Ask an HR Advisor: How to Get Away with NOT Paying the Top Executive

Every so often in my role as an HR Knowledge Advisor, I’m asked how CEOs get away with paying themselves a salary of only $1 (or something small like that). Many HR professionals seem to think that doing so might violate the Fair Labor Standards Act (FLSA). They tend to think that exempt employees must be paid at the federal salary threshold, currently $35,568 annually. Of course, some states have a higher salary threshold than FLSA and the minimum salary may differ from FLSA.

How is it then that we see in the news from time to time that some CEO takes an absurd “pay cut” and accepts a “salary” that is less than the salary minimum? Better yet, how do they get away with it?

The savvy HR professional starts to think of all the ways that an employer could possibly get away with it, like maybe the corporate jet can be considered compensation and satisfy the FLSA’s requirements, or maybe the employer is an owner of the company and does not have to accept compensation.

Well, while there are some creative ways for employers to pay executives, the HR pros who are disturbed by the $1 salary should be. They are right. It is usually a violation of the FLSA.

Just because it is done without legal consequence doesn't make it legal. People jaywalk every day, too! If you jaywalk to snatch a purse, shame on you, and you might go to jail. If you jaywalk to snatch another pedestrian from harm’s way, say a moving vehicle, you still jaywalked. Then you could be cited by law enforcement, but they would look really bad giving a lifesaving hero like you a $5 jaywalking ticket under the circumstances. Should you take the ticket to court, a judge is very likely to dismiss it and forgive the infraction, and maybe even apologize on behalf of the city.

Like a minor pedestrian infraction, if no one tells, and no one cares, especially when the infraction was heroic, no one’s likely to be cited for that misdemeanor.

The idea behind the CEO (or other executive) taking a preposterously low salary is “heroic.” It is done for good publicity. (The CEO is likely to make a million dollars the very next year.)

Paying a dollar for even as little as one hour of work violates minimum wage.

“But executives are exempt,” you say?

It violates the salary basis ($684 weekly basis, currently), too.

“But the FLSA allows for compensation to be in other forms,” you say?

Yes, but only portions of salaries can be in various forms. Besides, state laws often have even stricter wage-payment provisions, making the violation even clearer.

“How do they get away with it, then?” Like I said, who is going to report the CEO? The company saves money, which in turn benefits the community and saves jobs. So, in the end, the CEO takes the risk.

If you want to know more about compensation or have other HR questions, we’d love to help! Give us a call or send an e-mail. We’re also available by chat. It’s one of the most valued benefits of SHRM membership!

SHRM’s Ask an Advisor service is a member benefit through which SHRM’s HR Knowledge Advisors share guidance, real-life personal and professional experiences, and resources to assist members with their HR-related inquiries.

The SHRM Blog does not accept solicitation for guest posts.

Add new comment

Please enter the text you see in the image below: