There's a growing trend in large public companies for the CEO to accept a token salary of $1 per year. This gesture is supposed to signify that the CEO is more concerned about the health and well-being of the company than his or her own personal wealth. One of the first CEOs to announce this type of personal austerity measure was Lee Iacocca, the CEO of Chrysler hired to bring the company back from the edge of bankruptcy in 1979. The most reported recent example was Steve Jobs at Apple, whose stated goal was that he only prospered (through stock options) if the company did. In 2011, Hewlett Packard's new CEO, Meg Whitman, announced that she would also be receiving a single greenback every year.

However, $1 CEOs don't end up homeless because of their grand gestures. Some are actually among the highest-paid CEOs when all forms of compensation are taken into account. Here are three ways these executives remain wealthy.

Stock Options
The largest part of most public company CEO salaries consists of stock and option grants. Stocks can consist of common or preferred shares of the company, while options are contracts that allow the recipient to purchase stocks at a set price in the future. Boards of directors grant CEOs stocks and options to align the CEO's goals with those of the company. If the company rises in value, the CEO profits. If the CEO performs poorly and devalues the company, he or she also loses. Another benefit of offering stocks and options rather than cash is that it doesn't cost the company anything immediately, but it can dilute the value of the company to the detriment of existing shareholders. Companies that pay their CEOs $1 in salary can offer millions of dollars in options. For example, Larry Ellison, CEO of Oracle receives an option grant to purchase seven million shares of the company annually. His options from 2007 to 2010 were worth approximately $220 million dollars in early 2012.

The main benefit of a stock option grant to a CEO over cash is that it can be worth much more in the future if the company takes off. A secondary reason is that tax doesn't have to be paid on the value of the options until they are exercised and the stocks are subsequently sold. Even then, the transaction is treated as capital gains in most cases and taxed at a much lower rate than a large salary would be.

Insurance and Pension
While the cost of healthcare is unlikely to break a public company CEO, it is a benefit that can be worth quite a bit of money. CEOs often have gold-plated plans that cover anything medically necessary, including doctors' visits, prescriptions and emergency procedures. A CEO's compensation plan may also include life, travel, medical and disability insurance. Another common perk is a handsome retirement package. These packages can include employer-matched contributions, extended salary for several years and even the ongoing use of a private jet.

Company-Paid Perks
Companies can compensate their CEOs in many other ways other than handing them a paycheck. They can buy a house, pay for personal security for the house, provide the CEO with a company car or offer other amenities that benefit both the company and the CEO. Many of these perks are things that CEOs would otherwise have to pay out of their own pockets. In the late 1990s, Apple's board of directors gave Steve Jobs a $90 million plane to go along with his $1 salary and even reimbursed him with company funds when he had to use the plane for company business.

The Bottom Line
CEOs of public companies who accept $1 annual salaries are certainly not hurting in the wallet. They can increase their wealth in a myriad of other ways.

Related Articles
  1. Investing Basics

    What Does Plain Vanilla Mean?

    Plain vanilla is a term used in investing to describe the most basic types of financial instruments.
  2. Options & Futures

    Pick 401(k) Assets Like A Pro

    Professionals choose the options available to you in your plan, making your decisions easier.
  3. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  4. Investing

    The Best Strategies to Manage Your Stock Options

    We look at strategies to help manage taxes and the exercise of incentive and non-qualified stock options.
  5. Investing Basics

    Retirement Planning Using Long-Dated Options

    Retirement planning using high-risk options? It is possible, and studies confirm better yields than conventional methods. Here’s how.
  6. Investing Basics

    Understanding Vega

    In options trading, vega represents the amount option prices are expected to change in response to a change in the underlying asset’s implied volatility.
  7. Investing Basics

    Explaining Payment-In-Kind

    With respect to financial instruments, PIK means payments made to the holder of a financial instrument that is something other than cash.
  8. Taxes

    Payroll Taxes: Picking Apart Your Paycheck

    Here's what gets deducted from your pay, what your employer pays and where your payroll taxes actually end up.
  9. Options & Futures

    Introduction to Options Types

    Options are often the bread and butter of day traders. Here are some of the more common types of options.
  10. Professionals

    Career Advice: Investment Banking Vs. Law

    Learn some of the most important differences between a career in investment banking and law, and figure out which career suits you better.
  1. Does working capital include salaries?

    A company accrues unpaid salaries on its balance sheet as part of accounts payable, which is a current liability account, ... Read Full Answer >>
  2. Do financial advisors need to meet quotas?

    Most financial advisors are required to meet quotas, particularly if they work for firms that pay base salaries or draws ... Read Full Answer >>
  3. Can mutual funds invest in options and futures?

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  4. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!