CEOs are taking a hit from the recession - less total compensation, smaller bonuses, nearly worthless stock options - but their companies are already making adjustments that could mean fatter paychecks in the future.

An Associated Press analysis shows the median pay package for CEOs of companies in the Standard & Poor's 500 index fell 7 percent to $7.6 million in 2008.

And the potential hit to their pocketbooks could be even larger if stock prices don't rebound. One clue: 90 percent of the $1.2 billion in CEO stock options granted last year are "under water," meaning the current stock price is too low to yield a profit, the AP analysis shows.

Boards already are trying to cushion the blow. The AP found that some have changed the rules to make it easier for executives to qualify for bonuses. Others are doling out more stock options, which give executives the right to buy shares in the future at prices locked in today.

Other findings in the AP's analysis:

_ Four of every five CEOs took home a cash bonus, despite the fact that the stock prices of the companies in the survey fell by an average 36 percent and profits fell 31 percent.

_ The median payout in cash for salary and bonuses fell 20 percent from a year earlier to $2.4 million. But that's still 48 times what the average U.S. worker makes, based on the most recent government figures.

_ Of the 10 CEOs who took the biggest pay cuts last year, four were heads of financial services companies. Overall, the heads of companies that develop and process raw materials - including supplies for construction, steel and glass, and paper products - took the biggest hit. That group's median compensation shriveled 26 percent to about $6.3 million.

Since the economic meltdown, pressure has grown from shareholders, Congress and President Barack Obama for boards of directors to rein in executive pay. But even with all that scrutiny, experts on CEO compensation say it's too soon to call the 2008 decline in pay the start of a trend.

"I wouldn't yet say this is a watershed moment for executive compensation. This is a watershed opportunity," said Jesse Brill of the Web site CompensationStandards.com and one of the nation's foremost experts on CEO pay. "I am fearful too many boards won't take a hard stance to enforce significant change."

There are already examples of corporate boards setting CEOs up for a potential windfall. Many made large stock grants in the first few months of 2009, when stock indexes dipped to levels not seen in more than a decade. The S&P 500 has rebounded more than 30 percent from its early March low, though it's off 44 percent from its October 2007 peak. Given the timing of the early 2009 stock awards, a sustained stock market recovery would supercharge the profits when these options are exercised.

SunTrust Banks illustrates how the rules of the game are changing. Its board voted in February to grant CEO James Wells options on 1.1 million shares, more than four times the number he received in 2008. That unusually big award became a target of shareholder groups, and in April the company said Wells had declined the full amount and would accept only half, 550,000 options. He will have to meet performance goals to earn slightly more than half of those options.

The exercise price on the 2009 grants is about $9 a share, reflecting the bank's stock price in February when it was close to an 18-year low. A year earlier his options had an exercise price close to $65, where the shares were then trading. SunTrust shares now are at $15, meaning that while Wells' 2008 options are deep under water, his 2009 options already are in the money to the tune of about $3 million.

The AP analysis is based on the compensation disclosures of 309 companies in the S&P 500 that filed proxy statements with federal regulators through April 20 and had the same CEO for the last two years. The overall AP database also includes 78 chief executives who headed their companies only in the second year. Company stock market and earnings performance figures were provided by Capital IQ, a unit of Standard & Poor's.

The AP formula shows how corporate boards value pay packages for their executives. It adds up salary, perks, bonuses, preferential interest on deferred pay, and the value a company puts on stock options and stock awards on the day they were granted last year.

When boards grant stock options to executives, they assign an exercise price that typically mirrors the share price on the day of the option grant. Most companies give CEOs several years to decide whether to exercise the options. If the stock does well, the payoffs can be enormous.

To put a value on a CEO's stock compensation, the company relies on formulas that make assumptions about how its stock will appreciate over the life of the options and what the resulting profit value will be for the CEO when the options are exercised.

If a company's stock has fallen sharply since options were granted early in 2008, the stock will have to rise sharply for a CEO to realize the original value the company put on the stock compensation.

The median compensation of $7.6 million means half of the CEOs in the AP sample made more than that and half less. That was down about $585,000 from 2007.

