Unique Nature of Elon Musk and His Remuneration

Elon Musk, often described as “unique,” received a controversial and highly generous pay package in 2018. This package, contingent on achieving specific profit and share price targets between 2018 and 2022, would increase his stake in Tesla from 22% to 28%. The package’s legitimacy is now under legal scrutiny due to concerns about the fairness and independence of the board’s decision-making process at that time.

Musk’s Performance and Market Valuation

Despite the ambitious targets set in 2018 when Tesla was valued at $50 billion, Musk rapidly achieved them, reaching a $650 billion valuation by 2020 and over $1 trillion by 2021. However, Tesla’s market value has since declined to $560 billion. The 6% stake, initially worth $3 billion in 2018, peaked at $56 billion in 2022 and is now valued at around $45 billion.

Legal Challenges and Shareholder Impact

A U.S. court ruled the pay package invalid, not due to its generosity but because Tesla had not been entirely transparent with shareholders about Musk’s influence on the board’s decision. Despite this ruling, a recent re-vote showed 72% of informed shareholders still support the package, which may influence the court’s decision on Tesla’s appeal.

Broader Implications of Executive Pay

Musk’s pay package is emblematic of a broader trend in executive compensation, characterized by dramatic increases in CEO pay compared to average worker wages. In the U.S., CEO pay grew by 1,322% between 1978 and 2020, far outpacing market growth and productivity gains. In South Africa, the trend is similar, with executive pay significantly outstripping economic growth.

Critique of the “Market” for Executive Talent

The justification for high executive pay, based on the interplay of supply and demand, is critiqued as a manipulated market controlled by insiders. CEOs influence board appointments, who then decide on executive compensation, often without rigorous negotiation. Benchmarking further perpetuates the upward spiral of pay.

Solutions and Accountability

To address the issue, potential solutions include increased taxation on companies with overly generous pay awards and greater shareholder activism, particularly by trade unions. In South Africa, labor-backed directors on boards could provide necessary push-back against excessive executive pay.

Conclusion

The article concludes by emphasizing the need for accountability in executive remuneration. A review of the value shareholders have received from high executive pay packages over the past two decades is suggested, challenging the notion that top pay guarantees top performance.