Tesla’s $29 billion stock grant to Musk could be costly in the long run
Tesla Stock’s long -term potential may be reduced by the decision of the company’s CEO Elon Musk, the company’s CEO in early August.
This is the meaning of Gautam, the author of the author of the Yale Management School and the author of the indispensable. In an interview, giving a large number of companies shares to CEOs with large amounts, “encourages bad behaviors for companies and shareholders”.
The assessment of its assessment is against the traditional justification to give great stock awards, that is, they encourage CEOs to do a better job that leads their companies. However, this justification, especially CEOs, can not withstand this great stock prizes when they already have a large amount of stock. For example, the day before Tesla’s board of directors gave him an additional share of $ 29 billion, Musk had about 13% of the company – about $ 120 billion at prices.
This meant that Musk was richer $ 120 billion, even if Tesla shares have doubled, even if there was no additional compensation. If it is not enough to encourage someone to do the best, adding that adding 29 billion dollars will not make a difference: orsa If there is a need for billions of more to motivate CEOs with large parts of their companies, all the incentives will collapse the pioneer of compensation. ”
Tesla’s investor relations department did not respond to comments.
No CEO is infallible
However, the mega stock prizes are more than just wasted money. They encourage CEOs to behave as a narcissist, which can harm the company’s long -term expectations.
He emphasizes that he is not a psychologist and does not personally accuse Musk of narcissism. Instead, he talks about CEO Narcissism, a subject of management research.
The concern is that Mega Stock Awards encourage CEO to grow itself and “usually serves as a symbol of status in CEO peer groups”. Numerous academic studies have documented a correlation with a CEO company among such compensation and important long -term costs.
This research is particularly relevant when it comes to CEO share. This is because many institutional CEOs tend to see themselves as infallible. “What you don’t want to do,” he says, ın Get a CEO that is a little more narcissistic than the average, and then add more fuel to the fire ”.
Researchers who examined CEO Narcissism focused on a series of deputies such as how big a photograph of a CEO was in annual reports for these features, the size of the portrait in corporate offices, the size of the signature in annual reports, and CEO’s use of first singular pronouns in interviews.
He says that Musk is uncertain how Musk will pass through such measures. But he adds: “Musk draws attention to him in an extraordinary way among the CEOs. For example, very few CEO has a camera cell in Iron Man 2.”
In other words, the weight of academic evidence says that CEO narcissism is a long -term negative for the company. A study found that it caused excessive and fluctuating organizational performance ”. This definitely applies to musk, which is the variable in Tesla, to striking failures, such as pre-pre-prevaleous houses, such as cyber swords that sell slowly from extraordinary success.
Another study found that firms managed by narcissistic CEOs have experienced lower financial productivity in the form of profitability and business cash flows ”. Another, “CEO narcissism is associated with worse credit ratings” found.
After all? The concern about CEO Pay is nothing new. However, most of this concern has so far focused on self -equity (is it fair to pay too much to CEOs?) And waste (a good use of corporate resources?). Research on CEO narcissism points to a third reason to worry that it is potentially serious: the mega payment packages given to CEOs can actually lead to worse institutional consequences.
Mark Hulbert regularly contributes to Barron. Hulbert ratings follow the investment bulletins that pay a fixed fee to be audited. Can be accessed at mark@hulbertratings.com.
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