There's a growing trend in large public companies for the CEO to accept a token salary of $1 per year. This gesture is supposed to signify that the CEO is more concerned about the health and well-being of the company than his or her own personal wealth. One of the first CEOs to announce this type of personal austerity measure was Lee Iacocca, the CEO of Chrysler hired to bring the company back from the edge of bankruptcy in 1979. The most reported recent example was Steve Jobs at Apple, whose stated goal was that he only prospered (through stock options) if the company did. In 2011, Hewlett Packard's new CEO, Meg Whitman, announced that she would also be receiving a single greenback every year.
However, $1 CEOs don't end up homeless because of their grand gestures. Some are actually among the highest-paid CEOs when all forms of compensation are taken into account. Here are three ways these executives remain wealthy.
The largest part of most public company CEO salaries consists of stock and option grants. Stocks can consist of common or preferred shares of the company, while options are contracts that allow the recipient to purchase stocks at a set price in the future. Boards of directors grant CEOs stocks and options to align the CEO's goals with those of the company. If the company rises in value, the CEO profits. If the CEO performs poorly and devalues the company, he or she also loses. Another benefit of offering stocks and options rather than cash is that it doesn't cost the company anything immediately, but it can dilute the value of the company to the detriment of existing shareholders. Companies that pay their CEOs $1 in salary can offer millions of dollars in options. For example, Larry Ellison, CEO of Oracle receives an option grant to purchase seven million shares of the company annually. His options from 2007 to 2010 were worth approximately $220 million dollars in early 2012.
The main benefit of a stock option grant to a CEO over cash is that it can be worth much more in the future if the company takes off. A secondary reason is that tax doesn't have to be paid on the value of the options until they are exercised and the stocks are subsequently sold. Even then, the transaction is treated as capital gains in most cases and taxed at a much lower rate than a large salary would be.
Insurance and Pension
While the cost of healthcare is unlikely to break a public company CEO, it is a benefit that can be worth quite a bit of money. CEOs often have gold-plated plans that cover anything medically necessary, including doctors' visits, prescriptions and emergency procedures. A CEO's compensation plan may also include life, travel, medical and disability insurance. Another common perk is a handsome retirement package. These packages can include employer-matched contributions, extended salary for several years and even the ongoing use of a private jet.
Companies can compensate their CEOs in many other ways other than handing them a paycheck. They can buy a house, pay for personal security for the house, provide the CEO with a company car or offer other amenities that benefit both the company and the CEO. Many of these perks are things that CEOs would otherwise have to pay out of their own pockets. In the late 1990s, Apple's board of directors gave Steve Jobs a $90 million plane to go along with his $1 salary and even reimbursed him with company funds when he had to use the plane for company business.
The Bottom Line
CEOs of public companies who accept $1 annual salaries are certainly not hurting in the wallet. They can increase their wealth in a myriad of other ways.
More From Investopedia