Chesapeake Energy CEO Aubrey McClendon topped the AP list with a total package of $112.5 million, even though his company's stock price fell nearly 60 percent last year. Motorola co-CEO Sanjay Jha was second with $104.4 million. It was the first time since AP started analyzing CEO pay three years ago that anyone topped $100 million.

McClendon's total was inflated by a $75 million bonus he received on Dec. 31 as part of a new employment contract. He owns a stake in some of the company's wells, and the company said his bonus payment will go toward his portion of the cost of developing and maintaining them.

The bonus came two months after McClendon was forced to sell more than 31 million shares of Chesapeake stock - valued at $550 million and down from a peak of $2.2 billion only three months earlier - to cover bank demands for repayment of loans. The huge sale helped further drive down the stock price last fall.

Chesapeake said in regulatory filings that McClendon's overall pay reflects his role "in shaping the vision for the company and growing it into the largest independent producer of U.S. natural gas."

There were similar examples of a mismatch between pay and stock performance throughout corporate America. At 104 companies in the AP sample, the chief executive's bonus got fatter even though the stock price declined.

Carol Bowie, head of the Governance Institute at RiskMetrics Group, a financial risk management firm, said that is part of a troubling trend. "Executives have been richly rewarded over the last decade because of market trends, not necessarily because of superior performance. Now, when the market trend goes the other way, they want to be bailed out," she said.

Motorola's Jha was an example of how many executives' total pay is heavily weighted in stock options and stock grants. Overall, such compensation accounted for 58 percent of total pay in the AP's larger sample of 387 companies.

Jha was a rising star at Qualcomm when Motorola wooed him last year with a package made up almost entirely of stock grants and options; the company valued them at $103.5 million on the day they were awarded in August, when the company's stock was around $10 a share.

Even though Motorola shares have since fallen to about $6, the 3.6 million stock grants he will receive over the next three years - effectively a signing bonus - still are worth more than $21 million.

But for Jha to wind up realizing the $104.4 million that Motorola valued his 2008 compensation at, he must engineer a turnaround of its struggling cell phone business and propel Motorola shares well above $10 a share. His 16.5 million options don't turn profitable until the stock reaches that level.

The 10 highest-paid CEOs on the AP list received packages totaling $538 million, $50 million less than the top 10 in 2007.

Four of the top earners in 2008 came from financial services companies - Goldman Sachs, American Express, Citigroup and JPMorgan Chase. All received money from the government's Troubled Asset Relief Program. But most of their pay was inflated by stock options and awards granted early in the year for their performance the year before. And most of the options are under water. None got bonuses for their work in 2008.

Even more stark was Morgan Stanley's John Mack, who received no raise, bonus or stock options. His salary and perks came to $1.2 million - 97 percent below the $41 million he made the year before. But it could have been worse. Morgan Stanley and Goldman Sachs were the only two of the big five Wall Street investment houses that survived the year.

In some cases, boards offered bonuses but CEOs turned them down.

Directors at General Electric wanted to give Jeffrey Immelt a bonus even though he missed every one of the six performance goals set for him, a list that includes revenue and earnings targets. The company explained in its proxy statement that Immelt "performed well in an extraordinarily tough business environment."

Immelt declined.

"Earnings came in well below where we expected. The broad equity markets, and GE's stock price, declined significantly in 2008," Immelt explained on the company's blog.

Robert Iger, head of Walt Disney Co., gave up a $2.4 million bonus. He was eligible for it partly because Disney stock, which fell 3 percent during its last fiscal year, was less than the S&P 500's 20 percent decline over the same period. (Iger still came in at No. 3 on the AP list for his total package - $51.1 million.)

Iger and others acted in the midst of populist anger over corporate riches at a time of growing economic pain for most of the country.

Already, the government is taking steps to limit bonuses and severance packages at companies that get bailout money. At the same time, those who set executive pay - board members, working with attorneys, corporate human resource officials and outside compensation consultants - are under increased pressure to clamp down, said Brill, the executive pay expert.

"Fear and self-preservation are great motivators," he said. "No one wants to be named in a lawsuit or in any way get negative publicity."

