By Alexa Hornbeck
Photo courtesy of Kris Krug.
Take into consideration the age-old question, ”If you had a billion dollars what would you do with it?” An answer that does not typically come to mind is to become a member of a “$1 salary club.”
In 2013, Mark Zuckerberg, the primary shareholder, and highly successful creator of Facebook, requested to cut down his yearly salary of $770,000 to only $1. The motive behind what would cause a billionaire to desire an annual salary of only a dollar per year is not an identity crisis, rather a tax-smart investment for the future.
The idea of top executives in large businesses and governments working for an annual salary of $1 has been a common practice since World War I. The $1 salary club was formerly known as “The Dollar-a-Year-Men.” Federal law prohibits the government from accepting unpaid volunteer services, a law which inspired the idea of accepting a salary to only a $1 per year.
Historically, to become a Dollar-a-Year-Man was seen as a noble and honorable maneuver. Participating in the practice exemplified how service to the country was not motivated by personal financial gain, but by the common good of all people. The Dollar-a-Year-Men were individuals who choose to volunteer their efforts to serve in the president’s cabinet, or senior level appointees at agencies across the government—such as political leaders Bernard Baruch or James Forrestal.
Throughout America’s economic recession, the exorbitant salaries of CEOs have faced ongoing public scrutiny, particularly companies whose shareholders have suffered a great deal of financial loss. When a CEO joins the $1 salary club it is often done so for the purpose of rehabilitating their public image. Zuckerberg is one of numerous CEOs who decided to lower their annual income to a dollar. Other members of the club include figureheads such as Michael Bloomberg, Steve Jobs, or the former governor of California, Arnold Schwarzenegger.
Billionaires seeking to develop a positive reputation also participate in a practice known as the “Giving Pledge”. On December 9, 2010, Zuckerberg, along with Bill Gates and Warren Buffett, signed such a pledge designed for the wealthiest people in the world to commit to giving a great deal of their wealth away to philanthropic causes. According to the Huffington Post, as of February 2014, more than 120 billionaires or former billionaire individuals have committed to giving at least half of their fortunes to charity over the course of their lifetime.
Joining the $1 salary club, or signing the Giving Pledge may seem like an act of self-sacrifice for the sake of common welfare, but considering the entrenched and elevated status of those who partake in them, any business grad knows that’s hardly the case.
“If you look at a lot of professions, private equity and hedge funds, make a bulk of what they earn based on their assets thru capital gains and carried interest. This would incentivize the wealthy to forgo their traditional salaries thru the $1 dollar salary club for the PR benefits. That pledge doesn’t affect their asset gains, ” says Owen Maramaduke, a recent political economy MA graduate at NYU.
Amongst the staggering number of issues that contribute to global economic inequality, one in particular is important to note. Payroll taxes are actually higher than the taxes collected on capital gain in the United States, meaning that there are basically no repercussions for billionaires who choose to reduce their salary to $1 a year, since most of their wealth is not earned through labor wages. Billionaires continue to earn their money through capital and dividends from the assets they own, such as stocks, despite however they came by their riches in the first place. This is certainly the case for Zuckerberg, who in 2012 cashed out on 60 million stock options, earning a total of $2.3 billion dollars.
Zuckerberg, like other CEOs of the $1 salary club, is aware of the advantages that will ensue from his membership. The primary advantage is a substantial decrease in his yearly taxes. Another advantage is that if Zuckerberg’s savings were to ever run out, his low-income salary would insure the right to live off of a Home Equity Line of Credit.
Additionally, Zuckerberg could hypothetically qualify for Earned Income Tax Credit, which would allow him to receive governmental benefits such as Medicaid and Food Stamps. Billionaire recipients are granted access to the same government aid offered to low-income workers, all without experiencing any of the frustrations of individuals living in poverty.
Understanding the motives behind why a billionaire might decide to sign the Giving Pledge, or join the $1 dollar salary club, reveals a great ordeal about the persistence of inequality in the United States, and the economic rules that underpin them. A recent report by the British humanitarian group, Oxfam International, states that 85 of the richest people on Earth now have the same amount of wealth as the bottom half of the global population. This means that half of the world’s entire population own no more than a tiny group of wealthy elitists.
Therein lies an unsolvable problem of inequality—while wealthy CEOs seek to lessen their own salaries, it may not always be a honorable sacrifice, but to gain publicity.
“Most of the CEOs, like Zuckerberg, who would choose to sign the giving pledge, or join the $1 dollar a year salary club, probably believe in the principles of noblesse oblige, or that nobility should do things for society. But the pledge should be in context: this forgone salary is being plowed back into companies where they often own a control a controlling share. They are not donating their salaries to charity.” says Marmaduke.