Tesla's $2.6B Musk Award Too Costly, Glass Lewis Says(bloomberg.com)
bloomberg.com
Tesla's $2.6B Musk Award Too Costly, Glass Lewis Says
https://www.bloomberg.com/news/articles/2018-03-05/tesla-s-2-6-billion-award-to-musk-too-costly-glass-lewis-says
57 comments
Is tying CEO performance to company performance really a good idea? Just 3 days ago we had a story about how shareholding affects the company and CEO:
https://news.ycombinator.com/item?id=16502607
So, it begs the question - What do shareholders do if something like this happens?
Additionally,
> But the success has also underscored the company’s dependence on its CEO -- a risk factor that’s routinely spelled out in regulatory filings.
> “Although Mr. Musk spends significant time with Tesla and is highly active in our management, he does not devote his full time and attention to Tesla,” the firm’s annual report said, noting that he’s also CEO of Space Exploration Technologies Corp.
So, it seems Tesla is dependent on Musk but it routinely highlights how he is not fulling paying attention to Tesla. The question becomes - why should they pay a part time CEO a full time salary? And what happens if Musk doesn't hit the target and they need to hire his replacement?
> The award could affect what Tesla has to pay to hire a potential successor, Glass Lewis said
It might change how other CEOs might view compensation at Tesla. They might push for even more aggressive remuneration.
So, its better not to open a door which cannot be closed later.
https://news.ycombinator.com/item?id=16502607
So, it begs the question - What do shareholders do if something like this happens?
Additionally,
> But the success has also underscored the company’s dependence on its CEO -- a risk factor that’s routinely spelled out in regulatory filings.
> “Although Mr. Musk spends significant time with Tesla and is highly active in our management, he does not devote his full time and attention to Tesla,” the firm’s annual report said, noting that he’s also CEO of Space Exploration Technologies Corp.
So, it seems Tesla is dependent on Musk but it routinely highlights how he is not fulling paying attention to Tesla. The question becomes - why should they pay a part time CEO a full time salary? And what happens if Musk doesn't hit the target and they need to hire his replacement?
> The award could affect what Tesla has to pay to hire a potential successor, Glass Lewis said
It might change how other CEOs might view compensation at Tesla. They might push for even more aggressive remuneration.
So, its better not to open a door which cannot be closed later.
Slopes are only slippery when they change the methods by which you make the decision. Otherwise they're just linear gradients.
AFAIK, a big part of Musk's success is not forgetting this: What people build (which is probably everything you've ever interacted with) people can build differently; _especially_ things of contracts and concepts like compensation packages.
To put it another way; if the stockholders and board of Tesla decide to do something unusual like this, they could also easily decide to do another unusual thing and not repeat it.
AFAIK, a big part of Musk's success is not forgetting this: What people build (which is probably everything you've ever interacted with) people can build differently; _especially_ things of contracts and concepts like compensation packages.
To put it another way; if the stockholders and board of Tesla decide to do something unusual like this, they could also easily decide to do another unusual thing and not repeat it.
So, you are saying stockholders and board of Tesla should change the method for Musk. And when it comes time to choosing a successor they should again change the method and take a vow to never change the method again.
Yes, yes, and then no. They are under no obligation or requirement to maintain a given system, and, I would argue, it's unreasonable to try to do so given how powerfully unique each aspect of the situation is (or must be).
Not just anyone can lead a company; not just anyone could (I presume) lead a company like Tesla. Any process by which you would select that level of uniqueness, it seems to me, must necessarily be unique itself.
Not just anyone can lead a company; not just anyone could (I presume) lead a company like Tesla. Any process by which you would select that level of uniqueness, it seems to me, must necessarily be unique itself.
Musk already owns tons of Tesla story and should be motivated by that. There's absolutely no evidence that additional equity would motivate him more. On the contrary, there is plenty of evidence on the diminishing marginal utility of wealth.
Like much CEO pay, Musk's pay package is more about status than about motivating him.
