Analyst Alert
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Analyst Alert
2009 Proxy Season Foresights #7: The One-Dollar Base Salary
At a congressional committee hearing in the fall of 2008, Senator Jon Tester of Montana asked the three CEOs
present, Robert Nardelli of Chrysler LLC, Alan Mulally of Ford Motor Company and Rick Wagoner of General Motors
Corporation, if they would be willing to accept one dollar a year in salary until their companies started turning a profit
again. These same three CEOs, in what was widely regarded as a symbolic gesture, carpooled to the second day of
the hearing in a hybrid car only a day after each took privately chartered aircraft to the first session. But what about
taking one dollar in annual compensation? Is it also a symbolic gesture—an apparent sacrifice only dwarfed by gains
in other pay package components. Or is it a suitable prerequisite to receiving billions of dollars in taxpayer-funded
government assistance? How often are these “one-dollar” CEOs actually being compensated only a dollar for the
year?
Executive Summary
The Corporate Library tracked CEO compensation at 3,488 publicly traded companies in 2008. All data is taken from
company proxy filings prior to January 1, 2009. This data was analyzed to determine: 1) whether certain industries
were less likely than others to award executives with the cash compensation elements of base salary or cash bonus
in excess of one dollar, and 2) whether one dollar (or even zero dollars) in base salary actually leads to an overall
sacrifice on the part of the CEO recipients, or if amounts granted via other compensation mechanisms (like perks or
stock options) lessen the impact of what would then be just a symbolic belt-tightening. Key findings of this alert
include:
• Real estate is the least likely industry to compensate CEOs with a salary or cash bonus. This is a
result of compensation conventions that are typical among real estate companies.
• Eighteen CEOs who voluntarily served without salary or cash bonus in 2008 have a combined total of
almost $6 billion in stock of the companies at which they serve as lead executives. Their
stockholdings, as well as other forms of compensation, lead us to the conclusion that the voluntary
forfeiture of salary and cash bonus is largely symbolic, though there are some cases where the
gesture is more meaningful.
• Rick Wagoner, who resigned as CEO of General Motors (GM) on March 29, 2009, is slated to make a
one-dollar salary in 2009 after walking away with more than $21 million in pension and non-qualified
deferred compensation upon his resignation as CEO.
Methodology
The 41 companies analyzed in this study represent all chief executive officers in The Corporate Library’s coverage
universe who had a base salary of either zero or one dollar for the year as well as zero non-equity incentive
compensation (NEIC), the field designated for annual and long-term cash bonuses based on pre-determined metrics.
Other elements of compensation were then analyzed, including all other compensation and total actual compensation,
defined as follows: all other compensation (AOC) is a term which reflects perquisites as well as other compensation
arrangements, such as consulting or advisory agreements; total actual compensation reflects compensation received
by the CEO (rather than estimated earnings) and includes total annual compensation (base salary, bonus, NEIC,
AOC) plus change in pension and non-qualified deferred compensation (NQDC), value realized on exercise of
options, value realized on vesting of other equity, and payments from a vested retirement plan.
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CEOs By Industry
Fifteen companies that do not compensate with salary or cash bonus are in the real estate industry. More
specifically, 13 of these 15 are Real Estate Investment Trusts (REITs). Included in this industry are two companies
where the CEO received no total actual compensation and only one where the CEO received total actual
compensation in excess of $1 million. Several of these REITS are externally managed companies where the
executives are employees of the management company and do not receive additional compensation in any form from
the REIT for their service. The fact that 37 percent of the companies where the CEO does not receive a salary or
cash bonus are members of the real estate industry is more reflective of industry norms than any attempt to be
perceived as having executives who are sacrificing annual compensation.
There are also eight financial services companies that paid their CEOs no base salary or cash bonus. Of these eight,
Matthew Lambiase of Chimera Investment Corporation, Noam Gottesman of GLG Partners, Inc., and I. Joseph
Massoud of Compass Diversified Trust all received no total actual compensation. Other executives in the financial
services industry who received little by way of salary and cash bonus were compensated well in other areas,
however, such as all other compensation.
