The $530 million part-time job
Tesla board chair Robyn Denholm — whose job is to keep Elon Musk in check — has received and sold more than $530 million worth of Tesla stock since taking the role in 2018. The kicker? Her position is only part-time.
Denholm’s windfall highlights a distinctly American phenomenon: stock-based compensation. While it’s been around for over a century, the practice exploded in the post-World War II era, became a fixture of the 1990s tech boom, and now dominates white-collar pay at the highest levels. Today, it’s common for senior executives to earn the vast majority of their compensation not in salary, but in stock and options — conveniently taxed at lower capital gains rates.
In theory, this creates alignment: Make execs into shareholders, and they’ll act in shareholders’ best interests. In practice? Let’s just say the incentives don’t always lead where you’d hope. Scroll down below for the full breakdown.
By the digits
$0: Salary Robyn Denholm received as Tesla chair since she took the job in 2018. Her compensation came entirely from stock.
15x: Approximate growth in the U.S. stock market between 1980 and 2000, the era when stock-based comp went mainstream.
20%: Top long-term capital gains tax rate in the U.S. — the one most billionaires and executives pay on stock sales.
37%: Top marginal income tax rate for regular wages, the one a high-earning salaried worker (making, say, $600,000 a year) would face.
$530 million: Approximate amount of Tesla stock Robyn Denholm has received and sold since becoming board chair in 2018.
How stock options built the modern executive (and their mansion)
To understand why wealth inequality has surged in the U.S., you could do worse than start with stock-based compensation.
Roughly 90% of all U.S. stocks are owned by the wealthiest 10% of households, and it’s no coincidence that the same group benefits most from stock-based pay. For top executives, options and restricted stock grants can deliver outsized gains with little downside. For regular workers? If you’re lucky, you might get an ESPP (employee stock purchase plan), or a few RSUs (restricted stock units) that vest over four years and amount to a down payment. Maybe.
The gap has only widened since the 1990s, when options became the gold standard of Silicon Valley comp. The pitch was that startups could attract talent without big cash salaries. But when valuations soared, founders and early execs cashed out fortunes. The logic has since bled into the rest of corporate America, helping create an era in which a company’s share price often matters more than wages, morale, product quality, you name it.
Today, compensation committees still favor stock-heavy packages, arguing that they tie leadership to long-term company performance. But critics note they also serve as legal tax shields and PR armor. If pay comes in the form of shares, it’s not “salary.” And if a company’s doing well, why shouldn’t the CEO get mega-rich? Your own personal opinion may depend on your tax bracket. Or how long it’s been since your last raise.
Quotable
“If options aren’t a form of compensation, what are they? If compensation isn’t an expense, what is it? And, if expenses shouldn’t go into the calculation of earnings, where in the world should they go?”
—Warren Buffett, the Berkshire Hathaway CEO and a longtime critic of stock-based compensation, especially back when companies didn’t have to count it as a real expense. That changed in 2006, but many companies still emphasize adjusted earnings that conveniently leave it out.
Pop quiz
Which of the following is true about stock-based compensation?
- A. It’s taxed at the same rate as regular income, no matter what.
- B. It was banned in the early 2000s for encouraging risky behavior.
- C. It’s a big reason why multimillionaires often pay lower tax rates than Subway “sandwich artists.”
- D. It’s only legal for full-time employees.
Check out the answer at the bottom of this email.
Brief history
1950: The Revenue Act of 1950 introduces favorable tax treatment for “restricted stock options,” letting executives delay taxes until they sell shares. The loophole supercharges their appeal.
1980s: As the stock market rebounds and Reagan-era deregulation kicks in, options become the go-to form of long-term incentive pay. Executive wealth booms.
1990s: The S&P 500 grows almost 15-fold between 1980 and 2000, making option grants absurdly lucrative. By the late ’90s, stock options make up about 75% of long-term executive pay.
2006: New accounting rules force companies to expense stock options, making them less slightly less attractive on paper.
2010s: After the Dodd-Frank Act’s “say-on-pay” rules, options begin to lose ground to performance-based shares. But stock-heavy pay packages continue to drive widening gaps in wealth.
Fun fact!
In 2006, Occidental Petroleum’s CEO, Ray Irani, received a total compensation package that exceeded $460 million just that year, largely because of stock-based compensation. The company justified the staggering sum by citing Occidental’s stock performance. The stock had risen from $9 a share when Irani took over to almost $50 by the end of 2006.
Watch this
If you prefer to absorb your explanations in video form, here’s a lucid but in-depth explainer of how stock-based comp works, from the individual-employee aspect to companies’ financial statements.
Take me down this 🐰 hole!
On Reddit’s /AskEconomics board, users recently laid out how billionaires may pay lower tax rates than, say, their own assistants or Amazon warehouse workers.
Poll
What’s your personal relationship to stock-based comp?
- A. I hear the CEO’s stock grants are going great!
- B. I’m still waiting for my LinkedIn endorsements to vest.
- C. I’ve got options (regarding what I’m gonna do this weekend).
- D. My retirement plan is Social Security and delusion.
💬 Let’s talk
🐤 X this!
🤔 What did you think of today’s email?
💡 What should we obsess over next?
Today’s email was written by Catherine Baab, author of Poe for Your Problems.
The correct answer to the pop quiz is C. Ordinary workers pay payroll and income taxes on every dollar they earn. But stock-based pay? It’s often taxed at long-term capital gains rates — just 20% at the top — and only when shares are sold.