Few $1-Salary CEOs Make a Buck as Ellison Gets $96 Mln

Few $1-Salary CEOs Make a Buck as Ellison Gets $96 Mln

The chief executive officers of software developer Oracle Corp. (ORCL) and watchmaker Fossil Inc. (FOSL) both work for a salary of a dollar or less a year. The only difference: $96.2 million.

That’s how much Oracle founder Larry Ellison really earned in fiscal 2012 when you count options awards and other extras, more than any other CEO in the Standard & Poor’s 500 Index. Fossil’s Kosta Kartsotis’ actual take-home pay: Zilch.

While CEOs with single-digit salaries are a rare breed, those who really work for nothing when other compensation such as bonuses is included are rarer still. These executives, sometimes big shareholders, only benefit if the stock rises or dividends are paid, an alignment of interests that appeals to some investors.“We’re looking for management teams that own a lot of the stock,” said Kenneth Stuzin, a Baltimore-based fund manager with Brown Advisory Inc., which oversees about $36 billion including Google Inc. (GOOG) shares. “We want them shoulder to shoulder with investors.”

Lee Iacocca started the trend in 1978 when he took charge of Chrysler with a salary of $1 to draw attention to his rescue effort for the failing carmaker, said Alan Johnson, founder of compensation consultant Johnson Associates Inc.

The practice hasn’t caught on widely. Chief executives of S&P 500 companies had salaries — cash pay excluding bonuses, options, retirement benefits and perks — that averaged $1.09 million last year, up 1.9 percent from 2011, according to data compiled by Bloomberg. The data drawn from more than 475 proxy filings as of April 22 shows compensation for the prior fiscal year and reflects about 50 companies that had more than one CEO during that period.

Rupert Murdoch

Rupert Murdoch, chairman and CEO of News Corp. (NWSA), earned a salary of $8.1 million, the highest on the index and double the $4 million for Wynn Resorts Ltd. (WYNN) CEO Steve Wynn, the second- highest.

The number of CEOs with salaries of $1 or less has remained stable over the last five years as some leave the ranks, such as Steve Jobs, the late co-founder of Apple Inc. (AAPL), and Yahoo! Inc. (YHOO)’s Jerry Yang, and others join, including Hewlett-Packard Co. (HPQ)’s Meg Whitman and Richard Hayne, the founder of Urban Outfitters Inc. (URBN) who was rehired.

Hayne rejoined Urban Outfitters to steer a turnaround. He retook the helm in January 2012 after an almost five-year absence as the Philadelphia-based clothing chain’s increased discounts caused profit to shrink to a four-year low in the prior fiscal year.

Urban Outfitters

As a founder and Urban Outfitters’ biggest shareholder — he holds 20 percent of the shares — Hayne has benefited from a more than 30 percent surge in the stock price since his return. For the fiscal year ended in January, he received a $1 salary and total compensation of $33,273, with most of that coming from the retailer covering his insurance premiums.

A board of directors sends a signal to shareholders when setting pay and a CEO can have a hand in crafting that message, said David Larcker, a Stanford Graduate School of Business professor who specializes in corporate governance and executive pay.

In a turnaround situation, CEO pay can be linked to the reviving fortunes of the company, while founders who hold considerable stakes may deem themselves wealthy enough already. At Oracle, Ellison’s compensation reflects a hard-driving culture where performance is rewarded handsomely, Larcker said.

“There’s a bit of mystery and magic in determining pay,” he said. “It’s not like you’re going into a laboratory where you know the recipe. There’s a lot of latitude.”

Deborah Hellinger, an Oracle spokeswoman, declined to comment.

HP’s Whitman

Hewlett-Packard’s Whitman, who took a $1 salary as she joined the turnaround effort at the computer maker in 2011, got $15.4 million in total compensation in fiscal 2012. That includes $7 million in stock, $6.4 million in options, $1.7 million in non-equity incentives, and $220,901 in other compensation. The personal-computer maker, which is using job cuts to bolster profit, has seen its shares fall more than 10 percent since Whitman joined the Palo Alto, California-based company in September 2011.

After Jobs died in 2011, Tim Cook became Apple’s CEO and took a salary of $1.4 million in 2012. His total compensation of $4.2 million that year was dwarfed by a $378 million package in 2011 that included $376.2 million in stock. Jerry Yang, a co- founder of Yahoo, stepped down in January 2009, ending its dollar-CEO era.

Google’s Page

Larry Page, who co-founded Google, earned a buck in salary and nothing extra in 2011 and 2012, according to the company’s April 24 proxy filing.

