Key Takeaways:
Warren Buffett’s salary: $100,000 last year- Deputy’s salary: $20 million
- Buffett’s rationale: Signal prudence, frugality, and devotion to shareholders
- Buffett reimburses: $50,000 annually
- Berkshire spends triple his salary on security
Warren Buffett’s salary last year was a mere $100,000, a fraction of the $20 million earned by his deputy and potential successor, Greg Abel.
However, Buffett isn’t bitter about the vast disparity in compensation. As the CEO and chairman of Berkshire Hathaway, he has the authority to determine his own salary as well as that of Abel and other top executives.
Why does Buffett make so little?
Warren Buffett’s annual salary has remained a modest $100,000 for over four decades, a stark contrast to the hefty compensation packages received by many CEOs in the S&P 500, averaging around $17 million in 2022.
This frugal approach to compensation reflects Buffett’s philosophy that executives should be incentivized to prioritize long-term success over short-term gains. He believes that excessive salaries, bonuses, and stock options can lead to a focus on immediate results rather than sustainable growth.
Buffett’s humble lifestyle further underscores his commitment to simplicity. Despite his vast wealth — with Berkshire Hathaway shares valued at $134 billion — he continues to reside in the same modest home he purchased in 1958 for just $31,500. Additionally, he drives a car that’s over a decade old and frequently stops by McDonald’s for breakfast on his way to work.
In line with his modest lifestyle, Buffett doesn’t indulge in perks commonly associated with corporate executives. He forgoes a company car, club memberships paid for by Berkshire, and personal use of Berkshire-owned aircraft.
Moreover, Buffett reimburses Berkshire $50,000 annually — half of his salary — to cover personal expenses such as employee assistance, phone calls, and postage.
Despite his nominal salary, Berkshire allocates significant resources — approximately $314,000 last year — for Buffett’s personal and home security, totaling his compensation to $414,000. This figure stands at 5.4 times the median pay of Berkshire’s employees, significantly lower than the pay ratio at many other companies.
Outside of his salary, Buffett likely generates income from dividends and coupon payments from his extensive investment portfolio. Recent reports suggest he has sold millions of dollars’ worth of stocks and bonds over the years, contributing to his wealth.
Despite his immense fortune, Buffett is committed to philanthropy and has pledged to donate the majority of his wealth to charitable causes. He has already donated a substantial portion of his Berkshire stock to charitable foundations, including the Bill & Melinda Gates Foundation.
What has Buffett said about Abel’s pay?
Buffett has expressed a desire for Berkshire’s future CEO to be financially secure and willing to accept a salary well below market value, setting an example of prudent compensation practices.
Greg Abel, the presumed successor to Buffett, has been positioned favorably to fulfill this vision. Over the past five years, he has received approximately $100 million in total salary and bonuses, including a flat $20 million salary last year — an increase from $16 million in salary and a $3 million bonus in 2022. Ajit Jain, Berkshire’s insurance chief, has received a similar compensation package.
In addition to his salary, Abel received $870 million before taxes in 2022 for selling his estimated 1% stake in Berkshire Hathaway Energy to Berkshire.
Abel’s actions further align him with Buffett’s philosophy. He has indicated a willingness to invest more of his personal wealth in Berkshire, akin to Buffett, who holds the vast majority of his wealth in Berkshire stock. Abel purchased approximately $25 million worth of Berkshire shares, increasing his stake by about a third.
While Abel currently earns a significantly higher salary than Buffett, this may change once he assumes the role of CEO. If he embraces Buffett’s principles of prudent spending, frugal living, and substantial personal investment in the company, his compensation could reflect these values.