making process so it can set total compensation levels that it believes are commensurate with the relative size, scope, and performance of Apple. The Compensation Committee, however, does not set compensation components to meet specific benchmarks as compared to peer companies, such as targeting salaries at a specific market percentile.

Shareholder Feedback. We value the feedback provided by our shareholders and have discussions with many of them regarding various corporate governance topics, including executive compensation.

Shareholders are also provided the opportunity to cast an annual advisory vote on the compensation of our named executive officers. At Apple’s 2018 annual meeting of shareholders, shareholders indicated their overwhelming support for the compensation of our named executive officers, with 95% supporting our say-on-pay proposal for the third consecutive year. The Compensation Committee considered this result and shareholder feedback and approved an executive compensation program for 2019 that is similar to the 2018 program. The Compensation Committee will continue to consider shareholder feedback and the results of say-on-pay votes when making future compensation decisions.

2018 Named Executive Officer Compensation

Our executive compensation program is designed to motivate and reward exceptional performance in a straightforward and effective way, while also recognizing the remarkable size, scope, and success of Apple’s business. The compensation of our named executive officers has three primary components: annual base salary, annual cash incentive, and long-term equity awards.

Annual Base Salary. Base salary is a customary, fixed element of compensation intended to attract and retain executives. When setting the annual base salaries of our named executive officers, the Compensation Committee considers market data provided by its independent compensation consultant, internal pay equity, and Apple’s financial results and size relative to peer companies. The annual base salaries of our named executive officers were not changed for 2018. Mr. Cook’s annual base salary was $3 million, and each of our other named executive officer’s annual base salary was $1 million.

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Annual Cash Incentive. Our annual cash incentive program is a variable, at-risk component of our named executive officers’ compensation that is aligned with Apple’s annual financial results. Net sales and operating income, as determined in accordance with generally accepted accounting principles, are used as the performance measures for the annual cash incentive program because they reflect commonly recognized measures of overall company performance and profitability and are drivers of shareholder value creation.

The annual cash incentive program provides payout opportunities based on the achievement of pre-determined financial goals that require our named executive officers to meet high standards of performance at threshold, target, and maximum levels. Actual annual cash incentive payouts are determined based on an equal weighting for the net sales and operating income measures and are linearly interpolated for achievement between the applicable threshold, target, and maximum goals, as approved by the Compensation Committee. There is no payout for a particular performance measure unless the threshold goal is achieved with respect to that measure, and the maximum total payout is capped at 400% of annual base salary if performance exceeds both of the maximum performance goals. The Compensation Committee may, in its discretion, reduce the actual payout of any individual’s annual cash incentive based on Apple’s performance and the Compensation Committee’s subjective assessment of the named executive officer’s overall performance.

The Compensation Committee established goals under the 2018 annual cash incentive program taking into consideration Apple’s 2017 financial results and 2018 expectations, macroeconomic factors, and alignment between payout opportunities and performance levels. For both net sales and operating income, the 2018 performance goals were set higher than 2017 results, as shown below.

At the threshold performance level, the payout opportunity was 50% of annual base salary for each performance measure; at the target performance level, the payout opportunity was 100% of annual base salary for each performance measure; and at the maximum performance level, the payout opportunity was capped at 200% of annual base salary for each performance measure.

For 2018, as shown in the chart above, we achieved net sales of $265.6 billion and operating income of $70.9 billion, each representing a year-over-year increase of 16%, and exceeding the 2018 maximum annual cash incentive program goals for both of those performance measures. The Compensation Committee determined that no downward adjustments to the payouts would be made based on Apple’s 2018 performance and the individual contributions of our named executive officers and approved the maximum total payout at 400% of annual base salary.

Long-Term Equity Awards

The equity component of our named executive officers’ compensation emphasizes long-term shareholder value creation through performance- and time-based RSU awards.

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Performance-Based RSUs. RSU awards with performance-based vesting are a substantial, at-risk component of our named executive officers’ compensation that is tied to Apple’s long-term performance. The number of performance-based RSUs that vest depends on Apple’s total shareholder return relative to the other companies in the S&P 500 (“Relative TSR”) for the performance period. The Compensation Committee chose Relative TSR as a straightforward and objective metric to evaluate our performance against the performance of other companies and to align the interests of our named executive officers with the interests of our shareholders in creating long-term value.

