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Elon Musk’s Outrageous Moonshot Award Catches on Across America

Elon Musk is the envy of chief executive officers. Not so much for his spaceship, “Saturday Night Live” appearance or Twitter fame, but for that thing he got three years ago: the biggest CEO pay package in history.

Look around corporate America today and you’ll see more of the same as boards try to inspire bosses to greatness with a swing-for-the-fences shot at tantalizing wealth.

At least 15 company leaders got Musk-like awards worth $100 million or more last year—up three-fold from when the Tesla Inc. founder got his. Moonshot copycats are appearing in some fairly staid places, like Restoration Hardware, Paycom Software Inc. and JPMorgan Chase & Co.

Critics have cried foul and investors have issued split opinions, but the upshot is clear. Gargantuan awards—coming at a time when U.S. wealth inequality by some measures is wider than in almost a century—are pushing the corporate world’s already-stretched limits of how much one person’s work is worth relative to everyone else’s.

“They reinforce the Great Man Theory,” said Sarah Anderson, who directs the Global Economy Project at the Institute for Policy Studies, a progressive think tank. “It’s all about the guy in the corner office, and everyone else is just a little helper.”

The trend keeps playing out in boardrooms despite the raging debate over the widening disparity between the rich and everyone else. Even some CEOs have made furrow-browed statements about how the economy has to work for everyone.

Some critics chalk up the rise in pay to a simple conclusion: The people involved in the decisions—CEOs, directors, institutional investors and a coterie of advisers—see the astronomical pay levels as the epitome of American meritocracy, rather than a symptom of capitalism that’s veered off course.

Highest Paid CEOs and Executives in 2020

  • Salary
  • Bonus
  • Stock Awards
  • Option Awards
  • Perks
Rank Name Company Total Breakdown
Oak Street Health
GoodRx Holdings
GoodRx Holdings
Opendoor Technologies
Palantir Technologies
Oak Street Health
Oak Street Health
Paycom Software
The figures for Mike Pykosz, Geoffrey Price and Griffin Myers include awards issued to replace incentive units they received as compensation for years prior to 2020. The replacement awards were granted in connection with Oak Street Health’s conversion to a C-corporation from a partnership. The Bloomberg Pay Index includes all compensation listed in regulatory filings for a given year, including awards issued to replace pay from prior years.

So far, Musk’s award has yielded him about $33 billion of paper gains and made him the highest-paid U.S. executive for three consecutive years, according to the Bloomberg Pay Index. Behind him is a string of other mostly male, mostly white corporate leaders with awards projected to pay out nine or 10 figures. Only five of the country’s 100 top-paid executives last year were women.

Data from governance advisory firm ISS Corporate Solutions and interviews with compensation advisers and lawyers who help shape and negotiate pay packages show Tesla’s moonshot grant set off a lingering echo in many executive suites.

On paper, Musk’s grant struck some as ludicrous both in size and ambition. Could a board really defend paying just one employee tens of billions of dollars, even if the company’s market value rose by more than tenfold? Most investors thought so. More than two-thirds of them backed the pay package in a non-binding referendum. If it works, some of them reasoned, we’ll reap huge returns. What does it matter, then, if Musk gets his billions?

Corporate chiefs around the country eyed the alluring proposition. What’s a run-of-the-mill $20 million annual package compared to a shot at a payout in the hundreds of millions—or even a billion or two?

One consultant who’s worked with boards at some of the country’s biggest companies, and asked to remain anonymous to discuss confidential deliberations, described how some executives and directors distilled the investor referendum at Tesla: “The takeaway from Musk’s package was that if performance requirements are high enough, it doesn’t matter how much we pay.”

Moonshot Money

The number of issued CEO awards worth at least $25 million has grown four-fold since 2016
Note: Some of the awards were granted in fiscal years that don’t correspond with the calendar year.
Source: ISS Corporate Solutions

Rank-and-file workers are hardly ever part of that equation. The median ratio between the pay for S&P 500 CEOs and their typical employees rose to 182 in 2020, up for the third year in a row, according to data compiled by Bloomberg. Some firms logged ratios in the thousands.