Among proxies filed as of April 22, there were at least seven CEOs who made a buck or less in salary on the S&P 500. Google’s Page brings the total in that pay band to eight. Casting the net wider to those who make $100,000 or less raises the number to a least 10, with the addition of Warren Buffett and Amazon Inc.’s Jeffrey Bezos.

Buffett, the chairman and CEO of Berkshire Hathaway Inc. (BRK/A), had a salary of $100,000 and Bezos made $81,840. Other than expenses for personal security covered by their companies, both Buffett and Bezos didn’t receive additional compensation.

Nobody works for less than Kartsotis, the CEO and an early investor in Fossil, a Richardson, Texas-based fashion watchmaker. Kartsotis has worked for free since at least 2008, refusing any compensation, and the company doesn’t pay dividends.

Frugal Fossil

“Mr. Kartsotis is one of the initial investors in our company and expressed his belief that his primary compensation is met by continuing to drive stock price growth,” according to Fossil’s March 28 filing. The stock has dropped more than 25 percent in the past 12 months.

Kartsotis, who owns about 11 percent of Fossil, has driven sales gains for every year since 1991, according to data compiled by Bloomberg, except for 2009 when the U.S. was reeling from the longest recession since the Great Depression.

In 2009, Kartsotis announced a pay freeze for employees and reduction in salaries for all executive officers to cut costs. Sales more than quadrupled to $2.86 billion last year from $663.3 million in 2002.

“Kosta has been at the company for a long time and has a large amount of his net worth tied to the company. We like that,” said Stuzin, the Brown Advisory fund manager, who owns shares in Fossil.

Parking Expenses

Richard Kinder, CEO of Kinder Morgan Inc. and its biggest shareholder with a 23 percent stake, even reimburses the Houston-based energy company for his parking expenses.

Kinder uses his $1 salary to send a message to shareholders that the company has a “cost-conscious culture based on common sense,” said Larry Pierce, a spokesman, in via e-mail.

In a regulatory filing, Kinder, a former chief operating officer at Enron Corp., emphasized that he reimburses his company for health care and parking charges. He takes taxis, not limousines, from airports, Pierce said.

Kinder Morgan, which has market value of more than $41 billion and annual sales of about $10 billion, doesn’t own corporate jets and won’t pay for first-class airfare, cars or financial planning for its executives, according to a March 28 proxy filing.

The problem with CEOs not receiving compensation is that there’s no basis for discussing their performance, said Johnson, the compensation consultant. Either extreme of paying too little or too much is detrimental to shareholders, he said.

Dollar Symbolism

Ellison of Oracle was the highest-paid CEO followed by Leslie Moonves, chief executive officer of CBS Corp. (CBS), who had total compensation of $62.2 million.

The dollar salary is mostly symbolic, said David Schmidt, a compensation consultant with James F. Reda & Associates. Founder CEOs have such large stock holdings that they can afford to forgo a paycheck. Page, who co-founded Google with Sergey Brin, has an estimated net worth of more than $23 billion, according to data compiled by Bloomberg. Ellison, who bought the Hawaiian island of Lanai last year, has a net worth of about $39 billion. His package for fiscal 2012 included $90.7 million in options grants, $3.9 million under a non-equity incentive plan, and other compensation totaling $1.5 million.

“They’re worth multiple millions of dollars, so salary doesn’t mean anything,” Schmidt said.

Capital One

Richard Fairbank, chief executive of Capital One Financial Corp. (COF), and Duke Energy Corp. (DUK) CEO James Rogers both eschew a salary, but not all pay. Fairbank had total compensation of $22.6 million, including more than $20 million in stock awards and options. Rogers, who inherited the no-salary tradition from his predecessor Paul Anderson, had total compensation of $8.7 million, including more than $365,000 in personal use of the corporate plane, according to a regulatory filing.

Rogers “clearly believes in the stock,” said Tom Williams, a Duke spokesman. “It really ties his pay to the performance of the company.”

Some CEOs who have taken a dollar salary in tough years haven’t endured even as they returned their companies to profitability.

Vikram Pandit, the former CEO of Citigroup Inc., earned total compensation of a $1 in 2010 after the financial crisis fueled losses in the previous two years. Still the board ousted Pandit in October after concluding he mismanaged operations and damaged the company’s credibility with investors. Shareholders, meanwhile, rejected his 2011 compensation package and his 2012 dismissal saw him forfeit millions in retention rewards.

“When our shareholders spoke last year about Citi’s compensation structure, we listened,” Chairman Michael O’Neill, who also heads Citigroup’s compensation committee, said in a filing in February.

To contact the reporters on this story: Thomas Black in Dallas at tblack@bloomberg.net; Hideki Suzuki in New York at hsuzuki4@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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