July 6, 2022
The Elon Effect: Nine-Figure CEO Pay Packages Becoming More Common
Broc blogged in 2018 about predictions that Elon Musk’s $56 billion incentive compensation package would revolutionize CEO pay at other companies. The pay consisted of a mega-grant of stock options that vested if ambitious performance targets – including market cap growth – were achieved. Despite the litigation that followed, the award remained in place – and due to Tesla’s cult-like following and soaring stock price, most of it has now vested! The company recaps the terms beginning on page 51 of its recently filed proxy statement.
Four years in, we also may be seeing the “Elon Effect” impact pay decisions at other companies, according to this NYT article and related Equilar analysis. Here’s the data from Equilar that traces a big jump in award values back to 2018:
Massive Pay Packages are Becoming More Common. This year’s study saw 12 CEOs receive compensation valued more than $100 million in 2021, an uptick from eight CEOs from last year’s study. In fact, eight of those CEOs were awarded pay packages valued above $200 million, with two landing packages above $500 million. Prior to 2018, there had never been more than two $100 million-plus awards in a given year in the study’s history.
Over the last two years, many companies elected to award their CEOs for staying in their role and guiding their companies through the uncertainty with large stock awards. In 2021, Equilar 200 CEOs were awarded a median $14 million in stock awards — a 14.4% increase from last year’s study where the median stock award was $12.2 million in 2020.
The NYT article notes that the goals that govern recent mega-grants at other companies may not be as aggressive as the ones set by the Tesla board. But, they have been stamped with approval via say-on-pay votes. One company even granted an uncapped equity award – no doubt creating brain teasers for anyone involved with disclosure and plan documents. However, as we head into the second half of 2022, the faltering stock market may put a damper on the rising CEO pay that was the story of 2021.
– Liz Dunshee