The prospect of amassing 10-figure wealth leading a publicly traded company isn’t new. A decade before the 2008 financial crisis, when stock options were the rage, Coca-Cola Co.’s Roberto Goizueta became one of the first CEOs to amass a billion-dollar fortune solely from compensation.

The difference now is how payouts are structured and justified.

After the crisis, institutional investors pushed boards to tether a greater portion of an executive’s pay to the company’s long-term performance. A cottage industry of consultants soon got to work designing complex packages that often feature large blocks of stock to be paid out based on a constellation of targets, such as the share price or profit.

Years of low interest rates and a booming stock market have made that a winning model for CEOs, widening the gap with workforces collecting paychecks instead of equity.

At the same time, the “pay-for-performance” mantra has made massive payouts more resistant to criticism, said Carol Bowie, the former head of Americas research at proxy adviser Institutional Shareholder Services. “There’s a veneer that it’s been earned,” she said.

Mega grants can ripple through industries. That’s because public companies must detail their CEOs’ rewards in public filings. The transparency was meant to rein in extravagances. But it also made it easy for executives to look at how much rivals get—and seek more.

“I never blame the executive for asking if they sincerely believe it’s justified,” said Michael Sirkin, the U.S. chairman of advisory firm Jamieson Corporate Finance, who’s negotiated pay on behalf of CEOs for decades. “It’s up to the board to decide if they agree.”

At Paycom, which makes software for human resources, the board last year offered its founder and CEO Chad Richison (No. 10 on the Bloomberg Pay Index) a shot at obtaining the equivalent of 2.7% of the company’s stock if the share price rises a bit more than fourfold over the next decade. That payoff is worth $2.8 billion.

Upscale home furnisher Restoration Hardware handed CEO Gary Friedman (No. 18) stock options that will be worth $290 million if the share price roughly doubles.

And just weeks ago, JPMorgan’s board gave CEO Jamie Dimon a $50 million stock-option award tied to his staying for another five years.

All three companies said in filings the awards were meant to keep and motivate the men. All three of them are already billionaires.

Highest Paid Women CEOs and Executives in 2020

  • Salary
  • Bonus
  • Stock Awards
  • Option Awards
  • Perks
Rank Name Company Total Breakdown
Opendoor Technologies
AbCellera Biologics
Use the toggle button here above to scale the size of the bar proportionally between the highest total pay, that of Elon Musk, or the next executive in second position.

There’s of course no guarantee that the bets will pay off, either partially or at all. Mega grants often come with carefully engineered performance thresholds and promises that there’ll be no consolation prize for the executive if things don’t pan out.

But last year, as the coronavirus rocked the global economy, hundreds of boards eased targets or paid out special awards to executives to the tune of hundreds of millions of dollars, Bloomberg has reported.

“The company may or may not stick with its commitment,” said Aeisha Mastagni, a portfolio manager in the corporate governance group at the $309 billion California State Teachers’ Retirement System. The pension fund has voted against many large pay deals, including Musk’s, often pointing to insufficiently rigorous performance goals.

Why, then, are so many other institutional investors willing to back extraordinarily large awards for just one person?

“I’d call it FOMOP—fear of missing out on performance,” Bowie said. “Nobody wants to miss out on potential big payback. And if these awards look like they may motivate that, few investors want to kill the goose that may lay the golden egg.”

Steven Clifford, a former broadcasting chief executive who in 2017 published a book called “The CEO Pay Machine,” said today’s compensation programs too often end up rewarding leaders for just being lucky. He knows, he said, because it happened to him, too.

“When I was in the right place at the right time, I was a genius,” he said. “And when I was in the wrong place, I was a moron. And I was the same person the entire time.”