A full payoff for Musk, who is also the majority owner and CEO of the SpaceX rocket maker, would surpass anything previously granted to US executives, according Institutional Shareholder Services, a proxy advisor that recommended investors reject the pay package deal at the time.
Musk receives no salary or cash bonus, only options that vest based on Tesla’s market cap and milestones for growth.
“This is the very definition of pay for performance,” said Ian Keas, senior director at Longnecker & Associates, an executive compensation consulting firm. “But is he the only individual that could serve in that seat as CEO and deliver that value to shareholders? That’s the billion dollar question.”
This is the very definition of pay for performance.
Executive pay consultant Ian Keas
Musk’s potential payout compares to the $US638 million received by Snap founder Evan Spiegel in 2017 after the social network company’s initial public offering. In 2018, Walt Disney CEO Robert Iger earned stock grants worth as much as $US149.6 million, including awards related to Disney’s purchase of film and television assets from Twenty-First Century Fox.
Musk has transformed Tesla from a niche car maker with production problems into the global leader in electric vehicles, with US and Chinese factories. So far it has stayed ahead of more established rivals including BMW and Volkswagen .
Last week, Tesla’s stock market value hit nearly $US89 billion, eclipsing the sum of General Motors’ and Ford’s market value for the first time, fuelled by a surprise third-quarter profit, progress at a new factory in China and better-than-expected car deliveries in the fourth quarter.
Many investors remain sceptical that Tesla can consistently deliver profit, cash flow and growth, however. More Wall Street analysts rate Tesla “sell” than “buy,” and the company’s stock has been one of the most shorted on Wall Street.
Tesla was valued at about $US53 billion when shareholders approved the pay package in January 2018 and faced a cash crunch, production delays and increasing competition from rivals. It was viewed as massively ambitious because it implied the company’s value could grow as much as ten-fold in 10 years.
Last year, Musk hit two operational milestones, pulling in revenue above $US20 billion and adjusted earnings before interest, tax, depreciation and amortisation of $US1.5 billion over four straight quarters. Tesla’s “adjusted” EBITDA excludes stock-based compensation, which in the first nine months of 2019 reached $US617 million.
Musk currently owns about 34 million Tesla shares, equivalent to 19 per cent of the company. His compensation package would let him buy another 20.3 million shares if all of his options vest.
When Tesla first unveiled Musk’s package in 2018, it said Musk could in theory reap as much as $US55.8 billion if no new shares were issued. Tesla has since awarded stock to employees and last year sold $US2.7 billion in shares and convertible bonds.