No!
When was Tesla incorporated?
July 1, 2003
When did Elon join Tesla?
February 2004
The Tesla founders didn’t think about it and Delaware only allow creating multiple share classes at incorporation. This was discussed when the Delaware judge killed Elon’s first big pay package.
The Captain
Tesla is not incorporated in Delaware.
This is incorrect. Future buyers are buying shares that are already diluted. Current shareholders will see the value of their shares decrease by the amount of the dilution.
I was in agreement with you until this paragraph: package is huge, some of the milestones aren’t stretch enough, and if his only reason for wanting this is control, then he both shouldn’t have sold to buy Twitter, and the company should pull a Bershire Hathaway and do what it took to have a different class of shares.
However, if Musk can deliver a $9T market cap company with those astounding EBITDA targets, then the package won’t seem that bad at all.
The question was (vote is over) whether shareholders were a) Willing to call Musk’s bluff and/or b) Think the company will do pretty darn well without him. Part of this is whether Musk can pull off a competing company starting over (and what non-compete should have been put in place once the move to Texas was complete). Remember, Jobs didn’t do so well with NeXT after leaving Apple. Then again, Apple didn’t do so well without Jobs. Bite our noses to spite our faces?
But, that the BOD has no successor in the wings (all of the people talked about have left the company) is also inexcusable.
I think this is complicated and there wasn’t an “all good” answer in the vote. Pros and Cons to each side, still.
Follow the bouncing ball:
Google was incorporated in California, but then reincorporated in Delaware in 2004. It created a separate class of shares in 2014 with an unconventional stock split, giving more effective control to the original owners (Class B voting shares.)
Tesla was incorporated in California, but then reincorporated in Delaware in 2003 as a public company. It moved its incorporation to Texas last year.
What is the difference? Google shareholders didn’t have to hand over a giant piece of the ownership of the company after the fact, although they did allow control of the corporate to change. Which is what Musk says he wants, but hey if you want to give him another 10-20% of the company out of your pocket, that’s OK with him too. Better, even.
Maybe, maybe not. Current or future the issue for the investor is what happens to the share price between the time they are purchased and when their current value is assessed. You may expect that the share price will decline when the same company has more shares, but mostly this is ignored.
If the firm was expected to make as good use of the new equity as it has of the old, the value of the firm would increase commensurate with the increase in outstanding shares, and the stock price should be unaffected (remain at $100). However, in selling the employee the stock at only $50, the firm value would increase less than the increase in the number of shares and, therefore, the per-share value must decline.
These examples show that the exercise of employee stock options invariably involves a loss of value for stockholders and is thus a transfer of wealth from stockholders to the employee.5 Of course, the loss may be less than was expected at the time the option was issued and the resulting increased effort the executive expends on their behalf may more than compensate for the potential loss in value at the time of exercise. Or it may not. If the stockholders properly anticipate these effects, the stock price will first respond at the time the option is issued instead of when it is exercised and will adjust as the potential loss in the value of their claims on the firm’s assets and net earnings changes.
Seriously? The “increased effort the executive expends’???
They’re not building a railroad or slagging hot steel from a furnace. They’re making phone calls and chatting up friends in the finance sector. I was an executive. I worked for a bonus. I did no more and no more less based on whether the bonus would come true. It did direct some of my activities, but that is a different thing. (It’s like the sales commission that rewards “new business” with a greater percentage than “recurring business”. At the end of the day, the sales guy works as much - or as little - as he wants and/or needs.)
OMG, this fantasy “working harder so I deserve to make most of the company’s profits” is sickening. I wonder how long until it finally dies a well deserved death? (I note that it was about 60 years from the Gilded Age and Robber Barons to the belated embrace of unions, so if that’s the timeline we’ve got quite a way to go, yet.)
This is true at the moment the option is exercised, not at the moment the option is granted.
Let’s suppose the following:
As per above, on exercising the option the share’s value drops but, by how much? That depends on the number of shares. Let’s suppose:
Before the exercise the market value was 1000 * 200 = $200,000
On exercise the market value remains the same and the diluted per share value becomes ($200,000 + 100 * $50)m/ 1100 = $186.3636
If you had shares when the stock option was granted, you’d be up 86.4% instead of up 100%.
The question then becomes, “Is this employee worth the stock option compensation.” Of course a bear would have to say, “No way!” Musk’'s employers, we, the shareholders, thought it was a good deal for us, the shareholders.
The Captain