Elon Musk’s ‘unfathomable’ $56bn pay package!!

KAKALI DAS

There is a business philosophy suggesting that the most cost-effective investment is in the Chief Executive Officer (CEO), the highest-ranking employee within any organization.

In simple terms, the philosophy implies that you cannot overpay a competent CEO, nor can you underpay an ineffective one. However, the determination of CEO pay, its justification, and the threshold for excessive compensation are subjects open to interpretation.

Elon Musk’s ‘unfathomable’ $56bn pay package

Elon Musk is making headlines once again, this time due to his pay as the CEO of Tesla Motors, a position he assumed in 2018.

His staggering compensation reached a record-breaking 55.8 billion dollars, equating to nearly 56 billion dollars annually.

To put it into perspective, this amount surpasses 46 crores in Indian rupees, which is 46 followed by 11 zeros.

Elon Musk’s compensation stands as the most substantial corporate pay deal to date. In 2022, this package was six times more significant than the combined pay of the top 200 highest-paid executives in 2021. However, let this information not overshadow the celebration of your own payday.

“Let me share with you some numbers – the CEO-to-worker pay ratio in the 1960s was 20:1, meaning if the CEO earned $20, the average worker earned $1. By 2019, this gap escalated to 300:1, and it continues to widen each year. In the United States, the average pay gap stands at 670:1, but this is an average figure. Notably, at Walmart, the pay ratio reaches 983:1, at Coca-Cola, it skyrockets to 1621:1, and at Amazon, it reaches an astonishing 6474:1.”

Upon Tesla’s agreement to pay Elon Musk 56 billion dollars, a shareholder named Richard Tornetta filed a lawsuit against Musk and the company. Tornetta contended that the compensation was overly generous, placing blame on Tesla’s board. He argued that the board did not act independently, and Musk inappropriately influenced the negotiation process.

After five years, the case reached court in Delaware, and the judgment has arrived. The judge has dismissed Musk’s pay package, deeming it an “unfathomable sum”. The next steps could involve Musk appealing the ruling, or Tesla’s board may need to devise a new proposal. Considering Musk’s current status as the world’s richest person, this decision might potentially lower his rank to number three. Quite surprising, isn’t it?

Two hours post the ruling, Tesla experienced a 3% decline in its shares. More significantly, the judgment is perceived as a cautionary signal, not only for Tesla but for companies globally that lavish their executives with exorbitant sums.

CEOs receive astonishingly generous compensation. The escalating trend of sky-high CEO pay is widely acknowledged, often reaching stratospheric levels, even when executives haven’t assumed their roles.

Case in point: In September 2022, Laxman Narasimhan was slated to earn approximately $18,000,000 annually as the new Starbucks CEO. Remarkably, if he hadn’t joined by the following April, he would still be entitled to $8,000,000.

So what justifies the fat pay-checks of these big cats?

The rationale behind these substantial paychecks for top executives is a topic of discussion.

CEOs play a vital role in success, generating wealth for shareholders, a primary objective. As visionary leaders, their decisions impact every employee and customer, often involving significant risks with the expectation of substantial rewards. This dynamic contributes to the substantial gap between CEO pay and that of their typical employees. The extent of this gap can vary significantly.

Let me share with you some numbers – the CEO-to-worker pay ratio in the 1960s was 20:1, meaning if the CEO earned $20, the average worker earned $1. By 2019, this gap escalated to 300:1, and it continues to widen each year.

In the United States, the average pay gap stands at 670:1, but this is an average figure. Notably, at Walmart, the pay ratio reaches 983:1, at Coca-Cola, it skyrockets to 1621:1, and at Amazon, it reaches an astonishing 6474:1.

In 2019, Disney CEO Robert Iger received a substantial pay package of $66,000,000, surpassing the median pay of Disney employees by over 1000 times. This staggering pay gap is a prevalent narrative in many nations.

In India, the highest-paid executives command an annual income of approximately $1,000,000 on average, while an average worker earns $12,000.

In the UK, CEOs command a salary of $5,000,000, whereas the average worker earns around $40,000. Conversely, in South Africa, CEOs earn $800,000, while workers receive $1600 on average.

Studies indicate that it would take five lifetimes for an average worker to earn what their boss makes in a single year, and this dynamic remains largely unchanged even in times of crisis.

Amid the initial year of the pandemic, CEO pay surged by 19%, despite numerous businesses coming to a standstill. While acknowledging the significant value CEOs bring to a company, there reaches a point where the extent of this pay disparity seems inherently unjust.

Studies indicate that such pay disparities not only foster resentment but can also be demoralizing, potentially resulting in employee backlash that manifests in unpleasant ways.

Lower-paid employees may either disengage from responsibilities, resign, or participate in strikes. This was evident in events like the Hollywood writers’ strike and Detroit auto workers’ protests. Work decisions are often influenced by pay, not just one’s individual earnings but also in comparison to peers.

This phenomenon impacts a considerable number of people.

Additionally, the question arises – do these exorbitant CEO pay packages truly contribute significantly to their effectiveness?

Studies suggest otherwise; there’s no substantial correlation between escalating CEO pay and heightened CEO productivity. Therefore, turning CEO salaries into an extreme sport isn’t justified, as it can be detrimental both in terms of optics and business impact.

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