Background
Elon Musk is one of the most successful entrepreneurs in the world. He is the founder and CEO of Tesla Motors, SpaceX, and The Boring Company. He is also the chairman of SolarCity and OpenAI, and the co-chairman of Oren Ventures. With this many successful companies and investments under his belt, it’s no surprise that he is extremely well paid.
Approaches to Pay
Elon Musk is known for a rather unusual approach to pay. He comes from a background where stock options in companies are standard, and he has embraced this style of pay for himself. He routinely takes no more than a nominal salary, often only one dollar, and instead relies on the customer-facing performance of Tesla, the two largest companies of which he is the CEO. As an incentive, Musk receives stock options based on the continued performance of these companies.
An Example
In 2018, as part of his salary, Musk was awarded 1.7 million shares of Tesla, at USD 350 per share. In order for him to actually receive the shares and benefit from the additional pay, Tesla must achieve certain milestones. The success of the company must reach predetermined thresholds over time. In 2018 the company met its market capitalisation goals, thus granting Musk with this 1.7 million shares.
Long Term Plan
Currently, Musk has a long-term pay plan which is broken up into 12 ‘tranches’ and is based on Tesla Inc’s market-capitalisation, revenues and free cash flow. Over the next 10 years, Musk will be awarded 1.68 million in stock options if Tesla’s market-capitalization stays above certain levels over the next 10 years.
This means if Tesla’s market-capitalization is ever only 8% higher than the current market level, Musk will still be entitled to receive the 1.68 million in option grants, the value of which will fluctuate based on the current market-capitalisation.
Analysis
Musk’s move to take stock options instead of normal salary is both risky and extremely advantageous. Musk’s idea to link his pay to the performance of Tesla means that if the company does fail to meet its goals, Musk will not receive payment for his work. On the other hand, if all goes well and Tesla is successful, the value of the stock options will be much higher than it would have been if he had taken a normal salary.
Experts Opinions
Experts have come out to back Musk’s incentive based pay agreement, citing it as an example of forward-thinking and innovative leadership. Rebecca Lindland, executive analyst at Kelley Blue Book opined, “Elon Musk is taking a risk, but it’s a calculated one. It’s a great thing, and smarter than just taking a paycheck and going home every day.”
Moreover, Steven Rattner, former adviser to President Barack Obama, has also praised Elon Musk’s pay plan. Rattner described it as “genius”, saying it provides him the incentive to make sure everything goes smoothly, while reaping even greater rewards if all goes according to plan.
Musk Theory of Pay
Musk has long-held a unique view on the concept of what constitutes well-paid employees. Rather than focusing on the size of paychecks, Musk believes employee motivation stems from intrinsic in addition to extrinsic reward incentives.
He has talked about this concept in many interviews and has even edited it into the Tesla employee handbook, stressing the importance of feeling proud of what one does beyond accumulating money. According to Musk, pride and purpose are more valuable than salary.
The Impact on the Workforce
By adopting an incentive-based approach to pay, Musk is making it clear that he values the performance of his employees and isn’t just looking to line his own pockets. This kind of recognition helps to cultivate strong loyalty and encourages a high level of engagement among workers.
This is reflected in the attitude held by Tesla employees, who say that the feeling of being part of a larger mission resonates in their work. This type of motivation is hard to replicate through salary alone and helps Tesla to maintain a loyal, highly-engaged workforce.
Philanthropic Ventures
Despite taking a nominal salary, Musk is still extremely well off because of his stock holdings in Tesla, SpaceX, and other ventures. He is currently the 37th-richest person in the world with a net worth of USD 32.3 billion.
Musk is far from a self-centred billionaire, however. He has been an active philanthropist and recently made a pledge to give $100 million to a carbon removal challenge, with the ultimate aim to develop a system to remove carbon dioxide from the atmosphere and reverse global warming.
Musks Influence
Despite the unorthodox approach to his own pay structure, Elon Musk has clearly seen it as a successful strategy. His example is inspiring many other corporate leaders to consider a similar approach and put employee motivation first.
In addition, Musk’s approach could help to reform our views on what it means to be ‘well paid’. His commitment to stock options and other pay-for-performance incentives shows that monetary rewards are only one form of employee recognition and long-term success requires an engaged and motivated workforce.
Looking into the Future
As SpaceX, Tesla and The Boring Company continue to gain traction and set new standards in their respective industries, Musk is no doubt set to become one of the wealthiest people in the world.
Musk’s stock options only continue to rise and his ambition and innovative approach to employee motivation may inspire others to start similarly revolutionary pay structures.
Conclusion
It’s clear that Elon Musk’s move to pay himself in stock options has worked out well. He is gaining a great deal of wealth and recognition for his 1.7 million share incentive, while his unconventional approach to motivating his employees is inspiring other leaders to follow suit.
Only time will tell, but the future looks bright for both Elon Musk’s wealth and his influence on employee motivation.
