The $1 Salary Creates Good PR, Fuzzy Math

 
 
By Deb Perelman  |  Posted 2008-02-28
 
 
 

The $1 salary-it sounds so noble, doesn't it?

In recent years, more and more executives at big tech companies have opted for a salary of mere pennies, choosing instead to base their pay on the performance of the company's stock-in other words, on the company itself.

Executives who opt for the $1 salary include Yahoo CEO Jerry Yang, Google founders Larry Page and Sergey Brin and its CEO Eric Schmidt. One of the most recognizable examples is Apple CEO and co-founder Steve Jobs.

Former Yahoo CEO Terry Semel did it in 2007, but this was after raking in $56.8 million in 2006. He was publicized as being the highest compensated executive in Silicon Valley. Executives outside Silicon Valley do it as well, at companies such as Capital One Financial and Pixar Studios.

Is it truly altruistic for top executives to volunteer for all but nonexistent salaries in a day and age when the compensation packages of many of their cohorts exceed the gross domestic product of some developing nations? As it turns out, the practice is a lot less unselfish than it sounds.

Nick Denton, publisher of Gawker Media wrote about these one dollar salaries with deep disdain on the tech gossip blog Valleywag last April.

"The token salary looks good in the press briefing; even if the rest of the package is obscene, it's too complex for reporters to arrive at a shocking headline figure," said Denton, who faulted business reporters with spinning these stories without looking at total compensation packages including pensions, perks and stock options.

The total pay packages of these executives painted a different picture, in which these CEOs with "dollar menu" salaries tended to be the highest paid.

When stock options were taken into consideration, Page made $1.5 billion in 2005 by exercising stock options, Brin made $1.45 billion (the two were tied as the fifth richest Americans in Forbes' 2007 list) and Schmidt made $557,466 in 2006. Jobs gained $14.6 million on paper by exercising stock options that were about to expire, according to the SEC. Semel made approximately $70 million in 2006.

None of these figures include the value of all the perks that come with being the top dog-planes, automobiles and more.

Denton argued one reason it would behoove Valley executives to be less boastful about their self-sacrificing salaries was that many see them as a tax dodge.

"Stock option gains are taxed, typically, as capital gains; the federal tax rate on that is 15 percent. If that same value was paid as orthodox salary, it would be taxed at 35 percent at the margin... It is a reminder that the stock-option-rich executive class is taxed at about half the rate of the wage slaves," wrote Denton.

Not all observers, however, have such negative reactions to the $1 executive salary. Some argue that it sends a message to employees and stockholders that being CEO is more than just a job to these people.

"I think you'll see that in almost all cases where this is exercised that you'll find people like the Google guys who are fundamental evangelists and absolutely proud of and committed to their firms. It may seem gimmicky, [but] this committed leadership makes their firms special," said Murray Beach, managing director with TM Capital, a tech-focused investment bank in Boston.

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