One of the nation's top pay advisers, Frederic Cook, is calling on companies to tie pay to long-term corporate performance, not short-term fluctuations in the stock price.

"The American public and their elected representatives will no longer support companies who put their executives' self-interests and net worth ahead of the company and its stakeholders," Cook said in a March 18 letter to his clients, including McDonald's, Gap and Eastman Kodak.

Some companies are scaling back, with boards or CEOs driving such decisions. Dow Chemical, which shuttered 20 plants and laid off 11 percent of its work force in recent months, gave CEO Andrew Liveris stock awards worth $5 million in 2009, down from $11 million in 2008. Southwest Airlines CEO Gary Kelly voluntarily reduced his base salary by 10 percent, which would bring it down to about $400,000 for 2009, and he won't get a raise until the company's earnings improve.

But some companies are making it easier for executives to come out winners. Some are raising salaries. Others are tossing out old performance factors that tied pay to stock returns and profits and replacing them with measures some pay experts say are easier to achieve, such as revenue and cash flow targets.

Chip maker Altera said it will let the board weigh "significant individual contributions" to justify executive bonuses even when the company "fails to meet a challenging financial performance metric."

Altera also boosted the number of shares of restricted stock given to top executives because their current value is considered too low to retain them. CEO John Daane will be eligible for up to 250,000 shares this year, versus 100,000 in 2008. He stands to make about $2.4 million more from the larger grant, based on the current stock price of about $16.

Given these crosscurrents, it's too soon to say what happens next to executive pay.

Earlier this decade, public outrage followed corporate scandals at Enron and WorldCom, but attention shifted away as the stock market and economy rebounded.

"Every time we are in a crisis, you hear this is it for CEO pay," said RiskMetrics' Bowie. "The reality is, when the crisis passes, things tend to go back to business as usual."

Associated Press Writers Erin McClam, Nicoletta Ratti, Vinnee Tong, Erin Conroy, Tali Arbel and Chris Kahn contributed to this report.

Copyright 2009 Associated Press. All rights reserved. This material may not be published broadcast, rewritten, or redistributed

Apple appears to be preparing an all-out assault on the handheld gaming market, moving to snap up gaming industry insiders from Microsoft to go with its growing team of graphics-chip specialists.

News that Apple has poached Richard Teversham from Microsoft's Xbox business this week is only the latest sign Apple has gotten serious about the gaming business. Teversham, who was senior director for insights and strategy at Microsoft's Xbox Business, drove the "three year strategy for the Xbox business" in Europe, the Middle East and Asia, according to his LinkedIn profile.

Earlier this week Apple ( AAPL - news - people ) hired Bob Drebin, chief technologist at Advanced Micro Device's graphics group and the creator of the Nintendo ( NTDOY.PK - news - people ) Gamecube's graphics processor.

That move came as IBM ( IBM - news - people ) chip designer Mark Papermaster began his role as head of Apple's iPod business last month after a long legal tussle with IBM.

Apple is also putting some of its huge pile of cash into semiconductor technology. In December, Apple purchased 3.6% of U.K.-based ImagInation, licensing its PowerVR graphics technology. And last year Apple purchased processor designer PA Semi for $378 million (See "Apple Buys Chip Designer ").

Where will those investments be put to work? Apple Chief Executive Steve Jobs said in an interview last year that he plans to put his PA Semi designers to work building silicon for the company's iPhones and iPods. And while Apple keeps its hardware roadmap to itself, iPhone developers such as Damon Allison figure the iPhone and iPod's hardware will evolve in at least three areas.

First, the iPhone will almost certainly get a better camera and multi-media capabilities. That could unleash a new generation of applications that integrate video and still images into games and social applications, as Nintendo's new DSi has done.

Second, sooner or later the iPhone and iPod touch will get a new, faster processor, most likely an ARM-based design customized by Apple's in-house designers. The result will be snappier, better looking games.

Third, Apple will experiment with new form factors, launching a netbook or tablet computer that may use the same software that powers the iPhone and iPod touch. Such a device might be a terrible phone--it's hard to imagine shoving a 10-inch screen in your pocket--but it could be an ideal platform for games and social networking.

