There aren’t many things you can get for just $1 these days—a small bottle of water, a lottery ticket, maybe a toothbrush. And in some instances, a CEO.
Indeed, while the average base salary for CEOs of large US companies keeps rising each decade, more than a dozen head honchos of Fortune 1000 firms in that time have basically taken a pass on an annual salary, usually preferring instead to ride up the value of the stock they picked up as the founder-CEO of their company. These include some big names, from Tesla’s Elon Musk to Facebook’s Mark Zuckerberg to Oracle’s Larry Ellison; and certainly, in an era with such intense public scrutiny on corporate-leader pay, they seem like a good deal for boards.
But according to several analyses, their performance results are not quite so rosy. Indeed, while the $1 breed may be getting some good PR, they often don’t get the same kind of outsized shareholder returns that some other lesser-known and more conventional earners do. In the most recent full year, for example, the stock value for the companies in the $1 CEO group fell 13%, roughly double the drop of the S&P Index, which fell 6.6%. Other years have been similarly off, although in the first half of this year, the group is doing better than the broader market.
“These typically are not pay packages dictated by a compensation committee,” notes Irv Becker, vice chairman of Korn Ferry’s Executive Pay and Governance practice. “It’s usually the CEO-founder starting with the principle, ‘It doesn’t make sense to be rewarded with annual compensation.’ It’s personal and cultural.”
Though the concept seems novel, the $1-a-year pay phenomenon has something of a rich history. The first recorded case, according to Wikipedia, goes back to wealthy Pennsylvanian forester Gifford Pinchot, who served as the first chief of the US Forest Service under President Theodore Roosevelt for an annual $1 salary. The move spread in following decades to some wealthy individuals overseeing their own firms, and most notably gained attention during the financial crisis in 2008, when the CEOs of the Big Three automakers vowed to lower their pay to a buck in exchange for government bailouts.
The practice also picked up some buzz in Silicon Valley, but the noblesse oblige that many of these leaders cited wasn’t always the driving factor. “The compensation dodge here is that the rise in stock value is taxed at a capital gains rate, half the rate of income tax,” says University of California, Los Angeles law professor Steven Bank.
Becker says that from his standpoint, the $1 CEO is just too rare a breed to learn much from. “You can’t broadly make determinations about their significance,” he says. Robin Ferracone, author of Fair Pay Fair Play and the founder-CEO of Farient Advisors, concurs with Becker and suggests instead that the “big value in the $1 CEO is the messaging: ‘My interests are aligned with shareholders’ interests.’”
On more solid ground, some experts say, are directors who hire CEOs whose compensation packages are skewed more heavily toward long-term incentives. Many boards are in fact already successfully doing so, Becker says.
Indeed, Korn Ferry compared the shareholder return of 300 major companies from 2016 to 2018 against the amount of long-term incentives the CEOs were paid in 2018. CEOs of companies within the top third of shareholder performance received a combined total of $15 million in long-term awards, three times more than what CEOs of the worst-performing companies got. “This shows compensation committees are designing pay-for-performance packages that work,” says Becker. “Now the focus is on goal setting and results.”