SWLAW Blog | Faculty Features
March 20, 2018
Professor Dorff Quoted in L.A. Times: Elon Musk Motivated by Success, Not Cash
Professor Dorff was quoted in a Los Angeles Times' article about Tesla’s proposed $55 billion executive pay plan.
Tesla’s board of directors vote this Wednesday on an unusual executive pay proposal. There is no salary, no bonus, and no stock grants. Instead, the plan pays out solely based on performance. Every time Elon Musk reaches a financial milestone, such as raising Tesla’s market value by $50 billion, the plan pays out incremental stock options. If the plan is approved, Elon Musk could rake in over $55 billion in options over the next ten years!
Our very own Professor Dorff authored a book, “Indispensable and Other Myths,” examining how compensation affects executive behavior and the perils of "pay for performance." Studies show that performance pay does not generate better performance on the kind of tasks companies ask of their CEOs. Dorff explains that in a large-established company, performance is usually most affected by industry-specific or economy-wide factors, not by the particular influence or performance of its CEO.
In this case, however, Professor Dorff believes that Elon Musk might be an exception. Tesla is still a start-up company, and Elon Musk does directly influence how the company performs. As to whether the unusual and generous executive pay plan is necessary or would serve as motivation for increased performance, Professor Dorff questions whether it is the kind of motivation Elon Musk needs to do better. After all, Elon Musk already owns about 22% of the company and has more than enough financial incentive to grow the company.
Professor Dorff opines "that a motivated Elon Musk matters. He lives for these projects; he lives to make them succeed. He wants to save the world. I say this with admiration. But it's hard to see how money (at this point) motivates Musk at all.”
Read the full L.A. Times Article here.