Or is someone really going to try to make the case that he's kinda half-assing it right now?
Like much CEO pay, Musk's pay package is more about status than about motivating him.
Or is someone really going to try to make the case that he's kinda half-assing it right now?
> There's absolutely no evidence that additional equity would motivate him more.
Yes there is. Presumably, if Musk proposed a compensation package, it’s because he wants that compensation, and if the compensation is tied to uncertain milestones, he’ll be motivated to get the thing he wants by trying to achieve those milestones. It’s not as though someone proposed this to Musk and he said, “yeah sure, whatever.”
> Like much CEO pay, Musk's pay package is more about status than about motivating him.
Status can be very motivating. Obviously no one is in it for the “marginal utility of wealth” at the level of wealth Musk has, but the ability to pay for basic needs strikes me as a pretty one-dimensional way to view the way money can be motivating.
Extremely wealthy people still clearly pursue more wealth, so it’s pretty straightforwardly motivating in some sense.
> Or is someone really going to try to make the case that he's kinda half-assing it right now?
It’s not really a matter of “half-assing”, it’s a matter of further aligning someone’s goals with the organization they’re leading. Your implication here seems to be that someone can’t do a better job than they’re doing unless they’re slacking.
Yes there is. Presumably, if Musk proposed a compensation package, it’s because he wants that compensation, and if the compensation is tied to uncertain milestones, he’ll be motivated to get the thing he wants by trying to achieve those milestones. It’s not as though someone proposed this to Musk and he said, “yeah sure, whatever.”
> Like much CEO pay, Musk's pay package is more about status than about motivating him.
Status can be very motivating. Obviously no one is in it for the “marginal utility of wealth” at the level of wealth Musk has, but the ability to pay for basic needs strikes me as a pretty one-dimensional way to view the way money can be motivating.
Extremely wealthy people still clearly pursue more wealth, so it’s pretty straightforwardly motivating in some sense.
> Or is someone really going to try to make the case that he's kinda half-assing it right now?
It’s not really a matter of “half-assing”, it’s a matter of further aligning someone’s goals with the organization they’re leading. Your implication here seems to be that someone can’t do a better job than they’re doing unless they’re slacking.
> On the contrary, there is plenty of evidence on the diminishing marginal utility of wealth.
For the average person, but who are you to decide? He clearly already spends his money productively by largely self-funding ambitious projects, and I suspect that he would be pursuing even more if he had infinite resources.
For the average person, but who are you to decide? He clearly already spends his money productively by largely self-funding ambitious projects, and I suspect that he would be pursuing even more if he had infinite resources.
I'm a shareholder and I just voted against for basically this reason. I don't think the difference between owning 20 billion in equity and owning 25 billion in equity (or whatever) will mater to musk at all. he's fine. and he's going to try to finish what he started either way.
But the cost to his ego for not meeting a milestone which receives even more publicity because of the big price tag is a big motivator (or at least one could argue)
So even if the utility of the funds isn't consequential, a package like this might be one if the few ways to further incentivize a CEO like Musk.
So even if the utility of the funds isn't consequential, a package like this might be one if the few ways to further incentivize a CEO like Musk.
If he’s not incentivized by all of the high ideals he claims, plus $20 billion, then he’s broken.
Maybe some people are infinitely incentivizable, because they can always figure out a way to do something useful with the money.
Bill Gates for instance, although his model seems to be give it all away to good causes he believes can accomplish good. Elon still seems to believe more in his own capabilities to accomplish worthwhile things with it.
I expect he too has a little txt file somewhere on his desktop, with various amounts as milestones to unlock the next project.
Maybe at $22 billion he can afford to start asteroid mining and in orbit construction or something that would top his current accomplishments.
Bill Gates for instance, although his model seems to be give it all away to good causes he believes can accomplish good. Elon still seems to believe more in his own capabilities to accomplish worthwhile things with it.
