First, I owe some apologies to the Investor Uprising community for taking so long to get back in touch. Thankfully, business is doing really well. In fact, business is so strong, that I proudly announce that I, Michael Shmarak, Principal of Sidney Maxwell Public Relations, am reducing my take-home salary to one dollar.
That's right, folks, you read it here first. I've asked my Board to reduce my salary to twenty nickels, equally divided among each pay period for the remainder of SMPR's fiscal year, so that more money can be distributed to my employees and other stakeholders. Yes, my friends, life is good.
Reality check time, people: I have three kids to feed; I have a home; my company is not public. The only "Board" I report to is my wife (although I do share the financial success of the business with my team). If you didn't buy the pomp and circumstance that I was reducing my salary to a measly buck, then why should we believe any announcements from the vast number of CEOs who are making a big deal about the same thing?
For as much talk about transparency and accountability that we see and hear in this day and age, I just don't get why chief executives try to pull the wool over our eyes about the correlation about their salaries and the confidence of the business.
I was reading a white paper I found online from my alma mater about the consequences of CEOs taking dollar salaries. In it, the research team suggests that (among other conclusions) that a $1 salary suggests that the company has either had poor financial performance or might be going through some sort of crisis, and the CEO in question needs to save face. Look at NFL commissioner Roger Goodell, who made a big deal about his reduction in salary during the NFL lockout. Did Roger take any other steps to reduce the $10 million in bonuses and other compensation he earned last year? Did he give any money back to NFL Charities? Did he share his wealth with others on the NFL staff? Way to take one for the team, Commish.
If CEOs were really interested in the well-being of their companies and the performance of their people -- as they often tout in corporate reports -- why aren't they cashing in their options and bonuses, and placing those funds in a pool so people who need the money can access to it? You know, like the people who are struggling to make ends meet and live from paycheck to paycheck?
To me, this is more than a corporate communications play, based all around greed. CEOs don't make decisions by themselves. They take all the credit when things go right and blame everyone else when things go wrong. Then there are the few CEOs who fall on a proverbial sword, serving as martyrs to Wall Street and others who want to believe them. I recall the beginning of this year when Citibank (NYSE: C) announced CEO Vikram Pandit had his $1.75 million salary restored because the bank had become profitable again.
Pandit had said that his salary should be a buck with no bonus (GASP!) until the bank showed it was in the black. How nice of him to make such a gesture... considering he only made $10 million before making the announcement. In 2008, Pandit also received $79,706,630 from Citigroup’s purchase of Old Lane Partners, a hedge fund he co-founded. And he had to tap dance around the little issue that his company had purchased a private plane for his use... after receiving public bailout money.
Yes, Apple Inc. (Nasdaq: AAPL) CEO Steve Jobs famously takes home a salary of only $1 a year. But he's more than adequately compensated in shares and reimbursements. Though he still doesn't receive equity, he received $248,000 this past year for the use of his private plane for business purposes and owns 5.5 million of the company's stock.
Eric Schmidt only received $1 a year as CEO of Google (Nasdaq: GOOG). But after he stepped down to become the company’s executive chairman earlier this year, he got a pay raise... to $1.25 million, with the possibility of a target bonus of 400% his base salary. Oh, yeah: According to Forbes, Schmidt has a net worth of $6.3 billion.
The point is that $1 salaries are rarely what they seem (or what the company wants the public to believe). Take Jeffrey Katzenberg, CEO of Dreamworks Animation Inc. (Nasdaq: DWA). He only received a $1 salary this past year. But he also received $6,727,127 in stock and options.
Am I wrong here? Do you believe that CEOs are in the right about declaring $1 salaries while failing to mention their other forms of compensation? If this is OK, then we can all learn a few things about how to stretch a dollar as far as the truth.
If a company's stock is at one dollar, you can not tell it is good or bad without checking business fundamentals, like EPS, PE, ROE, etc. The same is for one dollar salary, it doesn't tell us anything till we check the comany's performance, CEO's equity holding, and other compensation, like private jet, interest-free mortgage, housing subsidy, etc.
Investors have been able to tell for a long time that a $1 salary has more than a few perks. I thought it was obvious that there are many forms of compensation beyond the salary. I guess it is good to remind people from tiem to time.
This practice annoys me. It reminds me of a sleezy person who tries to make himself look "good" by boasting that he attends Sunday church services. Just be honest! And while serious investors can tell the scheme, the average person may not--winning the company untold amounts of unwarranted good wiill.
Yes it really is misleading and I also agree that it has been a very effective means of winning the companies and the CEO's in question a lot of goodwill and favourable publicity. I think they should declare how much they actually make from other options like shares, bonuses and other allowances.
