Ambition vs fairness: Incentivising leaders without alienating shareholders

When a pay plan is reported to be worth as much as one trillion dollars, it’s easy to dismiss it as showmanship. However, if you look a little closer, you will find ideas any growing business can adopt. Pay for results, set clear milestones, think long term and keep it fair. The real challenge is doing all of that while keeping your shareholders happy and on your side. 

The recent coverage of Tesla’s proposal has restarted a useful conversation: How big should rewards should be? What does genuine performance targets look like? And how do you keep investors engaged while you push for growth? Here’s a practical way to borrow the best parts and leave the noise behind.

Pay for results, not presence 

Tesla’s plan is share-based with no salary or cash bonus, so nothing pays out unless bold targets are met. This, in practice, is an extreme model, but the principle works. When cash is tight, equity can be the smartest way to attract and keep people in senior roles. If you use equity as a reward strategy, you should make it simple to understand and tie rewards to value created, not just time in the job. The focus should be on measures that move the business, such as the quality of revenue, profit, cash generation, on-time product delivery and customer retention. If you can’t explain the plan clearly in one sentence, you need to simplify it. 

It’s important to note that in the UK, employment law and minimum wage rules mean it isn’t legally possible to pay employees solely in shares. Share-only arrangements are typically limited to advisers or consultants in situations where cash flow is very tight, so any equity-based reward scheme for employees should be structured to comply with legal requirements while still incentivising performance. 

Aim high and keep it fair 

Ambition is what drives people forward, but perceived unfairness can quickly destroy trust. The key difference lies in how you size awards and how you explain them. Set a clear budget for dilution and stick to it. Show a simple before and after picture so people can see how ownership might change over time. Explain why this plan, why now, and why this amount to investors and employees; a short Q&A from the outset usually prevents a longer debate later. 

Make milestones clear and measurable 

One thing Tesla gets right is clarity. Its plan sets multiple hurdles that must be met over time. Yours can be simpler, but it should be just as clear. You can start by choosing three to five measures you already track, for example revenue quality, profit, cash, on-time launches and customer retention.  

Use a sensible progression from good to great to outstanding and avoid all-or-nothing cliffs that push short-term decisions. Make results durable; if valuation matters for example, base it on an average over a period rather than a one-day spike. Build in accountability by keeping the right to reduce or recover awards if numbers are misstated or behaviour falls short and ask senior leaders to hold some shares for a period after they vest. 

Stretch goals should inspire, not alienate 

Targets ought to feel tough and exciting, not like science fiction. If goals seem out of reach, your people are more likely to switch-off and investors assume leaders will be paid regardless. Use this simple test: would a sensible outsider believe these goals are tough but achievable given your product roadmap and funding? If not, turn the dial down. Ambition sells a vision, but credibility keeps everyone with you. 

A plain English playbook you can start now 

1. Choose the right route 
   If you qualify, use Enterprise Management Incentives for key people. If not, consider Company Share Option Plan (CSOP) or growth shares that only create value above an agreed target. Check group structure, excluded trades, control and working time before you decide. 

2. Get the right approvals 
   Update your articles of association and any shareholders’ agreement, get authority to allot, and disapply pre-emption rights by special resolution where needed. Set a clear dilution budget and explain it. 

3. Stay onside with tax 
   Agree a share valuation with HMRC where possible, price options fairly, and meet reporting deadlines. File EMI notifications and ERS returns by 6 July after the tax year and keep clean records. 

4. Set measurable goals 
   Pick three to five metrics you already track. Use threshold, target and stretch rather than all-or-nothing hurdles. If valuation matters, average it over a period. Add a post-vesting holding period. 

5. Build sensible safeguards 
   Include good and bad leaver terms, malus and clawback for misconduct or misstatement, and clear rules for a change of control so outcomes align with investors. 

6. Protect your cap table 
   Model hires, funding rounds and exit with your option pool. Do not use all your headroom at the start and leave space for wider employee participation if that is part of your plan. 

7. Keep it simple 
   Put the plan on one page that covers who is eligible, the targets, when value can be realised, and what happens if someone leaves. Road test it with a new joiner. If they grasp it at once, it is ready. 

Lessons learned from Tesla 

The real lesson from Tesla isn’t to copy the headline number, it’s to copy the discipline. Link pay to genuine long-term results, state your milestones up front, and tell a story about ambition and fairness that your people and your shareholders can believe in. 

If you want a quick sense check of your current plan, or help shaping a new one that motivates leaders without losing investor support, talk to us. Our employee share schemes experts design clear, credible share plans that fit your growth strategy, and can help you manage these with our online dashboard.