The article doesn't go into much details of the stock award. Musk is proposing not taking a salary for the next 10 years and receiving a 1% stock award each time he meets some insanely aggressive milestones:
https://cdn.teslarati.com/wp-content/uploads/2018/01/Tesla-C...
So, it begs the question - What do shareholders do if something like this happens?
Additionally,
> But the success has also underscored the company’s dependence on its CEO -- a risk factor that’s routinely spelled out in regulatory filings.
> “Although Mr. Musk spends significant time with Tesla and is highly active in our management, he does not devote his full time and attention to Tesla,” the firm’s annual report said, noting that he’s also CEO of Space Exploration Technologies Corp.
So, it seems Tesla is dependent on Musk but it routinely highlights how he is not fulling paying attention to Tesla. The question becomes - why should they pay a part time CEO a full time salary? And what happens if Musk doesn't hit the target and they need to hire his replacement?
> The award could affect what Tesla has to pay to hire a potential successor, Glass Lewis said
It might change how other CEOs might view compensation at Tesla. They might push for even more aggressive remuneration.
So, its better not to open a door which cannot be closed later.
Slopes are only slippery when they change the methods by which you make the decision. Otherwise they're just linear gradients.
AFAIK, a big part of Musk's success is not forgetting this: What people build (which is probably everything you've ever interacted with) people can build differently; _especially_ things of contracts and concepts like compensation packages.
To put it another way; if the stockholders and board of Tesla decide to do something unusual like this, they could also easily decide to do another unusual thing and not repeat it.
So, you are saying stockholders and board of Tesla should change the method for Musk. And when it comes time to choosing a successor they should again change the method and take a vow to never change the method again.
Yes, yes, and then no. They are under no obligation or requirement to maintain a given system, and, I would argue, it's unreasonable to try to do so given how powerfully unique each aspect of the situation is (or must be).
Not just anyone can lead a company; not just anyone could (I presume) lead a company like Tesla. Any process by which you would select that level of uniqueness, it seems to me, must necessarily be unique itself.
Musk already owns tons of Tesla story and should be motivated by that. There's absolutely no evidence that additional equity would motivate him more. On the contrary, there is plenty of evidence on the diminishing marginal utility of wealth.
Like much CEO pay, Musk's pay package is more about status than about motivating him.
Or is someone really going to try to make the case that he's kinda half-assing it right now?
> There's absolutely no evidence that additional equity would motivate him more.
Yes there is. Presumably, if Musk proposed a compensation package, it’s because he wants that compensation, and if the compensation is tied to uncertain milestones, he’ll be motivated to get the thing he wants by trying to achieve those milestones. It’s not as though someone proposed this to Musk and he said, “yeah sure, whatever.”
> Like much CEO pay, Musk's pay package is more about status than about motivating him.
Status can be very motivating. Obviously no one is in it for the “marginal utility of wealth” at the level of wealth Musk has, but the ability to pay for basic needs strikes me as a pretty one-dimensional way to view the way money can be motivating.
Extremely wealthy people still clearly pursue more wealth, so it’s pretty straightforwardly motivating in some sense.
> Or is someone really going to try to make the case that he's kinda half-assing it right now?
It’s not really a matter of “half-assing”, it’s a matter of further aligning someone’s goals with the organization they’re leading. Your implication here seems to be that someone can’t do a better job than they’re doing unless they’re slacking.
> On the contrary, there is plenty of evidence on the diminishing marginal utility of wealth.
For the average person, but who are you to decide? He clearly already spends his money productively by largely self-funding ambitious projects, and I suspect that he would be pursuing even more if he had infinite resources.
I'm a shareholder and I just voted against for basically this reason. I don't think the difference between owning 20 billion in equity and owning 25 billion in equity (or whatever) will mater to musk at all. he's fine. and he's going to try to finish what he started either way.
But the cost to his ego for not meeting a milestone which receives even more publicity because of the big price tag is a big motivator (or at least one could argue)
So even if the utility of the funds isn't consequential, a package like this might be one if the few ways to further incentivize a CEO like Musk.
Maybe some people are infinitely incentivizable, because they can always figure out a way to do something useful with the money.
Bill Gates for instance, although his model seems to be give it all away to good causes he believes can accomplish good. Elon still seems to believe more in his own capabilities to accomplish worthwhile things with it.
I expect he too has a little txt file somewhere on his desktop, with various amounts as milestones to unlock the next project.
Maybe at $22 billion he can afford to start asteroid mining and in orbit construction or something that would top his current accomplishments.
Asteroid mining and orbital construction would require trillions in investment, and years of focused work by a number of institutions. As far as I can tell, Musk uses that rhetoric for PR, and it works. So far an electric car company and rockets suited for LEO don’t add up to grand space adventures.
Permit me to rewrite history a bit for the sake of example. If you were a Paypal shareholder and Musk was CEO would you have supported this compensation package? Would you have supported it even if you didn't know SpaceX or Tesla were his ambitions?
Also a shareholder. Voted for. If Elon wants to die on Mars and needs personal wealth to get him there, as long as he delivers on his Tesla milestones, I've got no problem with it.
He's not half-assing it, but he has Mars goals which are likely to distract him at some point. He is serious about his Mars efforts. At a certain point it makes sense for him to leave to focus on that, unless staying at Tesla also helps him hit his Mars goal by 10xing the resources he can dedicate to the effort.
> I'm guessing he'd take that money and just privately fund SpaceX
If his goal is to colonize Mars and you want him to sell cars, a good way to do that is to say "sell cars for 10 years and we'll give you enough capital to do in the following 10 what you couldn't do in 20 from today."
Or you just allow the CEO to pump and dump the company, because the 1%/year stock will be absolutely massive while riding the hype and when things go south he can just quit and buy half the bahamas. There are much better ways to tie CEO performance to company performance that don't include amputating company stock every time your CEO is paid.
It is a $50B a year target for 12 years, so ya if he "pumped" up the stock by pretty much doubling the current market cap 2 full times over the next 4 years then he could "dump" it straight away. So the argument is that taking the company from ~50B to $650B would create such shareholder value that it would be worth it. It is actually tied to revenue and profit as well.
> Tesla has set a dozen targets, each $50 billion more than the next, starting at $100 billion, then $150 billion, then $200 billion and so on, all the way to a market value of $650 billion. In addition, the company has set a dozen revenue and adjusted profit goals. Mr. Musk would receive 1.68 million shares, or about 1 percent of the company, only after he reaches milestones for both. [1]
http://ir.tesla.com/releasedetail.cfm?releaseid=1054948
I'm not a TSLA shareholder, but tying CEO performance to company performance rather than an indifferently high salary seems reasonable to me.