When it comes to innovative business practices, Elon Musk doesn’t appear to do anything half-hearted.
In fact, we have previously spoken about how Elon Musk shows how you can turn a Twitter complaint into a solution in 6 days.
But when it comes to representing an innovative leader, he has just taken his dedication to forward-looking business vision to another level.
He has staked his entire compensation in Tesla Motors into their future performance. And as a result, he will earn a $0 annual salary, with no bonuses and only earn new stock in the company based on achieving 12 milestones of growing the value of the company.
For each of the 12 milestones he helps the company meet over the next 10 years, he will be granted additional stock options. Considering that one of the milestones is helping Tesla grow from its current value of around $59bn to over $650bn, his stock ownership of the company at that point would make him the world’s richest man, worth over $184bn.
But it could also result in no income if the milestones (which are ambitious to say the least) are not met.
As Musk told the New York Times in a recent interview on the topic:
“If all that happens over the next 10 years is that Tesla’s value grows by 80 or 90 percent, then my amount of compensation would be zero.”
It is an audaciously brave plan, and one which most employees would never sign up to. Imagine if you were only paid if the overall company succeeded. You would be at risk of earning nothing if someone else in the company screwed up. This risk is too high to be comfortable for most people, hence why the majority of people are employees with a stable salary.
But it turns out that the people leading the world’s largest companies, the CEOs, aren’t immune from wanting the stability of a salary instead of taking a stake in growing the companies they should be leading.
According to data up to 2016 by the Economic Policy Institute, pay for CEO’s has been rising faster than any other index of company performance (even more so than the top 0.1% of earners):
CEO pay has risen faster than all other indices
So what makes Elon Musk willing to take the risk of higher returns for future growth when other CEOs are happier to take higher wages and bonuses?
Simple:
He knows that in order for his company, his shareholders and ultimately himself to do well, the company needs to focus on one thing: Growing.
And in order to grow, it needs to focus on innovating.
It is this growth and innovation mindset that distinguishes visionary CEOs from operational CEOs.
Operational CEOs focus on extracting as much value (profitability) from the company as possible by driving efficiency. Visionary CEOs focus on growth and revenue (profit) in addition to building an industry and company to be proud of.
We have written previously about how Steve Jobs predicted the downfall of his own company Apple, with the more Operational CEO Tim Cook focusing less on innovation. The same thing happened when Steve Balmer replaced Bill Gates at Microsoft. In fact, the trend seems to be that when a visionary CEO steps down, they are most likely to be replaced with someone much less focused on growth and innovation.
So it is refreshing to see a CEO like Elon Musk, who talks about growth and innovation, put his money where his mouth is.
Literally.
It could be the worst idea he ever invested in. Or the best.
Nick Skillicorn
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