"The $1 trillion pay package for CEO Elon Musk that Teslashareholders approved on Nov. 6-the world's first-was labeled by the board as an exemplar of pay for performance. And at first glance, the program appears to fit that description in a big way: The hurdles it establishes for Musk to receive any compensation at all, let alone achieve the maximum 13-digit payout, appear the ultimate in stretch goals. Skeptical observers might wonder: "How could anyone be motivated by targets this seemingly unachievable?""
"On the other hand, Tesla loyalists and the three-quarters of Wall Street analysts issuing either a "buy" or "hold" on the EV maker praise the arrangement's similarity to one from 2018 that spurred Musk to work wonders-at least in boosting the share price. Now, they're positing: "Elon's already done it once. Now he'll be super-motivated to stay in the job and conjure a second miracle. And if that happens, stockholders will pocket another king's ransom." Musk concurs."
"A close examination of the new plan, however, reveals that it harbors a "betwixt and between" problem. The lower-hanging fruit are too easy to harvest, and the harder goals that would mark substantial and genuine progress in profitability too difficult to attain. Probable outcome: Musk gets nothing resembling the $1 trillion, but still pockets one of the biggest payoffs in corporate America-as shareholders suffer along the way. The reason the epic scheme risks backfiring: It contains two loopholes that enable Musk to fare handsomely by doing something he's great at, hyping the stock via making big promises, then delivering just enough on the basic business end to clinch a rich reward."
The compensation package awards 12 tiered restricted-stock grants that require meeting both valuation and operational milestones. Many lower-tier targets are comparatively easy while the most consequential profitability goals are extremely difficult. The structure permits sizable payouts if the stock is hyped and modest operational progress is delivered, creating a high likelihood of large executive rewards without commensurate shareholder value. Prior compensation structures that emphasized share-price milestones produced dramatic stock gains, and the new plan may similarly motivate aggressive promises and stock-market focus rather than durable improvements in core profitability.
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