We all know what stock options are. That’s when Elon Musk forgoes a large salary in exchange for getting shares in Tesla every time the company reaches certain milestones, like a certain level of capitalisation. So far he has hit the first tier, and received around $1 billion is stock. If he hits all 12 tiers, it is worth $55 billion to him.
Musk is an extreme case, because most people would say his deserves it. That he is the driving force of the business.
Stock options are very different for, say, the CEO of a bank. In an industry that is meant to be prudent, rewarding the CEO based on any KPI seems odd. They should simply be paid the appropriate amount for the job they do.
There are two key problems with stock options:
- In many parts of the world, you don’t pay tax on the options until you vest them, or you don’t pay tax until you eventually sell the shares
- Rewarding just the CEO is disrespectful to the employees that make the enterprise tick
The solutions are obvious.
- End stock options. They exist to disguise income and avoid tax
- Reward CEO performance with salary increases, like regular workers, via an annual review