Elon Musk’s new Tesla pay package is a publicity stunt that’s also real

Shooting for the moon (and Mars).
Shooting for the moon (and Mars).
Image: Reuters/James Glover II
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Electric car maker Tesla announced a new compensation plan for CEO Elon Musk today, and, on the surface, it sounds outrageous.

The package consists of a 10-year grant of stock options that vest in 12 stages, but only if the Tesla co-founder, already a billionaire, hits a series of seriously ambitious market capitalization and operational milestones. He must take the company’s valuation, currently standing at $59 billion, to $100 billion for the first tranche to be vested. Then he has to continue to increase market cap in additional $50 billion increments, up to $650 billion.

If he does hit the new targets, Musk would be given 1.7 million shares, or about 1% of the company. “If all that happens over the next 10 years is that Tesla’s value grows by 80 or 90%, then my amount of compensation would be zero,” Musk told Andrew Ross Sorkin of the New York Times.

It’s true: “Elon will receive no guaranteed compensation of any kind – no salary, no cash bonuses, and no equity that vests simply by the passage of time,” the Palo Alto, California-based company said.

As Sorkin points out, critics will call the announcement a publicity stunt, adding that Musk “has been called a modern-day P.T. Barnum who has created the illusion of success while consistently missing production estimates.” At one point in 2017, the company was bleeding nearly $500,000 per hour, he notes, citing Bloomberg News. 

But, Sorkin also writes, “Mr. Musk’s compensation plan is no illusion.”

That’s a good thing for anyone holding company shares, including employees paid in cash and stock options, who would gain even if Musk falls a tiny bit short of his goals. For them, there is no downside to this deal.

There had been speculation that Musk would be stepping down from his role as CEO, but today’s announcement makes it clear that he’ll lead Tesla for the long-term.

Musk also told the Times that he’s not incentivized by the monetary rewards of this compensation scheme for the sake of wealth alone. Instead, he has big plans for humanity. He wants some of us to be living on Mars, and he needs cash to fund his reorganization of humans  into “a multi-planet species.”