Elon Musk's $55 billion Payday

I've written a few times grumbling about excessive executive remuneration. I think in some cases the remuneration doesn't reflect the economic value created by the executive team. In my view, Elon Musk's $55 billion payday is not one of those cases. Yesterday, a court voided the incentive scheme, calling it flawed, and ordered Musk to return his share options.

How can I say that $55 billion in pay isn't excessive? Well, at the time, Tesla only had a market cap of about $59 billion and Musk would only get his first tranche of share options if the market cap reached $100 billion, and then again in $50 billion increments, all the way up to a market cap of $650 billion.

The New York Times at the time said "many experts would contend [it] is laughably impossible" for Tesla to reach a market cap of $650 billion. It went on to say, "As executive compensation plans go, Tesla's is about as friendly to shareholders as they come."

Remember, back then, Tesla was heavily shorted and many people thought a $59 billion market cap was already ridiculously high. If Musk didn't get Tesla to a $100 billion market cap in the near term, he would get $0 in compensation. As a result, no one seemed to care that he could earn $55 billion in exchange for taking Tesla from $60 billion to $650 billion.

I remember thinking, at the time, that as a shareholder, I would gladly pay Musk 9% of the gains if he could make my investment a 10-bagger. Many hedge funds charge 20% of the upside, with worse performance. Musk's compensation sounds like a bargain.