By Noel Randewich
SAN FRANCISCO (Reuters) – Tesla Inc. chief executive Elon Musk is on the verge of winning the first $ 346 million option package in a record salary package after the manufacturer's stock of electric vehicles has more than doubled in the past three months.
Tesla shares jumped 9% to a record high on Monday. They must increase an additional 6% to bring Tesla's market value to $ 100 billion, and then be maintained at this level for an average of one month and six months in order to trigger the final acquisition of the first of 12 option tranches granted to Musk to buy Tesla shares.
Musk has already achieved an operational objective which is also necessary for the options to be acquired.
In order for Musk's subsequent tranches to be acquired under the terms of the 2018 package, the company's market capitalization should continue to increase sustainably by $ 50 billion over the 10-year period of the agreement, with the billionaire winner the full package if Tesla's market capitalization reaches $ 650. billion and the electric car maker achieves several revenue and profit targets.
Full payment for Musk, who is also the majority owner and CEO of the rocket maker SpaceX, would exceed anything previously granted to U.S. executives, according to Institutional Shareholder Services, a proxy advisor who recommended investors reject the compensation agreement at the time.
Musk does not receive any salaries or bonuses in cash, only options that vest based on Tesla's market capitalization and growth milestones.
"This is the very definition of performance pay," said Ian Keas, senior director at Longnecker & Associates, an executive compensation consultancy. "But is he the only individual who could hold this CEO position and deliver shareholder value? That is the billion dollar question."
Musk's potential payment compares to the $ 638 million received by Snap Inc founder Evan Spiegel in 2017 after the social media company's initial public offering. In 2018, Walt Disney CEO Robert Iger obtained stock grants of up to $ 149.6 million, including rewards related to the purchase by Disney of film and television assets from Twenty-First Century Fox.
GRAPH: Tesla's market capitalization increase – https://fingfx.thomsonreuters.com/gfx/mkt/13/942/939/TESLA.jpg
Musk has transformed Tesla from a niche automaker with production problems into a world leader in electric vehicles, with US and Chinese factories. So far, it has outpaced its more established competitors, including BMW and Volkswagen.
Last week, Tesla's market value hit nearly $ 89 billion, overshadowing the sum of General Motors and Ford for the first time, fueled by surprise third-quarter profit, progress at a new factory in China and better than expected car deliveries. in the fourth quarter.
Many investors remain skeptical that Tesla can consistently generate profits, cash flow and growth. More Wall Street analysts assess Tesla's "sell" than "buy", and the company's stock has been one of the best-selling on Wall Street.
Tesla was valued at around $ 53 billion when shareholders approved the compensation package in January 2018 and had to contend with a cash crisis, production delays and increased competition from competitors. He was considered extremely ambitious because it implied that the value of the company could be multiplied by ten in 10 years.
Last year, Musk crossed two operational milestones, generating revenues in excess of $ 20 billion and adjusted earnings before interest, taxes, depreciation and amortization of $ 1.5 billion over four consecutive quarters. Tesla's "adjusted" EBITDA excludes stock-based compensation, which in the first nine months of 2019 reached $ 617 million.
Musk currently owns approximately 34 million Tesla shares, or 19% of the company. His compensation system would allow him to buy 20.3 million additional shares if all of his options were vested.
When Tesla first unveiled the Musk package in 2018, it said that Musk could theoretically raise up to $ 55.8 billion if no new shares were issued. Tesla has since allocated shares to its employees and last year sold $ 2.7 billion in shares and convertible bonds.
(Report by Noel Randewich, edited by Peter Henderson and Sonya Hepinstall)