Tesla has announced it is offering its CEO Elon Musk a performance-based pay package worth US$1 trillion. That's right: 12 zeros.
Authors
- Sverre Spoelstra
Professor, Lund University
- Nick Butler
Professor, Stockholm University
To put this figure in perspective, it is double the amount of Musk's existing fortune of US$500 billion (£380 billion) and equal to the GDP of Switzerland .
There are, of course, strings attached. The compensation will be be paid out in new shares on the condition that the company meets some ambitious goals within the next decade. Still, US$1 trillion is an absurd amount of money - even for someone who is already the richest person in the world.
So how do we make sense of it?
Tesla's chair of the board Robyn Denholm warned shareholders that Musk might walk away from the company if they didn't approve the unprecedented pay package. Shareholder confidence was no doubt buoyed by the recent rise in Tesla's stock, with one investor describing Musk as "key" to the entire enterprise.
But what the chair of the board didn't mention was that Tesla's sales (and stock price) had plummeted earlier this year , thought to be largely due to Musk's cost-slashing activities at the US department of government efficiency (Doge). After Musk stepped back from the Trump administration, Tesla's share price rebounded .
So why award him this record-breaking pay plan? According to Tesla's board, the package is meant to "incentivise" Musk to propel the company to new heights. In other words, Musk will aspire to achieve more if he is paid more.
This explanation rests on the longstanding myth of the "economic man" - the idea that humans are primarily motivated by financial gain. But behavioural economists such as Daniel Kahneman and Dan Ariely have long since debunked this . Humans often act in weird, irrational ways that don't always make economic sense. They make decisions based on habits and emotions rather than careful calculation.
The figure of homo economicus offers only a partial account of human behaviour at best, and a misrepresentation of reality at worst. And what's a few hundred billion dollars more to a man with a personal wealth that is already on a par with the total value of energy giant ExxonMobil ?
To understand excessive executive pay, forget the rational "economic man". In management studies, there's a theory called the "the romance of leadership". It tells us that people grossly overestimate the influence of leaders on organisations.
In his classic account of charismatic leadership , German sociologist Max Weber notes that people tend to attribute "extraordinary" qualities to certain individuals, making them appear capable of feats that are far beyond the reach of ordinary people. They become larger than life, at least to those who are in their circle of influence.
The deeds of charismatic leaders are rarely viewed by their followers in a clear-eyed way. As if blinded by their charisma, people tend to exaggerate the leader's efficacy and ignore their shortcomings.
A typical product engineer at Tesla earns around US$115,000 a year , plus stock options. Musk's pay package is several million times larger than the average salary at his own company. It's enough to buy a Rolls-Royce Droptail - one of the world's most expensive cars at around £25 million - every day for 90 years.
Only a true believer, someone with faith in the power of leadership, could think this is a good idea.
Other companies are following Tesla's lead. EV company Rivian recently awarded its CEO RJ Scaringe performance-based stock options that could exceed US$4 billion dollars . Small change for Elon, but probably a big deal for RJ.
In the case of Tesla, Musk is portrayed as a "visionary" leader, despite recent controversies. In the words of business professor Gautam Mukunda : "Tesla's current valuation only makes sense if you attribute magic powers to Elon Musk." So another part of the explanation is that Musk was awarded the biggest pay package in history because shareholders believe him capable of performing corporate miracles.
There is a good chance that the bonus never materialises. But what if it does?
Tech elites like to ask each other about their "P(doom)" - the likelihood that AI will destroy the world in the foreseeable future. Some of this is sci-fi hokum, based on the idea that AI will soon develop human-like agency and begin making decisions in its own interest. But decisions like the one made by Tesla's shareholders could actually raise the P(doom) value for the world.
Why? Because AI is what Musk likes to spend his money on. The entrepreneur is building AI-driven businesses, including Grok, that have reportedly reproduced contentious arguments around climate change , claims about "white genocide" in South Africa and praise for Hitler .
After these incidents, parent company xAI said it had taken steps to make Grok "politically neutral" , which could allow space for more minority views and so amplify climate scepticism, and blamed the South Africa posts on an "unauthorised modification" to the system prompt. In response to the Hitler posts, Musk wrote on X that Grok had been "manipulated" and that the issue was being addressed.
The problem isn't a superintelligent AI diverting every resource on Earth into making paperclips as in a well-documented thought experiment. The problem is a run-of-the-mill chatbot spouting dangerous nonsense.
Tesla shares dipped after the compensation package was announced. Perhaps the shareholders are finally on to something?
The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.
