Elon Musk’s new pay package has attracted almost as much divided opinion as Elon Musk himself. Advocates have claimed that it is “radical” and “bold,” praise often used to describe Tesla. Others argue that it is a publicity stunt. But, as with most things, the reality is likely in between these extremes.
Why Elon Musk’s Compensation Plan Wouldn’t Work for Most Executives
In most cases, there’s a simpler, more effective alternative.
January 24, 2018
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Summary.
The structure of Elon Musk’s new contract is actually not too different from other executives’. Effectively, Musk is being given the standard package of performance-vesting equity. Now, even though the structure is familiar, the numbers really are radical — because Tesla is radical, in terms of its potential future value. And this part of the plan is good practice: It’s tailored to Tesla. Yet Musk’s new scheme is far from perfect. Just like performance-vesting equity in general, it may lead to unintended consequences. So, what’s the alternative? Typically, it’s simple time-based vesting, where the executive receives a fixed number of shares at the end of a specified time period (say, 10 years), regardless of performance.