Elon Musk just announced that he wants a compensation of a trillion dollars. First of all, it’s very impressive that he wants that. I, like most of us, want a much more modest raise, by the way, but nobody listens to me. The question about Musk wanting this amazing pay raise is not only what he wants, the question should be: What is good for shareholders? In social science, when we think about this, we ask the question about the theory of change. Imagine version #1 of Elon Musk not getting the trillion dollars. What does he do? What does his day look like? How much does he focus? How much energy does he put toward Tesla? How much innovation? How creative is he?
The second version of Elon Musk with the trillion dollars. The question is: What is the theory of change? What Elon Musk with a trillion dollars he do differently? Does he drink more coffee? Does he stay awake more hours of the day? Does he think more creatively? Is he better at motivating his staff? These are the question that the shareholders need to ask themselves? It’s not just what he wants. It’s about how giving him this tremendous amount of money is going to make him different and more productive for the company? For example, what if it wasn’t a trillion dollars? What if it was only a billion dollars? A tiny, tiny fraction of that. What will that do? My suspicion is that the moment we start thinking about this, in those terms, in terms of theory of change, we have to say that most likely giving Elon Musk more money, let’s say a trillion dollars, would move money away from shareholders and maybe employees into his bank account, but it will very unlikely create any change in his activity and therefore very little impact on the productivity of Tesla as a company. By the way, this question about theory of change is something that we need to ask every time somebody proposes a change, we need to ask questions like: What is life without X? How does it work in details? And what is life with X? How does it work in details? For example, imagine that Duke University decided to double my salary. What would I do differently? Would I drink more coffee? Would I sleep less? Would that be effective? Would I talk to more students? Would I talk faster? Would I talk slower? Would I be able to find more hours in the day to write more papers? Would I do more or less of what?
When you start thinking about this clearly, in details, you realize that when we pay people very little, there are challenges. But at a certain level of payment, which is way, way below a trillion dollars, there’s not that much more that people can do. So, from that perspective, I think that the odds are very low that giving Elon Musk this raise will yield any benefit. There is, however, one thing the time I am worried about. When we ask ourselves to think about the difference between Elon Musk without the trillion dollars and Elon Musk with the trillion dollars, we don’t really have the world of Elon Musk without a trillion dollars. We have a world in which Elon Musk asked for a trillion dollar and didn’t get it. So now question becomes, will Elon Musk get pissed off that the shareholders of Tesla did not give him the money? And will he do something like revenge or sabotage? And I have to say that I don’t know. I don’t have a good prediction of that. That really depends on his psychology and sense of entitlement. And I would say that there isn’t much of difference between a world in which Elon Musk never thought about a trillion dollars vs. a world in which he thought about a trillion dollars and got it. But if Elon Musk thought that he deserves a trillion dollars, he proposed it and he got rejected. I don’t know enough about his psychology to predict whether he would become angry or vengeful. Whether he would want to commit acts of sabotage, whether he would want to prove something, or whether he would be offended. I don’t know. If you ask me, whether Elon Musk deserves a trillion dollar more from the perspective of the shareholder? Would it yield to better results? The answer is no. But if you ask me whether the psychology of Elon Musk will be bruised, if he got rejected, and whether this bruising has a potential for yielding some damage to the company, I would say, yes. I don’t know whether it would yield a trillion dollars’ worth of the damage. I suspect it wouldn’t, but we will see. We will see what the decision will be and how it will turn out. Good luck to all of us.
