Making Sense of One Dollar CEO Salaries
Sophia J. W. Hamm
Ohio State University (OSU) - Fisher College of Business
Michael J. Jung
New York University - Leonard N. Stern School of Business
Northwestern University - Kellogg School of Management
May 3, 2013
We examine the determinants and consequences of CEOs accepting a $1 salary, a high-profile compensation practice debated by regulators, investors, and the business press. Using a hand-collected sample of 92 CEOs from 90 firms between 1993 and 2011, we document two distinct categories of CEOs: those opting into a compensation agreement that aims to better align CEO and shareholder interests, and those attempting to show sacrifice during a difficult time for the firm. A commonality between both categories is that many of the CEOs are also the chairman of the board, a founder of the firm, or both. However, the major differences are that CEOs in the first category, on average, receive more stock options, and stock returns after the $1 salary decisions are generally higher for firms in the first category, benefitting the CEOs (in terms of in-the-money options) and shareholders. Our analyses shed light on an interesting debate that has thus far been supported on both sides only by anecdotal evidence.
Number of Pages in PDF File: 43
Keywords: One dollar salary, CEO compensation, CEO salary
JEL Classification: M41, J33, G30, G32, G34working papers series
Date posted: March 27, 2011 ; Last revised: May 5, 2013
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