Why is Elon Musk Paid ₹4.62 Lakh Crore?

In 2018, Tesla’s Board of Directors and most shareholders approved a substantial pay package for CEO Elon Musk. Despite none of it being in cash, it was corporate America’s largest by far. Musk was set to gradually receive 12% more shares in the company over the next few years, contingent on achieving goals set by the Board.

These goals were split into multiple milestones, such as increasing Tesla’s market capitalization, revenue, or earnings before tax. For every milestone Musk met, he’d receive 1% more shares. The ultimate aim was to make Tesla a $650 billion company, multiplying its market value from 2018 by nearly 11 times over the next few years.

Although this target seemed audacious, Musk accomplished most of them by 2022, making him entitled to the promised pay. However, Richard Tornetta, one of the shareholders, disagreed. He took Musk to court, arguing that Musk didn’t deserve such a mammoth payout. The court sided with Tornetta, declaring Musk’s pay at Tesla excessive and canceling it.

Why? For starters, Musk apparently controlled Tesla to the extent that employees considered him a tyrant. He held the most powerful roles of Chair, Founder, and CEO, making decisions without Board consultation. For instance, in 2021, Musk appointed himself “Technoking,” and his antics extended to pausing Tesla’s acceptance of Bitcoin and deploying 50 Tesla engineers to evaluate Twitter’s engineering team, all without Board approval.

Musk’s behavior could be blamed on his relationship with the Board. Musk and his brother Kimbal made up 25% of the entire board of directors, and the rest weren’t truly independent. Many were friends who vacationed with Musk. This comfort level likely made Musk feel he could inform the Board of his decisions later. For Musk, they were friends, not just a governing body, allowing him to control negotiations over his pay.

This control prevented the Board from comparing his pay with other high-level executives. His pay was 250 times greater than the median peer CEO compensation in 2017. The plan’s closest comparison was Musk’s 2012 compensation plan, and Musk dictated the unreasonably short review time for his pay approval. Shareholders, unaware of Musk’s dealings with the Board or his power over them, approved his pay assuming an independent and unbiased Board had done so.

All this convinced the court that Musk had extreme influence over the process. His control helped him secure the pay he wanted, funding his personal ambitions like colonizing Mars. However, a few days ago, Tesla’s shareholders reinstated Musk’s package, approving it in a meeting again. This is the same set of shareholders the court felt had approved his pay six years ago based on misinformation and deceit.

Why did they do it?

One reason could be that shareholders genuinely believe Musk earns every penny of his pay and saw him as a Superstar CEO who intimidated the court. However, the real reason might be control itself. Musk has his fingers in many pies, including SpaceX, The Boring Company, Neuralink, and now X (formerly Twitter). Not approving his pay could mean he might quit Tesla, a threat Musk himself issued through a post on X. If he didn’t get a total of 25% of Tesla, he’d leave.

Shareholders, fearing this possibility, likely approved his pay to keep him happy. They didn’t want to bet against Elon Musk and risk driving down Tesla’s share prices. Their best bet was to keep Musk motivated, hoping he would deliver even more value to them.