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Manuel Balce Ceneta/AP
From right: General Motors CEO Rick Wagoner, Chrysler CEO Robert Nardelli and Ford CEO
Alan Mulally

Dollar-a-Year Salaries: Cost-Cutting Measure or PR Stunt?

December 05, 2008 10:26 AM
by Anne Szustek
The Big Three automakers’ CEOs could be the latest to take $1 annual salaries. But what does the symbolic paycheck really mean?

Top CEOs Earning One Dollar

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When Chrysler CEO Robert Nardelli, General Motors CEO Rick Wagoner and Ford CEO Alan Mulally testified in front of Congress some two weeks ago, Rep. Peter Roskam (R-Ill.) inquired as to whether the heads of the Big Three automakers would take a pay cut, should they receive federal financial backing.

ABC News quoted Wagoner as saying, “I don’t have a position on that today.” Mulally’s response was “I understand the intent, but I think where we are is okay.” He continued, “I think I’m O.K. where I am.”

Indeed he is, if his total compensation last year is any indication. According to data provided by executive compensation research firm Equilar, Mulally pulled in nearly $22.8 million in 2007, making Wagoner’s total 2007 pay of $15.7 million seem paltry in comparison. Equilar reports that Nardelli’s total compensation is unknown, given Chrysler’s status as a private company. But according to the auto manufacturer, Nardelli makes $1 a year in salary, and doesn’t receive fringe benefits such as health care or insurance.

But for the CEOs of the two publicly traded companies, their 2007 salaries certainly make them among the top 25 percent for CEOs whose companies trade on the Standard & Poor’s 500, despite their companies ranking lower—GM at 190 and Ford at 233. The median annual total compensation package for S&P 500 CEOs in 2007 was $8.8 million, according to Equilar.

Yet on Tuesday, Mulally and Wagoner announced they were willing to change all that, agreeing that if their respective companies were to get federal bailout funds, they would accept $1 in annual salary.

“The plan calls for shared sacrifice, including further reduction in the number of executives and total compensation paid to senior leadership,” read a news release issued by GM. “The plan also requires further changes in existing labor agreements, including job security provisions, paid time-off and post-retirement health-care obligations. The common stock dividend will remain suspended during the life of the loans.”

The CEOs, compared to the auto factory workers who stand to lose their jobs, are still likely to pull in hefty returns, however.

Background: $1 salaries: The math and who earns them

The $1 salary has long been a symbolic gesture steeped in populism and a desire to spur good public relations. According to Equilar data, 32 CEOs of companies listed in the Russell 3000 had an official 2007 salary of either $1 dollar or no base salary at all.

But the real math behind the number works out to what is usually millions in stock options and grants.

Case in point: when Mulally signed on to Ford in 2006, his official annual salary was $1. His take-home pay, taking into account his whole payment package, was $7.9 million for the year.

Given that GM stock has dropped more than 80 percent this year and Ford’s more than 60 percent, their CEOs stand to make less this year.

“Wagoner's 2007 compensation package included $11.7 million in stock-based compensation, none of which he has cashed in because of the stock decline,” writes the Los Angeles Times. “Likewise, Mulally received stock grants and options valued at $12.3 million, but they are virtually worthless at Ford's current stock price.”

GM stock would need to go above $29.11 per share in order for Wagoner’s stock option to be profitable. Ford stock needs to rise to $7.55 per share for Mulally’s stock options to turn a profit.

This isn’t the first time the U.S. auto industry has seen a $1 annual paycheck. When Chrysler was struggling in the late 1970s and vying for a federal loan, CEO Lee Iaccoca took on a $1 a year annual salary.

Dot-com millionaires, energy titans and politicians have also adopted $1 official salaries, although their overall wealth is exponentially higher. Google co-founders Larry Page and Sergey Brin, as well as CEO Eric Schmidt, each earn the token salary. However, Schmidt controls shares of Google worth some $2.6 billion, and Page and Brin each earned about $1.5 billion in stock options in 2005.

Other big-name Silicon Valley dollar-earners include Yahoo CEO Jerry Yang and Apple CEO Steve Jobs. Since rejoining the company in 1997, Jobs made $14.6 million after selling off stock options in 2007, plus holds 5.6 million Apple shares, worth nearly $500 million. His private jet cost Apple an initial outlay of $90 million, plus the company pays Jobs when he uses the plane for official business. Last year that bill totaled $776,000.

A bit farther south in California, DreamWorks CEO Jeffrey Katzenberg made $1 last year, however he waived some $11 million worth of options and awards in connection with his extensive shareholdings in the company. 

Richard Kinder, the CEO of Kinder Morgan Energy Partners, pulled in slightly more than $1 million in stock options in 2007, in addition to his $1 salary. He has pulled out ahead in other pursuits as well—both business and personal. After being asked to leave his former employer Enron (where he was president) by Enron CEO Kenneth Lay (his classmate at the University of Missouri), he married Lay’s personal assistant.

New York Mayor Michael Bloomberg takes a $1 annual salary from the city, rather than the $225,000 usually paid to the holder of the Big Apple’s highest office. Bloomberg was asked to comment on the Big Three’s CEO proposal to do the same during a Wednesday question-and-answer session. “Well I take a dollar a year. I think it is good symbolism. It certainly doesn’t make any difference in the overall bottom line,” he said. 

Later at the session, Bloomberg said, “It is a nice symbol, but having said that, if the criteria is to hire the lowest priced management you can you’re not going to fix any company, you’re not going to fix this economy.”
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