How much should Elon be paid?

David Le Cornu and Jamie Mourant, of Ravenscroft (38483311)

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David Le Cornu, head of discretionary, 鶹, and Jamie Mourant, senior portfolio manager at Ravenscroft, ask whether anyone deserves a remuneration package worth $9bn a year

ELON Musk is an incredibly capable man, a visionary who thinks and sees the world differently from the rest of us.

He has key roles in Tesla, SpaceX and X Corp (formerly Twitter) and was involved in the founding of The Boring Company, xAI, Neuralink and OpenAI. Whether you think he is brilliant (Tesla), a bit bonkers (The Boring Company offering America $500 flamethrowers) or shoots from the hip too freely (he is no stranger to litigation), he is interesting and has created huge wealth for himself (estimated at around $215bn) and those who backed him in the early years.

This leads us to ponder what remuneration Elon deserves to focus his time, effort and intellect on a business. We are not alone in asking this question; litigation in Delaware has seen the court overturn his 2018 remuneration package. It was considered excessive and they questioned whether the board making the award was independent.

Elon is paid in shares and for six years of work he could earn 303 million Tesla shares. The stock performance from 2018 to the 2021 peak was phenomenal and, despite halving since then, the return from 2018 to date is roughly eight times the return of global equity markets.

On 13 June, shareholders had a chance to reconsider the 2018 remuneration award and voted in favour.

Using Tesla’s share price, this works out at more than $9bn per annum. Elon believes this (and more) is deserved. Elon currently has 411 million Tesla shares (this amounts to 12.89% at $76bn) and feels that to give his full attention and apply his intellectual capital to the business, he must have voting control (ownership) of 25% of the business. While the 2018 award would take his ownership above 20%, Elon is so incensed he has threatened, and received shareholder approval, to move the company’s legal headquarters to Texas, where courts would be unlikely to interfere in his remuneration.

While we are capitalists, when we think about this, we disagree with Elon’s self-assessment of his worth. Tesla only turned profitable in 2020, the remuneration package is more than twice the profits Tesla made in its best year (2022) and, as the largest shareholder, Elon is already leveraged into the success of Tesla.

The average American earns $60k for a year of hard graft. Morally, can any person think their year’s work is worth $9bn? On the other hand, the remuneration package was a legal agreement and has been approved by shareholders, so should courts interfere? What is clear is that there is a need for governments globally to cap the earnings potential of business leaders.

The Ravenscroft investment process is multi-faceted and includes an assessment of the senior management of the businesses that we invest in, so it probably comes as no surprise that we don’t have any direct exposure to Tesla in our investment strategies. We don’t seem to be alone in having some reservations about the management of the business, as the majority of funds we invest in have no or de minimis exposure to Tesla.

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