What do Facebook’s Mark Zuckerberg, Snapchat’s Evan Spiegel and Alphabet’s Larry Page all have in common? Besides being CEOs of some of the world’s largest tech companies, they also all take a US$1 salary.
On the surface, it may seem counterintuitive for a CEO to reject a higher salary and accept a single dollar a year. But in the vast majority of cases, cash compensation is only one part of the total executive remuneration package CEOs will be receiving, with alternative payments such as stock options or performance-linked bonuses often being far more valuable.
By foregoing a large cash salary and being compensated in company equity, CEOs prove they are closely aligned with shareholders’ aims and inextricably link their personal financial performance to business success.
Tech companies account for around 60% of all businesses with a CEO who receives a $1 salary.
Other CEOs simply don’t need the income. “Many of the CEOs who elect a one-dollar wage are founders of their companies , so they probably have enough ownership in the company to a point where they do not need to be paid a salary,” says Courtney Yu, Director of Research at Equilar, an executive compensation research firm.
Ups and downs of US$1 salary club
Former Hewlett-Packard CEO Meg Whitman is a prime example of when a business leader is well-suited to take a one-dollar salary. When Whitman became CEO of HP in 2011, the company she joined was in dire straits.
Hewlett-Packard had removed Whitman’s predecessor, Léo Apotheker, after 11 months in his role due to falling sales and a misguided decision to purchase a software firm called Autonomy, which resulted is an almost US$9 billion write-off.
Whitman’s goal at Hewlett-Packard was to turn the technology giant’s fortunes around, with a token US$1 annual pay cheque and stock options that couldn’t be cashed out until Hewlett-Packard’s stock price reached 120% of the then-share price.
This showed stakeholders that Whitman would only receive a major payout if she produced substantial value for the company.
After improving the share price through cost-cutting and redundancies, Whitman received a performance-related bonus under HP’s Pay for Results scheme and saw her base salary grow from US$1 to US$1.5 million in 2013.