We measure Relative TSR for the applicable performance period based on the change in each company’s stock price during that period, taking into account any dividends paid during that period, which are assumed to be reinvested in the stock. A 20-trading-day averaging period is used to determine the beginning and ending stock price values used to calculate the total shareholder return of Apple and the other companies in the S&P 500. This averaging period mitigates the impact on the long-term Relative TSR results of one-day or short-term stock price fluctuations at the beginning or end of the performance period. The change in value from the beginning to the end of the period is divided by the beginning value to determine total shareholder return. Apple’s total shareholder return is compared to the total shareholder return of other S&P 500 companies, ranked by percentile, to determine the number of performance-based RSUs that vest for each performance period.

Time-Based RSUs. RSU awards with time-based vesting align the interests of our named executive officers with the interests of our shareholders by promoting the stability and retention of a high-performing executive team over the longer term. Vesting schedules for time-based awards generally require continuous service over multiple years, as described below.

Mr. Cook’s Long-Term Equity Award

Mr. Cook last received an equity award when he was promoted to CEO in 2011 (the “2011 RSU Award”). At Mr. Cook’s request, the 2011 RSU Award was significantly modified in 2013 to put a portion of the award at risk through a performance condition based on Apple’s Relative TSR performance. The performance condition requires Apple to outperform two-thirds of the companies that were included in the S&P 500 for the entirety of each performance period in order for 100% of the performance-based RSUs allocated to that period to vest. The 2011 RSU Award has only downside risk to Mr. Cook. It does not contain any upside vesting opportunity above 100%, and there is no interpolation for results between the Relative TSR percentile levels set forth below.

For the three-year performance period from August 25, 2015 through August 24, 2018, 280,000 performance-based RSUs were subject to the Relative TSR performance condition. Apple’s Relative TSR for this performance period was at the 88th percentile of the companies that were included in the S&P 500 for the entire performance period. As a result, all of the 280,000 performance-based RSUs vested on August 24, 2018. Apple’s total shareholder return during this 3-year performance period was 89.94%.

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Other Named Executive Officers’ Long-Term Equity Awards

In 2018, the Compensation Committee granted long-term equity awards to Ms. Adams, Ms. Ahrendts, Mr. Maestri, and Mr. Williams consisting of both performance- and time-based RSUs (the “2018 RSU Awards”).

Performance-Based RSUs. The performance-based RSUs awarded to Ms. Ahrendts, Mr. Maestri, and Mr. Williams were granted on October 1, 2017, the first day of the three-fiscal-year performance period applicable to the awards. The performance-based RSUs awarded to Ms. Adams were granted on November 13, 2017 in connection with her hiring.

The target number of performance-based RSUs granted to each of these named executive officers was determined by dividing $10 million by the closing stock price on the date of grant. Using the closing price on the date of grant was a change from 2017, when the target number of performance-based RSUs was determined by dividing $10 million by the grant date fair value of one performance-based RSU. This change was implemented in 2018 to align the methodology used to determine the target number of performance-based RSUs with the methodology used to determine the number of time-based RSUs. The grant date fair value of the performance-based RSUs awarded to each of these named executive officers is approximately $11.5 million, as reported in the table entitled “Summary Compensation Table—2018, 2017, and 2016.”

The performance-based component of the 2018 RSU Awards granted to Ms. Ahrendts, Mr. Maestri, and Mr. Williams has a three-fiscal-year performance period from the beginning of 2018 through the end of 2020. The performance-based component of the 2018 RSU Awards granted to Ms. Adams has a performance period from her first day of employment, November 13, 2017, through the end of 2020.

Between zero and 200% of the target number of RSUs for the performance-based component of each 2018 RSU Award will vest on October 1, 2020, subject to continued employment through that date, depending on Apple’s Relative TSR percentile ranking for the applicable performance period, as follows:

For each performance period, this vesting schedule requires Relative TSR performance at the 25th percentile to vest in the threshold number of performance-based RSUs, Relative TSR performance above the median at the 55th percentile to vest in the target number of performance-based RSUs, and Relative TSR performance at or above the 85th percentile in order to vest in the maximum 200% of the target number of performance-based RSUs. No performance-based RSUs vest if Apple’s Relative TSR performance is below the 25th percentile. In addition, if Apple’s total shareholder return for the performance period is negative, the number of performance-based RSUs that vests is capped at 100% of the target number of performance-based RSUs regardless of our percentile ranking. If Apple’s Relative TSR percentile ranking is above the 25th percentile and between the other levels shown in the table above, the portion of the performance-based RSUs that vests is linearly interpolated between the two nearest vesting percentages.

