Warren Buffett and Elon Musk’s tiny salaries show how CEO pay numbers can be misleading


Would you believe that two of the four richest people in the U.S. were paid nothing and almost nothing, respectively, last year for running two of the most important companies in the world? Well, you should believe it, because it’s true. 

It’s also true, as you’ll see, that the annual disclosures that U.S. companies make about the ratio between what their chief executive officer gets paid and the median pay of the companies’ other employees can sometimes be misleading. 

This happens to be the case with both of the CEOs we’re talking about: Elon Musk of Tesla and Warren Buffett of Berkshire Hathaway. 

You have to be especially careful with the numbers when you deal with Musk, whose net worth was $225 billion on September 27, according to the Bloomberg Billionaires Index. He ranked first on the list. By contrast, it’s a lot simpler—albeit misleading—to deal with the numbers disclosures that Berkshire makes about Buffett, who Bloomberg says was worth $120 billion as of September 27. 

(A brief aside for the voyeurs among us: Bernard Arnault of France was second on the Bloomberg list, at $161 billion; Jeff Bezos was third at $150 billion; and Bill Gates was fourth at $123 billion.)

Musk’s salary at Tesla last year was listed as zero. That’s right, nothing. Tesla says in its Securities and Exchange Commission filings that Musk—who Tesla describes as its “technoking,” whatever that means—used to earn a base salary “that reflected the applicable minimum wage requirements under California law” but he refused to accept it.

So, in May 2019, Tesla said, “We eliminated altogether the earning and accrual of this base salary.” The company has since moved to Texas, where there seems to be no law requiring a company to pay minimum wage to its chief executive. 

Now, to Buffett. For as far back as I can remember—which is pretty far back, given the decades that I’ve written about him—Buffett’s salary was $100,000 a year. His total 2022 pay was reported as $401,589, which Berkshire says includes $301,589 for security services that the company provides him. 

Given that Musk’s income from Tesla last year was given as zero and the median Tesla employee earned $34,084, the ratio of Musk’s pay to median employee pay was a big fat zero.

Buffett’s ratio was 6.4 times Berkshire employees’ median income of $62,691. If you included only Buffett’s $100,000 of salary, the ratio would have been 1.6 to 1.  Of course, Buffett’s wealth comes from his ownership of Berkshire stock, not from what Berkshire pays him to run the company. 

Now, let me show why I think that the compensation numbers involving Tesla and Musk can be both accurate and misleading at the same time. 

If you look only at what Tesla paid Musk last year, he seems to be a saint who works for nothing. However, the numbers change wildly if you step back a year and look at Tesla’s disclosures for 2021.

That year, Musk exercised an enormous batch of Tesla stock options that were due to expire in 2022 and realized a gain of more than $23 billion on them. The precise number of the value Musk realized by exercising the options was $23,452,910,177, according to Tesla’s proxy statement. 

Musk’s “total realized compensation” in 2021 was given as $734,762,107. So, while the ratio of Musk’s compensation to the median compensation of all Tesla employees last year was zero, for 2021 it was 18,043-to-1. 

That isn’t very saintly.

By contrast, Buffett doesn’t get stock options from Berkshire, so $100,000—or if you insist, $401,589—represents everything that Buffett gets from Berkshire.

However, despite being the top executive at Berkshire, Buffett isn’t anywhere close to being the highest paid. His two top subordinates—Gregory Abel, the vice chairman of Berkshire’s non-insurance operations; and Ajit Jain, vice chairman of insurance operations—each got a salary and bonus totaling $19 million last year and showed a total income from Berkshire of $19,015,250. 

If you did the median-employee ratio with Abel or Jain, it would be 303.3 to 1. That would be a more realistic ratio than the 6.4 or 1.6 ratio between Buffett’s pay and the median employees’ pay. However, the rule requires that a company use the CEO’s pay for the ratio, not the highest-paid employee’s pay. (In San Francisco, where the city has implemented a tax on companies with large pay ratios, the law eliminates this loophole by using the highest-paid employee as its benchmark.)

There’s a lot to be learned from looking at the CEO-to-median-employee pay ratio—and in many cases, there’s a lot to be outraged about, given the huge disparities between what the top dogs often get compared with what the workers get.

But as you can see from the Musk and Buffett examples, you sometimes need to put numbers into context, not just accept them blindly. That’s a lot more work than just doing boss-to-worker ratios—but it gives you a far more accurate picture of what’s really going on. 

According to recent research from BambooHR, job satisfaction among workers has been on a steady decline since 2020, with a sharp drop observed this year. The study analyzed data from nearly 60,000 employees at over 1,600 companies worldwide between January 2020 and June 2023. The findings reveal that employees are expressing a sense of resignation or even apathy, accepting that morale is worsening.

