Elon Musk may become the first CEO to receive a trillion-dollar pay package in history if Tesla shareholders vote on Thursday in support of the new policy at the electric carmaker.
Tesla has argued that the mammoth pay package of Elon Musk, if approved, will result in the CEO making more efforts towards his work. The company has even said that not getting the approval may result in the CEO quitting from his post.
“Without Elon, Tesla could lose significant value, as our company may no longer be valued for what we aim to become: a transformative force reimagining the fundamental building blocks of mobility, energy and labor,” Tesla Chair Robin Denholm said in a message to shareholders on 27 October, days ahead of the proxy vote.
But does more pay always mean more effort?
The general notion is that human beings are motivated by money the most, and this fundamental axiom of economics drives most policy and business decisions.
However, the reality can be the opposite. Economists and psychologists in their research presented the consequences of monetary and other awards, as per a report by The New York Times.
Esther Duflo, Abhijit Banerjee weigh in
Nobel Prize winners and MIT professors Esther Duflo and her husband Abhijit Banerjee said that the rewards of financial incentives have often been exaggerated, the NYT report said.
According to Abhijit Banerjee, rich business leaders tend to think that “we are the key fulcrums of the economy, and if we leave everything will collapse”.
“That kind of narrative is very tempting for the rich in particular — and they say that willy-nilly — but I don’t think there is much evidence for this,” he added.
Musk has also indicated that he could leave Tesla or take a back seat if his ownership share is not raised enough to give him the influence over its future that he desires.
What does research say?
There is hardly any proof that companies that retain their leaders with a fat paycheck have the best long-term stock performance.
According to a study cited by the NYT that looked at the 10 most valuable firms on the Nasdaq stock exchange between 2017 and 2022, companies that paid their chairman, chief executives or employees more than the average did not see an increase in profitability.
Another study, conducted on 429 largest US-based firms for over a decade, found that companies who pay their CEOs less than the average salary in the sector tend to do better in terms of financials.
Some psychologists cited by NYT also said that high-stakes pressure could lead to an increase in one's tendency to choke.
Elon Musk's trillion-dollar fate
Shareholders gathering on Thursday for Tesla's annual meeting in Austin, Texas, will decide in a proxy vote whether to grant Elon Musk enough stock to potentially make him history's first trillionaire.
The package could lift Musk's holding to more than 25% of Tesla shares from its current level of more than 12%.
The outcome of the vote will be announced at the annual shareholder meeting at Tesla's factory in Austin, Texas, on Thursday.
To get his Tesla shares, Musk has to secure approval from a majority of the company's voting shareholders. Improving the odds, Musk gets to vote his own shares, worth 15% of the company.