When Lee Iacocca, former CEO of Chrysler Corporation, accepted a $1 salary as part of a federal loan package for his company in the late 1970s, he seemed to embody the spirit of sacrifice that allowed Chrysler to survive and return to profitability in the 1980s. Iacocca’s subsequent recounting of his story in a best-selling 1984 autobiography helped validate and popularize the $1 salary.

The arrangement has become relatively common since then. The CEOs of anywhere from 15 to 30 publicly traded firms earn a $1 salary each year—including, recently, the CEOs of Citibank, Google, Oracle, and Whole Foods. “Once it is known that a few high-profile CEOs have a $1 salary, other CEOs and boards of directors consider it, especially if they are in a similar situation,” says Clare Wang, an assistant professor of accounting information and management at the Kellogg School.

Wang’s research shows that $1 CEO salaries vary widely in their origin, structure, and outcome. The token salary can signal that CEOs—and their firms—are confident and optimistic about the future. Yet it can also indicate that the CEO is vulnerable and that the firm is going through hard times. Everything depends on the context. And despite Iacocca’s influential turnaround of Chrysler after taking a $1 salary, his story, as it turns out, is an anomaly rather than the norm.

Feast or Famine?

In an investigation of 92 firms with $1 CEO salaries, Wang and her colleagues—Sophia J.W. Hamm of The Ohio State University, and Michael J. Jung of New York University—found that rationales for the token salary could be somewhat evenly split into two broad categories. The first is that it aligns the CEO’s interests with those of the corporation: the CEO stands to benefit handsomely if the value of the corporation’s stock rises. The classic example of a CEO in the alignment category is Steve Jobs, Apple’s head during its emergence as one of the most valuable corporations in the world. In lieu of a salary, Jobs was paid in Apple stock options that helped make him, by the time of his death in 2011, a multibillionaire.

The second broad explanation for the $1 salary is poor recent performance by a firm, or a general downturn in the economy. The CEOs of companies in this “downturn” category are more likely than those in the first category to lay off workers (60 percent vs. 10 percent), meaning that they are under pressure to show solidarity with employees and demonstrate personal sacrifice. The CEOs of the “Big Three” U.S. auto manufacturers who accepted a $1 annual salary as part of the federal government’s bailout of the industry in 2008 are classic examples of this category.

Worlds Apart

So what do alignment and downturn CEOs look like? The groups share a few things in common beyond their $1 salary. For example, a majority in both groups was also the firm’s chairman of the board, while a significant minority was a founder of the firm. But the differences were far more striking than the similarities. On average, downturn CEOs received a $1 salary for just 2.4 years—about half the average duration for alignment CEOs. That is because downturn CEOs were frequently replaced by new executives.

“The CEOs in the alignment category like the prospect of a large reward after they lead the firm successfully.” — Clare Wang

More importantly, alignment CEOs were far more likely than their downturn counterparts to receive stock options in lieu of a salary: 86 percent versus 54 percent. (For Anup Srivastava’s thoughts on stock-based compensation, read here.) And the ultimate worth of those options varied widely between the two categories. For alignment CEOs, the value of the stock increased during their tenure, exceeding the purchase price, 69 percent of the time. The same was true for just 44 percent of downturn CEOs.

In other words, executives in the alignment category operate from a position of power. They believe that the loss of their salary will be matched, or far exceeded, by the value of their stock options. “The CEOs in the alignment category like the prospect of a large reward after they lead the firm successfully,” Wang says. “They naturally think that they will succeed because they are confident in their abilities.” In most cases, that belief is borne out. CEOs in the downturn category, by contrast, tend to operate from a position of weakness. Their vulnerability is confirmed by the poor performance of their stock options (among the roughly half who are fortunate enough to receive them) and their brief tenures.

The Iacocca Irony

There is notable irony in the emergence of the $1 salary. The alignment CEOs who receive large amounts of stock options in lieu of a salary are sometimes derided as engaging in a gimmick or a ruse, while the downturn CEOs who take a $1 salary with no other form of compensation are sometimes lauded. And yet “a CEO of a successful firm who takes a $1 salary along with stock and options seems to maintain the success of the firm, benefiting both the CEO and shareholders,” Wang says.

So appearances can be deceiving. Sacrifice for the sake of the cause might seem noble, demonstrating the dedication that made Lee Iacocca’s story so compelling. But the token salary does not necessarily translate into long-term success for the firm, much less the CEO.  “It may be a good public relations move for a CEO to make a personal financial sacrifice when a firm is struggling,” Wang says, “but it does not change the economic fundamentals of the struggling firm.”