Tesla's proposed 10-year, performance-based compensation plan is more than just a paycheck. It's a strategic mechanism designed to secure Elon Musk's long-term commitment and focus his attention exclusively on achieving Tesla's hyper-aggressive growth targets, like an $8 trillion valuation.

Unlike shares purchased with personal capital, stock options are often treated like "house money." This incentivizes CEOs to make excessively risky bets with shareholder capital because they capture all the upside but are not punished for failure, leading to poor capital allocation.

Startups aim for non-linear outcomes yet often default to conventional, linear compensation bands. To properly incentivize breakthrough performance, founders must reward employees who have a disproportionate impact with equally disproportionate pay, breaking from standard practices.

To conserve cash, especially in a downturn, founders can pay key employees 10-30% below market rate in salary. The key is to compensate for this deficit by offering double or triple the industry standard in equity. This strategy attracts top talent aligned with long-term success while keeping the company's cash burn rate low.

While bonuses tied to revenue incentivize employees to perform specific tasks, they are purely transactional. Granting stock options makes team members think holistically about the entire business's long-term health, from strategic opportunities to small cost savings, creating true psychological ownership.

Elon Musk's ambitious, performance-tied compensation plan isn't just about Tesla. It establishes a powerful precedent for other founders, like those at late-stage unicorns, to negotiate for massive new equity grants by tying them to audacious growth targets, reshaping founder incentive structures.

Gifting non-performance-based shares to all employees doesn't foster an 'owner mindset.' True ownership thinking is better cultivated through incentives tied to specific, controllable outcomes, like targeted cash bonuses. Standard equity compensation often just becomes another part of the salary package, disconnected from individual impact.

Musk's performance-based compensation sets a precedent for other CEOs to approach their boards with ambitious growth targets in exchange for significant equity increases. This challenges the traditional one-way dilution model for founders and executives.

Structuring compensation around a single, firm-wide P&L, rather than individual deal performance, eliminates internal competition. It forces a culture of true collaboration, as everyone's success is tied together. The system is maintained as a meritocracy by removing underperformers from the 'boat.'