Elon Musk’s New Compensation Package is Not For the Faint-Hearted
It is undeniable that the last few years have been great for Elon Musk. In the last year alone, the Chief Executive Officer (CEO) of Tesla has seen the release of the revolutionary company’s Model 3 car back in July. And who could forget that, most recently, his other pet company, SpaceX, had a historic and successful launch of the Falcon Heavy rocket?
Indeed, with all these amazing achievements under his belt, the question worth asking now is, what’s next for the great Elon Musk?
Elon’s future at Tesla
There have, of course, been numerous speculations about his future at Tesla. In fact, much of which has been stoked by the man himself. As far back as 2012, he already declared that he wanted to stay until the Model 3 rolls off the factory floor. Two years later, he said that he sees himself being CEO for another four or five years.
Now, four years later and the Model 3 successfully launched, both Elon and Tesla recently declared that he will be staying on as the company’s chief executive for at least another decade. The declaration itself is not at all a huge surprise, considering Elon’s relationship with Tesla. However, what makes it unprecedented is his radical compensation plan—a real first in corporate history.
How Elon is getting paid from now on
There is no better way of saying it—Elon’s new pay package is a gamble. In a nutshell, he will only get paid if Tesla reaches certain milestones in its operations and market value. Otherwise, he gets nothing. Hefty bonus aside, Elon would also receive 1.68 million shares equivalent to a full one percent of the company after he reaches all the milestones. However, he still has to wait a few years for these shares to be vested before he can even sell them.
This is not that much different from the compensation plan he already has since 2012. What makes it so different is the scale in which it is going to be enforced. The “milestones” are nothing short of jaw-dropping—with a dozen targets in $50 billion increments, from $50 billion to $650 billion. This is a really bold move, considering that Tesla is only worth about $59 billion today. But then, Elon has always been known for bold moves and meteoric levels of confidence. In fact, he foresees that the company will be a trillion-dollar company within the next decade or so.
Bitten off more than he could chew?
Of course, many of Tesla’s critics think that Tesla reaching $650 billion is impossible, and laughably so. In fact, some are going as far to say that it is just a company stunt staged by both Elon and the Tesla company. After all, this will not be the first time that Elon has created the illusion of success just as the company is missing production milestones, alluding to the delays that plagued the Model 3 launch. At some point, it was reported that Tesla was even losing a whopping $500,000 per hour!
On the other hand, if Elon and Tesla do manage to pull off increasing the company’s value to $650 billion—a tall order, indeed—then Elon will be walking away with a massive $55 billion payout, based on the company’s current market performance. And even if they do not make it to $650 billion, reaching just any of the milestones will still make him billions.
Can he pull this off?
What critics seem to forget is that Elon has achieved all but one of the metrics of the original compensation plan put in place in 2012 when Tesla was only worth $3.2 billion. Nobody really expected that it would be worth a whopping 17 times that at present. Indeed, this is the real edge that Elon has on his side—that he has done this before, and rather spectacularly to boot.
How will Elon live until then?
Of course, there is the question of how Elon can afford his ultra-lavish, billionaire lifestyle. Although his shares from his original agreement have long since vested, he has sold very little, and only to cover the taxes for grants. He also does not cash his salary checks amounting to $37,000 a year.
In fact, Elon has simply been borrowing against his shares. However, he insists that these loans are a very small fraction of his total stake in the company that they will not have any impact on Tesla, even if the shares took a nosedive in value.
Indeed, Elon has said many times that everything he does it not driven by money, but rather, having the chance to do the big things that he wants to do. No wonder he is not afraid to gamble.
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