So if I get 12% of the profit from music sales that is not “compensation”? Share ownership is, at its foundation, a profit (and asset) sharing agreement.
You are getting confused by the fact that this class of profit sharing agreement can be easily sold for its expected net present value of all future cash flows and that they frequently retain earnings in tax advantaged forms instead of directly distributing their generated income in highly taxed forms.
1. Elon could quit and do zero work and he would still own the 12%. So what is his compensation for the extra work?
2. If you owned $10M worth of shares of TSLA from your personal investments, and applied to work at TSLA, would it be reasonable to deny you any compensation since you are already incentivized and share in the success?
This is not to comment on what the right pay package is; perhaps the proposed one is far far too rich, but that's a separate question to whether his existing assets are compensation or not.
1. 12% of the increased profits. If we used your logic then we would conclude that 100% owners of businesses are not being compensated for their work. They are literally being compensated all of the profit and asset growth.
2. Yes, it is fairly common to “compensate” executives primarily in the form of their own stock appreciation [1]. Mark Zuckerberg receives 1$ in salary, options, stock awards, with only a tiny 20 M$ as reimbursements to avoid running afoul of tax law [2]. Larry Ellison [3] got only 8 M$. Michael Dell only got 3 M$ [4]. Andrew Jassy only 1 M$ [5]. Should I keep going?
- Jassy: "When Jassy became CEO in 2021, he received a special stock award with a total value of $212 million. This award vests over 10 years..."
- Ellison: "Founder, chairman and CTO Larry Ellison was awarded $138.6 million in the year ended 31 May 2022...However the bulk of the headline-grabbing figures, some $129.3 million of the total awards for both the CTO and CEO, will not be realized for a further three years. The performance-based stock options (PSOs) were granted in May 2018 and were supposed to vest in May 2022 "at the earliest" but were expected to take five years."
Zuckerberg may have agreed to forego additional equity comp, but he is a rare exception. Most executives receive new equity grants, subject to vesting, as compensation, even if they already own a lot of stock, as the stock they already own is not compensation for work.
Larry Ellison received 138.6 M$? Wow, that might fill up his piggy bank right next to his, let's see... ~400 billion dollars and ~300 billion dollars of stock appreciation based compensation since 2021. That is almost, gonna need to bring out the calculator for numbers this small... 0.04% of his compensation.
Can you explain how this is not, as I said: "primarily in the form of their own stock appreciation"? Also crickets on how your interpretation means that sole proprietorships and fully owned businesses are not being compensated for their work. The only reason it looks like such compensation is uncommon is because executive teams in long-standing companies that have long since lost their founders, common of publicly traded companies, infrequently have enough prior stake to justify such forms of compensation which is absolutely not the case for Elon Musk who currently owns 1/8 of Tesla's growth and profits.
