Money

Why the Texas lawyer who started Southwest Airlines in 1967 never gave himself a raise or a bonus

In the mid-1960s, a client of Herb Kelleher's approached him with the idea of starting a regional airline that would operate only in Texas.

Kelleher, who was 35 at the time and running his own law firm in San Antonio, said yes "within days," he tells Guy Raz on NPR's "How I Built This" podcast.

The two raised $500,000 of seed money in 1967, but legal challenges with competitors kept them from flying for four and a half years. The first flight, which went from Dallas to San Antonio, didn't take off until June 18, 1971.

Herb Kelleher, Southwest Airlines co-founder and former CEO
Pam Francis | Getty Images
Herb Kelleher, Southwest Airlines co-founder and former CEO

Today, nearly 50 years later, Southwest is one of the biggest airlines in the world and valued at "probably $20 billion," says Kelleher, now 86. Many of the company's early competitors, and even some of the iconic airlines at the time like Pan Am and TWA, don't exist anymore.

Perhaps more impressive than surviving in the competitive airline industry, Southwest has been profitable for an unprecedented 43 straight years.

"We've had years when earnings were down, but we've never had a loss for a full year since 1972," the former CEO tells Raz. "And we've never furloughed an employee at Southwest Airlines, when the rest of the industry during that period up until now has probably furloughed a million and a half employees throughout the world."

Despite the company's success, Kelleher — whose initial $10,000 investment in the company is worth quite a bit more today — never upped his salary. "I always turned down pay increases, bonus increases, to set a good example for all of our people," says Kelleher. Instead he's been paid in stock options. "Of course, the stock that I got rose enormously in value, but that was in lieu of cash compensation."

"It's what I thought was a requirement of good leadership," he says.

Plus, his decision aligned with the original philosophy he established for Southwest. Early on, Kelleher realized that the airline industry is "a very dicey business to be in. … So we may be flamboyant from the marketing standpoint, but we're going to be very conservative from the fiscal standpoint."

Kelleher is in good company: Other top CEOs have famously declined to take the customary CEO salary. Take Tesla's Elon Musk. His official salary is only $45,936, which meets the minimum wage requirements for California. But he never accepts the money.

And then there's Mark Zuckerberg, who first requested a $1 salary in 2013, making him Facebook's lowest paid employee.

Like Musk has done at Tesla and Zuckerberg at Facebook, "we just did things differently," says Kelleher.

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