I expect he too has a little txt file somewhere on his desktop, with various amounts as milestones to unlock the next project.
Maybe at $22 billion he can afford to start asteroid mining and in orbit construction or something that would top his current accomplishments.
Asteroid mining and orbital construction would require trillions in investment, and years of focused work by a number of institutions. As far as I can tell, Musk uses that rhetoric for PR, and it works. So far an electric car company and rockets suited for LEO don’t add up to grand space adventures.
Permit me to rewrite history a bit for the sake of example. If you were a Paypal shareholder and Musk was CEO would you have supported this compensation package? Would you have supported it even if you didn't know SpaceX or Tesla were his ambitions?
Also a shareholder. Voted for. If Elon wants to die on Mars and needs personal wealth to get him there, as long as he delivers on his Tesla milestones, I've got no problem with it.
HE can fund his future ambitions with the additional equity.
He's not half-assing it, but he has Mars goals which are likely to distract him at some point. He is serious about his Mars efforts. At a certain point it makes sense for him to leave to focus on that, unless staying at Tesla also helps him hit his Mars goal by 10xing the resources he can dedicate to the effort.
He said he wants all this money just so he can fund colonizing Mars.
So I'm guessing he'd take that money and just privately fund SpaceX, like Jeff Bozos is doing with blue origin.
So I'm guessing he'd take that money and just privately fund SpaceX, like Jeff Bozos is doing with blue origin.
> I'm guessing he'd take that money and just privately fund SpaceX
If his goal is to colonize Mars and you want him to sell cars, a good way to do that is to say "sell cars for 10 years and we'll give you enough capital to do in the following 10 what you couldn't do in 20 from today."
If his goal is to colonize Mars and you want him to sell cars, a good way to do that is to say "sell cars for 10 years and we'll give you enough capital to do in the following 10 what you couldn't do in 20 from today."
Right, not so much half-assing as diluted, distracted in too many different ways.
It feels good to get rewarded for a job well done. Just sayin'.
I don't think it makes sense to apply this kind of 'evidence' to a specific individual.
For personal use, sure. But remember he wants to fund Mars missions.
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Or you just allow the CEO to pump and dump the company, because the 1%/year stock will be absolutely massive while riding the hype and when things go south he can just quit and buy half the bahamas. There are much better ways to tie CEO performance to company performance that don't include amputating company stock every time your CEO is paid.
It is a $50B a year target for 12 years, so ya if he "pumped" up the stock by pretty much doubling the current market cap 2 full times over the next 4 years then he could "dump" it straight away. So the argument is that taking the company from ~50B to $650B would create such shareholder value that it would be worth it. It is actually tied to revenue and profit as well.
> Tesla has set a dozen targets, each $50 billion more than the next, starting at $100 billion, then $150 billion, then $200 billion and so on, all the way to a market value of $650 billion. In addition, the company has set a dozen revenue and adjusted profit goals. Mr. Musk would receive 1.68 million shares, or about 1 percent of the company, only after he reaches milestones for both. [1]
[1]https://www.nytimes.com/2018/01/23/business/dealbook/tesla-e...
> Tesla has set a dozen targets, each $50 billion more than the next, starting at $100 billion, then $150 billion, then $200 billion and so on, all the way to a market value of $650 billion. In addition, the company has set a dozen revenue and adjusted profit goals. Mr. Musk would receive 1.68 million shares, or about 1 percent of the company, only after he reaches milestones for both. [1]
[1]https://www.nytimes.com/2018/01/23/business/dealbook/tesla-e...
According to the article the board feels this is necessary to ensure Elon's focus is with resolving Tesla production issues, and not his other projects (SpaceX). He tries to create this superhuman "ironman" persona in the media, but the reality is no single person can possibly run all of these companies effectively, and investors are calling him out on that.
Appears Glass Lewis & Co currently maintains approximately 37% of the market share for proxy advisory services - but does that mean that all of their clients vote as per Glass Lewis reports recommend? If so, given they collectively advise $20 trillion worth of assets, would someone please explain why this is not toxic to a free market.
