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Elon Musk Will Only Get Paid if Tesla Reaches Ambitious Milestones it May Not Actually Reach
Capital Markets, FinTech
Chief executives of the world, you have been put on notice: In an era when compensation packages for the C-Suite seem to grow ever more mind-boggling, sometimes regardless of performance, Tesla founder Elon Musk has told the New York Times that he will be paid $0 unless his company reaches some seriously ambitious goals.
In an interview with the Times‘ Andrew Ross Sorkin, Musk laid out what Sorkin calls “jaw-dropping milestones.”
Tesla has set a dozen targets, each $50 billion more than the next, starting at $100 billion, then $150 billion, then $200 billion and so on, all the way to a market value of $650 billion. In addition, the company has set a dozen revenue and adjusted profit goals. Mr. Musk would receive 1.68 million shares, or about 1 percent of the company, only after he reaches milestones for both.
But to put these numbers in perspective, Tesla is worth only about $59 billion today.
For his part, Musk contends that Tesla has the “potential” to become a trillion-dollar company over the next decade. However, Sorkin notes that Musk’s many critics will remain unconvinced that Tesla will be able to reach such lofty goals, perhaps even seeing this as nothing more than a publicity stunt.
“He has been called a modern-day P.T. Barnum who has created the illusion of success while consistently missing production estimates,” Sorkin writes.
But Mr. Musk’s compensation plan is no illusion: He gets paid only if the company succeeds over the long term with significant gains in market cap. And it’s impossible for him to manipulate the system by trying to prop up the stock price for a temporary period. Under the terms of the arrangement, even once his shares vest, he has to hold them an additional five years before he is allowed to sell them.
The way the arrangement is structured, each milestone is a blunt instrument: He either reaches it or gets nothing.
If Tesla were able to boost its market value to $650 billion – “a figure many experts would contend is laughably impossible and would make Tesla one of the five largest companies in the United States, based on current valuations,” Sorkin notes – his compensation from company stock could be worth as much as $55 billion.