Elon Musk has a newly proposed pay package worth about $1 trillion if he can meet certain targets.
That number feels absurd. Overpaid, out of touch, and a symbol of everything that’s wrong with capitalism today.
Who on earth is worth that much? Maybe that’s why Elon wants to go to Mars.
In times like this, when things seem absurd, it helps to be specific and look at the detail.
It’s easy to be outraged immediately, but that’s not quite honest. We need to first understand what’s happening in the details, and then we can make an informed decision (as with most things in life).
Here’s the deal — Musk’s package is tied to Tesla’s market cap increasing roughly eightfold, starting from about $1 trillion. The targets include increasing profitability, putting a million robotaxis on the road, and reaching 10 million subscribers for Tesla’s Full Self Driving service.
If Musk achieves these objectives, he gets awarded 12.5% of shares. If not, he gets zero.
Would you take a package like that? Can you create $7 billion worth of market cap? That’s the market cap of Nvidia and Microsoft combined.
There’s also outrage about his previous pay package, where he was supposed to be awarded $56 billion worth of Tesla shares. This is still in the courts. That number also seems ridiculous and a number of activist investors are fighting it.
But again, let’s look at the detail.
Back in 2018, Musk was promised up to $56 billion in share options if he could take Tesla from a $60 billion company to a $600 billion company. Everyone thought that was impossible.
The deal had multiple hurdles — Tesla not only had to hit market value goals, but also big revenue and profit targets. If the company missed, Musk got nothing.
Well, Tesla hit those targets. It went from $60 billion to over $600 billion, and the company grew its sales and profits along the way. On paper, Musk earned the package because the value creation was real.
So, does Elon deserve that $56 billion? That growth never would have happened if he wasn't there.
Think of it this way. Let’s say you had R5 million and you made a deal with a superstar employee that if they turned your R5 million into R40 million, you’d give them R5 million — so you net R35 million. But if they don’t deliver, even if they only turn it into R30 million, they get nothing.
Would you take that deal? I would. That’s a fantastic deal for me.
Similar to Tesla - that was a fantastic deal for their shareholders. Worth every penny (although there would be 5.6 trillion pennies. Not sure where he would keep them)
And remember, no one is forcing people to buy Teslas or take up future subscriptions or use robotaxis. People are going to do this out of their own free will. In other words, real value needs to be created for people to part with their hard-earned cash.
I don’t buy things I don’t like. Do you?
In any case, it’s not for me to decide what is fair or not. I just think you need to understand the full picture. If someone can create that amount of value, aren’t they worth it?
What do you think?
Matthew Matthee has a wealth management business that specialises in retirement planning and investments. He writes about financial markets, investments, and investor psychology. He holds a Masters Degree in Economics from Stellenbosch University and a Post Graduate Diploma in Financial Planning from UFS. MatthewM@gravitonwm.com
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