(Prolog: Much of this article asks about laws and practices in the United States, but readers from other nations are encouraged to report how things work in their part of the world. I would be curious to know.)
Every once in a while you’ll read about a corporate executive whose company employs him — or maybe “employs” him — for a salary of $1 per year. One example is Steve Wozniak, co-founder of Apple Computer, who does no work there anymore but remains on the payroll, largely for sentimental reasons. Another example is John Reed, the new chairman of the NYSE, who was just hired at $1/year, but who presumably will be fulfilling the real duties of the job.
Obviously, such people are already wealthy by other means and so they willingly forgo a “real” salary. But for whatever reason, the lunacy of this idea — being paid $1 a year — has recently gripped my mind, and has provoked some Seinfeldian questions that I can’t shake:
[ol]
[li]Does the employee receive tiny paychecks or direct deposits? Say, a semi-monthly check of 4 cents?[/li]
[li]Are taxes (like FICA and Social Security in the U.S.) withdrawn from each paycheck? Aren’t there some rather severe rounding problems if so?[/li]
[li]Suppose you’re applying for a home mortgage and the bank requests copies of your last three paycheck stubs, as is commonly done around here. Won’t you look rather foolish, with your measly 4-cent checks? Or does everyone at the bank just have good laugh?[/li]
[li]Does your employer send you a W2 form each January, just as if you were a normal person?[/li]
(For non-Americans, a W2 form is a report from your employer giving total income earned over the previous year, along with tax deductions subtracted. The information is needed when filing your income tax forms in April.)
[li]If there is to be a token salary like this, why isn’t one cent a year just as good? Why not no money at all? Is there a law requiring American corporations to pay $1 as a minimum?[/li]
[li]I assume this tiny salary doesn’t violate the Minimum Wage Law because the employee is salaried, as opposed to wage-earning. Does U.S. law specifically classify employees in this way, even though the IRS doesn’t make the distinction when you report your income?[/li][/ol]
Thanks in advance to whomever has the patience to answer my juvenile questions.
Not probably. Generally everyone who accepts this sort of “run the company for a buck a year” plans gets paid plenty in stock options. Of course if the company sinks, the stock options are worthless, so he truly does get a buck a year. But if it goes up, they are typically well rewarded for their efforts.
I don’t know if the NYSE is a corp with stock, and if John Reed is similarly compensated. Likely it is and he is.
I have no idea about how the checks are issued to such individuals, but I’d imagine they’re probably paid up front for the year, with the proper amounts (if any) witheld.
I don’t think you can hire a full time salaried person with a base rate of pay of less than (base hours/week * min wage.)
If that was not the case there would be little reason to use hourly employees.
As far as Wozniak and friends the old CEO’s and such. My guess would be as long as they are “employees” of the company they still qualify for benefits like medical insurance and such. By giving them a token salary and keeping him on the books it allows him to still utilize these things without having to make other arrangements when the CEO in question departs.
Some things have to be done for basic employment laws. HR and Finance have to have you in their “system” somewhere so you have to be treated as an actual employee.
I would imagine that they would send you a W2 as the IRS requires that sort of madness.
It is not and he is not. The NYSE is owned by its members. His “pay,” if you will, is that if he does a good job he gets short-listed for other low pay/high prestige jobs – Fed Governor, SEC chairman, maybe even Treasury Secretary.
As to the other General Questions, generally the person never actually receives the dollar. It’s a) symbolic and b) “consideration” for entering the contract of employment. In circumstances of no import, no one ever bothers to deliver the buck and no one ever cares (or brings it up if things go bad). In a case like this, probably some staffer at the NYSE will buy a $200 frame and put a dollar bill in it and Reed will accept it at some ceremonious occasion.
Exactly. Usually, someone hired at a dollar a year is put there for prestige and to show that the organization isn’t about money. They usually have enough money to live on, anyway, but are willing to lend their name.
No sir. This is true of John Reed, and others in public office or charitable institutions, but in the typical case in the private sector, such as Steve Wozniak or Lee Iacocca in his day, the executive is well-compensated assuming he does well for the company. This is typically enacted through stock options.
Though it varies by state hourly and salaried employees have nothing to do with pay rate. For instance at one job I had I was a manager and paid salary. Because I had NO employees to supervise, no admin duties, etc, etc, I complained and they had put me on as hourly, overtime eligible.
Conversely I was actually in the hole as in this company only salaried employees were eligible for bonuses. (which were more than the overtime)
I believe he was compensated with stock options as others have mentioned above. He made out better than anyone else at Chrysler did when Chrysler went back in the black.
If you have enough personal wealth to take a $1/year salary, you’re not worried about proving income in order to get a home mortgage. Maybe a second vacation house (this one in Aspen) mortgage, or a seventh investment property mortgage, but not a home mortgage.
These are contracted employees. In order for a contract to be valid, “good and valuable consideration” must be “exchanged,” “the sufficiency of which has been agreed upon by the parties.” The “salary” is a token remuneration and represents the “good and valuable consideration.” These employees probably get other benefits, such as stock options, the details of which may not be in the “employment agreement” and might not have to be disclosed to the public.
IANAL, so maybe one of our lawyers can verify this.
I believe Cillasi hit the nail on the head. A “contract” without considerantion is not a contract at all. If after a few beers I agree in writing to give you my house in exchange for nothing that is not a contract and you cannot get a court of law to enforce it. On the other hand, if we agree that I will give you my house in exchange for your car, if the contract does not fail in any other respect, it is a valid contract which can be enforced. Consideration is an essential part of a contract.
According to a friend in HR, many positions are required by law to be paid on an hourly basis. This would likely eliminate trying to hire, say, fast food workers for a salary of a few hundred dollars a year, or some such scam.
When Richard Riordan was mayor of Los Angeles, he asked to just be paid $1 a year as he was already incredibly wealthy.
However, municipal workers in the City of Los Angeles are paid every other week. Hence, there are 26 paychecks. And they had to pay him some amount every two weeks. So, Riordan received $0.04 per paycheck and a grand total of $1.04 for the year.
In land contracts, it is common to see a price of “one dollar plus other payments”. The one dollar makes the contract legal, because (as other posts above already said) without specific monetary compensation, the contract isn’t valid–but it also retains secrecy about the “other payments” which are listed in a separate contract.So when you sell the land, the new buyer is entitled to see your original purchase contract(to verify that you are the owner) but won’t be able to see how much you paid.