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2018 Performance-Based RSU Payout Results. During 2018, Ms. Ahrendts, Mr. Maestri, and Mr. Williams each vested in performance-based RSUs that were granted on October 17, 2014. For the three-fiscal-year performance period from the beginning of 2015 through the end of 2017, Ms. Ahrendts, Mr. Maestri, and Mr. Williams each vested in 125,494 performance-based RSUs, representing 183% of the target number of performance-based RSUs, based on Apple’s Relative TSR at the 80th percentile of the companies that were included in the S&P 500 for the period. Apple’s total shareholder return during this 3-year performance period was 65.53%.

Time-Based RSUs. The time-based RSUs awarded to Ms. Ahrendts, Mr. Maestri, and Mr. Williams were granted on October 15, 2017, the same grant date as all Apple employees receiving a time-based annual RSU award for 2018. The time-based RSUs awarded to Ms. Adams were granted on November 13, 2017, in connection with her hiring. The number of time-based RSUs granted to each of these named executive officers was determined by dividing $10 million by the closing stock price on the date of grant. The grant date fair value of the time-based RSUs awarded to each of these named executive officers was approximately $10 million, as reported in the table entitled “Summary Compensation Table—2018, 2017, and 2016.”

The time-based component of the 2018 RSU Awards granted to Ms. Ahrendts, Mr. Maestri, and Mr. Williams vests in three equal annual installments commencing on April 1, 2020 (approximately two and one-half years following the grant date), subject to continued employment through each vesting date. This schedule means that, to receive the full benefit of the time-based RSUs, the recipient must perform approximately four and one-half years of continuous service following the grant date. The April vesting dates for the time-based RSUs were selected to balance the October vesting of the performance-based RSUs and provide regular vesting intervals.

The time-based component of the 2018 RSU Awards granted to Ms. Adams vests in equal installments on May 13, 2018; November 13, 2018; November 13, 2019; and November 13, 2020, subject to her continued employment through each vesting date. The vesting schedule for the time-based component of Ms. Adams’ 2018 RSU Award was determined to approximate the expected value and timing of compensation Ms. Adams forfeited at her prior employer when she joined Apple.

Dividend Equivalents

At Mr. Cook’s request, none of his RSUs participate in dividend equivalents. All other RSUs granted to employees have dividend equivalent rights, which entitle RSU holders to the same dividend value per share as our shareholders. Dividend equivalents are subject to the same vesting and other terms and conditions as the corresponding RSUs. Dividend equivalents are accumulated and paid when the underlying RSUs vest.

Other Benefits

Our named executive officers are eligible to participate in our health and welfare programs, Employee Stock Purchase Plan, 401(k) plan, matching charitable gifts program, vacation cash-out program, and other benefit programs on the same basis as other employees.

Deferred Compensation Plan. We adopted a nonqualified deferred compensation plan in 2018, effective for deferrals beginning in 2019. The plan allows eligible participants, including our named executive officers, to defer a portion of their base salary and annual cash incentive, subject to plan rules. The deferred compensation plan is unfunded and unsecured. We do not provide any matching contributions under the deferred compensation plan or allow for deferral of RSUs.

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Security and Private Aircraft. The personal safety and security of our employees is of the utmost importance to Apple and our shareholders. We provide risk-based, business-related and personal security services to our employees, including our named executive officers, as determined to be appropriate by our security team. We do not consider the security measures provided to our named executive officers to be a personal benefit, but rather reasonable and necessary expenses for the benefit of Apple. However, in accordance with SEC disclosure rules, the aggregate incremental cost of these services is reported in the table entitled “Summary Compensation Table—2018, 2017, and 2016.”