Of course, guessing what Apple will do next is a tricky business. The problem with Apple is that while it appears to plan long-term--keeping projects such as its 2005 shift to Intel ( INTC - news - people ) processors under wraps for years-- it says very little about even its short-term plans.

However, talk to a few of the thousands of developers who have flocked to build software for Apple's iPhone since last year and they'll say that Apple's instructions have always been very clear: Build your applications so that they're compatible with different screen resolutions and screen sizes.

"Apple has told us from the beginning to be sure to write our new software in a way that will accommodate different resolutions and screen sizes," Tapulus Chief Executive Bart Decrem says.

Translation: Today's iPhone applications will be appearing on bigger, sharper displays sometime in the future.

And those developers are building applications that are wildly different from the quick and casual games that have appeared on mobile phones in the past.

That's in part because of the device's lack of buttons. Neil Young, chief executive of gaming startup Ngcomo, is betting that the iPhone's touch screen can handle more complex, fast-moving games than are found on today's mobile phones or handheld gaming consoles possible. "You've got a lot more fine control," Young says. "It is a very precise interface."

So he's betting big on a pair of games based on genres that have had mediocre success, at best, on small gaming devices. "Live Fire," slated for later this year, is a fast-moving shoot 'em up. Then there's "Star Defense," a real-time strategy game where players protect a planet from swarming invaders.

Such games are certainly a preview of what's to come as developers continue to explore the iPhone's possibilities. They might also be the best hint at where Apple's hardware could go next.

Shares of some top media companies are mixed at noon:

Disney ( DIS - news - people ) fell $.69 or 3.2 percent, to $21.21.

 Times fell $.03 or .6 percent, to $5.35.

News Corp fell $.02 or .2 percent, to $9.10.

TimeWrn rs rose $.14 or .6 percent, to $21.97.

Viacom ( VIA - news - people ) fell $.30 or 1.5 percent, to $20.36.

Copyright 2009 Associated Press. All rights reserved. This material may not be published broadcast, rewritten, or redistribute

Steve Jobs: Nobody Loves Me

Steve Jobs, adulated gadget hero, was feeling underappreciated not too long ago.

Steve Jobs, the man rolling out iPods, iPhones and cool computers to millions of adoring customers, once felt he wasn't getting enough respect--from his own board of directors. That, at least, was what he told the Securities & Exchange Commission while explaining his actions in the Apple option-backdating scandal that broke in 2006. The scandal, which was part of what caused Apple then to take an $84 million earnings writedown, raised questions about whether Jobs had helped set advantageous grant dates for options for himself and other executives.

The secretive Jobs, 54, who was treated in 2004 for pancreatic cancer, has been out since January on a medical leave originally attributed to a hormone imbalance. Questions about his health and ability to return full-time--in June, Apple ( AAPL - news - people ) says--occasion much Silicon Valley gossip, especially among investors who consider him the main reason for the company's 1,000% stock rise since 2001.

sec lawyers grilled Jobs last year as part of a backdating lawsuit against Nancy R. Heinen, Apple's ex-general counsel and Jobs' longtime colleague. Without admitting anything, she paid $2.2 million to settle charges that she had backdated option grants for Jobs, herself and others, and ginned up bogus paperwork to hide the backdating, including minutes of a nonexistent Apple board meeting.

After a Freedom of Information Act battle, this magazine got a copy of Jobs' sworn examination. (Although Jobs and Apple were part of a separate shareholders derivative suit settled for $14 million, both avoided litigation.) The 119-page deposition, taken on Mar. 18, 2008 at Apple's Cupertino, California headquarters, offers a rare look at Jobs.

At some point in 2001 Jobs went to his board and asked for a big option grant. In the deposition Jobs said he had simply wanted a pat on the back. "It wasn't so much about the money," The Forbes 400 member told an sec lawyer. "Everybody likes to be recognized by his peers. … I felt that the board wasn't really doing the same with me." With all of his prior stock options underwater from the dot-com bust, "I just felt like there is nobody looking out for me here, you know. … So I wanted them to do something, and so we talked about it. … I thought I was doing a pretty good job."

