Elon Musk’s latest Tesla (TSLA) pay package could make him the first trillionaire CEO, but history suggests these all-or-nothing pay deals often fall flat.
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When Airbnb (ABNB) and Opendoor (OPEN) went public in 2020, both gave their leaders giant performance-based awards inspired by Musk’s own 2018 Tesla deal. The idea was simple: skip a salary and earn billions only if the stock hit certain milestones.
It didn’t always go to plan. Opendoor’s Eric Wu met just one of six goals before stepping down last year, while Airbnb’s Brian Chesky has hit only two of ten. To unlock the next level, Airbnb shares need to jump more than 70% from today’s prices.
Other CEOs have fared worse. Farfetch’s José Neves missed every target before the company’s stock collapsed by more than 90% and was eventually sold.
When It Works, It Works Big
Still, these pay structures aren’t all flops. Supporters say they work exactly as intended, paying out only when shareholders benefit.
“The Axon plan incented Rick Smith to more than 5x the value of Axon, and he did,” said Gavin Baker, CIO at Atreides Management. “And when milestones aren’t met, the CEOs don’t receive the payouts.”
One partial success is DoorDash (DASH) CEO Tony Xu, who is finally unlocking parts of his $5.2 billion plan tied to a 500% share-price increase. He earned his first awards this year after taking only a $300,000 salary since the IPO.
But even he isn’t immune to market swings; DoorDash shares slid Thursday after the company warned that higher spending is hurting its earnings outlook.
There’s a Risky Side of “Moonshot” Pay
For every winner, there are more near-misses. Paycom’s (PAYC) Chad Richison saw his $2.8 billion plan wiped out after the company’s stock plunged below $200 from $400. He later forfeited the unearned awards when Paycom appointed a co-CEO.
“The concern isn’t just the size,” said Eric Hoffmann of Farient Advisors. “It’s the risk CEOs are willing to take to chase these outsized rewards. They feel like lottery tickets.”
Big CEO Pay Deals Are Making a Comeback
Even after past stumbles, companies keep trying. Opendoor’s new CEO Kaz Nejatian recently landed a $2.7 billion package, similar to Wu’s but with lower price targets.
Nejatian defended the approach: “Wall Street is full of CEOs who got rich while destroying companies. That’s bad for capitalism.”
Key Takeaway for Tesla
Now, as Tesla shareholders decide whether to approve Musk’s record-breaking package, they’ll weigh both the promise and the risk.
“This isn’t a moonshot — it’s a mars-shot,” said pay consultant Dan Walter. “A trillion dollars is unimaginable. But if Musk turns Tesla into an $8 trillion company, everyone wins.”
Is Tesla Stock a Buy, Hold, or Sell?
Analysts remain divided on Tesla’s (TSLA) outlook, with the consensus rating standing at “Hold.”
Out of 34 Wall Street analysts covering the stock in the past three months, 14 rate it a Buy, 10 suggest a Hold, and 10 recommend a Sell.
The average 12-month TSLA price target sits at $395.54, implying a 14.4% downside from the latest close.
