Is Anyone Stupid Enough to Care if a CEO’s Salary is $1?

I am not sure if it is an actual trend or I am just noticing it more, but it certainly seems that more and more companies have CEOs whose salary is equal to $1/yr.  Whenever I see stories like this I always shake my head in utter disbelief that anyone actually cares.  It seems like a weird conundrum to me.  If everyone knows that it is a publicity stunt, then why does it garner any publicity or good will at all?

What CEOs Currently Earn a $1 per Year Income?

As usual, Wikipedia provides a pretty good starting point listing those CEOs who currently or in the past have taken a $1/yr salary:

  • Sergey Brin (Google)
  • Larry Ellison (Oracle Corporation)
  • Darren Entwistle (TELUS)
  • Richard Fairbank (Capital One Financial)
  • Lee Iacocca (Chrysler Corporation)
  • James Li (Syntax-Brillian)
  • Joseph Marinaccio (Slam Content)
  • Larry Page (Google)
  • Vikram Pandit (Citigroup)
  • Mark Pincus (Zynga)
  • Eric Schmidt (Google)
  • Henry Samueli (Broadcom Corporation)
  • Terry Semel (Yahoo!)
  • Pantas Sutardja (Marvell Technology Group)
  • Sehat Sutardja (Marvell Technology Group)
  • Meg Whitman (Hewlett-Packard)
  • Jerry Yang (Yahoo!)
  • Mark Zuckerberg (Facebook)

I am sure there are others that take a nominal salary like Warren Buffet who makes $100,000 per year.  As alluded to above, the problem with the $1/yr salary it is mostly just a publicity stunt done for goodwill.  For example, according to Quartz,

When Facebook went public last year, Zuckerberg exercised 60 million stock options, then worth nearly $2.3 billion, buying those shares for next to nothing. (He sold half of the stock to cover his tax bill.) And he’s still sitting on another 60 million stock options that can be exercised on Nov. 7, 2015, for the same dirt-cheap price of six cents

Lets say Facebook is $25 (as of this writing FB is at ~$26) a share at 60,000,000 shares that provides Zuckerberg with 1,500,000,000 (yes that is Billion) reasons to care whether the company increases in value.  So who really cares if he makes, $1 or, $5mil or $10mil per year.  It doesn’t mean anything to him in terms of his net worth nor is it likely to mean anything to Facebook as a company.

Facebook may not be a great example since it just went through the IPO process, and its CEO is the founder, but everyone on that list is still getting compensated even without the salary.  CHEAP OPTIONS FOR THE WIN!

For example I found this 2011 article about Meg Witman’s compensation package (HP):

Hewlett-Packard’s new CEO, Meg Whitman, will receive an annual salary of $1. Meanwhile, her ousted predecessor, Léo Apotheker, is walking out the door with nearly $10 million cash in severance and bonuses.

But don’t feel too sorry for Whitman: She’s eligible for millions in cash bonuses and stock options, according to HP’s regulatory filing late Thursday.

Whitman’s target bonus for HP’s 2012 fiscal year is $2.4 million, and she could get as much as $6 million if the company hits certain performance goals.

Her contract also includes an option to purchase 1.9 million shares of HP (HPQ, Fortune 500) stock, which fully vest if she’s at HP for three years. The exercise price on the options is $23.59, HP’s closing share price on Sept. 27, the date Whitman’s stock grant took effect.

That means Whitman’s HP stock options will only be profitable if the company’s share price goes up — and the shares will only fully vest if HP’s share price rises by at least 40%.

Her contract includes no special severance benefits if she is ousted beyond a lump-sum payment of 1.5 times her annual salary. That would net Whitman a grand total of $1.50.

That article was written in late 2011 – it worked out well for her as indicated in an early 2012 article about her compensation,

SAN FRANCISCO (MarketWatch) — Hewlett-Packard Co. said its new chief executive, Meg Whitman, received total compensation of $16.5 million last year.

The Palo Alto, Calif., technology company said in a recent filing with the Securities and Exchange Commission that Whitman received a salary of $1, about $16.1 million in stock options, and $372,598 in “other compensation,” which includes her pay as a director before becoming CEO and her use of the company aircraft, among other items.

When Taking a Dollar Salary Does Mean Something

From that same list I think there are situations when taking a dollar does mean something like when you are working for the government:

  • Arnold Schwarzenegger (former Governor of California)
  • Richard Riordan (Mayor of Los Angeles)
  • Michael Bloomberg (Mayor of NYC)

Then there are situations when you aren’t receiving any other additional compensation (although the increase in value of their current holdings may be considered compensation to some):

  • John Mackey (Whole Foods Market), who also does not take any alternative form of compensation (stock options, bonus, etc.)
  • Steve Jobs (Apple), also did not take any alternative form of compensation (stock options, bonus, etc.) from 2003 until his death
  • Richard Kinder (Kinder Morgan), also does not take any alternative form of compensation (stock options, bonus, etc.)

 

I should mention that I didn’t verify with regulatory filings any of the information in the article.

12 Responses to Is Anyone Stupid Enough to Care if a CEO’s Salary is $1?

  1. “People who care about $1 salaries don’t understand the difference in the tax code with regards to capital gains and salary.”

    Or, they are like California and see the difference, just don’t recognize it. Thanks for ignoring capital gains, CA!

  2. Sorry Journey but I can’t agree with your comments about Bloomberg, Schwarzenegger and Riordan. As a result of their esteemed position, those fat cats get inside knowledge of new developments, land deals, etc. I am very confident that they all get richer from being in these government positions. I am surprised you fell for that one!

    Regards,
    MG

  3. Mackey, Jobs and Kinder all have huge stock positions in the company so they will be handsomely compensated as the company does well. A long time ago, I worked for an owner who took very little in salary. There were a lot of perks that were not taxed such as his company vehicle which included maintenance and fuel. He would take out a different employee to lunch every day and writ off the lunch. There are a lot of these things we don’t even think about in terms of compensation.

    • Ha, Maybe, but probably not. At the net worth numbers we are talking about FICA taxes just don’t even matter. Since SS, for example, is capped at 110K then that is really only saving them 15K or so.

  4. CEO pay should be based on performance, which is (sort of) what they are doing by getting paid in stock options instead of cash. If they make a $5mil/year salary, they get that no matter what happens to the company, with a $1/year salary + stock options, they get nothing if the stock tanks and the company goes out of business.

    • Just no where near that simple. For example the first question is are we basing comp on short term or long term outcomes. A CEO can boost the stock by firing a ton of people but that may be a bad decision for long term growth.

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