As an additional security measure for Mr. Cook, the Board requires that he use private aircraft for all business and personal travel. The Board implemented this policy in 2017 in the interests of security and efficiency based on our global profile and the highly visible nature of Mr. Cook’s role as CEO. Mr. Cook recognizes imputed taxable income and is not provided a tax reimbursement for personal use of private aircraft.

From time to time, our named executive officers other than Mr. Cook may request private aircraft to facilitate travel that is directly and integrally related to the performance of their job duties and when the use of private aircraft will increase efficiency or security associated with a particular trip. Occasionally, spouses or other family members may accompany a named executive officer on these flights. When this occurs, we require the named executive officer to pay the greater of the incremental cost, if any, to accommodate these guests on the flight or the imputed income amount determined using the IRS Standard Industry Fare Level (SIFL) rate. Accordingly, there is no incremental cost to Apple when family members accompany an executive on private business flights.

Relocation Assistance. Relocation assistance, including a gross-up for taxable relocation benefits, is provided to employees when necessary based on business needs. Ms. Adams was provided relocation assistance to move closer to Apple’s headquarters in connection with her hiring. Ms. Adams has 18 months from her date of hire to complete her relocation, and the portion of her relocation expenses incurred in 2018 is reported in the table entitled “Summary Compensation Table—2018, 2017, and 2016.”

Tax Assistance. The Compensation Committee has approved the payment of certain fees to cover personal tax services related to the tax assistance and relocation benefits Ms. Ahrendts received in 2014 and 2015. The portion of these fees paid by Apple in 2018 are reported in the table entitled “Summary Compensation Table—2018, 2017, and 2016.”

Governance and Other Considerations

Tax Deductibility of Compensation Expense. Section 162(m) of the Internal Revenue Code generally places a $1 million limit on the amount of compensation a company can deduct in any one year for certain executive officers. While the Compensation Committee considers the deductibility of awards as one factor in determining executive compensation, the Compensation Committee also looks at other factors in making its decisions, as noted above, and retains the flexibility to award compensation that it determines to be consistent with the goals of our executive compensation program even if the awards are not deductible by Apple for tax purposes.

The 2018 base salary and time-based RSU awards, which represent a portion of the equity awards granted to our named executive officers, are not exempt from Section 162(m), and therefore will not be deductible to the extent the $1 million limit of Section 162(m) is exceeded. The 2018 cash incentive opportunities and performance-based RSU awards granted to our named executive officers, as applicable, were designed in a manner intended to be exempt from the deduction limitation of Section 162(m), based on the law in effect at that time, because they are paid based on the achievement of pre-determined performance goals established by the Compensation Committee pursuant to our shareholder-approved equity incentive plan, as was the portion of Mr. Cook’s 2011

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RSU Award subject to performance criteria with measurement periods that begin after the June 21, 2013 modification.

Despite the Compensation Committee’s efforts to structure certain elements of our named executive officers’ compensation granted in 2018 and earlier years in a manner intended to be exempt from Section 162(m) and therefore not subject to its deduction limits, no assurance can be given that compensation otherwise intended to satisfy the requirements for exemption from Section 162(m) in fact will be exempt from its deduction limits because of ambiguities and uncertainties as to the application and interpretation of Section 162(m) and the regulations issued thereunder, including uncertainties created by Federal legislation repealing the previous exemption from Section 162(m)’s deduction limit for performance-based compensation, generally effective for taxable years beginning after December 31, 2017. Further, the Compensation Committee reserves the right to modify compensation that was initially intended to be exempt from Section 162(m) if it determines that such modifications are consistent with Apple’s business needs.

Equity Clawback. The named executive officers’ RSUs are granted pursuant to the terms of our standard RSU agreements, which contain a recoupment provision. These terms require an employee to deliver or otherwise repay to Apple any shares or other amount that may be paid in respect of RSUs in the event the employee commits a felony while employed by Apple, or engages in a breach of confidentiality, commits an act of theft, embezzlement or fraud, or materially breaches any agreement with Apple while employed by Apple or at any time thereafter.

Prohibition on Hedging, Pledging, and Short Sales. We prohibit transactions in derivatives of Apple stock, including hedging transactions, for all directors, officers, employees, consultants, and contractors of Apple. In addition, we prohibit pledging of Apple stock as collateral by directors and executive officers of Apple and prohibit short sales of Apple stock by directors and executive officers.

