Earlier this week, shares in Tesla Inc. the electric car giant led by CEO Elon Musk, were evaluated at just over $330 billion (U.S.) on the New York Stock Exchange.

To put this number in perspective, it is equivalent to the joint market value of Canadas big 6 banks, or about three times the market value of General Motors, Ford and Honda combined.

While it is debatable whether the market is assessing Tesla correctly or whether it is a bubble about to be burst, one thing is certain: the talent, vision and passion of the charismatic, outspoken some say genius entrepreneur who has led the company since 2008 are key to its success. For that, Musk should be rewarded.

But how exactly should he be compensated for his leadership role?

Paying a handsome remuneration for a successful and dedicated CEO is probably a good idea for any company. Making sure that the principle of pay-for-performance is kept and verifying that the CEO isnt rewarded for luck is also important.

But as it turns out, the compensation package that Musk received at Tesla is unparalleled. Inspired, one may say, by the name of another company Musk is leading SpaceX.

Back in January 2018, when Teslas value was about $85 billion, Musk was awarded a 10-year compensation plan which has the features of a video game.

According to the plan, there are 12 different milestones (tranches) that Musk could reach, or unlock, and his compensation is tied to those milestones. The first milestone (which was recently met) is for the company to have a market value of $100 billion. From there, each subsequent tranche is $50 billion higher.

The terms of Musks plan require that the market value of the company for each threshold, for example, $100 billion, be kept on average for at least six months.

If the condition is met, Musk becomes eligible for options equal to one per cent of the number of shares outstanding, or about 1.69 million options. Musk could exercise each option at a price of $350 a share.

To give an example, if the current share price of Tesla is $1,500 a share, and each option allows Musk to buy one share at $350, each option is worth $1,150.

If all goes according to the plan, and Musk clears the last tranche a market value of $650 billion for Tesla he will be granted in total just over 20 million options. This translates to a staggering 10-year compensation of $55.2 billion (or $5.5 billion annually).

To be clear, this is just Musks current compensation contract. In addition, he already owns 38.7 million shares or about 21 per cent of all outstanding Tesla shares worth about $60 billion at current market price.

To understand how outrageous and disconnected from reality Musks potential maximum annual pay of $5.5 billion is, a few comparisons are required:

The median compensation for an employee at Tesla was $56,163 in 2018. Musk could make about 100,000 times that amount annually.

The average pay of the top 100 highest-paid Canadian CEOs in 2018 was $11.8 million (CND) according to a recent report by the Canadian Centre for Policy Alternatives. Musk could make 630 times that amount annually.

The median CEO compensation for the largest American firms, those listed in the S&P 500 index, was $12.8 million (U.S.) in 2018. Musk could make 431 times that amount annually.

Americas top earner Alphabet Inc.s CEO Sundar Pichai received a stunning $281 million in 2019. Musk could make 20 times that amount annually.

How could anyone justify such pay?

How can Musk justify it to himself? Does he really believe that he should get a contract worth about twice the annual GDP of Nepal, a country with a population of 28 million people?

Moreover, the fact that neither Musk nor the board of Tesla see fit to consider modifying the stratospheric compensation package in the midst of a global pandemic with historic high unemployment rates, shows how disconnected they are.

The company is defending the plan using a typical capitalist argument: Elons compensation will be 100 per cent aligned with the interests of our stockholders. That is, if the share price goes up, shareholders cant complain.

But for a company that is bragging about creating a better, sustainable world, and aspires to be instrumental in creating a green future, focusing solely on shareholders and share price is not what youd expect. What about other stakeholders? What about values related to equity and social justice?

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Sure, create incentives, but $55 billion is excessive.

Elon Musks performance award is simply outrageous. The fact that he doesnt see this is disappointing. It also sets an inflated and problematic benchmark for other companies about to offer compensation plans to their CEOs.

But with pressure from activist shareholders, institutional investors and regulators, this can change. After all, Tesla is a public company, and its ordinary shareholders shouldnt sponsor what seems to be a pissing contest between Elon Musk and the richest person in the world Amazon CEO Jeff Bezos.

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Elon Musks performance award could reach $55 billion (U.S.) and that is unacceptable - Toronto Star