Musk’s trillion-dollar pay deal has a convenient escape clause

A million robotaxis, a million humanoid robots, and an $8.5 trillion valuation – Elon Musk’s trillion-dollar Tesla bonus appears to demand almost superhuman performance. There is, however, an easier (and less-publicised) way for Musk to collect the big bucks: just sell the company.A recent study of executive pay finds that enormous share awards usually fail to deliver for shareholders and that “milestones are far less demanding than they appear”, with Musk’s 2025 Tesla package offering a striking illustration of the risks.In Merging to the Moon: Astronomical Option Awards and Corporate Governance Failures, researchers examined 1.24 million insider stock awards between 1996 and 2022. They found that Tesla-style “mega-grants” subsequently underperformed comparable companies by 15 to 30 per cent over following years.READ MORETesla’s 2025 agreement offers Musk 424 million shares if the company reaches an $8.5 trillion market value and meets 12 demanding business milestones. Considered in isolation, the package looks like a properly designed pay-for-performance deal. Under the researchers’ modelling, annual growth of 12 per cent in both Tesla’s share price and earnings would leave the company just short of its profits target after a decade. If only one operational milestone was met (cumulative vehicle deliveries), Musk would get a payout of about $8 billion – a big sum, yes, but a fraction of the headline award.However, if Tesla is acquired, the agreement completely waives the operational targets. If Tesla were taken over, the same share-price growth could deliver Musk $448 billion to $545 billion at a typical 20-30 per cent takeover premium, or up to about $707 billion at a 50 per cent takeover premium.In other words, Musk could bag up to 88 times what he would earn on the operational track, without meeting a single operational goal.[ As Tesla sales tank, Musk gains a trillion-dollar pay dayOpens in new window ]The pay deal “converts a performance award into a transaction bonus”, potentially allowing Musk to engineer a takeover through an affiliated company such as SpaceX, triggering a huge payout while bypassing the operational targets.Perhaps Musk’s greatest feat of engineering is financial rather than technological: the salesman who persuaded more than 75 per cent of shareholders to back a pay deal that has “essentially no analogue in market practice”.