Stock Ownership Guidelines. Under our stock ownership guidelines, Mr. Cook is expected to own shares of Apple stock that have a value equal to 10 times his annual base salary. All other executive officers are expected to own shares that have a value equal to three times their annual base salary within five years of the officer first becoming subject to the guidelines. Each executive officer is in compliance with the guidelines. Shares may be owned directly by the individual, owned jointly with or separately by the individual’s spouse, or held in trust for the benefit of the individual, the individual’s spouse, or the individual’s children.

Risk Considerations. In establishing and reviewing Apple’s executive compensation program, the Compensation Committee considers whether the program encourages unnecessary or excessive risk-taking and has concluded that it does not. See the section entitled “Board Oversight of Risk Management” above for an additional discussion of risk considerations.

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Executive Compensation Tables

Summary Compensation Table—2018, 2017, and 2016

The following table, footnotes, and related narrative show information regarding the total compensation of each named executive officer for 2018, 2017, and 2016, except in the case of Ms. Adams and Mr. Williams, who were not named executive officers in 2017 or 2016.

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The amounts in the salary, bonus, and non-equity incentive plan compensation columns of the “Summary Compensation Table—2018, 2017, and 2016” reflect actual amounts earned in the relevant years, while the amounts in the stock awards column reflect accounting values. The tables entitled “Outstanding Equity Awards at 2018 Year-End” and “Stock Vested—2018” provide further information on the named executive officers’ potential realizable value and actual value realized with respect to their equity awards. The “Summary Compensation Table—2018, 2017, and 2016” should be read in conjunction with the Compensation Discussion and Analysis and the subsequent tables and narrative descriptions.

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Grants of Plan-Based Awards—2018

The following table shows information regarding the incentive awards granted to the named executive officers for 2018.

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Description of Plan-Based Awards

Non-Equity Incentive Plan Awards. Each of the “Non-Equity Incentive Plan Awards” shown in the table entitled “Grants of Plan-Based Awards—2018” was granted under Apple’s 2014 Employee Stock Plan (the “2014 Plan”), which provides flexibility to grant cash incentive awards, as well as equity awards. The material terms of the 2018 non-equity incentive awards are described under “Executive Compensation—Compensation Discussion and Analysis” in the section entitled “Annual Cash Incentive.”

All Other Stock Awards. Each of the time-based and performance-based RSUs shown in the table entitled “Grants of Plan-Based Awards—2018” was granted under, and is subject to, the terms of the 2014 Plan. The Compensation Committee administers the 2014 Plan.

Time-Based RSUs. The time-based RSUs granted on October 15, 2017 are scheduled to vest in three annual installments commencing on April 1, 2020. The time-based RSUs granted on November 13, 2017 are scheduled to vest in four equal installments on May 13, 2018; November 13, 2018; November 13, 2019; and November 13, 2020. Vesting is generally contingent on each officer’s continued employment with Apple through the applicable vesting date.

Performance-Based RSUs. The performance-based RSUs granted on October 1, 2017 are scheduled to vest on October 1, 2020, subject to the officer’s continued employment with Apple through the vesting date and satisfaction of the performance condition for the performance period beginning on October 1, 2017 and ending on September 26, 2020. The performance-based RSUs granted on November 13, 2017 are scheduled to vest on October 1, 2020, subject to the officer’s continued employment with Apple through the vesting date and satisfaction of the performance condition for the performance period beginning on November 13, 2017 and ending on September 26, 2020. As described under “Executive Compensation—Compensation Discussion and Analysis” in the section entitled “Other Named Executive Officers’ Long-Term Equity Awards,” in each case, between 0% and 200% of the target number of performance-based RSUs vest depending on Apple’s Relative TSR percentile compared to the other companies in the S&P 500 over the performance period, with (i) 25% of the target number of performance-based RSUs vesting if Apple’s Relative TSR performance is at the 25th percentile; (ii) 100% of the target number of performance-based RSUs vesting if Apple’s Relative TSR performance is above the median at the 55th percentile; and (iii) 200% of the target number of performance-based RSUs vesting if Apple’s Relative TSR performance is at or above the 85th percentile. If Apple’s total shareholder return for the performance period is negative, the number of performance-based RSUs that vest is capped at 100% of target. If Apple’s Relative TSR percentile ranking is above the 25th percentile and between the other levels described above, the portion of the performance-based RSUs that vests is linearly interpolated between the two nearest vesting percentages.

