🍎🏦 Apple's Savings Account is the Real Deal!
Happy Wednesday all,
This week, people are excited about Apple’s High-Yield Savings Account offering 4.15% APY. If you read below you’ll see that Apple is piggybacking off of Goldman Sachs’ high-yield account. It’s a smart move by Apple, however, you do need an Apple iPhone as well as an Apple Credit Card to even get the offering.
Personally, I love that Apple is making savings more accessible to people. On the other hand, forcing people to sign up for your credit card bothers me - given how bad most of America is with their spending habits on credit. No matter what, make sure you’re getting a decent yield on your excess savings. Anything above 3.75% APY is good right now and plenty of banks are offering that.
In Newsletter news (so meta), we are launching a premium subscription offering in May. The free editions will remain unchanged, but if you subscribe you can expect 4 bonus premium articles per month. Expect in-depth guides on personal finance, as well as deeper dives into companies and stocks. I will also be weighing in personally on premium articles so you can get my expert take. Be on the lookout for an announcement email soon!
Enjoy this week’s Hump Days!
- Humphrey, Rickie & Tim
The Weekly Brief
U.S. Banks Highlight Office Real Estate as Next Biggest Worry (Reuters)
The largest U.S. banks acknowledged the growing concern of declining commercial real estate property values amid rising interest rates and a slowing economy. Wells Fargo set aside an additional $643M in Q1 for credit losses driven by heightened expectations of further loan losses on commercial real estate. The greatest stress is likely to be felt in areas such as San Francisco, Los Angeles, New York, and Seattle. SF and LA had an average office vacancy rate of 21.6% in Q1.
Why Does it Matter?
Many bank executives anticipate that added stress to the commercial real estate sector would tighten credit availability and fuel a downturn. Jamie Dimon, chief of JPMorgan, said that tighter lending conditions increases the odds of a recession. ChatGPT Can Decode Fed Speak, Predict Stock Moves From Headlines (Bloomberg)
ChatGPT aced two tests from the Fed and the University of Florida: one in deciphering whether Fed statements were hawkish (aggressive) or dovish (conservative), and one in determining whether headlines were good or bad for a stock. This suggests a major step forward for AI systems to turn text from news articles, tweets, and speeches into trading signals.
Why Does it Matter?
Wall Street has long used natural language processing models to inform many strategies but the advances by ChatGPT may make those techniques more accessible to a broader base of financial pros. Apple Launches High-Yield Savings Account with Goldman in Payments Push (Yahoo!)
Apple is teaming up with Goldman Sachs to launch a high-yield savings account that will offer an annual percentage yield of 4.15%, which Apple says is 10 times the national average (many big banks currently offer 0.01% on your savings). Apple and Goldman note that deposits are FDIC-insured but customers will not be allowed to hold more than $250,000 in their accounts. As of the announcement, Apple isn’t making any promises for future interest rates.
Why Does it Matter?
Apple is once again partnering with Goldman Sachs, with whom they recently partnered for the Apple Card, to offer a competitive HYSA for Apple Card holders. This is another step forward for Apple into the payments space, following their announcement of their buy now, pay later service.You’ll Find This Interesting
Consulting firms such as McKinsey and Bain are delaying start dates for their new MBA hires. They are even going as far as paying them to delay starting until 2024, offering $40,000 to work for a non-profit, $30,000 to learn a new language, or $20,000 to become yoga instructors or go on a safari.
Hump Days Scoop
There has been a video making its rounds on social media throughout the internet from a virtual town hall at MillerKnoll where CEO Andi Owen was recorded telling her employees to “leave pity city” after asking about missing out on their bonuses. This came after she made almost a $4M bonus on top of her $1.1M salary. Earlier this month, the CEO of the Canadian grocery giant: Loblaw Companies Ltd, was paid $8.4M after management consultants determined he was underpaid.
These are not isolated occurrences either. According to the Financial Times, “more than a third of S&P 500 executives received pay rises last year despite negative shareholder returns.”
This week, we talk about executive compensation and the economic theories surrounding it. Should they be making that much? Where is the justification? Executive compensation is a highly debated topic and we are only able to scratch the surface today. People dedicate their entire academic careers to studying this topic, however, we hope that you’re able to gain a new understanding.
How does executive compensation work? How is it determined?
You’re likely very familiar with how regular compensation works. An employee puts in the hours, they get paid by the hour or a salary. For the executives, it becomes magnitudes more complex. Compensation packages are put together by the board of directors at a company and can consist of a mix of cash, stock options, long-term incentive plans, and executive perks.
Within public companies, the board looks to its competitors to determine the amount and the structure. Most companies try to stay in line with industry-specific standards for executive compensation but it has become a “race to the top”, and many companies poach top executive talent by offering bigger and bigger packages.
Executive compensation is different than just taking a salary because much of it comes from hitting a set of predetermined metrics; commonly profits and revenues, although an increasing amount include environmental, social, or governance goals as well as diversity, employee engagement, or positive company culture goals.
How are executive compensation packages designed?
According to this article from Harvard Business Review, executive compensation has 4 dimensions of design, all used to incentivize a certain strategic outcome. A good compensation package aligns the interests of the company with the interests of the executives tasked with getting the company to the desired outcome.
Fixed v. Variable: Commonly a mix of salary (fixed) and incentives (variable)
Short v. Long-term: If the variable compensation is to be paid out in the year awarded or over a longer period of many years
Cash v. Equity: The two types of compensation have differing effects on an executive. With equity, execs are encouraged to think like owners. With cash, they often think like managers
Individual v. Group: Whether compensation is based on individual performance or on the performance of the team as a whole.
What outcomes can be achieved by proper executive compensation packages?
Compensation packages are mixed and matched to produce 1 of the 3 common outcomes. We examine further.
To promote profitable growth: If a company wanted to achieve this goal, it would need a combination of short-term and long-term incentives with more weight on long-term incentives. The company would need to determine its own set of metrics such as profits or long-term stock appreciation. In this scenario, executives are paid to grow the company during a time of stagnation and to look for ways to boost profitability.
To successfully turn a company around: If a company is in survival mode, strategic focuses shift from investment to solvency, which requires cash flow until the environment improves. In this scenario, executives are paid to figure out ways to generate cash flow into the company and cost reduction. This kind of package often has a greater weighting on short-term incentives depending on how dire the financial situation is.
To transform the business: A company looking to undertake a risky transformation would want the bulk of the executive’s pay to be contingent on successfully executing its strategy. One common method for this is to let the market decide whether the company is successfully transforming by setting share price targets for the executive to hit within a set time period. This incentivizes executives to take risks so as to get more compensation sooner than with a traditional approach to compensation.
Does paying executives more yield positive shareholder returns?
According to the research, the answer to this appears to be no.
In a report by MSCI that surveyed 429 large-cap companies between 2005 to 2015, companies that paid CEOs above the median underperformed those paid below the median by as much as 39%.
When factoring into your own investments, executive compensation is an important topic if you so choose to pick individual stocks. Oftentimes, management is a strong driving factor for expected returns (if a high-ranking executive leaves a company, the stock often moves on that news depending on how well they were viewed by investors), but be sure to look into how they are compensated, where they are in relation to their competitors, and whether their incentives align with the future of the company.
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Umm this is an additional product offered by Goldman Sachs TO holders of apple-branded charge cards issued by Goldman sachs, it is not an apple product or service, it's just enabled on the apple media.