By on March 8, 2018

Elon Musk

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]

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12 Comments on “Tesla’s New Strategy of ‘Not Paying’ Elon Musk Costs $2.6 Billion...”

  • avatar
    DC Bruce

    In my mind, there’s a serious question as to whether someone as rich as Musk can be “incentivized” by any amount of extra money (or stock), given that he already owns 20% of the company. Similarly, I don’t think any amount of money or stock is going to retain him. What’s going to retain him is the need to defend his reputation as a visionary who can make the impossible happen. If Tesla fails, Musk’s reputation is shot — given that all of the company’s investors are buying the promise of future success. Failure of Tesla will put Musk in the class with Preston Tucker . . . and no one will invest a penny into his next vision.

    I think what keeps Musk going is that he is a risk junkie. He doesn’t like to sit back on his millions. Contrast him with Paul Allen, another tech multimillionaire. Allen is an investor; he doesn’t seek to run businesses (the sports teams are just for fun). He does other things that interest him, like find sunken WW2 warships.

    While the “you didn’t build that” crowd would be happy to tax away all of Musk and Allen’s spectacular gains, it seems to me that both of them are object lessons in why that’s not such a good idea.

  • avatar

    So bloviating and delivering nothing but false promises and missed deadlines is worthy of millions of dollars in compensation?

    • 0 avatar

      Huh, every time I drive somewhere I hallucinate cars with a Tesla logo on them. So common and powerful is this hallucination that Porsche finds the need to build a real car in response to it.

    • 0 avatar
      SCE to AUX

      “delivering nothing but false promises and missed deadlines”

      250,000 cars + 33,000 employees + 2 Gigafactories = NOTHING

      What similar promises and deadlines have YOU kept?

      Name one head of another car company who inspires anyone – Mary Barra, Sergio Marchionne, Martin Winterkorn, James Hackett (I had to look him up) – gimme a break.

      • 0 avatar

        It will be interesting to see how Tesla does against companies that have actual practice building cars. I saw my first Model 3 in the wild two days ago in the employee parking lot. Took a close look. Goofy panel gaps galore. Gasket on rear window already bubbly and fraying a little.

        Electric cars are fundamentally simple; essentially a hipo version of a warehouse forklift powertrain under a simple unibody car shell. And Tesla having hard time getting the unibody car shell part right in the details.

        Personally, when the electro-novelty wears off, I think Musk is just going to get more and more vested into his actual viable transformative business and that is SpaceX – assuming SpaceX has not been monetized in some lawyerly way to cover the bills at Tesla.

        • 0 avatar

          I remember when Korean cars hit the market and their build quality wasn’t good, but they were moving metal and learning. Tesla may not be moving as much metal as they keep promising, but they’re working through their growing pains. I wouldn’t bet against Musk.

      • 0 avatar

        “What similar promises and deadlines have YOU kept?”

        All of em. And without being a lying, sleazy con man in the process.

  • avatar

    At this level, money is more about keeping score and jumping ahead of Gates, and Bezos, etc.

  • avatar

    “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.

    • 0 avatar

      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.

  • avatar

    $2.6 billion??

    That’s the approximate loss Tesla will have in financial year 2018.

    • 0 avatar

      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.

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