Wouldn't it have been nice, he was thinking, if the board had come to him and said, "'Steve, we got this new grant for you,' without me having to suggest anything or be involved in anything or negotiate anything. … It would have made me feel better at the time."

Jobs testified that the board had approved an option on 7.5 million shares at an August 2001 meeting, when the share price was $17.83, but that he had continued to argue with directors about whether the options should vest immediately or over a staggered schedule. The debate helped cause Apple to miss deadlines for filing notifications with the sec and its own auditors.

On Dec. 18, 2001, according to the sec, Jobs and the Apple board finalized the terms of the grant to Jobs. Apple's price (not adjusted for subsequent splits) was now $21.01, but, the sec said, the grant was backdated to Oct. 19, when the share price was $18.30. The earlier date put him $20 million ahead. Jobs later swapped the options for restricted stock of lesser value.

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After the Dec. 18 action, the sec said, minutes of the Aug. 29 meeting were doctored to say the board hadn't yet okayed anything, and then minutes were created of a phantom Oct. 19 meeting approving the grant that day. The sec suggested that date had been picked because the stock price was close to Aug. 29's. Jobs testified he hadn't ordered any paperwork fabrication--which Heinen specifically denied doing, although much of it bore her name--and hadn't even learned about the sketchy board meeting until years later when the scandal surfaced.

Backdating an option is not illegal, but failing to disclose it can constitute securities fraud. There are also adverse tax consequences from a federal law requiring that big executive compensation be performance-based, which the awarding of in-the-money options would not be. Asked if the Apple board discussed option accounting treatment around this time, Jobs answered, "None that I recall."

He said an earlier 2001 grant to other Apple executives of 4.8 million options--also backdated--had been needed to retain top talent. "I was very concerned because Michael Dell ( DELL - news - people ), one of our chief competitors, had flown Fred Anderson, our CFO, down to Austin … to try and recruit him," Job testified. He said other Apple executives were also being wooed. Sued by the sec with Heinen in 2007, Anderson paid $3.3 million to settle, also admitting nothing. In a statement then, his lawyer said Jobs knew more about the backdating than he and Apple had let on. (Anderson is now a managing director at private equity firm Elevation Partners, which has a stake in Forbes Media.)

Jobs was not asked directly about the Anderson statement at the deposition. He acknowledged Heinen had sent an e-mail on Feb. 1, 2001, when Apple shares closed at $21.13, saying, "Steve agreed to go with Jan. 17," when the price was $16.81. That $4.32 swing put $20 million into the pockets of Apple executives. Jobs testified he had wanted to issue the options in early January, when the shares were trading at $14.88, but delayed because buzz from the upcoming Macworld Expo on Jan. 9 might bump up the stock price and he wanted to avoid criticism. Jobs said his "guess" was that Jan. 17 had been chosen because it was closer to the pre-Macworld price.

Overall, Jobs depicted himself as a bit of a rube when it came to accounting. Asked if he had a "general understanding" about Generally Accepted Accounting Principles, he answered, "Not really." To many questions Jobs simply responded he didn't know or couldn't recall. One hint about his health came near the start, when the sec lawyer said he had been told Jobs was "not feeling well." Replied Jobs, "I'm fine." At the end, told that the three-hour deposition was over, Jobs said, "Thanks. Thank you. My body thanks you."

Apple's New Era

The Jobs era has been defined by software. Is that changing?

We are caught in a pincer grip between intensifying competitive pressure and accelerating change in the landscape around us, creating enormous performance pressures. What we know today is becoming less valuable as we struggle with the challenge of innovating faster and learning faster to operate more effectively in these challenging times.

Mention learning to senior executives, and they tend to default immediately to training programs. Here's the problem: Training programs are effective only at transferring what we already know to others. How do we create powerful platforms jointly to innovate and develop new knowledge that no one had before?

For an answer to this question, executives would be well advised to look at World of Warcraft (WoW), a massively multiplayer online game. Few executives have heard of this game, much less participated in it, despite the fact that over 10 million players are active in it around the world. Upon hearing this, most executives are likely to respond that "that's an awful lot of pimply teenagers," falling back on a conventional stereotype about video game players. In fact, the majority of the players are in the 23-39-year-old bracket and are deeply engaged. The average player invests about 23 hours per week playing the game.

