Tesla CEO Elon Musk’s latest pay deal is a high-risk move — one that perhaps no other CEO would accept.
He will be paid nothing over the next decade. Instead, he will be compensated in 10 years if, and only if, the company’s market value hits $650 billion — roughly 10 times the size of General Motors
own market cap is about $59 billion.
As stated in the announcement, made Tuesday:
“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. Instead, Elon’s only compensation will be a 100% at-risk performance award, which ensures that he will be compensated only if Tesla and all of its shareholders do extraordinarily well. Because all Tesla employees are provided equity, this also means that Elon’s compensation is tied to the success of everyone at Tesla.”
This is a bold plan that accomplishes a few things at once. First, it reassures stockholders that Musk’s interests are aligned with theirs, and does so in a highly credible way. Second, it shows that Musk has no plan of leaving Tesla anytime soon. The announcement was made in the wake of reports earlier this month that Tesla was falling short of production goals, and increasing investor anxiety about whether Tesla could generate strong shareholder returns. The new compensation plan makes a pretty powerful statement that Musk is willing to put his money where his mouth is.
Should we be surprised? Not in the least.
First, Musk’s annual salary was already set at the California minimum wage, and he has never cashed the checks. Second, and more important, Musk is an idealist, and Tesla is part of a superordinate goal that is far more important to him than money, time, or comfort. All of Musk’s seemingly disparate ventures — SpaceX, Solar City, Tesla, The Boring Company, are organized around his higher order goals of solving the problem of Earth’s finite resources, and making humans an interplanetary species.
At the age of 28, the sale of PayPal had already made Musk a multimilliionaire, and he could have retired and lived a life of parties and leisure. Instead, he spent $100 million of his own funds to found SpaceX — a move that he understood was a spectacularly risky gamble. However, as he has noted several times, he believes that “some things are worth doing even if you think the probable outcome is failure.” Those are the words of an idealist on a mission, and Musk, now 46 years old, is absolutely that.
When his early rockets failed, he continued to plow money into SpaceX despite the fact that both SpaceX and Musk himself were on the verge of bankruptcy. After the company finally demonstrated a successful launch and landed a hefty contract from NASA, many urged him to take the company public — a move that would have restored a massive amount of money to him personally, and made many others at SpaceX wealthy. Instead, he declined because he knew the board of directors of a publicly-held firm would force him to make changes in the company that would improve its profitability at the expense of its chances for reaching Mars.
Anyone who thinks Elon Musk’s fundamental goal is to become wealthier hasn’t been paying attention.
As he wrote in a letter to his SpaceX employees, “Creating the technology needed to establish life on Mars is and always has been the fundamental goal of SpaceX. If being a public company diminishes that likelihood, then we should not do so until Mars is secure.”
Now Musk is taking the same all-or-nothing stance with Tesla. If Tesla can be a successful mass-market auto company, that will go a long way toward demonstrating that we can successfully move away from fossil fuels. Tesla’s early success has already been a major influence in pushing other auto companies to up their game in electric offerings.
Anyone who thinks Musk’s fundamental goal is to become wealthier hasn’t been paying attention. Musk has risked his own wealth in pursuit of his goals multiple times, in ways that most profit-seeking entrepreneurs would never dream. As Musk notes, “Most people, when they make a lot of money don’t want to risk it,” he says. “For me it was never about money, but solving problems for the future of humanity.”
Elon Musk is putting 10 years of his own income on the line to show us that he believes Tesla can make a difference in the world. I say, “Elon, it already has.”
Melissa A. Schilling is the John Herzog Family Professor of Management at New York University’s Stern School of Business, and author of “Quirky: The remarkable story of the traits, foibles, and genius of breakthrough innovators who changed the world.”