Tesla's New Strategy of 'Not Paying' Elon Musk Costs $2.6 Billion

Matt Posky
by Matt Posky

Tesla Motors previously announced that its CEO, Elon Musk, wouldn’t be paid unless its already high stock valuation continued to climb. His compensation package — valued at roughly $2.6 billion — is tied to a dozen operational milestones, all of them primarily linked to the company’s share price. However, the board has left the strategy’s fate in the hands of its shareholders, who will vote on the motion come March 21st.

In addition to Musk’s existing stock options, that bonus could result in a total payday of more than $55.8 billion over the next decade. That’s too much, according to proxy advisor Glass Lewis & Co. With the CEO already so finically invested in the company, Glass Lewis doesn’t believe any fee would have a meaningful impact on Musks’ involvement. He already owns at least 20 percent of Tesla’s stock, so any improvement in its valuation would already benefit him immensely.

“Any relative comparison of the grant’s size would be akin to stacking nickels against dollars,” Glass Lewis & Co. said in a report from February.

Still, there’s plenty of support for the pay package among shareholders. Baillie Gifford & Co. and T. Rowe Price Group Inc, who collectively own about 14 percent of Tesla stock, told Bloomberg they both back the plan to get Elon paid.

“We think what Tesla has achieved so far is pretty remarkable, but there’s more they can do in not just automotive, but the energy markets,” Tom Slater, a Baillie Gifford partner and fund manager, said on Wednesday. “Elon Musk — his drive and his vision — has been a really important part of getting us to this point. Tesla still needs that drive and that vision to push the business.”

Musks’ compensation package consists of 20.3 million stock options that will be vested in 12 increments, assuming market-value thresholds and financial targets are met. Each grouping equals about 1 percent of Tesla’s outstanding shares. However Tesla’s market capitalization has to reach $650 billion for the award to be granted in full. The company’s current market cap is around $55 billion.

If that sounds like a lot for a company still having trouble meeting production quotas, it is. However, Musk’s vision has helped Tesla become a darling for investors — garnering a ten-fold increase in its share price since 2013. The aim here is to dangle the bonus in the hopes it will keep the CEO invested in the automaker and steal his attention away from SpaceX and The Boring Company.

“The package was designed to retain him, and we are on board with the intention,” Joel Grant, an automotive and industrial analyst at T. Rowe Price, said in an interview. “We want to make sure that Elon stays and uses Tesla as a vehicle for a lot of growth.”

So far, Musk hasn’t indicated he plans to leave Tesla anytime soon. He even stated as much during last month’s earnings conference when he said he would stay on as CEO for the “foreseeable future.” But many investors don’t want to risk it.

“Think about Elon Musk and what he’s had to overcome to achieve what he has achieved. Everyone is aligned against him,” Ron Baron, chairman and founder of Baron Capital Inc., said via a phone interview. “The only reason why Tesla is successful is because of this guy.”

[Image: Tesla Motors]

Matt Posky
Matt Posky

A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.

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  • Sub-600 Sub-600 on Mar 08, 2018

    “The only reason why Tesla is successful is because of this guy.”...successful at what, raising money? It’s certainly not successful producing fiscally viable numbers of cars.

    • Brandloyalty Brandloyalty on Mar 08, 2018

      At minimum Tesla is successful as having improved on the marketing done by car manufacturers. That marketing has shaped many important aspects of our lives and yet few people are even aware of that. Musk's marketing skill is so adept that yesterday ttac had an article about Porsche building a Tesla-fighter.

  • RRocket RRocket on Mar 08, 2018

    $2.6 billion?? That's the approximate loss Tesla will have in financial year 2018.

    • EBFlex EBFlex on Mar 09, 2018

      You'd think they'd know what they are doing. 15 years of building cars and they still can't figure out how to build cars or build them with any sort of quality.

  • SCE to AUX I've never been teased by a bumper like that one before.
  • 3SpeedAutomatic R&T could have killed the story before it was released.Now, by pulling it after the fact, they look like idiots!! What's new??
  • Master Baiter "That said, the Inflation Reduction Act apparently does run afoul of WTO rules..."Pfft. The Biden administration doesn't care about rules. The Supreme Court said they couldn't forgive student load debt; they did it anyway. Decorum and tradition says you don't prosecute former presidents; they are doing it anyway. They made the CDC suspend evictions though they had no constitutional authority to do so.
  • 1995 SC Good. To misquote Sheryl Crow "If it makes them unhappy, it can't be that bad"
  • 1995 SC The letters on the hatch aren't big enough. hard pass
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