Points for Experience

In WoW, performance is measured in terms of experience points. Players accumulate these by performing a variety of tasks that become more challenging as the game progresses. As players accumulate experience points, they advance to higher levels in the game, culminating at this point in level 80 (a new add-on recently expanded the number of levels from 70 in order to keep experienced players challenged).

The degree of complexity and challenge increases dramatically as you advance across levels, and the number of experience points needed in order to advance also increases sharply with each level. Yet the number of hours required to get there actually decreases. Experienced players become adept at leveraging the resources available in and around WoW to learn faster and advance faster even as the challenges become more difficult. In contrast to the diminishing returns to learning that we often encounter in business, players in WoW appear to have joined an environment where there are increasing returns to learning.

As with many promising developments on the edge, it is often hard to discern how or why this might be relevant to those playing in core business arenas. WoW matters because it creates a powerful platform for learning, without a training program in sight. Many of the approaches used by WoW could be very helpful to business executives as they strive to improve performance more rapidly in their own organizations.

Bottom-line lessons for executives

Reduce barriers to entry and to early advancement

WoW is carefully structured so that anyone can join and quickly gain a sense of accomplishment. The early tasks are relatively simple, but novice players quickly learn to improvise and innovate in their approach to performance challenges.

Provide clear and rich metrics to assess performance

WoW provides players with an overall metric for performance in the form of experience points and levels, but it also enables players to assess in real time their own performance and the performance of teammates along a variety of dimensions. One of the key innovations in the game offers players the ability to craft personal "dashboards" to monitor their performance on certain tasks. Corporations have begun to offer senior executives dashboards to monitor key aspects of corporate performance.

What if these dashboards were made available to everyone in the company? What if these dashboards could be designed and tailored by the individual employee? What if these dashboards provided real-time feedback on individual performance as well as the performance of the broader group? What if this feedback was visible to everyone and not just the individual contributor? Within WoW, this real-time performance feedback helps players to focus their innovation in game play on the areas with greatest impact.

Keep raising the bar

WoW designers have constructed an environment that continually challenges players to develop new skills. Complacency and boredom are rarely encountered, but neither is frustration, since challenges are thoughtfully calibrated to the existing capabilities of players. The next rung of achievement is just in sight, motivating players to invest the time and effort necessary to achieve that next level of performance. In the real world, companies, particularly those pursuing high growth strategies should provide a continuing set of new challenges to drive innovation by their employees.

Don't neglect intrinsic motivations

Talk about incentives in a business context, and the discussion quickly falls back to cash. With minor exceptions, cash is not an incentive to play WoW, so the designers focused on intrinsic motivations. Players get widespread recognition as they master new skills and successfully address each new challenge. As the game advances, players learn to collaborate and participate in "guilds"—teams of players who must work together to innovate in their game play and achieve the next level of performance. As relationships and trust develop within these teams, everyone is motivated to innovate by the desire not to let the team down.

Provide opportunities to develop tacit knowledge, but do not neglect broader knowledge exchange

The guilds foster the relationships and trust required to generate new tacit knowledge—the kind of knowledge that cannot be easily expressed and develops through shared practice. This is where most of the innovation in game play occurs.

At the same time, the game has generated a rich ecology of online forums where players can share experiences, post requests for help in addressing new challenges, and learn from each other. These forums provide a "pull" platform where players encountering unanticipated needs can quickly reach out and assemble helpful resources. In contrast to knowledge management initiatives in more conventional corporate environments, a significant part of a player's recognition and status accrues from participation in these forums. In fact, these forums have become a primary vehicle for identifying high performing players to be recruited into guilds.

Create opportunities for teams to self-organize around challenging performance targets

Participation in guilds in WoW is not mandated from above. Players naturally coalesce into guilds as they move into more advanced levels because they realize they cannot accomplish the tasks without collaborating with others with complementary skills. Teams have become important organizational units within companies, but how many of these teams are self-organized? By giving teams the autonomy to recruit new participants and—equally importantly—expel participants who are not carrying their weight, companies can significantly increase the accountability and motivation of teams.

