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Tesla CEO Elon Musk officially unlocked the first tranche of a multi-step compensation package, spelling out a potential payday of nearly $775 million for the controversial executive.
In a report filed with the United States Securities and Exchange Commission (SEC) on Thursday, Tesla’s Board of Directors approved the first of twelve performance-based compensation awards for Musk. This permits the CEO to purchase nearly 1.7 million shares of Tesla at a pre-set price of $350.02 per share, a total cost of $595 million to be paid by Musk. This same option, after the cost to purchase the shares, would net the CEO a profit of nearly $775 million if sold at Thursday’s closing price of $805.81.
However, if exercised, Musk would be required to hold the shares for a minimum of five years, which could net an even larger payday should Tesla’s stock price continue to rise—something required for Musk to unlock the next levels of his compensation package.
Think of each of the 12 tranches as a treasure chest. Each time Tesla’s market cap rises another $50 billion (a portion of the criteria set forth by his board-approved compensation plan in 2018), Musk earns a key to unlock the next chest. Only then can he choose to open it and exercise the stock options inside. Should the company’s market cap skyrocket to $650 billion, around 3.8 times the value of Toyota, Musk could walk away with incentives worth around $50 billion.
It’s not just about company valuation, however. Musk’s payday is also contingent on company operations—this means fulfilling a goal for overall company revenue, or for Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA). Should Musk happen to meet all twelve goals, he unlocks the potential to exercise stock options worth over $50 billion, or, enough money to make him worth nearly as much as Bill Gates.
The relationship between Musk and Tesla’s stock pricing has been uncanny. While a high market capitalization is required for Musk to reach a payday, the CEO has publicly criticized the company’s valuation more than once, the latest of which caused Tesla’s stock price to tumble almost immediately. And this hasn’t been the first time Musk caused fluctuations in share pricing. He once tweeted about taking Tesla private at $420 per share, something that landed him in hot water with the SEC and cost him his seat as Tesla board chairman.
You have to give credit where credit is due, against all odds Tesla, under Musk’s controversial leadership, has met a goal once seen as far-fetched. Should the entire company keep up the pressure, Tesla could move to become one of the most valuable automakers in the world.
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