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Executive bonuses are supposed to reward good behaviour, and incentivise more of it. The near-$30bn in stock that Tesla just awarded to boss Elon Musk doesn’t quite fit that pattern. Instead, it looks like throwing goodies at a wayward leader in the hope that he will change his ways.
Tesla directors on Monday said Musk — the world’s richest man — will get a grant of 96mn shares in two years, conditional upon him staying at the company for five. Musk currently owns over 400mn shares, 13 per cent of the whole company, worth around $125bn. But he has admitted that without more to motivate him, his attention could drift to other parts of his sprawling empire.
The new bonus is a workaround of sorts. A $56bn bonus awarded to Musk in 2018 was blocked by a Delaware court, which found it excessive and deemed it the creation of a compromised board of directors. The new slug of shares, granted under the terms of a 2019 executive pay plan, will only become effective if an appeal to the Delaware Supreme Court to reinstate that larger award fails.
Moreover, this is just the start. The board describes the $30bn offering as a “critical first step” ahead of a “longer-term CEO compensation strategy”. Its plan is to formulate a more detailed, forward-looking pay plan for Musk ahead of the company’s shareholder meeting in November, which will then be put to a shareholder vote.
Tesla’s treatment of Musk has spawned much debate about what is proportionate when it comes to CEO pay. When the 2018 plan was first implemented, the various operational and stock price targets it set out seemed improbably aspirational, so much so that the associated accounting charge at the time was just $2.3bn. Since then, though, Tesla has added almost $800bn of market capitalisation.
Moreover, shareholders don’t seem to be grumbling. A large majority of them have repeatedly approved the 2018 grant, even though it heavily dilutes their own shareholdings. They also agreed with Tesla’s plan to move its incorporation from Delaware to Texas, a state where dissenting investors — were there to be some — would find it virtually impossible to sue the company for breaching its fiduciary duties.
What’s clear is that Musk’s enormous investment in Tesla doesn’t seem to be motivation enough. The company is struggling: the stock price has fallen a third from December’s peak, and earnings in the most recent quarter were down by a fifth year-on-year. Musk’s close ties to Donald Trump hurt the company’s brand among US coastal elites, yet Trump has also stripped Tesla of valuable electric vehicle subsidies.
And Musk’s attention remains divided, given the many businesses he oversees. Perhaps his various companies — SpaceX, X/xAI, Neuralink and Tesla itself — will one day end up part of a single, merged entity. Shareholders and the board have let him get his way in almost every other respect. Handing him $30bn in a forlorn attempt to keep him interested shows how weak their leverage really is.