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Tesla chief Elon Musk, the world’s richest man, has managed to bulldoze the Austin-based automaker’s board and now shareholders into approving a record-breaking pay package that could be worth up to $1 trillion. The unprecedented payout was cleared by three-fourth of total votes at the firm’s annual general meeting in Texas Thursday evening.
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While the scale of the potential payout has drawn widespread criticism, the Tesla board’s counterargument has been that Musk might leave the company if it was not cleared – and that Tesla could not afford to lose him. And that goes on to highlight yet another growing trend that is symptomatic now of multiple big businesses on Wall Street: ‘the key man risk’. Some business owners see the company’s reliance on them as a badge of honour, and Musk is clearly milking that sentiment, while building on a self-propagated assertion that the company simply cannot do without him. He’s threatened to resign multiple times earlier too.
The Proposed Payout
The payout is predicated on Musk drastically raising the electric car firm’s market value over the next decade to $8.5 trillion from less than $1.5 trillion as of the end of trade on November 6, and getting a million self-driving Tesla Robotaxi vehicles into commercial operation.
While his remarks at the AGM on Thursday was overtly focused on the company’s Optimus robot project, analysts and Tesla shareholders, who have long wanted Musk to focus on reviving the company’s electric vehicle business, were in for more disappointment.
The way Musk has run Tesla in recent years does not exactly inspire confidence: given that he has a solid track record of overpromising and under delivering. Earlier this year, for instance, Musk promised to deliver driverless taxis in several American cities, secure regulatory clearances in Europe for his self-driving software and push sales up 30 per cent or so. Instead, his driverless robotaxis are restricted to just two US cities – Austin and San Francisco – and even in these places, they have human safety professionals inside. European regulators are still to approve his self-driving software, while Tesla sales continue to plunge across markets, including China and Germany. Tesla has failed to update its jaded line-up of cars and is being beaten hollow by Chinese upstarts including BYD and Xpeng. The new payout ostensibly papers over all of these shortcomings.
Key man risk
Ideally, no business of scale, especially with public shareholders, should be overly reliant on a single person. When a business owner, or a key figure running operations, is seen as disproportionately contributing to a company’s success, the inherent risks associated with this “key man” is seen as posing a fundamental threat to the business. What if this individual were to suddenly leave or is suddenly incapacitated, the company could flounder, both operationally and financially.
The key man risk is visible across the American corporate world. Would Tesla perform as well if Elon Musk quit? Or would Facebook adapt to Mark Zuckerberg leaving. Or Jensen Huang in Nvidia or Jamie Dimon at JP Morgan Chase. Increasing numbers of systemically important companies are now overwhelmingly dominated by single individuals. It is precisely this trade-off that Musk seems to have dangled to get the shareholders to agree to his terms. Needs to be mentioned that this tradeoff works both ways: an adverse reaction to the same individual could prove to be a setback to the business, as Tesla found out earlier this year when Musk faced a backlash for his DOGE job firings and erratic statements.
Many investors have come out in open support of the Musk pay package, including New York-based Baron Capital Management, whose founder Ron Baron termed Musk “indispensable” to the company. Critics include the biggest American public pension fund, Calpers, and Norway’s sovereign wealth fund, which have argued that the pay is excessive. The Norwegian fund has even flagged concern that the Tesla board that cleared the proposal before it went to shareholders included Musk’s own brother and that it is not “independent enough”, the AP reported.
Even the Vatican has weighed in, admonishing the growing wealth inequality in the world and red flagging the trillion dollar pay package in particular. “If that is the only thing that has value anymore, then we’re in big trouble,” Leo said in the comments quoted by AP.
© The Indian Express Pvt Ltd
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