Many people recoil at the suggestion that any CEO can be paid a trillion dollars for performance. They find the package proposed for Elon Musk obscene. Investors are at the moment voting on the package. Musk has threatened to quit and focus on other things if the package is not approved.
The board of Tesla backs the package. Top proxy advisors have opposed the pay as also some investor groups. It is the biggest pay package proposed in corporate history.
People need to look at the fine print before they come to conclusion. The Lex column in FT does just that- and it gave me plenty of food for thought.
Here are the salient points:
- The package will be payable over a decade and in shares, so it makes sense to Musk only if Tesla keeps performing after he gets the award
- EBITDA must rise from $16 bn to $400 bn for Musk to get the whole amount. The lowest target set for him is $50 bn
- Musk has to hit the target not just on car sales but on AI-powered androids, robotaxis and autonomous driving. He needs to take subscriptions for the third from 500,000 to 10 million
It appears that Musk will be paid a trillion dollars for pulling off a miracle!
What we need to know is roughly what will he be paid at the minimum of the targets set for him. The board should also have told investors and the public what they think he will likely get if he meets targets that appear attainable. Then the uproar would not have been as huge.
Simply telling people that a CEO stands to make a trillion dollars is bad communication.
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