Should You Pay Your Employees Like Elon Musk?

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Should You Pay Your Employees Like Elon Musk?

For those of you who read my posts regularly, you know that I am a proponent of equity compensation and a cheerleader for performance-based programs. I am also passionate about helping the compensation world create more differentiated and targeted approaches to pay. This post looks at an example of that type of innovation.

Elon Musk, the founder of Tesla received a famously interesting equity compensation award in early 2018. The program is an aggressive structure that could be worth around $55 Billion if it pays out fully. Shortly after this, Axon announced that it was giving its CEO, Rick Smith, a similar award, modified to reflect Axon’s scale and potential.

These awards are different and riskier than most companies or executives are willing to stomach. Unlike most long-term incentives, there is a real possibility that both Musk and Smith will receive nothing. Both already have quite a bit of equity, and money, so they have a fairly soft landing if the new programs fail.

Last month, Axon announced it was extending access to its unique program to all full-time employees. As a start, every full-time employee will receive 60 Units under the program. Some will also be allowed to contribute a percentage of their pay every year from now through the next nine years. If goals are met, the return can be as much as 3X the units allocated over the nine-year period.

If it sounds complex, it’s because it is. But that doesn’t mean it’s wrong. The company put together FAQs to help people better understand the details. Complexity is always a potential concern, but many complex plans have worked well in the past. The key to complexity is communication (and lots of it.)

Is it too odd to work? It’s too early to tell if the program will have a lasting impact on talent acquisition, staff performance or long-term retention. Different has worked well for many companies in the past. It has also failed spectacularly many times. But, fear of the unknown has not scared employees away from work for tons of companies who are at the leading edge of their industry.

Is it a good idea to treat employees the same way you treat the CEO? Over the past 20 years, there have been growing complaints that CEOs are paid too differently (and richly) when compared to rank and file employees. Calls are regularly made to hold down executive pay to allow for better support of everyone else. Axon turned this idea on its head and offered everyone a chance to get paid like a CEO (kind of, but not really.) Since truly limiting CEO pay seems unlikely, perhaps giving everyone a similar program will bridge the divide.

Is this program better than the “off-the-shelf” vanilla programs offered by so many companies? Will the employees appreciate something special instead of something generic? In my experience, most employees at startups and high-growth companies prefer to be treated like they are special. The program is certainly better if everything pays out at the max. It is quite likely worse if the company stumbles (or worse.) If Axon provides competitive base pay, its employees may be fine giving up a little to get a lot. Just to hedge my bets, I will also add that most people are fine with risk until risk becomes reality.

I don’t know if everyone should be paid like Elon Musk or Rick Smith. As much as this program purports to deliver similar pay the limited percentage for contributions help make this program less extreme. I do know that it is heartening to see companies exploring truly new approaches to pay. I get excited every time a company tells me that that want, or need, to do something different. I look forward to seeing how all of this plays out and hope that literally, no other company decides to follow this in a lock-step manner. Be bold and find your own path!

(originally posted at www.CompensationCafe.com)

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