Tesla Motors execs’ low salaries contrast with big three automakers; CEO accepts $1 per year

Elon Musk has served as Tesla Chief Executive Officer since October 2008. He accepts only $1 per year in actual salary. (Photo: Brian Solis / briansolis.com)

Related News: Tesla Motors increases revenues and prepares to launch new sedan next year

Flash back to Nov. 19, 2008: the chief executive officers of the three major American automotive manufacturers were testifying in front of the U.S. House Committee on Financial Services when Rep. Gary Ackerman (D-New York) asked why each executive thought it was necessary to fly to Washington in his own private jet.

“Couldn’t you all have downgraded to first class or jet pooled or something to get here?” he asked the executives, who were in Washington to request federal funding to save their companies.

Such perks are common at the General Motors Co. (NYSE: GM), The Ford Motor Co. (NYSE: F) and the Chrysler Group, LLC. The United States’ three remaining legacy automotive manufacturers, have long-standing traditions of more traditional executive pay structures with extra benefits such as the use of corporate jets.  In contrast, Palo Alto based electric car manufacturer Tesla Motors, Inc. (NASDAQ: TSLA), which likes to bill its executive team as a blending of the best of both the automotive and the technology industries, holds to a less traditional philosophy when it comes to perks and pay.

Tesla’s prospectus, published in January 2010, outlines its executive compensation structure. The differences are  substantial when compared to the company’s counterparts in Detroit.

With less than 2,000 Tesla vehicles on the road as of this month, Tesla remains a much smaller company when compared to its competitors in the automotive industry. On average, both Ford and General Motors sell over 2,000 cars in a single business day.

Tesla claims that its philosophy when it comes to executive compensation pays homage to its roots as a technology startup.

Camille Ricketts, communications manager for Tesla Motors, wrote in an email, “One of Tesla’s goals is to bring Silicon Valley tech culture to the automotive industry.”

This is no more evident than with the 2009 compensation package for Chief Executive Officer Elon Musk, 39, who accepted just $1 from  a state-mandated minimum of $33,280 in cash compensation each year since becoming CEO in 2008. However, that’s only part of the picture. In 2009, Musk, who gained success and notoriety as one of the founders of PayPal, Inc., was also awarded 10 million shares in stock options worth $2.21 per share, which works out to over $23.8 million.

Other Tesla executives receive salaries that are often less than a third of what their counterparts in Detroit are paid. When it comes to  benefits , executives at Tesla are  afforded the same benefits given to all employees at Tesla, such as health insurance and a retirement plan.

While the major automotive makers have seemingly recovered from the brink of bankruptcy in 2008 but struggle to rebound, executive officers for companies like Ford and General Motors still offer salaries in the millions. Former General Motors Chief Executive Officer Rick Wagoner, for example, earned a salary over $1.5 million in 2007. In addition, executives at the major automotive manufacturers have been offered additional perks not limited to discounted or free automobiles and use of a private corporate jet as a part of their compensation packages. Beyond his salary, Wagner’s 2007 benefits package was estimated to be worth $697,358.

According to its 2010 proxy statement, executives at Ford, which did not accept loans from the federal government, are still afforded similar benefits.

Alan Mulally, chief executive officer at Ford, took a pay cut after his company fell to the brink of bankruptcy (Photo Credit: Brian Solis / briansolis.com)

Musk’s counterpart at Ford, President and Chief Executive Officer Alan Mulally, took a pay cut in dealing with his company’s financial short comings,  but he still earned a base salary of over $1 million last year for his services. For 2009, Mulally’s net compensation  was estimated to be  nearly $18 million including $1.4 million in salary, $10.9 million in stock awards and $5 million in stock options. While Ford does have a bonus structure in place for executives, Mulally did not receive a bonus in 2009.

In addition, Mulally was allotted use of two vehicles and Ford  provided him with housing. Ford allows their top executives use of the company jet for both personal and private matters as a matter of security. All together, Ford estimated these benefits  were worth $491,869 in 2009.

In its proxy statement, Ford notes that  the company’s philosophy on corporate compensation is based on pay structures comparable to other Fortune 100 companies. The statement stipulates that Ford targets companies of a similar size and business model to their own to create a peer group. In 2010, Palo Alto based computer manufacturer Hewlett-Packard Co. (NYSE: HPQ) was a part of this group, which also included 3M Co. (NYSE: MMM) and PepsiCo (NYSE: PEP) among other top American companies.

A representative from Ford declined to comment on how the company establishes its executive pay structures.

Tesla has yet to turn a profit.  In its most recent earnings report announced Feb. 15, the company reported a fourth-quarter loss of $51.3 million. Tesla cites an emphasis on research and development as the company moves towards the release of the Model S next year as the reasons for the losses.

The company has purchased the former NUMMI plant in Fremont and is currently refitting the factory for electric vehicle production. In a press conference at the plant last October, Musk said, “We really want to stay on the forefront of innovation as far as electric vehicles are concerned and continue to serve as a catalyst for the transition to a sustainable energy future.”

Currently, Tesla’s only model, $109,000 Roadster, is assembled in Menlo Park from parts produced as far away as Europe.

At the moment, it is unclear whether Tesla’s increase in production will change its executive compensation structures, but Tesla projects that by 2013, the company will be producing about 20,000 cars a year. That dwarfs its current output significantly and has the potential to establish a fundamental change in its culture and business model, emphasizing production as opposed to product development.

Ricketts emphasized the unique nature of Tesla’s corporate structure saying, “To facilitate open communication and a democratic environment, Tesla’s headquarters has a very open floor plan without high cubicle walls, where teams work in close, collaborative proximity — just like at many tech startups.”

She added, “Tesla is about nimble innovation, not bureaucracy, and everything about how teams are structured and led drives toward that focus.”

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