Is Tesla CEO Elon Musk’s Pay Package Really About Compensation?

Elon Musk

JUN 3 2018 BY EVANNEX 7

HARVARD BUSINESS REVIEW: WHAT’S REALLY BEHIND THE PAY PACKAGE FOR TESLA’S ELON MUSK

Tesla’s board recently approved one of the largest (and most talked about) CEO compensation packages in history. While much has been written about Elon Musk’s milestone-based, decade-long pay package, Harvard Business Review’s George Serafeim argues, “Elon Musk’s unusual compensation plan isn’t really about compensation at all.”

*This article comes to us courtesy of EVANNEX (which also makes aftermarket Tesla accessories). Authored by Matt Pressman. The opinions expressed in these articles are not necessarily our own at InsideEVs.

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Above: Tesla’s CEO Elon Musk (Instagram: elonmusk)

Serafeim says, “much of the discussion to date misses the point. The design of the compensation plan and its announcement were… about signaling a credible commitment to Tesla’s purpose: to become a clean energy giant that helps address climate change by transforming mobility. To get there, Musk needs not only the normal sort of investor confidence, but also for investors to buy into his radical vision for the company.”

And this requires a long-term timeframe. At the end of the day, “Tesla is not exciting for investors purely as a normal car company; it’s exciting because it could be one of the world’s most valuable companies in a low-carbon future… You invest in Tesla not for safe returns, but for the possibility that it could become one of the century’s most important companies.”

Above: Tesla’s Model S (Instagram: icepunisher)

This won’t happen overnight. Looking ahead, Serafeim believes, “The future of mobility will see a convergence of three trends that only a few years ago people saw as independent: autonomous vehicles, shared vehicles, and electrified vehicles. Such a future would help decarbonize the sector, which would contribute to the climate change challenge; dramatically improve health outcomes, due to fewer accidents and lower pollution; provide more-affordable mobility; and reduce traffic, contributing to better quality of life.”

To that end, “Musk’s compensation plan, with its ambitious targets for market capitalization, focuses the mind on exactly this vision. For Tesla to reach a $650 billion valuation by 2028, the market will have to shift dramatically… [and] Musk knows that one of Tesla’s biggest competitive advantages is the patience and long-term thinking not only of management but also of its investors. Maintaining that patience requires constant focus on that north star of a half-a-trillion market value. By tying his compensation to that vision, he is telling Wall Street where his focus will be.”

Above: A look inside Tesla’s interior (Instagram: themaverique)

After all, Musk made this point crystal clear on Tesla’s recent earnings conference call. He wants steadfast, long-term investors instead of fickle, quick-buck day traders. On the call, Musk remarked, “if people are concerned about volatility, they should definitely not buy our stock. I’m not here to convince you to buy our stock. Do not buy it if volatility is scary… We have no interest in satisfying the desires of day traders. I couldn’t care less. Please sell our stock and don’t buy it.”

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Source: Harvard Business Review

*Editor’s Note: EVANNEX, which also sells aftermarket gear for Teslas, has kindly allowed us to share some of its content with our readers, free of charge. Our thanks go out to EVANNEX. Check out the site here.

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7 Comments on "Is Tesla CEO Elon Musk’s Pay Package Really About Compensation?"

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G2

“Shorters” hate it when a company won’t succumb to short term thinking and artificial crisis creation that they rely on to make their bucks.
Hope they all choke in the long term as Tesla stays focused on the future.

BTW- the political process needs longer term vision as well to prevent the political version of “Shorters” from cashing in on trends that are clearly NOT in the best interests of the citizenry.

mx9000

This is what has killed Ford’s efforts over the last 12 years.
However, there seems to be some hope with the new current CEO.
And, note, Ford stock has not responded to this CEO’s goals.
So, same disease, short tremors, from short Termers.

mx9000

I’ll also note, that the “financial” press has NOT REPORTED good news about Tesla’s latest news about expansion in China, the Model Y schedule, or the production ramp up. Although they have reported work stoppages of the assembly plant.

Nix

Even more important is that it represents ALL of the wealth of inside information and internal projections that Tesla’s bean-counters and Elon’s lawyers have access to. Elon’s bonuses were negotiated by Elon’s lawyers and the Tesla board’s Compensation Committee, and both had a fiduciary duty to negotiate the best deal for their clients, based upon the data they had access to.

These numbers represent the closest we have to insider information as to where Tesla is going as a company in the long term.

mx9000

However, I’d call this financial package VERY AGGRESSIVE.
And I’m surprised Elon agreed to it. These are HARD GOALS to achieve, and yet he signed on. One conclusion you can draw from this is the Board has FULL FAITH in Mr. Musk. I just hope he has something up his sleeve.

Brian

Musk doesn’t take easy challenges.

marcuscassius

Between the shorters and the oil and gas auto companies propaganda, you’ll be seeing a lot more niggly nonsense articles. When was the last time you read about Fords CEO’s pay package? Or OPEC leaders profits? Ya, never. More nothing burgers from the haters.