There has been a lot of media attention over the past few days regarding the Tesla Boards decision to directly link its CEO’s (Elon Musk) compensation over the next 10-years to the firm’s success. In my opinion, the tactic is nothing more than a Wall Street marketing ploy aimed to show current/potential investors that Musk is dedicated to the success of the firm (as opposed to getting sidetracked by his other projects – SpaceX/Boring Company/SolarCity/etc).
To summarize the package contents, Tesla (approx. $60 Billion M.C.) needs to reach a market cap of $650 Billion within ten years for Musk to receive any compensation, the reported compensation at that time making him the richest man on earth. This seems like quite the task; however, the visionary nature of the firm should allow for rapid growth so long as production and finances stay in check.
In the meantime, Musk will be receiving no compensation whatsoever, and although he’s currently worth approx. $21 Billion himself, 10 years of dedicated work for zero pay appears tasking–motivating even. The reception to the idea has been positive, the market sentiment surrounding Tesla appearing to be that if Musk sticks around the firm will fare just fine – as well as the idea that he’ll want compensation for all of his hard work, Right?
Here is where I object. I’ll be the first to say that Musk is a demigod of tech and will lead Tesla or any venture for that matter, to great success, the idea that this proposed compensation package will have any effect on his decision-making/company roadmap is ridiculous though. I mean, how can a man who doesn’t care about money be bribed with money?
I could surely site all of the evidence behind this statement, maybe starting with the fact that at 28 years old the sale of PayPal had made Musk a hundred-millionaire, yet rather than coasting through life as a 0.001% elite he risked virtually all of it on the creation of SpaceX. Or maybe I’ll mention that he later turned down taking SpaceX public following a huge NASA contract (which would have reaped massive financial gains for himself) because he was worried that a board of directors would decrease the odds of reaching Mars in an effort to be more profitable.
Rather, I’d like to shed light on the fact that Musk, now 41, has been getting paid California-State minimum wage for his tenure at Tesla – a.k.a its entirety. Better yet, he has never actually cashed/deposited any of the cheques, all of which are now stale-dated minus the past 6-months worth. Tesla is making headlines regarding their decision to not pay their CEO for the next 10-years–the same CEO who hasn’t been getting paid for the past 14.
It’s important to highlight that Tesla’s balance sheet is way out of whack, with virtually every free dollar of cash flow being reinvested into new projects and the cash-burn/interest expenses mounting more rapidly than ever. For Tesla to remain sustainable and have lenders willing to lend they will need to build somewhat of a reserve–tough quarters or rising rates pose way too large of a threat to their massive potential upside. 10-years seems like a ton of time, but to increase the market capitalization 11-fold and still remain financially secure will require diligent execution. To strap Musk with a 10-year time-bomb is to force him to take bigger risks and push things forward quicker than ever before. If done correctly the plan will reap huge rewards for everyone involved, if done incorrectly though, Tesla’s global domination will be the greatest thing that never was.
I am very confident that Tesla will revolutionize the auto-market and be a generation-defining firm that is known for its innovation and ability to alter our world. I just don’t think that a gimmicky pay-package changes anything fundamental about the company, nor will it make Musk alter his core values or beliefs in order to reap financial rewards–also hopefully not pushing the company to bite off more than they can chew.
But that’s just my opinion.