In the last few decades, a curious trend has emerged: A small but growing number of prominent CEOs have reduced their cash salary to $1.

That’s about 93 cents after taxes or 4 cents in bi-weekly paychecks.

The ranks include some of Silicon Valley’s most visible figures, including Mark Zuckerberg (CEO, Facebook), Evan Spiegel (CEO, Snapchat), Jack Dorsey (CEO, Twitter), and Larry Page, the recently departed CEO of Alphabet, Inc. 

This reduction in pay is typically symbolic, used by CEOs to broadcast an alignment of interests with shareholders during a rough patch. It’s also hailed as an altruistic act — a sacrificial, praise-worthy gesture that other employees should emulate.

Truth is, the $1 CEO salary often isn’t as selfless as it seems.

To understand why let’s start by taking a trip back to a time when business leaders made the bulk of their income from base pay and a salary cut actually meant something.

The origins of the $1 CEO salary

 

In the early 1940s, America was in the throes of planning how to keep the economy mobilized during WWII. Everyone was expected to do his or her part — and that included the nation’s top business leaders.

A number of big-time execs, like GE CEO Philip Reed and General Motors President William S. Knudsen, offered their services to the government for free. But since the law forbade Washington from hiring unpaid volunteers, these men were offered $1. They soon became known as the “dollar-a-year men.”

Decades later, the concept was adopted by a new crop of CEOs in the private sector — not as a symbol of wartime sacrifice, but as a gesture to shareholders.

The pioneer of this trend was Lee Iacocca, then-CEO of the ailing Chrysler Corporation.

Zachary Crockett / The Hustle

In 1979, Chrysler, one of the “Big 3” automobile companies in the US, was in dire straits. In the aftermath of the oil crisis, they were struggling to find the capital to address changing consumer tastes, demand for smaller cars, and increased competition abroad.

Iacocca decided to ask the government for help. To show that he was serious about turning things around, the CEO slashed his salary to $1.

When Chrysler secured $1.5B in federal loans and eventually re-stabilized, Iacocca was celebrated for “leading by example” and for exhibiting a “spirit of sacrifice.” And from then on, the $1 salary became the default PR move among wealthy CEOs looking to broadcast their willingness to cut back in tough times.

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During the dot-com crash of the early 2000s, a number of high-profile tech execs joined the $1 club.

Steve Jobs famously slashed his pay to $1 shortly after rejoining Apple and kept it there for more than a decade. James Barksdale (Netscape), John Chambers (Cisco), Tom Siebel (Siebel Systems), and Larry Ellison (Oracle) soon followed suit.

By 2006, it was so trendy for tech CEOs to take a $1 salary that the Los Angeles Times deemed the move “a new status symbol.”

Today, a selection of the country’s wealthiest CEOs carry on the tradition.

Zachary Crockett / The Hustle

But the “sacrifices” these CEOs are making are a far cry from those made by the dollar-a-year men in the 1940s.

The CEOs of yesteryear made significantly less money (adjusted for inflation), and the bulk of it was in the form of a cash salary.

By contrast, salary only makes up a tiny fraction of total compensation for today’s CEOs; modern executives’ riches come in the form of non-cash rewards, like stocks and options. Jeff Bezos, for instance, paid himself a salary of $81,840 in 2018, but his Amazon holdings increased by $24B, making him the only man on Earth with a 12-digit net worth.

Though the $1 salary is often hailed as some kind of benevolent act, these alternate forms of compensation often make it more personally beneficial than it’s made out to be.

The $1 salary ruse

 

For starters, research suggests that many CEOs who take a $1 salary are rewarded with stock, option, or bonus packages that match — or even outweigh — the cash they sacrifice on a pay stub.

One 2011 study of 50 executives concluded that the average $1 CEO gives up $610k in salary but gains $2m in other “not-so-visible forms of equity-based compensation.”

“We find evidence consistent with the view that $1 CEO salaries are a ruse hiding the rent-seeking pursuits of CEOs adopting these pay schemes,” wrote the researchers. “Rather than being the sacrificial acts they are projected to be, our findings suggest that adoptions of $1 CEO salaries are opportunistic behavior of the wealthier, more overconfident, influential CEOs.”

A similar study gauged the pay of $1 CEOs against non-$1 CEOs and found that, while $1 CEOs make about $1.6m less than their peers in total cash payments, they end up earning $3.5m more in alternate forms of compensation. (Note: We adjusted the figures in this 2011 paper for inflation.)

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Zachary Crockett / The Hustle

Steve Jobs, for instance, took a $1 salary every year from 1997 and 2011 — $15 in total cash pay. During that same period, his stock value increased from $17.5m to $2.2B and Apple rewarded him with a $90m private jet. In 2007 alone, he realized $647m from vested restricted stock, according to SEC filings.

Some other examples:

  • In 2011, Larry Ellison paid himself $1 but netted more than $77m in other forms of compensation.
  • In 2018, Kinder Morgan CEO Steve Kean took a $1 salary but was awarded stock valued at $16m.
  • In 2018, Capital One Financial CEO Richard Fairbank took $0 in pay but accepted stock worth ~$13 million, as well as a $4.2m bonus.

To be clear, we’re not talking about CEOs at small startups here. CEOs who take a $1 salary can afford to do so because they tend to be extraordinarily wealthy: 30% are on the Forbes 400 list of richest Americans, and the majority of them retain a much higher equity stake in their company than non-$1 salary CEOs.

The “generous” spirit of these CEOs also tends to expire rather quickly, with the average $1 tenure lasting around 3 years. For example, Meg Whitman took a $1 salary as the CEO of HP in 2011, but by 2013, her salary was back to $1.5m.

And remember Lee Iacocca? By 1983, he was the highest-paid exec in America, with a package worth $20.5m ($53m adjusted for inflation).

Zachary Crockett / The Hustle

One of the most frequently trumpeted benefits of the $1 salary is that it aligns the goals of a CEO and his or her company, incentivizing better leadership and resulting in stronger company performance. But even this isn’t often true.

In fact, firms run by $1 CEOs see returns on assets (ROA) and earnings that are 1% per month lower than those run by market-rate CEOs. The salary cut has little bearing on improving leadership in any meaningful way.

Of course, CEOs have varying motives for taking a $1 salary. But it seems likely that personal gain plays a role in some cases.

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“They get their pot of gold at the end of the rainbow, not at the beginning,” an industry analyst told the Atlanta Constitution in 2007. “They are more than willing to trade off short-term income in order to receive a longer-term share of the pie. That ends up being a hell of a lot more than the salary would have been.”

Or, as Slate’s Daniel Gross put it in 2003,  “It’s like a fat person who devours two pizzas a day forgoing the mushroom topping to cut calories.”

$1 or 1%? 

 

Another rationale for taking a $1 salary, posits one researcher, is that it serves as an excellent publicity stunt and deflection tactic.

In recent times, taking a smaller salary has become a way to “camouflage” any association with wealth inequality.

Since 1978, CEO pay has grown by 940%. In that same time period, the rest of us have seen a gain of only 11.9%. The average CEO in America now makes 278x the average worker.

Zachary Crockett / The Hustle

The bulk of these riches are made on “performance-based” CEO pay like stock and options, which are taxed at a lower rate than income.

Worse yet, thanks to a 1993 law passed by Congress, performance-based pay can be deducted from the firm’s taxable income. When CEOs take a tiny salary and transfer the bulk of their compensation to options, taxpayers are effectively subsidizing their gains.

So the next time your grandpa gives his stump speech about how “$1 won’t get you anything these days,” tell him he should’ve been a CEO.

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