Final answer:
Elon Musk’s compensation at Tesla is based on market value and operational milestones, not a fixed salary. His 'CEO performance award' ties his potential earnings to significant stock options that only vest upon achieving specific targets.
Step-by-step explanation:
The Tesla compensation structure for Elon Musk is unique compared to traditional salary structures. Musk's earnings are closely tied to Tesla's market value and operational milestones rather than a standard salary. In 2018, Tesla's shareholders approved a compensation plan for Musk that does not include any guaranteed salary or cash bonuses. Instead, Musk's potential earnings are entirely in the form of significant stock option tranches that vest only if Tesla reaches certain market capitalizations and operational goals such as revenue and profitability targets.
This compensation model is often referred to as the 'CEO performance award' and is designed to align Musk's financial incentives directly with the performance and long-term success of the company. These high-risk, high-reward compensation plans are somewhat uncommon for CEOs but reflect confidence in Musk's ability to grow Tesla substantially. It is an example of a performance-based incentive plan that could drive significant wealth for Musk, should he meet the predefined benchmarks.