SOURCE: https://en.wikipedia.org/wiki/Glass_Lewis
SOURCE: https://en.wikipedia.org/wiki/Glass_Lewis
> given they collectively advise $20 trillion worth of assets, would someone please explain why this is not toxic to a free market
They're recommendations. Reading board proposals and working out the consequences of CEO pay packages is (a) hard and (b) not particularly rewarding. Instead of every investment firm having someone doing hard and non-rewarding work, they outsource it to these proxy advisory firms.
Keep in mind who these advisory firms' customers are: the investors. It could be impolite for XYZ shareholder to publicly vote against Elon Musk. It is easier to call one's proxy advisory firm and let them know your thoughts. (It would also be more effective, from a political perspective, at achieving her goal.)
(Nitpick: they advise in respect of $20 trillion of assets. They don't make buy/sell decisions.)
They're recommendations. Reading board proposals and working out the consequences of CEO pay packages is (a) hard and (b) not particularly rewarding. Instead of every investment firm having someone doing hard and non-rewarding work, they outsource it to these proxy advisory firms.
Keep in mind who these advisory firms' customers are: the investors. It could be impolite for XYZ shareholder to publicly vote against Elon Musk. It is easier to call one's proxy advisory firm and let them know your thoughts. (It would also be more effective, from a political perspective, at achieving her goal.)
(Nitpick: they advise in respect of $20 trillion of assets. They don't make buy/sell decisions.)
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Isn't this setting up a bizarre incentive where every time each of the entities feels it isn't getting it's fair share of Elon's attention, that they have to bribe him with some massive stock grant?
Why not? Eventually they would end up paying him just a bit less than the value he provides, which is what you'd expect from any fair employment agreement. At some point it would be cheaper to let him go or let him not try very hard.
These are the same people projecting that Apple should have sold 80M iPhone X's...and then apple "fell short" of estimates when they sold 77M [1].
Why do people listen to these proxy advisory services like Glass Lewis [2]? Honestly, none of them have anything near a good track record or are worth anything [3]. They are effectively like tabloids for the financial markets.
Honestly, I'd love to hear from someone on wall street what value these "analysts" provide?
[1] https://www.recode.net/2018/2/1/16961202/apple-iphone-x-chin...
[2] https://en.wikipedia.org/wiki/Glass_Lewis
[3] https://www.economist.com/news/finance-and-economics/2159435...
Why do people listen to these proxy advisory services like Glass Lewis [2]? Honestly, none of them have anything near a good track record or are worth anything [3]. They are effectively like tabloids for the financial markets.
Honestly, I'd love to hear from someone on wall street what value these "analysts" provide?
[1] https://www.recode.net/2018/2/1/16961202/apple-iphone-x-chin...
[2] https://en.wikipedia.org/wiki/Glass_Lewis
[3] https://www.economist.com/news/finance-and-economics/2159435...
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They explain their reasoning and do the boring legwork, even if you don’t agree with their conclusion you can still find value in their analysis.
Requires registration to read.
Or something like uBlock Origin set to block everything.
Wasn't Tesla having revenue problems not too long ago? Seems like someone is looking to flee a leaky ship by opening up some new ones.
They should probably be spending that money on building cars.
I doubt that "more money" would make much of a dent on what Elon's motivations really are.
I doubt that "more money" would make much of a dent on what Elon's motivations really are.
> They should probably be spending that money on building cars
It's a performance-triggered stock award in lieu of cash salary.
It's a performance-triggered stock award in lieu of cash salary.
They should still be spending that on cars.
There should be some sort of law that prevents this. Musk's companies have taken over 5 billion in government subsidies, why are my tax dollars going towards the creation of billionaires?
GM makes more off the subsidies than Tesla. Does that bother you too?
Yes!
Luckily they have helped stoke the electrification of transportation despite your protest. My condolences.