Encourage frequent and rigorous performance feedback

WoW designers built in detailed performance metrics specific to the individual, the role, and the guild. These provide a foundation for regular after-action reviews where all the participants come together after a major initiative to review how they performed as individuals and as a team. The key focus is on how they can do better. This is a catalyst to innovation in game play as players can see performance gaps that are holding back the progress of the team.

These 360-degree performance reviews ensure that everyone from the guild leader down to the newest member receives feedback. Unlike the 360-degree reviews that have begun to crop up in a corporate setting, the reviews are based on objective, quantified performance metrics and visible to all participants. In this environment, poor performers at all levels have a strong incentive to address performance gaps in order to avoid being sidelined in future initiatives.

Create an environment that rewards new dispositions

WoW not only encourages players to develop new skills; it fosters a new disposition. WoW has created a compelling environment that naturally attracts participants interested in gaming, but it also enhances and rewards their dedication over time.

This encourages players to seek out new challenges as an opportunity to innovate and learn faster. Rather than viewing the unanticipated as a threat, gamers learn to welcome unexpected events as an opportunity to innovate, tinker, experiment, and, in the process, learn even more.

They also learn to welcome collaboration as an opportunity to learn faster by focusing on a set of individual strengths while being exposed to the diverse perspectives and experiences of those with complementary strengths. At the end of the day, this is the most powerful contribution of WoW. This disposition creates an amplifying effect throughout the game. Players seek out other players who share this point of view, and they end up performing better than players who bring more conventional ideas to the game.

Companies seeking to thrive in a world of increasing uncertainty and accelerating change will need to foster this disposition among their own executive team and employees. They would be well advised to take a closer look at World of Warcraft, both in terms of the approach taken to foster this disposition and as a potential recruiting ground for employees who can bring this attitude and approach into the company.

Ahead of the Bell: Apple to post 2Q earnings

Apple Inc., maker of Macintosh computers, iPods and the iPhone, is expected to report a small drop in quarterly earnings after the closing bell Wednesday as the economic downturn and an anticipated replacement for the iPhone compounded a seasonally slow quarter.

Analysts surveyed by Thomson Reuters expect Apple ( AAPL - news - people ) to earn $1.09 per share on $8 billion in sales.

U.S. Mac shipments slipped about 1 percent in the quarter, according to researchers at IDC and Gartner Inc. ( IT - news - people ) Analysts are divided on whether the Cupertino, Calif.-based company sold as many iPods, iPhones and Macs as expected.

Investors will parse Apple executives' comments for evidence that a new iPhone is being readied for June. Rumors point to an announcement at a developer conference.

They'll also be looking for word that Chief Executive Steve Jobs will return from medical leave at the end of June as planned. Jobs, a survivor of pancreatic cancer, in January said his health problems were more complicated than an easily treatable hormone imbalance.

Cost-cutting and the lure of the iPhone softened the effect of the weak economy at AT&T Inc., helping the country's biggest telecommunications carrier beat analyst estimates for the first quarter.

AT&T said Wednesday it earned more than $3.1 billion, or 53 cents per share, in the first three months of 2009, down 9.7 percent from almost $3.5 billion, or 57 cents per share, a year earlier.

The earnings were reduced by 5 cents per share for increases in noncash pension and retiree expenses. Excluding that item, the earnings were 58 cents per share. The average estimate of analysts polled by Thomson Reuters, which generally excludes items, was for earnings of 48 cents per share.

Despite strong wireless sales, AT&T says revenue slipped to $30.6 billion from $30.7 billion a year ago. That was short of analyst expectations at $31.1 billion.

Revenue fell because the weak economy exacerbated the long-running decline of AT&T's landline business. Sales of traditional fixed phone service fell 12.2 percent to $8.7 billion.

AT&T shares rose 32 cents, or 1.3 percent, to $25.60 in morning trading.

Even as revenue declined, AT&T improved its overall profit margin slightly, helped by the continuing process of integrating BellSouth Corp., which it bought in 2006. It has also reduced its work force by 8,000 people since the beginning of the year, mainly by cutting jobs on the wired side of the business. It had 294,600 employees at the end of the quarter.

