The phrase “it’s lonely at the top” is often used to describe the isolation leaders feel despite their success. However, this notion is put into perspective when considering leaders like Elon Musk, who possess both immense wealth and significant influence in their companies. Next Thursday, Tesla shareholders will vote on Musk’s proposed $56 billion pay package, which, if approved, would be the highest-ever executive compensation package in history. This comes after a judge rescinded his compensation in January over governance concerns, prompting the Tesla board to seek shareholder ratification for a second time.
The Stakes of Musk’s Compensation
The upcoming vote holds significant implications. If Musk’s pay package isn’t approved, there is a chance he might step away from Tesla. Robyn Denholm, the chairman of Tesla’s board, warned shareholders in a letter that Musk could potentially dedicate his time to other ventures if his compensation package isn’t sanctioned. Musk is currently involved in leadership roles at multiple companies, including SpaceX, X (formerly Twitter), xAI, Neuralink, and The Boring Company. Denholm emphasized Musk’s limited time and numerous ideas, underscoring the importance of securing his focus and energy for Tesla.
Comparative Executive Compensation
Musk’s proposed pay package vastly overshadows those of other top executives in the U.S. For instance, Hock E. Tan, CEO of Broadcom, was the highest-paid executive in 2023 with a total compensation of $161.8 million. Other high earners include Nikesh Arora of Palo Alto Networks with $151.4 million and Sue Y. Nabi of Coty with $149.4 million. Even tech giants like Tim Cook of Apple and Satya Nadella of Microsoft earned $63 million and $48.5 million respectively in 2023, which is only a fraction of Musk’s proposed pay.
Courtney Yu, director of research at executive intelligence firm Equilar, noted that Musk’s pay package is the largest ever disclosed for a public company CEO. If approved, Musk will not only regain his status as the wealthiest person but also move closer to owning 25% of Tesla, a goal he has openly expressed.
The Justification for Musk’s Pay
Denholm insists that the pay package is not about enriching Musk, who is already one of the wealthiest individuals on the planet. Instead, it is about fulfilling the compensation agreement made in 2018. While Tesla shares make up the bulk of Musk’s net worth, his stakes in other ventures are also substantial, with SpaceX valued at $71.2 billion, X at $8.4 billion, and The Boring Company at $3.3 billion.
Trends in CEO Pay
While Musk’s compensation package is unprecedented, CEO pay in general has been on the rise. In 2023, median CEO pay reached $16.3 million, nearly 200 times the salary of a typical worker. This marked a 13% increase from the previous year, driven by a strong economy and the rise in stock awards tied to performance metrics. Equilar credits these equity-based awards for the steady increase in CEO compensation over the years.
Opposition to the Pay Package
Despite the aggressive campaign by Tesla to get the pay package approved, including hiring strategic advisers and launching a website for shareholder support, opposition remains strong. Some investors argue that the proposal is excessive, especially given Tesla’s recent turbulent performance. They contend that the board has not ensured that Tesla has a full-time CEO focused on the company’s long-term sustainable success.
Potential Outcomes
If the pay package is not approved, Tesla might have to devise a new compensation plan for Musk, which will be challenging given the scale of the current proposal. The biggest risk for Tesla is the potential loss of Musk, though some argue that his involvement with the company has waned. Denholm highlighted that Musk and Tesla are atypical, and motivating someone like Musk requires unconventional incentives.
Conclusion
The upcoming shareholder vote on Elon Musk’s $56 billion pay package is a critical moment for Tesla. While the compensation is historic and has sparked debate, it underscores the complex dynamics of retaining visionary leaders in today’s corporate landscape. Regardless of the outcome, the decision will have far-reaching implications for Tesla’s future and Musk’s role within the company.