The $1 CEO: A great return on investment
Assistant Professor Sophia Hamm
It’s becoming a popular trend: the CEO of a troubled company graciously offers to slash his or her salary to $1 to show commitment to the company’s financial health. Not only is it great PR, but, as Fisher’s Sophia Hamm found out, a CEO’s $1 salary can act as a signal to shareholders about a company’s future performance.
Hamm’s study examined 92 CEOs at 90 companies who cut their salaries to $1. The analysis, which covered the years 1993 to 2011, revealed that:
- CEOs whose interests mirrored those of their shareholders received more stock options, on average
- After CEOs publicly announced their decision to accept a $1 salary, stock returns generally improved for these companies, resulting in a win-win for the company and the CEO
Additionally, the study found that CEOs electing to take a $1 salary generally fell into two categories -- those whose motivation for the salary reduction was to better align their interests with those of shareholders, and those who were motivated by a feeling of sacrifice during a difficult time for the company.
Research in progress