Beware the $1 per year CEO club -- Sometimes it's a lot of hype

A piece on Portfolio.com reports on an increasingly popular trend in executive compensation: the $1 salary.

Of course, in this era of outrageous pay for poorly-performing executives, the prospect of a $1 salary has its allure for investors. It's refreshing. But when you hear about a $1 salary, you still have to dig deeper to learn how much a CEO really made.

For instance, Capital One (NYSE: COF) CEO Richard Fairbanks' 2007 salary of $1 made for great headlines but a look at the proxy statement pegs his total compensation for the year at more than $20 million because of generous options grants -- which can come back to dilute the shareholders in the future and are therefore a very real expense.

Why would he structure his pay like that? Portfolio reports that "Salary is taxed at rates as high as 35 percent, while capital gains from stock sales are taxed up to 15 percent. Cutting down the salary portion of an executive's compensation could help reduce the overall tax bill."

With the vast majority of large-cap CEOs in the 35% bracket, taking cash over stock may be leaving money on the table.

But the proxy statement for Apple (NASDAQ: AAPL) shows that Steve Jobs really does only earn $1 and, more impressively, essentially never sells stock. There's a guy who really is aligned with the company's long-term shareholders.

The point is that there's nothing wrong with a CEO boasting that he only takes $1 per year in pay -- but there's also nothing necessarily great about it either. To really understand compensation, you have to go past the sound bytes and read the proxy statement.