AT&T added a net 875,000 customers under contract in the first three months of the year, hundreds of thousands more than expected by analysts. Of the new customers, about three-quarters chose the iPhone, for which AT&T is the exclusive U.S. carrier.

The iPhone has been a drag on AT&T's earnings since last summer, when the latest model, the "3G," launched. AT&T has been subsidizing each phone by hundreds of dollars, with the aim of making its money back on service fees, since iPhone users pay 60 percent more per month than other customers.

That strategy started to pay off in the first quarter. Margins in the wireless business are now back almost to where they were before the launch of the iPhone 3G, despite the sale of 1.6 million iPhones in the quarter. The sales figure includes customers switching from other AT&T phones. Sales were down from 1.9 million from the fourth quarter, but were strong for a non-holiday quarter without a new iPhone model.

Apple Inc.'s phone also helped AT&T avoid getting caught up in a trend analysts are expecting to see this year: more customers signing up for prepaid service than for expensive contract-based plans. Only a quarter of new subscribers at AT&T chose prepaid in the quarter, compared to more than half at T-Mobile USA.

Two segments of AT&T's landline business also did well. Its cable-like TV service, U-Verse, signed up 284,000 subscribers, for a total of 1.3 million. It added 359,000 subscribers to wired broadband, a performance that bucks years of declining numbers in a saturating market.

Over the past 13 years, Sun Microsystems' Java language has become one of the computer industry's best known brands—and underappreciated assets.

The tension wasn't lost on Sun's new owner, Oracle (ORCL), which on Apr. 20 said it will purchase Silicon Valley pioneer Sun (JAVA) for $7.4 billion in cash. If Oracle has its way, Java will emerge not only as a strong revenue source but also a key component of plans to keep customers loyal for years to come.

During a conference call with analysts on Apr. 20, Oracle CEO Larry Ellison called Java "the single most important software asset we have ever acquired." It's a bold statement from a chief executive who has spent in excess of $40 billion to buy more than 50 software companies since 2005.

Powering PCs and Cell Phones

Ellison is willing to make that call because the Java programming language, widely used to write much of the world's business software, is a key ingredient in Oracle's recipe for ensuring the many products it has already acquired work smoothly together. Java also runs on 800 million PCs and 2.1 billion mobile phones. PC makers and cell-phone vendors, including Nokia (NOK), pay royalties to license the software. "When you look at those numbers, they're enormous," Citigroup (C) analyst Brent Thill says of Java's potential. "Oracle looks at this and says, 'This could be a $1 billion business.'" Yet Java supplied just $220 million of Sun's $13.9 billion in 2008 revenue. "Java is the most valuable brand in software that has no value," says Joshua Greenbaum, principal of industry analysis firm Enterprise Applications Consulting.

Oracle hopes to wring value from the deal in part by cutting costs to make Sun's hardware and software businesses profitable. Oracle also wants to sell Sun's Solaris operating system and servers in tandem with its market-leading database software. Citigroup's Thill estimates Oracle could cut between 40% and 70% of Sun's roughly 33,000 employees. Excluding restructuring costs, Oracle expects Sun to add $1.5 billion in profit during the first year after the acquisition closes this summer, and another $2 billion the following year. Oracle executives declined to say how many jobs would be eliminated.

Buying Sun gives Oracle access to popular software it can wield against its competitors. In addition to Java, Oracle gains Solaris, widely used in industries including telecom and finance. Oracle also picks up the MySQL database, which is available free under an open-source licensing arrangement, and could help Oracle check sales of Microsoft's SQL Server database to smaller companies. "Sun is not a well-managed company," says one industry executive familiar with its business. "But it does have assets that can become lethal weapons for the one owning them."

Little Hardware Experience

But to gain those assets, Oracle also has to take on a hardware business, something it has little experience running. Ellison will have to make a success of Sun's server business, which has been losing money. Oracle has made its own forays into the hardware business, striking a deal with Hewlett-Packard (HPQ) last year to produce servers designed to provide a performance boost to Oracle databases that run on them.