While companies have recognized the importance of work-life balance post-pandemic and implemented policies, such as extended time off and remote work options, dissatisfaction at work is not solely related to when or where employees work. Research indicates that the primary cause of job dissatisfaction is unfair treatment, including inconsistent compensation, lack of support from colleagues and supervisors, and unreasonable workloads.

The pandemic has magnified the feeling of a loss of control that many individuals experience in their lives and careers. Factors like inflation, layoffs, and uncertainty around return-to-office policies contribute to an overall sense of unease among employees. The economic climate and concerns about work-life balance further exacerbate this dissatisfaction.

Another significant driver of employee unhappiness is the lack of meaning people find in their roles. The global "Great Resignation" phenomenon has led to a shift in how individuals view their careers. Rather than focusing solely on financial goals or climbing the corporate ladder, many now seek a sense of connection and excitement in their work.

Remote employees, in particular, often feel disconnected from their organizations' mission and purpose. This lack of a shared sense of meaning can adversely affect employees' happiness and performance. Studies have shown that employees who perceive their work as meaningful and impactful are not only happier but also more productive. They are also more likely to receive raises and promotions.

Focusing on employee engagement and satisfaction is not only crucial for promoting mental health in the workplace but also has a direct impact on a company's bottom line. Businesses with engaged workers tend to experience higher profits, lower turnover rates, and reduced absenteeism. In contrast, disengaged employees cost the global economy $8.8 trillion in lost productivity, equivalent to 9% of the global GDP.

The good news for employers is that motivating unhappy employees doesn't require extensive effort. Creating an environment of belonging, active listening, and understanding can make a significant difference. Even small actions like having meaningful conversations or regular check-ins with managed employees can have a positive impact on their overall satisfaction and engagement.  

Companies are trimming their budgets for merit raises next year, a sign of belt-tightening that could surprise some employees who had enjoyed two straight years of increases.

US employers surveyed by Aon Plc, which compiles compensation data on more than 5,500 employers, said merit raises will average about 3.7% across all industries next year, down from 3.9% this year, as companies rein in labor budgets and inflation eases from last year’s highs. A separate survey from workplace consultant Mercer found a similar trend, with merit-based salaries seen rising 3.5% next year, down from 3.9% in 2023.

Raises Won't Rise as Much Next Year

Employers expect to trim the growth of their compensation budgets in 2024

Source: Mercer

“People are not going to spend what they spent last year,” said Tim Brown, a partner at Aon. “Also, inflation has come down since last year. So there’s more pressure on salaries.”

Workforce leaders echoed the findings. Bob Toohey, chief human resources officer at Allstate Insurance Co., said compensation budgets in the US “will be lower than last year — all company budgets will be lower than last year.”

The pay gains projected by Aon and Mercer are still well above pre-pandemic levels when raises were stuck around 3% annually. That’s due to the continued resilience of the labor market and historically low unemployment, Mercer Senior Principal Lauren Mason said. Initial jobless claims in the week ending Sept. 16 fell within striking distance of the lowest level in more than five decades, according to Labor Department data. US inflation, which topped 9% last summer, is less than half that now. Mason said that further reductions in compensation budgets are possible next year as companies adapt to the changing economic landscape.

Workers in technology have been particularly hard hit, with only 5% of firms in the industry saying they’re now hiring aggressively, according to Aon. That’s down from 22% last year. Tech firms usually top other areas when it comes to projected salary increases, but in the wake of layoffs and cost-cutting drives they’re due to deliver merit raises of just 3.3% next year, Mercer found — below sectors such as energy and consumer goods.

A separate survey from technology job site Hired found that tech salaries are now at a five-year low, adjusted for inflation. But jobs that require specialized skills, like machine learning engineers and data scientists, are still in high demand.

Salary increases tied to promotions will also decelerate next year, Mercer found, for the simple reason that companies plan to promote fewer people. During the hiring boom of 2021 and 2022, many companies handed out raises and promotions to white-collar workers, even in the middle of the year, to hold onto their best people. Seven out of ten companies spent more than they had planned on pay adjustments during that period, a survey from workplace consultant Willis Towers Watson (WTW) found.

A separate report from WTW found that organizations are budgeting for overall salary increases of about 4% next year, down from the 4.4% boost they paid out this year. While raises are not as large as they were in recent years, companies are getting more generous with perks and benefits such as flexible work schedules and paid parental leave, according to a recent survey from staffing firm Robert Half Inc.

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