Yeah they've stoked CEO payouts and golden parachutes and stock dividends just as much as they've stoked transportation. If corporations need government money to be forward-looking then I want some of that profit coming back to the government, not just going out to the investor class.
The subsidies do have a reason to exist, but I agree that they're misdirected. They could directly fund R&D of battery/EV/aerospace technology instead of subsidizing luxury vehicles that only serve as a novelty for the rich.
The subsidies are directly funding R&D of battery/EV/aerospace technology. But this way, the rich people buying the cars are also funding it, as well as the investors buying equity. The tax incentives are working precisely as they were designed, and for every dollar in subsidy there’s probably $9 more in outside investment coming onboard.
The subsidies are directly funding Musk's wallet as much or more than they are funding battery research.
I get that you have strong feelings. But this is just uninformed. If you took a sec to understand Musk's comp structure you'd see that its paper wealth, as in he doesn't take cash out of the company. Instead he puts cash in the company. Also he only sold stock to pay taxes. I'd guess its likely he paid more in taxes than you, if you're an average earner.
~$600 million in taxes actually.[1] But strangely nobody seems to subtract that amount from the value of the electric vehicle credits...
Anyone who's been there and done this knows that what the IRS giveth with one hand, the IRS taketh away with the other. The house never loses, and there is no house like the United States Government.
[1] - https://www.bloomberg.com/news/articles/2017-04-21/tesla-s-m...
Anyone who's been there and done this knows that what the IRS giveth with one hand, the IRS taketh away with the other. The house never loses, and there is no house like the United States Government.
[1] - https://www.bloomberg.com/news/articles/2017-04-21/tesla-s-m...
>If you took a sec to understand Musk's comp structure you'd see that its paper wealth, as in he doesn't take cash out of the company.
So far, the obvious implication is that at some point in the future Musk will become even more rich, mainly off converting his paper wealth to cash wealth. I cannot get behind the idea of taxpayer wealth being used to make billions of dollars for a few wealthy individuals.
>I'd guess its likely he paid more in taxes than you, if you're an average earner.
Yeah and? I'm talking about 5 bil in subsidies.
So far, the obvious implication is that at some point in the future Musk will become even more rich, mainly off converting his paper wealth to cash wealth. I cannot get behind the idea of taxpayer wealth being used to make billions of dollars for a few wealthy individuals.
>I'd guess its likely he paid more in taxes than you, if you're an average earner.
Yeah and? I'm talking about 5 bil in subsidies.
Musk's entire strategy revolves around using luxury vehicles for the rich to directly fund R&D of battery and EV tech.
That's been the gameplan since day 1.
That's been the gameplan since day 1.
I think a lot of people miss that R&D is expensive and it is often takes those who can 'throw away money' to help fund it. This is on top of any subsidies that may exist for that R&D.
Look at cars, cell phones, computers and airplanes ("[1930's] Most people still rode trains or buses for intercity travel because flying was so expensive. A coast-to-coast round trip cost around $260, about half of the price of a new automobile. Only business executives and the wealthy could afford to fly.)"
I would love to travel to Space one time and I hope some day I can take a flight into space. Right now, space flight will literally be a "luxury vehicle that only serve as a novelty for the rich." There is no way I'll ever be able to afford it unless it is first affordable by the rich.
Look at cars, cell phones, computers and airplanes ("[1930's] Most people still rode trains or buses for intercity travel because flying was so expensive. A coast-to-coast round trip cost around $260, about half of the price of a new automobile. Only business executives and the wealthy could afford to fly.)"
I would love to travel to Space one time and I hope some day I can take a flight into space. Right now, space flight will literally be a "luxury vehicle that only serve as a novelty for the rich." There is no way I'll ever be able to afford it unless it is first affordable by the rich.
http://ir.tesla.com/releasedetail.cfm?releaseid=1054948
I'm not a TSLA shareholder, but tying CEO performance to company performance rather than an indifferently high salary seems reasonable to me.