Tesla shareholders approve $46 billion pay package for CEO Elon Musk
How has Tesla's market value influenced the structure and potential value of Musk's pay package?
Tesla's market value has played a significant role in the structure and potential value of Elon Musk's pay package. The pay deal is structured to deliver several rounds of stock options that will allow Musk to buy about 304 million shares of Tesla stock5. Musk is able to receive each round of options after the company hits certain milestones — such as when Tesla reached a market value of $100 billion, and then at every $50 billion mark beyond that.
As Tesla's market value has increased significantly since 2018, creating a replacement plan may ultimately be more expensive than reinstating the old one1. This is because the value of the pay package is tied to the company's market value and stock price. Based on today's stock price, the value of the pay package stands at about $46 billion.
In summary, Tesla's market value has influenced the structure and potential value of Musk's pay package by setting the milestones for the release of stock options and determining the overall worth of the compensation package.
What specific milestones must Tesla achieve for Elon Musk to receive each round of stock options under his new pay package?
Elon Musk's new pay package is structured around 12 tranches of stock options. Each tranche is equivalent to about 1% of the total number of outstanding shares at the time of the agreement3. To receive each round of stock options, Tesla must hit specific milestones related to both market value and operational performance.
The market value milestones start at $100 billion and increase by $50 billion for each additional tranche. These valuations need to be maintained for six months before Musk's options vest.
The operational goals are based on the company dramatically improving sales and profits. They are tied to increasing levels of top-line revenue and bottom-line earnings before interest, taxes, and depreciation. There are eight levels for each category, starting at $20 billion for revenue and $1.5 billion for Ebitda, and they get increasingly difficult to achieve.
Once both the revenue or Ebitda target and the market-cap target are achieved, Musk gets stock equal to 1% of outstanding shares at the time of the grant1. This structure is designed to align Musk's interests with the long-term success of the company and incentivize him to focus on growing Tesla's value and improving its financial performance.
What were the main reasons cited by the California State Teachers Retirement System for voting against Musk's pay package?
The California State Teachers Retirement System (CalSTRS) voted against Elon Musk's pay package for two main reasons:
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Sheer Magnitude: CalSTRS considered the pay package to be excessive due to its massive size. The deal, worth about $46 billion, is one of the largest executive pay packages in history, and CalSTRS believed it was unreasonably large for an executive compensation plan.
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Dilution to Shareholders: CalSTRS was concerned that the pay package would be extremely dilutive to shareholders. This means that the issuance of a large number of new shares to Musk as part of the pay package would reduce the ownership stake and voting power of existing shareholders, potentially affecting their returns on investment.
In addition to these two main reasons, CalSTRS also mentioned concerns about the lack of focus on profitability for Tesla in the pay package structure.