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Many executives, especially chief executives, receive nearly all of their compensation in stock. Both for public perception, and for tax reasons, Elon Musk, Eric Schmidt, Jack Dorsey, Larry Page, Mark Pincus, Mark Zuckerberg, and many others pay themselves only $1 per year.

Assuming these men and women are legally "employed" by their respective companies, and given that I don't believe compensation in stock is legally pay under the federal Fair Labor Standards Act, how do they manage to avoid receiving at least minimum wage in cash?

Where jurisdiction is concerned, I'd like to consider federal law in the United States, as well as state law in New York and California, though I am curious to hear about any other relevant state law as well (maybe Delaware Corporations follow only Delaware minimum wage laws?). Thanks in advance!

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  • Probably because it is considered a salary and not a wage. – Mark Johnson Nov 16 '20 at 15:55
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    Salaries are wages, and the Fair Labor Standards Act imposes minimum-wage requirements for salaried employees. As is so often the case, the first answer that pops to mind is quite incorrect, especially when based on an assumption that the answerer is smarter than the questioner. – bdb484 Nov 16 '20 at 17:10
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    It's only a problem if someone actually complains. As long as Elon is fine with a $1, the Department of Labor will not practivley interfere. – Hilmar Nov 16 '20 at 17:13
  • @Hilmar Not really. California does not allow employees to waive minimum wage, and it allows the government to penalize the employer irrespective of the employee's wishes. – bdb484 Nov 16 '20 at 17:19
  • "given that I don't believe compensation in stock is legally pay under the federal Fair Labor Standards Act" Do you have legal authority to back up that statement? I am not at all convinced that it is true. – ohwilleke Nov 17 '20 at 3:43
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Under the Fair Labor Standards Act, employers are generally required to pay a minimum wage of $7.25 an hour.

But under 29 U.S. Code § 213, many employees are exempted from this requirement. For Elon Musk and similarly situated individuals, the relevant exemption is found at section 213(a)(1):

any employee employed in a bona fide executive, administrative, or professional capacity

Although FLSA's definition of "bona fide executive" typically still requires at least a salary $684/week, 29 CFR § 541.101 expands that term to also include any employee who (a) has at least a 20 percent ownership interest in the employing business; and (b) is actively involved in the business's management.

By my understanding, this would include all the executives you've mentioned above.

Contrary to all the other answers so far, the fact that the employee is salaried is not sufficient to remove him from the protections of FLSA, which applies to both hourly and salaried employees. Some hourly employees are covered; some are not. Some salaried employees are covered; some are not. For more details on determining whether a salaried employee is exempt or nonexempt, you can review the Department of Labor Fact Sheet #17G.

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    Fact sheet #17G isn't very helpful, though, because it says "To qualify for exemption, employees generally must be paid at not less than $684* per week on a salary basis," and as far as I can see it makes no reference to an exception that would apply to the examples given in the question. – phoog Nov 17 '20 at 2:05
  • I've elaborated on the answer to address this issue. Because Musk, for example, had a sufficient ownership stake and was actively involved in managing the company, he was considered a bona fide executive, even without meeting the salary threshold. – bdb484 Nov 17 '20 at 2:22
  • I think that you are incorrect. The relevant exemption provides that the exemption applies "as such terms are defined and delimited from time to time by regulations of the Secretary," and the FLSA regulations have a minimum salary to qualify under the bona fide executive exception for the most part, if not entirely. I think that the practical reality is that stock options suffice to meet the minimum salary to meet the FLSA definition of an executive even if the cash salary does not. – ohwilleke Nov 17 '20 at 3:39
  • As Fact Sheet $17B explains the is an exception to the salary requirement "Under a special rule for business owners, an employee who owns at least a bona fide 20-percent equity interest in the enterprise in which employed, regardless of the type of business organization (e.g., corporation, partnership, or other), and who is actively engaged in its management, is considered a bona fide exempt executive." But many of the executives listed don't own 20% of the company. dol.gov/sites/dolgov/files/WHD/legacy/files/fs17b_executive.pdf – ohwilleke Nov 17 '20 at 3:42
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    Zuckerberg owns 29%, Pincus owns 7%, Page owns 25.6% of voting rights, Dorsey owns 13%, Eric Schmidt owns 8.6%, Elon Musk owns 20%. The Labor Dept and the employee are the only ones with standing to sue. Its voluntary so the CEO employees aren't suing even when they have a right to. I suspect that the Labor Department would not prioritize suing, and would feel silly suing, a rich CEO with under 20% for a minimum wage violation that could be settled with a tiny annual salary check if the Labor Department won. – ohwilleke Nov 17 '20 at 3:55
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They're not hourly workers.

Minimum wage applies to hourly employees like at Starbucks retail (the "gig economy"), not to employees at, say, Facebook who are salaried.

Temp / consultants may also be hourly employees, if hired by a recruiting agency to do hourly work.

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    Minimum wage requirements are not limited to hourly workers: dol.gov/agencies/whd/fact-sheets/17g-overtime-salary – bdb484 Nov 16 '20 at 17:06
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    It's tangential to the question, but the "gig economy" refers to employment under temporary, short-term contracts that the worker can accept or decline at will - a regular hourly worker at Starbucks is not an example of a gig economy worker. How the gig economy relates to minimum wage is another can of worms entirely. – Nuclear Hoagie Nov 16 '20 at 17:08
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To clarify @MarkJohnson said in comments, wage is compensation proportional to hours worked in a given pay period (usually two weeks, beginning on the first Sunday and ending on the second Saturday) where as a salary is pay that is negotiated and is a per annual payment for work, to be paid in installments (again, usually two weeks).

The benefit to having a wage income is that a typical 8 hour day, five days a week for two weeks is 80 hours of 336 hour period of time. If you work in excess of 40 hours out of 336, you are given more pay in the paycheck for that pay period. With salary pay, you are paid only your per annual and overtime worked in a pay period is not compensated in that pay period. CEO work can easily go to 120 hours per 336 if not more depending on what is considered work.

If you noticed that all the names on the list are multi-billionairs prior to agreeing to a $1 dollar Salary agreement. With modesty in mind, these individuals can live out the rest of their life off the interest of that money in the bank as their sole income and never need to work this job again. To say nothing of them being the majority shareholder of the company stock and thus their real money comes not from salary but from how well their company performs.

It's also very much the case that many start up companies' CEOs will not be able to cut themselves a check for 3-5 years after the company first starts making a profit as they are legally required to pay their employees, but are not legally required to pay themselves (or to argue they are payed, but they are so tied to the company at this stage, the company growth and sucess is their payment for this time.).

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