Mario J. Gabelli of financial services securities firm GAMCO Investors, Inc. earned more than $70 million in total
actual compensation for the 2007 compensation year. The entirety of his 2007 earnings was paid in all other
compensation under the terms of Mr. Gabelli’s management contract. (He made roughly $13 million described as an
“Incentive Management Fee as CEO and Other of GAMCO” and almost $58 million under the heading “Portfolio
Manager and Other Variable Remuneration.”) All other compensation payments were common among all industries
in the study. In fact more than half of these executives, or 21 out of 41, received some form of all other compensation
payment last year.
The CEO compensation package at Capital One Financial Corporation includes neither salary nor annual cash bonus,
but that isn’t to say CEO Richard D. Fairbank is not well compensated. Despite earning zero in base salary and cash
bonus, he accrued more than $73 million in total actual compensation when he profited by about $18.3 million from
the vesting of restricted stock awards and made another $54.8 million in stock option profits during the 2007
compensation year. Mr. Fairbank also has non-qualified deferred compensation (NQDC) of about $11.7 million
dollars, a sum not included in his total actual compensation. He is bested significantly in NQDC earnings, however, by
James E. Rogers of Duke Energy Corporation, who had no salary or bonus last year but has a deferred
compensation balance of more than $68.5 million according to Duke Energy’s 2008 proxy statement.
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Why No Salary?
The chart below details the various reasons cited by companies whose 41 CEOs did not receive a salary or cash
bonus.
Eighteen of the 41 CEOs voluntarily declined salary and annual cash bonus compensation for the year. These CEOs
serve firms that most closely parallel the automakers and analysis here might provide the best answer to the question
of how meaningful acceptance of a one-dollar base salary may be. Notably, it is important for a CEO to voluntarily
reduce his or her compensation as many have employment agreements that indicate that a reduction in salary without
such approval could constitute a breach of contract and provide “good reason” for that executive to claim improper
termination. Below is an entry from Fossil Inc.’s most recent proxy statement regarding the reduction in compensation
for its CEO:
“The Compensation Committee would typically establish the base salary, bonus and equity incentive
awards for the CEO, Mr. Kosta N. Kartsotis. However, Mr. Kartsotis refused all forms of compensation for
fiscal 2007. Mr. Kartsotis is one of the initial investors in our Company and expressed his belief that his
primary compensation is met by continuing to drive stock price growth.”
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Voluntary Reductions
Table 1 lists all 18 CEOs who voluntarily reduced salary and cash bonus to one or zero dollars last fiscal year and the
total actual compensation they received.
Table 1 - Voluntarily received $1 in Base Salary and Cash Bonus in 2008
Total Actual
Company Name CEO Name
Compensation
USANA Health Sciences, Inc. Myron W. Wentz $0
Compass Diversified Trust I. Joseph Massoud $0
Synutra International, Inc. Liang Zhang $0
FX Real Estate and Entertainment Inc. Robert F.X. Sillerman $0
Kinder Morgan Energy Partners, L.P. Richard D. Kinder $1
Yahoo! Inc. Jerry Yang $1
DreamWorks Animation SKG, Inc. Jeffrey Katzenberg $760
Fossil, Inc. Kosta N. Kartsotis $4,266
Globalstar, Inc. James Monroe $59,407
Allegiant Travel Company Maurice J. Gallagher $100,000
Emmis Communications Corporation Jeffrey H. Smulyan $412,767
Google Inc. Eric E. Schmidt $480,561
Home BancShares, Inc. John W. Allison $521,164
Resource Capital Corp. Jonathan Z. Cohen $747,881
Overstock.com, Inc. Patrick M. Byrne $1,164,928
Natural Resource Partners L.P. Corbin J. Robertson $1,677,904
Duke Energy Corporation James E. Rogers $6,254,996
Apple Inc. Steven P. Jobs $14,644,801
Clearly there are other financial awards occurring in a majority of these cases. These amounts often stem from all
other compensation, as was the case with John W. Allison of Home BancShares, Inc.; he accrued his $521,164
through all other compensation for the 2007 fiscal year. This figure was comprised of smaller perks such as the
$2,788 in gasoline reimbursements for his personal car, as well as amounts like $387,899 in supplemental retirement
payments. He was also reimbursed for use of a company pilot for personal trips in an airplane owned by Capital
Buyers, which is in turn a company he owns. Other examples of all other compensation payments include Eric E.
