Elon Musk’s huge compensation package amounts to corporate ransoming.
Usually, the reason a company pays a CEO in stock is to align that person’s incentives with those of the shareholders. If the big boss gets all their money in a guaranteed salary, there’s no reason for them not to get fat and happy and sit on a yacht. If their pay is in, to be awarded over many months and years, then their incentive is to work. The stock price goes up if the company does better, and the company does better if the CEO is at their desk and not on a yacht.
Tesla has offered a weird spin on the philosophy. Like most CEO pay deals, the one Elon Musk reached with Tesla in 2018 used the stock price to encourage Musk to work hard: The more Tesla’s market capitalization went up, the more equity in the company would go to Musk. When the parties made the deal, Tesla was a $50 billion company, and Musk owned 22 percent of it. If it became abillion company, Musk could own 28 percent of it.
It was a bit sleazy, though. Musk had cozy relationships with some of the Tesla board members who approved the plan, and it was aplan. A shareholder sued, and the Delaware judge who heard the case noted that it was “the largest potential compensation opportunity ever observed in public markets by multiple orders of magnitude”: It was 251 times as large as the median peer compensation plan and more than 34 times as large as the closest comparison, which also went to Musk.
should still want to work hard because he still owns 13 percent of Tesla, the biggest source of his wealth. But that has not been the actual dynamic. At normal companies, the CEO works for the shareholders. At Musk’s companies, the shareholders work for the CEO in the hopes that he won’t turn his attention elsewhere and stiff them.Naturally, doing business with one Musk company means having a bit of business with all Musk companies. He’s one of the most famous business figures ever.
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