Tuesday, January 09, 2007

$1 a Year Salary for CEO: Good for Stocks?

It may be hard to believe, but there are several Chief Executive Officers of publicly traded companies that are paid salaries of only one dollar a year. Obviously, they are compensated in other ways, usually through stock options or restricted stock. However, having that compensation gives the CEO’s very, very strong incentives to make sure the company does well and which would in turn help the price of the stock.
Some of the well known executives who are members of the “buck a year club” include Steve Jobs, founder and CEO of Apple Computer (AAPL) and Sergey Brin, Larry Page, and Eric Schmidt at Google (GOOG).
When analyzing the returns of six of these dollar a year stocks for the year 2006, it turns out that they were all up, with the exception of Yahoo (YHOO), and if you exclude Yahoo from the list, the average return for the group was up 14%, higher than the return for the NASDAQ at 8% and the S&P 500 at 12%. Yahoo probably should have been excluded since Terry Semel was paid at an annual rate of $600,000 per year for five months during 2006, according to Yahoo’s 10-Q Report. The following list shows six of the largest companies with dollar-a-year CEO’s.

Apple (AAPL) 13% Steve Jobs
DreamWorks (DWA) 18% Jeff Katzenberg
Google (GOOG) 6% Sergey Brin, Larry Page, Eric Schmidt
Kinder Morgan (KMI) 16% Rich Kinder
Univision (UVN) 18% Jerrold Perenchio
Yahoo (YHOO) -38% Terry Semel (1)

(1) In May 2006 the Committee approved a $1 base salary rate for Mr. Semel for the period from June 1, 2006 through December 31, 2006, as well as for each of calendar 2007 and calendar 2008. For the period from January 1, 2006 through May 31, 2006, Mr. Semel was paid at his 2005 rate of base salary, $600,000 annually.

Author owns AAPL, GOOG, and YHOO.


David J. Phillips said...

Aside from the statistical problem inherent in making inferences about stock performance from a finite population of six CEOs,when the 10Q Detective did its Due Diligence, we found that the purported one-dollar a year CEO is more myth than reality:

For example: KMI, Rich Kinder-Although this poster boy for “prudent’ executive compensation pays himself only one-dollar a year, he did earn $85.0 million in corporate dividends last year. And the only reason why the stock finished in positive territory in 2006 -- Kinder is buying the company for $107.50/share, up from $88.73 in December 2005.

But I enjoyed your posting!

David J Phillips, Publisher

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