The $1 CEO

This past week Meg Whitman (formerly CEO of eBay) was hired to take over as CEO of Hewlett-Packard (HP).  In light of the Harvard article by former P&G CEO A.G. Lafley, I thought it was interesting when it was announced her salary would be $1 with potentially $1.9 million stock options (albeit with a 1st year bonus of about $3 million).

What I didn’t know was that one dollar salary for CEOs has become sort of a common idea.  In fact, some of the most popular companies in the world had CEOs embrace the idea of making their income directly related to their results: Apple’s Steve Jobs, Google’s Eric Schmidt, and Ford’s Alan Mulally offered when they were facing Chapter 11 or a federal government bailout.

While for these CEOs salary isn’t an issue, it is nice to see that some are taking the steps that Lafley describes in putting an emphasis on company results (via stocks and stock options) and less on exorbinant salaries.

This entry was posted in Business, Cases (Real World), Equality and tagged , , , . Bookmark the permalink.

12 Responses to The $1 CEO

  1. jordi says:

    How does an all stock compensation avoid the kind of short-termism we saw in the Enron and AIG cases?

    • Cander says:

      In Whitman’s case, it appears that there are stock options she cannot use if certain performance levels (LA Times link from above).

      However, this is why Lafley made it a point of emphasis that CEOs must also retain a certain amount of stock into their retirement in order to help ensure healthy growth. I was unable to find whether this was a criteria in Whitman’s new contract.

      • MDHarbin says:

        Stock options require the CEO to retain a vested interest in the company at all times because their livelihood depends greatly on the stock price. However, with the Boards of Directors today, which hold final say, the CEO is not always in control of his/her own destiny. Stock compensation may seem like a quick solution to short-termism, but long-termism should last for hundreds of years instead of just through the cycles of leadership.

      • Jordi says:

        Heart the Lafley connection.

  2. I had no idea this was a form of “salary” for managers, much less that it was becoming a common practice! I agree with your analysis and the answers made in responce to Jordi’s question. So interesting. A CEO can’t just be sitting at the top getting paid: he/she has to be invested in the company as they earn money only as it does. This also gives newly found trust to the public/the company’s employees in our “democratic capatalism” as Lafley noted.

  3. meghancrawford says:

    I think this is a very smart decision made by the companies you mentioned. For me incentives are very important, if I am not getting graded on something in class my performance may not be as strong as if I know it will affect my overall grade. I feel this is complementary to most jobs, if your salary depends on your performance, you most likely will work much harder at your task rather than if you had no incentive to do well at all.

  4. csmb12 says:

    I agree that having CEO’s invested financially in the company is good, but where does this form of pay end? Should all executive officers get $1 and have only stock options? If the purpose of this pay system is to make sure that the heads of the company keep a vested interest in the company, couldn’t this get applied to managers? What if managers were told that that their salary would be based solely on what their department made or how it performed? Though I am in favor of this form of payment for CEO’s, but perhaps not the only basis of payment. I think it is unfair to only pay on the basis of performance. Unless the CEO is neglecting his/her duties then that person is putting in time and trying to make the company better. Should the CEO make $1 just because the economy is bad and the previous CEO left the new one with a large amount of bad debt?

  5. RickE says:

    I also think that stock option based pay should become a greater percentage of your pay as your position in the company rises. When you are just starting out in a large company your work has little impact on the overall performance of the company, so monetary based compensation is fine. However, as one is promoted in the company, they have more and more of an impact on the company as a whole and thus their compensation should have more of a basis in stock options.

  6. cornerback5 says:

    Whhooaa!!! This is interesting. I actually never knew that CEOs were taking this initiative before in order to emphasize putting company interests first. I believe this is an excellent way to align the interests of CEOs with the interests of shareholders to ensure that CEOs do not act recklessly with their decisions.

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