Musk hasn’t been setting a great example in other ways but on pay structure, his ambition for the electric-car maker is a guide for others
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By Antony Currie
NEW YORK (Reuters Breakingviews) - General Electric could take a leaf from Elon Musk’s book on how to pay its new chief executive, Larry Culp.
Musk hasn’t been setting a great example in other ways, most recently deriding in a tweet the U.S. securities regulator with whom he had just agreed to settle a lawsuit, calling the watchdog the “Shortseller Enrichment Commission.” But on pay structure, his ambition for the electric-car maker is a guide for others.
Granted, the amount he could earn over 10 years is a ludicrous $60 billion (all dollars US). But the targets he would have to hit are rigorous and defensible: growing annual revenue to $175 billion, 15 times last year’s top line; a huge increase in EBITDA to $14 billion; and raising Tesla's market capitalization to $650 billion. That valuation was more than 10 times the company’s market capitalization in January when the plan was set.
Culp’s deal involves salary, bonuses and stock grants that could top $20 million a year over four years. An extra payoff would come from an additional “one-time inducement award” worth $226 million, by Breakingviews’ calculations, a mouthwatering amount for virtually anyone except Musk. And bagging it requires Culp to score just one goal: getting GE’s share price up 150 percent for at least 30 days at some point during the next four years.
That won’t necessarily be easy. Even boosting GE’s stock by 50 percent to trigger a lower $45-million payout could be tough, considering the battering the company’s shares and reputation have taken over the past year or so.
But Culp has four years to do it. And a stock-price target can be gamed: buybacks, for example, increase the value of remaining shares, not that GE currently has the cash for that. The stock only has to reach the target price for a month, and the CEO will collect his extra shares even if the price then falls again.
For a mature company like GE, the boss’s incentives should – like Musk’s but more so – cover a range of targets. These might include return on invested capital and perhaps non-financial goals like executive diversity and reduced environmental impact. A clawback mechanism wouldn’t go amiss, either, given the company’s recent writeoffs. The stock price would then, over time, take care of itself.
