When Meg Whitman, former CEO of ebay Inc., joined Hewlett Packard as its new CEO, the company announced that she receives $1 of annual salary (1), following the footsteps of famous CEO’s like Steve Jobs and Larry Page. She was also “awarded options to buy nearly two million HP stock shares at $23.59” (2) which could generate her a profit of several million dollars.

Whitman's combined salary for 4 years? Not quite.

The most striking benefit of a direct link between company performance and personal income is that CEO’s are less tempted to act unreasonable. Long-term success of the company to make the most out of their stock shares replaces risky short-term success to earn bonusses.

This strategy is not only a valuable option for CEO’s who are confident to succeed and want their share of the profit, it can also serve to build longlasting trust between a company and shareholders because investors know the president has personal interest in the success of his or her company (3). The exclusive option of a $1 pay can most efficiently be exploited to strengthen the relationship between investor and company and to incite CEO’s to perform exceptionally well.

Sources

1) http://www.ibtimes.com/articles/223116/20111001/meg-whitman-hewlett-packard-california-politics-hp-salary.htm?cid=2 (2.10.2011), 2nd paragraph

2) http://www.sacbee.com/2011/09/30/3951450/whitmans-1-salary-at-hewlett-packard.html (2.10.2011)

3) http://www.businessweek.com/bwdaily/dnflash/content/may2007/db20070509_992600_page_2.htm (2.10.2011), paragraph “The Ultimate Pay for Performance?”