When Tesla shareholders approved Elon Musk’s trillion-dollar pay deal, the headlines focused on excess. Yet its structure may be one of the clearest examples of alignment between leadership and shareholders.
Investors shouldn’t dismiss it. They should study it. Beneath the noise is a blueprint for how pay can drive founder-style thinking – and a checklist for investors analysing any CEO remuneration plan. The three questions are simple: does the timeframe match the ambition, is the reward truly at risk, and do the goals drive transformation or just preservation?
The timeframe must match the ambition
Musk’s deal stretches over ten years. The award is 100% equity. No cash. No early payout. He earns shares only if Tesla meets extreme targets – growing market value from roughly US $1 trillion to $8.5 trillion, selling twenty million cars (a ten-fold jump from today), and launching fleets of robotaxis and humanoid robots. Even if he achieves them early, nothing vests until at least 7.5 years in.
That’s how founders think. They don’t get paid for surviving the quarter; they get paid when the company wins. For investors, that horizon matters. It forces decisions that compound over time, not short-term fixes that bump next quarter’s result.
By contrast, Australian companies still reward short-term thinking. The ACSI 2024 CEO Pay Study found 96% of ASX 200 chief executives received a bonus last year, with most long-term incentives tested over about three years, often on relative Total Shareholder Return (TSR). Short horizons breed caution. They create managers who defend the status quo, not visionaries who transform it.
The reward must carry real risk
Musk’s plan is 100% equity. No fixed salary. Every dollar depends on Tesla’s share price. If the company stalls, the paper value vanishes. That’s real alignment.
Apple used the same playbook when Tim Cook received his 2011 mega-grant – one million restricted stock units later tied to performance hurdles, worth about US $376 million. It turned him from a manager into an owner, fitting for Steve Jobs’ successor. Since then, Apple’s market cap has increased more than eight-fold.
Research from the Stanford Graduate School of Business shows that large, long-term, equity-only awards can align executives and shareholders when they include genuine downside risk. Big doesn’t mean bad – provided failure remains possible.
Most Australian incentive plans don’t go that far. They mix fixed salary, cash bonuses and modest equity. It keeps everyone comfortable, but it dulls ambition. Investors should prefer pay that hurts when performance slips and rewards only when value compounds.
The goals must be transformational
DaVita, a US healthcare group best known for dialysis clinics, redesigned its CEO pay to break from convention. The board issued a long-dated equity award that would only pay out if the company hit stretch growth and profit goals over time. The targets were difficult and exposed the CEO to genuine downside risk if the turnaround failed. That’s how transformation looks – high ambition, real possibility of failure.
Tesla’s plan follows the same philosophy. Its targets are extreme: twenty million cars, one million robotaxis, one million AI bots, four hundred billion dollars in adjusted EBITDA. Critics call them unrealistic. That’s the point. They’re designed to push the company beyond what seems possible. A Tesla back-test of its 2018 plan found only one other large-cap CEO met comparable performance; 79% failed to achieve any of the targets Elon Musk achieved.
Founder-led companies think that way. They chase revolutions, not refinements.
A Deloitte report shows most ASX incentive plans, by contrast, use relative shareholder return as long-term targets. They’re tidy, safe, predictable. When incentives measure stability, you get stability, not the next global champion.
The investor’s lens
Musk’s package isn’t flawless. The number is absurd. Governance hawks worry about power concentration. But in structure, it’s logical. It pays only after record-breaking value creation.
Investors should care less about the number and more about the design. The risk isn’t overpaying a visionary; it’s rewarding mediocrity on a three-year cycle.
So next time you open a remuneration report, don’t focus on what the CEO makes – focus on how they make it. Look for long horizons, equity at risk, and goals that demand transformation. If those ingredients are missing, you’re not backing ambition. You’re funding inertia.
By the way, that one other CEO who matched Musk’s 2018 performance? That was Nvidia’s Jensen Huang.
Lawrence Lam is the author of The Founder Effect and Managing Director of Lumenary Investment Management. He writes on investments, business psychology, and leadership from an investor’s perspective. More at lawrencelam.org and lumenaryinvest.com. The material in this article is general information only and does not consider any individual’s investment objectives.
Lawrence and his firm, Lumenary Investment Management, do not hold positions in any of the companies mentioned.