Dividend Equivalents. RSUs granted under the 2014 Plan have dividend equivalents, which entitle holders of RSUs to the same dividend value per share as holders of common stock. Dividend equivalents are subject to the same vesting and other terms and conditions as the corresponding RSUs. Dividend equivalents are accumulated and paid when the underlying RSUs vest. At Mr. Cook’s request, none of his RSUs participate in dividend equivalents.

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Outstanding Equity Awards at 2018 Year-End

The following table shows information regarding the outstanding equity awards held by each of the named executive officers as of September 29, 2018.

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Stock Vested—2018

The following table shows information regarding the vesting during 2018 of RSUs previously granted to the named executive officers. No options were exercised by any named executive officer during 2018.

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Potential Payments Upon Termination or Change of Control

We do not have any severance arrangements with our named executive officers, and none of the equity awards granted to the named executive officers under Apple’s equity incentive plans provide for acceleration in connection with a change of control or a termination of employment, other than as noted below in connection with death or disability.

Equity Acceleration upon Death or Disability

Time-Based RSUs. Time-based RSUs provide for partial accelerated vesting of the RSUs scheduled to vest on the next applicable vesting date following termination of employment due to disability and for full accelerated vesting upon death.

Performance-Based RSUs. Performance-based RSUs provide for a partial waiver of the service vesting condition upon the death or disability of the award recipient, with the number of shares that vest determined at the end of the performance period, based on actual performance results and the recipient’s dates of employment during the performance period.

The following table shows the estimated amounts that the named executive officers would have become entitled to under the terms of all outstanding RSUs had their employment terminated due to either death or disability on September 28, 2018, the last business day of Apple’s fiscal year. The estimated values for performance-based RSUs are shown at the maximum potential payout amounts.

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CEO Pay Ratio—2018

The 2018 annual total compensation of our CEO was $15,682,219, the 2018 annual total compensation of our median compensated employee was $55,426, and the ratio of these amounts is 283 to 1.

We determined our median compensated employee by using base salary, bonuses, commissions, and grant date fair value of equity awards granted to employees in 2018. We applied this measure to our global employee population as of the last day of our 2018 fiscal year and annualized base salaries for permanent full-time and part-time employees that did not work the full year. Once we determined our median compensated employee using these measures, we calculated the employee’s 2018 annual total compensation using the same methodology that is used to calculate our CEO’s annual total compensation in the table entitled “Summary Compensation Table—2018, 2017, and 2016.”

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Proposals

This Proxy Statement contains five proposals requiring shareholder action.

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Proposal No. 1 – Election of Directors

The Board has nominated directors Bell, Cook, Gore, Iger, Jung, Levinson, Sugar, and Wagner to be elected to serve on our Board until the next annual meeting of shareholders and until their successors are duly elected and qualified.

At the Annual Meeting, proxies cannot be voted for a greater number of individuals than the eight nominees named in this Proxy Statement. Holders of proxies solicited by this Proxy Statement will vote the proxies received by them as directed on the proxy card or, if no direction is made, for the election of the Board’s eight nominees.

The term of any incumbent director who does not receive the affirmative vote of (i) a majority of the shares present or represented by proxy and voting at the Annual Meeting and (ii) a majority of the shares required to constitute a quorum, and has not earlier resigned, will end on the date that is the earlier of (a) 90 days after the date on which the voting results for the Annual Meeting are determined by the inspector of election, or (b) the date on which the Board selects a person to fill the office held by that director in accordance with Apple’s bylaws.

Each of the directors nominated by the Board has consented to serving as a nominee, being named in this Proxy Statement, and serving on the Board if elected. Each director elected at the Annual Meeting will be elected to serve a one-year term. If any nominee is unable or declines to serve as a director at the time of the Annual Meeting, the proxy holders may vote for any nominee designated by the present Board to fill the vacancy.

There are no family relationships among Apple’s executive officers and directors.

The Board recommends that shareholders vote FOR the election of directors Bell, Cook, Gore, Iger, Jung, Levinson, Sugar, and Wagner.