I do however like the idea of the CEO getting paid with stock options as long as the option remains the same through good and bad market conditions. It would act as an incentive to make the CEO more interested in making the company stock more valuable thereby benefiting him as well as the company and its shareholders.
The question is, what happens to the rest of that CEO's salary when he passes on it for just that $1? Even if they only take $1 in salary, CEOs are entitled to incentives like performance-based bonuses and stock options. And of course CEOs are rich and will still be rich even if they accept $1 in salary. Even "average" people realize this.
But if CEOs want to make a fuss about their $1 salary, they should also donate what they would have earned into a fund, say, to help support families of recently laid-off workers, or to help offset the costs of healthcare that the company's shifted to its workers more and more.
I agree, the $1 CEO salary is a gimmick; nothing more than a marketing ploy to buy investor confidence.Investors should question where the money goes that would have otherwise been the CEO’s salary.If CEOs want to build some tangible goodwill, their foregone salary should go back to the employees to offset rising healthcare cost, that are continually passed onto the employee, or to help those that have been laid off.Great ideas!
Even though "average people" might realize this, why does it have to be that way? If a company is tanking, does the CEO deserve his compensation? Why should he/she have a job when others are getting the ax for something they had little to do with?
CEOs now have the star status of a professional athlete or movie star. They get the big contracts no matter what. They're even more protected than the aforementioned highly paid folks. If a movie star stars in a really bad bad movie that tanks at the box office, their career could be done. If a professional athlete gets the big bucks but then underperforms for the duration of that contract, then the chances of them getting that next big contract are really slim. If a CEO tanks a company, chances are some other sucker company will take a bet on them and hire them again.
Thank Michael for this well written piece. It's indeed a well known problem. I guess more people and investors understand this "trick", not sure why CEOs and thier boards are still doing this nonesense.
And Braodwawy, you are absolutely right. Even a CEO tanks a company, there are other companies are willing to hire him. But why? Those people are not stupid, the board members are supposed to be intelligent. They must have a reason to hire those under-performed CEOs. Maybe some people can shed some light on this puzzle.
“I've asked my Board to reduce my salary to twenty nickels, equally divided among each pay period for the remainder of SMPR's fiscal year, so that more money can be distributed to my employees and other stakeholders. Yes, my friends, life is good.”
Michael, it’s so nice of you and your decisions can make you unique across the industry. Even in recession time also, we had read that many of the CEO from government aided companies are drawing a huge sum as salary and perks. Your attitude and sympathy to the fellow co workers can motivate them to put more effort for the growth of your firm.
You might want to read the following paragraph about my stated position. It was a joke. I don't do well when a CEO takes a position like the $1.oo salary initiative; as you read the post a bit more you would see what I mean.
mlnivestor, you're right. It's easy to chalk that up to the "old boy's network" ... rich white men rehiring other rich white men. But there's got to be more to it. Perhaps it's because the ex-CEO can convince his new employer that he got a bum deal at his last company and deserves another shot to prove himself? After all, to be a CEO, you've got to be a pretty charismatic person, so they might be able to sway even wise and intelligent board members.
Greed does not begin or end with the CEO who is unwilling to sacrifice when times get tough.
I once sat in a meeting with more than a dozen people all earning well into six figures some of them seven figures.
After hearing plenty of angry talk about secretaries and assistants being laid off and how that would create more work for all of us I made a suggetion - why dont we all take a 5 percent paycut and help those people keep their jobs?
You could have heard a pin drop, not to mention the noose with my name on it being readied by the crowd.
The secretaries and assistants were all eliminated.
It wouldn't surprise me if the same people who you interviewed are now working in Congress, Asa.
Here's the thing about many CEOs--they think people are expenses, things that can get cut by a red pen. I know one admin asst who literally keeps the boss alive because of what she does for him.
I don't doubt that some employees and managers would be reluctant to take a pay cut in order to save the jobs of others...especially the more highly compensated employees. I do know of one instance, however, where positions were redefined and salaries reduced so as to avoid laying off staff memebers. OF course, this was as a non-profit organization and they tend to be a bit more sympathetic and responsive to their emplopyee needs than some for-profit corporations.
You're exactly right, Michael. I always thought the $1 salary was a cheap PR ploy when in fact most public CEO's derive most of their compensation with cheap stock options -- which buy the way can be taxed at a lower capital gains rate of 15% if structured a certain way.
John Chambers, CEO of Cisco, is a great example. He sold more than $100M in stock in 2010 while his Cisco shares went DOWN.
CEO's are flaunting their "$1 salalries" but aren't letting the public nor their employees in on the fact that they are being compensated in various other ways that allow them o still make millions of dollars...transparency, yeah right!
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