In an SEC filing yesterday (click here), Google disclosed that in 2006 each of its top three executives, Eric Schmidt (CEO), Sergey Brin (President of Technology), and Larry Page (President of Products), will receive a base salary of $1.00, as they did in 2005. It’s not like they have historically gotten huge bonuses either. According to Google’s 2005 proxy statement, each of them received a $1,566 bonus in 2004 and total other compensation of less than $3,000 and no stock options, although their base salaries were much higher in 2004 ($81,432; $43,750; and $43,750; respectively), at least compared to $1.00.
Does this reflect Google’s principle of “don’t be evil?â€? Are they saying excessive executive compensation is evil so they will basically forgo compensation? Maybe. But the filing says these salaries were approved “after a review of performance and competitive market data.â€? They must be referring to Steve Jobs’s salary at Apple (it is also $1.00).
Maybe instead it’s all about branding. Blog posts and other publicity about its top executives working for $1.00 will enhance the Google brand, which will enhance the stock price, which will enhance the value of the Google holdings of Messrs. Schmidt, Brin and Page by a couple of $100 million, give or take.
Remember, these are the guys that tied the number of shares issued in their follow-on offering to the number pi (pi=3.14159265; Google sold 14,159,265 shares in the offering), so who knows. Obviously they have way more money than they will ever need. But so does Jack Welch, and he got GE to agree to pay for floor-level seats at the New York Knicks, Grand Tier seating at the Metropolitan Opera, private waitstaff and monthly flower deliveries (he has since released GE from these obligations).
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No, Gilson and Mnookin assert that these founding partners drew the clients that made the firm yet took a profit cut far below their contribution to the firm. Gilson and Mnookin suggest that these partners were primarily motivated by institution building rather than money.
Bill: To clarify. Are you saying some of the great name partners worked for little or no pay?
I think there might be a difference here between CEOs who became wealthy by founding the company (Jobs, Sergie et al.) and professional managers who become wealthy via executive compensation committees that rely upon outside consultant to benchmark fair pay (Welch and most large corporate managers).
So the relevant comparison is manager pay as a function of generations since founders ran the company. By the way, Gilson and Mnookin (Stan L Rev 1985) noted a similar pay effect among the great name partners of NYC and DC law firms. The reward, apparently, the institution building.
“But so does Jack Welch, and he got GE to agree to pay for floor-level seats at the New York Knicks, Grand Tier seating at the Metropolitan Opera, private waitstaff and monthly flower deliveries…” Don’t forget those dry cleaning bills that GE picked up.
Or perhaps pay–even “legitimate” pay–should not be tied perfectly to performance. Maybe Sergei and co. were feeling a little (understandably) risk averse?
Great post, Bill. And quite a puzzle. Was there performance in 2004 really 81,000 times better than in ’05?