Schmidt of Google who was reimbursed $474,662 for personal security last year and Mr. Rogers of Duke Energy who
received $412,712 in relocation expenses and personal use of company airplane as well as $55,649 in tax gross-ups
related to his perquisites.
Even those six cases where the total actual compensation equaled zero or one dollar often have other means of
income at work that award these executives in other ways, such as equity grants and accumulation of shareholdings.
An example can be seen at Yahoo! Inc. Jerry Yang succeeded Terry Semel as CEO of Yahoo! in June 2007 after Mr.
Semel had also taken the one-dollar salary for the fiscal year. Mr. Semel earned more than $19 million in total actual
compensation in 2006 and was granted an additional $80 million in stock options. In 2005, he had stock option profits
of more than $173 million. In the 2008 proxy statement Yahoo! makes it very clear in management’s response to a
shareholder proposal that Mr. Yang is actually earning just one dollar:
“Mr. Yang, received a nominal annual salary of only $1 for 2007, continues to have a $1 base salary
rate, did not receive any bonus or other compensation from the Company in 2007, and was not
granted any stock options or other long term equity incentive awards by the Company in 2007.
Because he is one of our largest stockholders, a substantial portion of Mr. Yang’s net worth is already
tied to the performance of our stock.”
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As of the Yahoo! 2008 proxy filing, Mr. Yang owns 3.92 percent of the outstanding shares at Yahoo! with a 2008 year
end value of more than $644 million, excluding options and disclaimed shares.
CEO Stock Ownership
The chart below represents the beneficial holdings of the 18 CEOs who voluntarily received no salary or annual cash
bonus last year. Five of these executives own between 10 and 30 percent of their company’s common stock, three
more own between 60 and 95 percent and only four own less than one percent. These individuals typically have huge
wealth in the form of company stock, and will benefit massively on a personal level if the company’s fortunes improve;
they are not just “working for free” as their salary and bonus levels may appear to say.
Among the four CEOs who own less than one percent of company stock is Steve Jobs of Apple, Inc. whose
stockholding is, nevertheless, significant.
When a majority of Apple shareholders voted for a shareholder proposal to introduce an annual vote on executive
compensation, known as “Say on Pay”, in March 2008, Steve Jobs jokingly quipped to them, “I hope 'Say on Pay' will
help me with my $1 a year salary.”1 Despite a general adoration for their innovative leader, Apple shareholders were
expressing a desire to have input on not only his compensation, but other top executives at the company. Like Mr.
Allison of Home BancShares, Mr. Jobs owns his own aircraft, in this case a Gulfstream V jet given to him by Apple in
2000. He also earned $14.6 million in 2007 by exercising options that were on the verge of expiration, though he
typically does not sell off his shares. Mr. Jobs has taken a one-dollar annual salary since 1997 and, as of December
31, 2008, had beneficial holdings in Apple valued at more than $473 million.
1
Ellen Lee, “Apple shareholders OK 'Say on Pay',” San Francisco Chronicle, March 5, 2008, http://www.sfgate.com/cgi-
bin/article.cgi?f=/c/a/2008/03/04/BUT5VDFEC.DTL .
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Table 2 - Value of CEO Shareholdings as of December 31, 2008
Company Name CEO Name Value
Google Inc. Eric E. Schmidt $2,915,245,253
Yahoo! Inc. Jerry Yang $644,211,899
Apple Inc. Steven P. Jobs $473,389,593
Synutra International, Inc. Liang Zhang $396,720,000
Natural Resource Partners L.P. Corbin J. Robertson $316,202,446
USANA Health Sciences, Inc. Myron W. Wentz $284,275,956
Allegiant Travel Company Maurice J. Gallagher $211,064,966
DreamWorks Animation SKG, Inc. Jeffrey Katzenberg $207,428,325
Fossil, Inc. Kosta N. Kartsotis $159,911,501
Overstock.com, Inc. Patrick M. Byrne $73,579,041
Home BancShares, Inc. John W. Allison $68,445,238
Duke Energy Corporation James E. Rogers $23,232,283
Kinder Morgan Energy Partners, L.P. Richard D. Kinder $14,095,575
Globalstar, Inc. James Monroe $10,326,089
Compass Diversified Trust I. Joseph Massoud $3,281,254
FX Real Estate and Entertainment Inc. Robert F.X. Sillerman $2,573,169
Emmis Communications Corporation Jeffrey H. Smulyan $1,788,092
Resource Capital Corp. Jonathan Z. Cohen $1,772,620
Total $5,807,543,300
The auto executives participating in the bailout hearing do not have nearly the amount of accumulated wealth in
stockholdings as the 18 executives who voluntarily forfeited annual salary and cash bonus last year. Rick Wagoner of
General Motors owned shares valued at about $627,000 at the end of 2008, and Alan Mulally of Ford Motor Co.
owned no common stock at all. This is more a reflection of an executive’s inability to exercise stock options for profit
than it is a lack of equity grants. In 2007 alone, Mr. Wagoner was issued equity in the company with a grant date
value of almost $11.7 million; for Mr. Mulally the value was more than $12.4 million.
For both Mr. Mulally and Mr. Wagoner, the result of taking a dollar in salary and annual bonus in 2008 would have
resulted in about a 40 percent loss of total actual compensation for each of them.
Table 3 - Total Actual Compensation of Alan Mulally and G. Richard Wagoner in 2008
% of Total Actual Lost
NEIC Total Actual
Company Name CEO Name Salary With $1 Salary
Bonus Compensation
& NEIC Bonus
Ford Motor Company Alan Mulally $2,000,000 $2,993,846 $12,002,459 42%
General Motors G. Richard
$1,558,333 $1,802,000 $8,929,291 38%
Corporation Wagoner
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While 40 percent is indeed significant, it would have left them with millions left over and any perception that they had
been working for a dollar would have been incorrect. Rick Wagoner will be on the General Motors payroll for 2009
earning a one-dollar base salary according to a compensation statement filed with the SEC on March 5, 2009. He
retired from the company with a pension valued at $20,502,100 as of the most recent proxy statement as well as
$765,906 in non-qualified deferred compensation. He also has a vested interest in the future of GM with more than
three million stock options which have exercise prices ranging from $20.90 to $75.50 and expiration dates that extend
from 2009 to 2017. Though underwater at the moment, he has more at stake than just a dollar in the event the
company turns things around (in addition to the more than $21 million he is already getting to vacate his post as
CEO).
Conclusion
AIG Chief Executive Officer Edward Liddy has said that he will take one dollar in salary and bonus until the end of
2009; this as President Obama attempts to find a suitable way to rescind $165 million in bonuses to AIG executives.
Mr. Liddy’s sacrifice has done very little to ease the outrage of those who don’t understand why the people who
helped to bring AIG down are still getting millions of dollars.
The fact is that most of the executives who did not earn a salary or cash bonus last year were nevertheless increasing
their personal wealth in other ways, sometimes in addition to having significant stockholdings. In total, the 41 CEOs
examined in this study made more than $173 million dollars last year. A reduction in salary (a forfeiture of typically
between one and two million dollars) may be insignificant compared to monies received in perquisites and other
arrangements in management contracts agreed upon by the board of directors. While the public relations impression
is that these CEOs are working for a dollar a year, in most cases this simply is not the case.
Greg Ruel, Research Associate
April 15, 2009
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