Unraveling the Complexities of Compensation

David Fitt

Experts offer their perspectives on how tax law is reshaping pay-plan design, Elon Musk’s potential $50 billion payday, and other concerns.

Consider some of the recent events affecting the decisions of compensation committees: a tax code overhaul, pay ratio disclosures, and increasing competition for talent. Then there’s the challenge of designing pay packages that properly reward, motivate, and retain talented executives. These were some of the topics explored by a panel of experts at NACD’s Leading Minds of Compensation event at the Grand Hyatt in New York.

Attendees gained insights into how to approach these and other issues at a panel discussion moderated by NACD Directorship Publisher Christopher Y. Clark. The panel featured the following compensation experts: R. David Fitt, partner, Pay Governance LLC; Steven Hall, founding partner and managing director, Steven Hall & Partners; Daniel Laddin, founding partner, Compensation Advisory Partners; Kathryn L. Neel, managing director, Semler Brossy Consulting Group; John V. Trentacoste, partner and head of the New York office, Farient Advisors; and Steven Van Putten, senior managing director and Northeast region head, Pearl Meyer. Highlights from their conversation follow.

Tesla CEO Elon Musk’s incentive package was set at $2.6 billion—and could extend to more than $50 billion. Thoughts?
Steven Hall: Those are great numbers, aren’t they? And by the way, the plan that Musk has was just approved by 80 percent of the shareholders, excluding Musk and his brother. Let’s talk about the design of the program first. It’s a grant with a 10-year option. It is only based on performance around three criteria: market cap attainment; earnings before interest, taxes, depreciations, and amortization; and revenue. The goals, if met, are going to grow the company by about 13 to 15 times. In order to meet those different goals, there are tranches along the way. The grant is for 12 percent of the outstanding shares of the company, which dilutes everybody’s, including Musk’s, current ownership. There is no automatic vesting in the event of a change of control, and no accelerated vesting if he’s terminated by the company. He’s required to either be the CEO or executive chair and chief product officer. Finally, the award includes post-exercise holding requirements and a clawback provision to recoup shares that incorrectly vest in the event of a financial restatement.

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