The CEOs of the Big Three automakers promised last week to limit themselves to $1 personal salaries in return for federal bailout money for their cash-strapped companies. If that happens, they would join a number of top executives—like Whole Foods’ John Mackey, Apple’s Steve Jobs, Yahoo’s Jerry Yang, and Google’s Eric Schmidt—who get paid a single dollar. Does a salary like that get paid out all at once, or do you get a check for 4 cents twice a month?
It’s paid in a lump sum. Richard Kinder, the CEO of Kinder Morgan Energy Partners, gets his $1 dollar salary by check every January—that’s 93 cents, after deducting for state and federal taxes. Mayor Michael Bloomberg of New York also gets an annual check for 93 cents—with 6 cents going to Social Security and one penny to Medicare. (Bloomberg habitually leaves his check uncashed, however.)
A dollar a year—or about 1.9 cents a week—is way less than the federalminimum wage of $6.55 an hour. Does that mean these symbolic salaries are illegal? Technically, yes. According to the Fair Labor Standards act, executives can be exempted from hourly minimum wage laws (and the requirement that they be paid for working overtime) only if they get paid a salary valued at $455 or more a week. Being paid on a “salary basis” means you get compensated a predetermined amount, regardless of how many hours you work or how good your work is. So even though dollar-a-year CEOs tend to get other kinds of benefits—options, shares, Gulfstreams—those probably wouldn’t count as compensation because their values aren’t fixed.
To qualify as a minimum-wage-exempt executive, the person must also manage two or more full-time employees and have the power to make hiring and firing decisions. Executives who own at least 20 percent equity interest in the company are exempt as well. (For more information on white-collar exemptions to minimum wage law, see this PowerPoint presentation from the Department of Labor.)
Last week in TheBig Money, Karim Bardeesy explained why the first crop of “dollar-a-year men”—company execs who joined the nation’s war effort during World War I—were paid a nominal fee: At the time, it was illegal to work for the government for free. It still is—U.S. Code Title 31, Section 1342 prohibits any officer of the United States government from accepting voluntary services, and Comptroller General decision 201528 (PDF) forbids federal agencies from doing the same. The only exception is in the case of emergencies.
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Explainer thanks Alexander Cwirko-Godycki of Equilar, Farrell Sklerov of the New York City Mayor’s Office, Loren Smith of the U.S. Department of Labor, and Emily Thompson of Kinder Morgan Energy Partners.