Disclaimer: Opinions expressed below belong solely to the author.
Elon Musk’s massive $56 billion pay package saga came to an end a few days ago, with shareholders ultimately upholding the original agreement that the EV company signed with its CEO in 2018.
One of the world’s richest men still has some hurdles to clear before he gets his payout, as Tesla shareholders first voted to reincorporate Tesla in Texas, escaping the ruling of a Delaware judge in January of this year, which voided the payment contract. But it seems to be merely a bureaucratic inconvenience drawing the process out.
What should be of interest to all of us, and what seems not to receive enough press, is just how Musk has managed to secure such a deal in the first place.
This is because while the total sum seems extraordinarily high, the approach he used to get it can be utilised by just about every person confident in his skills.
What’s in the package?
Much controversy surrounds the total sum of this agreement, but it was universally misunderstood. First of all, Musk didn’t receive any cash, only stock options at highly discounted prices.
And those options could only be activated if he reached specific performance milestones over 10 years, starting in 2018.
The milestones included 12 specific tranches for the company’s stock market capitalisation, revenue and profitability, with the Tesla board awarding Musk 1 percent of the company’s stock for each completed goal.
In other words, Musk would only be rewarded if everybody else who invested in the company was rewarded as well. A win-win for all involved.
The entire package is worth about $56 billion in current prices of the stock. This is because when it was agreed, the market capitalisation of the company was merely US$60 billion, while it is around US$600 billion today (and briefly passed $1 trillion in 2021).
Since 2018, under Musk’s leadership, the company has increased in value by a factor of at least 10x (periodically even more), making over $500 billion for all other shareholders.
Does getting an extra 12% cut of what has been delivered, really sound excessive?
How good are you?
In other words, Elon Musk, who has not drawn any salary at Tesla since 2019, has placed a bet on himself.
If he delivers, he’d get a cut of the performance. If he didn’t, he would walk away with nothing, and even his existing stake would be worth much less.
It was a bet, but a calculated one, made by a person confident that he’d do well. And he has.
So, now, the question is — how confident are you in your skills?
This isn’t meant to suggest that you could get billions out of any company right now, but you could ask for a lot more in your job, as long as you can prove your performance has tangible, measurable value for the business.
The internet is full of people complaining that their boss doesn’t value their work, which perplexes me every time. It’s your responsibility to sell yourself to your boss and prove your worth to him. And if he doesn’t after you do, then what are you doing still working for him?
Study after study proves that there’s an ongoing global shortage of talent. In Singapore it’s even more acute with increasingly restrictive immigration policies. Companies are looking for valuable people all the time and there’s always a good boss hoping to find good employees out there.
How much risk can you accept?
There are many ways you could boost your own pay through performance bonuses, especially if you are willing to accept a penalty risk.
The ultimate path is entrepreneurship, of course, which accepts unlimited downside risk (i.e. complete bankruptcy and joblessness if you fail) for an unlimited upside opportunity.
In some professions, it may be the only way to go. If you’re a masseuse, a doctor, a cook or a hairdresser, there’s only so much value you can extract from each hour of the day. You can’t serve more people than you physically can. The only way to do more is to start a business and employ and train staff to multiply your output.
But there are opportunities even in salaried work. Salespeople know this firsthand, as most of their pay comes from commissions tied to the number of deals they close, typically with low base pay (if any).
HR recruiters in some companies receive bonuses based on the speed of filling vacancies and the quality of the candidates. If your company doesn’t, would you be willing to place a bet on the people you recruit, while accepting a hit to your income if they do not perform?
As a marketer, would you agree on performance pay tied to the results of campaigns you work on? As a writer, would you rather be paid by the readership of your content rather than the number of words you produce? As a programmer, would you accept being judged by performance, conciseness, reliability or commercial success of the code you’re working on?
The rule is simple — the more risk you assume yourself, the greater the performance bonus you can demand.
Don’t be just a cost
As long as you can provide measurable milestones, you can negotiate a profitable performance agreement in most positions. Many people don’t because they are either afraid of it, prefer a predictable salary or didn’t even think to ask.
If it’s difficult or impossible in your job because its value to the business is so hard to measure, then you’re in the worst position of all—you’re just a cost, and costs are meant to be reduced.
In Singapore, this is achieved mainly by employing low-wage foreigners in jobs that locals would require much higher pay to accept. Fortunately, this has resulted in freeing up the limited Singaporean workforce to take on better employment.
Construction, maintenance, cleaning, driving, simple office work, and so on—any task that is easy to define but whose performance per person can’t easily be improved—is bound to go to the lowest bidder and see few incentives, leaving the employed at the employer’s mercy.
This is the exact opposite end of how you make billions at a major company, which is why most don’t.
Limited control over performance in a rigidly defined job leaves you with a low salary and no perspectives. The more control you are able to wield, and the more risk you are willing to accept, the greater the potential payout, all the way up to tens of billions of dollars.
What you have to figure out is where you fall on that spectrum today and how far up you are able to move. You may discover you have more options than you previously thought, but it’s all in your hands. And guts.