Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 644

Why Elon Musk's pay packet is justified

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.

 

  •   7 January 2026
  • 5
  •      
  •   
5 Comments
Tone def
January 08, 2026

The difference is that Musk only gets the money if the business outperforms massively. In Australia CEOs get the money regardless.

3
Avid reader
January 15, 2026

That's exactly the nuance highlighted in this articvle

Jim McMahon
January 11, 2026

The logic of the article is perfect however no reasonable person thinks Musk’s remuneration objective is anything but extremely obscene. As it is for many CEOs on the world stage, and especially when it comes at the cost to low paid workers, (Starbucks, Amazon come to
mind)

4
john
January 14, 2026

Maybe the way to bring some sort of sanity into this is to not buy the particular products those CEOs are involved in

 

Leave a Comment:

RELATED ARTICLES

Decoding the DNA of exceptional companies

FTX's lessons for Australian investors

8 reasons business has little to learn from 'The Last Dance'

banner

Most viewed in recent weeks

Why spending more in early retirement can improve lifetime income

Conventional wisdom encourages retirees to preserve superannuation. But if those likely to qualify for the Age Pension later in life spend a little more today, it may deliver higher lifetime income and a more stable retirement.

Will you run out of money in retirement?

Fear of running out has become a defining retirement anxiety. Why do some retirees die with substantial wealth while others deplete their nest egg? Evidence suggests the answer is more complicated than we think. 

The investment that sidesteps the new tax traps

Tax rules have changed, but many investors are still using yesterday’s strategies. Insurance bonds may offer advantages for those seeking greater control, tax efficiency and certainty about their wealth.

Testamentary trusts have secured the CGT exemption

Treasury’s latest CGT reform draft delivers a win for testamentary trusts and deceased estates, exempting estate-derived gains from the 30% floor. However, questions on death and divorce rollovers remain unresolved.

Meg on SMSFs: What do we think about reversionary pensions these days?

Reversionary pensions have long been a staple of SMSF estate planning, but are they still the best option? Meg Heffron revisits a once-clear favourite and asks whether changing super rules have shifted the balance.

How does the 4% rule stack up?

The 4% rule has long been retirement's gold standard. But after a difficult period for investors, fresh analysis suggests a more conservative approach may significantly improve the chances of making savings last.

Latest Updates

Planning

Testamentary trusts survived the trust tax. The drafting battle has just begun.

The fight over testamentary trusts looked settled. Then the draft legislation arrived. Hidden in a technical detail is a question that could force many families to rethink wills they thought were already future-proof.

Investment strategies

The new capital gains tax trap for your portfolio

Investors have long accepted one portfolio rule without much question. A major tax shift could change that calculation entirely, forcing difficult trade-offs between risk, discipline and an overlooked cost lurking beneath.

Economy

Population growth masks Australia’s productivity problem

For years, investors have benefited from a seemingly reliable growth story. But recent national accounts raise uncomfortable questions about what has really been driving Australia’s economy and whether that can continue unchecked.

Investment strategies

Why tomorrow’s winners may not be today’s index leaders

The stocks that built retirement balances over the past decade now dominate many portfolios. The new challenge is whether these companies can continue meeting the increasingly high expectations embedded in today's share prices.

Investing

What earnings surprises reveal about future returns

Sometimes the most important information in an earnings result isn't the number itself. It's the possibility that the market's assumptions have been fundamentally wrong and future earnings may look very different.

SMSF strategies

Individual SMSF Trusteeship directly liable for ATO fines

A rarely discussed detail buried in SMSF structures could dramatically change who wears the cost when something goes wrong. With penalties rising, a decision many dismissed as administrative may deserve a second look.

Investment strategies

The currency bet you didn’t know you made

Buying global shares means making two bets: on the companies and on the Australian dollar. Most investors consciously choose only the first. Last financial year, the second bet cost 8.5% in returns for many investors.

Sponsors

Alliances

  • ASA-Logo-RGB-ActiveGreen-web.png

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.