Elon Musk, CEO of SpaceX and Tesla, speaks during the International Space Station Research and Development Conference at the Omni Shoreham Hotel July 19, 2017 in Washington, DC. / AFP PHOTO / Brendan Smialowski (Photo credit should read BRENDAN SMIALOWSKI/AFP/Getty Images)
Tesla founder Elon Musk © AFP

Elon Musk has set a new bar in the dubious science of benchmarking executive pay. Electric carmaker Tesla has laid out a 10-year deal for its chief executive that could bury him in more than $50bn worth of shares.

The entrepreneur has renounced a salary or bonus for the potential reward of 12 tranches of Tesla stock, tied to galaxy-sized targets based on the group’s value, earnings and revenue. To receive the full amount, Mr Musk would, among other things, have to increase Tesla’s value by about $600bn to $650bn — roughly the market capitalisation of Amazon today.

One question is how the unsalaried Mr Musk will pay for his groceries. The answer: under California state law, he has to receive the minimum wage of $37,000, but for now, according to an interview with the New York Times, he stocks his fridge by borrowing against his shares.

A more relevant puzzle is the extent to which money motivates a man like Mr Musk at all. Strip away the targetsand the pay package seems aimed as much at Tesla shareholders as at its mercurial leader. The deal may be unconventional, but it fits a recognisable template: pay is aligned to performance of the stock the investors themselves hold.

More important, it binds Mr Musk to the company in an executive role. Tesla has even added a five-year holding period, to ensure he shares investors’ pain if the carmaker’s breakneck race to become a sustainable energy company ends in a crash after he has earned his reward.

Tesla claims an earlier performance award was “instrumental in motivating” Mr Musk. But most evidence suggests other forces drive him. “He’s the possessed genius on the grandest quest anyone has ever concocted,” writes Ashlee Vance in his excellent 2015 biography. “He’s less a CEO chasing riches than a general marshalling troops to secure victory.”

This overarching sense of mission seems to loom larger for Mr Musk than the financial perks. There’s a message here for all boards: you need to provide more than a big cash cushion to keep your restless executives keen.

As Dan Pink memorably laid out in his book Drive, intrinsic motivation — the individual’s desire to succeed, combined with autonomy of action, mastery of the task, and purpose — is very powerful. What we think of as blunt carrot-and-stick methods, including financial incentives, can be counter-productive, or apply only to straightforward tasks.

Pink acknowledges a debt to Douglas McGregor, who in 1960 laid out the distinction between traditional Theory X management (carrot-and-stick — or command-and-control, if you prefer) and the innovative Theory Y approach, emphasising worker autonomy.

Tesla, and SpaceX, Mr Musk’s rocket venture, seem to operate according to another theory — Theory Musk. Their leader sometimes speaks with the authoritarian rasp of an authentic Theory X manager. In his biography, one Tesla employee recalls being dressed down in an email after missing a corporate event for the birth of his child (“You either commit or you don’t,” Mr Musk wrote).

Yet Mr Musk’s world-changing goals and his trust in his engineers are powerful Theory Y tools that Larry Page, Alphabet’s chief executive, has identified as a competitive advantage: “Why would you want to work for a defence contractor when you can work for a guy who wants to go to Mars and he’s going to move heaven and earth to make it happen?”

Mr Musk’s application of a blend of management styles at Tesla and SpaceX fits the wider research. In a 2014 analysis of published studies about motivation, Christopher Cerasoli, Jessica Nicklin and Michael Ford concluded that performance was shaped by the joint impact of external incentives and internal drive. Intrinsic motivation was important, but not at odds with the use of carrots and sticks.

Where does money rank in Theory Musk? Higher than you might expect, but not for the banal “my bonus is bigger than yours” reasons that motivate ordinary executives. It is the rocket fuel that will take Mr Musk to infinity and beyond.

The entrepreneur is known for pouring gains from prior ventures into his next plan — to a degree unheard of even among Silicon Valley risk-takers.

“The reason that [the incentive plan is] important to me personally is that there’s some pretty big things that I want to do,” he told the New York Times. Helping to turn humanity into “a multi-planet species . . . obviously requires a certain amount of capital”.

Tesla directors may feel their job is now done. But their most important duty is neither fulfilling the financial side of the pay deal, nor crudely tethering Mr Musk to Tesla. It is motivating him to meet its earthbound challenges, when his eyes are really fixed on the stars.

andrew.hill@ft.com

Twitter: @andrewtghill

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