I was recently studying the various Kinder Morgan energy companies as potential investments, and I got sidetracked into studying the life of Richard Kinder himself. He’s a pretty interesting dude—he was supposed to take over at Enron in 1996, but he got jilted by Kenneth Lay and went and started his own energy firm with Bill Morgan instead. The energy assets that Richard Kinder used to build his empire came out of Enron itself—when the Enron Board decided to get out of the old pipeline business and focus instead on the trading of energy assets, they sold $40 million worth of pipeline assets to Richard Kinder. He was able to use these assets to build a billion-dollar empire, as Kinder now owns more than $7 billion worth of KMI and owns token positions in the other publicly traded members of the Kinder Morgan family.
But what caught my attention is that Richard Kinder is one of those CEOs that works for a dollar per year in compensation. In his case, he receives no stock grants, stock options, restricted stock, or accompanying compensation. He also uses his personal funds to pay for his travel expenses and does not bilk the company out of money by asking for reimbursements. This is one of the great conceits so far in the 21st century stock market—an honest guy used old-Enron assets to build a lasting, sustainable company by conducting himself in the exact opposite manner of the company in which he left.
But, of course, some people wonder: Why would a CEO work for only a dollar per year?
Generally, there are two potential reasons why this is the case. For people like Richard Kinder, it is generally because you need to receive some kind of “consideration” (in this case, a dollar) to be eligible to be considered an employee and to enter into a binding contract with the company. If you work for free at a company, you are considered an “unpaid volunteer”, and this limits the benefits the company can legally give you, and it will prevent you from engaging in contract formation with the company if your pay is $0. That’s the legal side of it.
And, of course, it usually means that the person collecting the dollar per year salary already has extensive investments in the company that he is operating. For Richard Kinder, he has well over $7 billion in personal investments in the company that he runs, so he can generate goodwill and prestige by working for a dollar per year, while spending his real time advancing his $7 billion asset base rather than trying to generate compensation.
And, of course, there are the CEOs that work for a dollar per year, and try to gain the reputational advantages that come with the headline of sounding selfless for working for so little, but actually receive large blocks of stock as compensation that fly under the radar. People like Larry Ellison at Oracle receive only $1 per year in actual salary, but then again, he also receives $1.5 million in “home security” which Oracle pays, and they granted him over 44.4 million shares in stock options as part of his compensation. He’s still getting paid gobs of money, it’s just in a non-salaried way.
The only CEO that I am aware of that takes a $0 salary is James Rodgers at Duke, and the reason why he is able to do this legally is because he is receiving $8-$10 million in stock grants (depending on the price of Duke Energy) that act as his consideration for the contract and legal relations, and also serve as his wealth-building base. He gets to go around and claim publicly that he works for nothing publicly, generating goodwill among the lay people that casually read the newspaper headlines. But this is a half-truth because it obfuscates the fact that’s he’s receiving compensation of $8-$10 million per year, it’s just in Duke stock instead of money, and you could say this hurts shareholders more because their claim on the earnings per share get diluted as the company creates new stock to pay the CEO.
In short, CEOs working for a dollar do it for two reasons: they legally have to receive some form of compensation to enter into a valid contract with the company they work for, and they also want to generate prestige as part of a public relations maneuver. In some cases, they truly make one dollar per year, but it is usually accompanied by very large investments in the company. Other times, the dollar per year salary hides large stock grants (think of Steve Jobs receiving hundreds of millions of dollars in Apple stock in 2003 while then going on to say he worked for a dollar per year) that are making the CEO richer in a way that is not readily apparent to the average observer. Almost always though, there is more to the story than the dollar per share news headline indicates.