A billion dollars isn’t cool. You know what’s cool? A trillion dollars:
Tesla Offers Unprecedented $1 Trillion Pay Package to Musk - Bloomberg
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Boy that’s a lot of money that isn’t left for shareholders. Or investment by the company. Might be able to take it with him to Mars, tho, if he puts it in ether.
I know - right? But there’s no way he ever would have agreed to do this job if the board had only offered him, say $500 billion instead of a trillion. After all, $500 billion is only enough to make any other human the richest person on the planet. Musk would never have accepted so paltry a pay packet.
So, sure - it’s not every day that a board of directors gets to make a decision that would net half a trillion to shareholders if they chose a different path. But it’s a good thing this board exercised their independent judgment and negotiated the best deal possible for shareholders! Had they held firm at merely $500 billion, who knows what bad things might have happened for the company?
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Not seeing most of this conversation, but according to the terms of the plan:
Elon gets 35 million shares if and only if TSLA’s market cap reaches $2 trillion. He gets nothing if the stock price doesn’t increase from yesterday’s $334/share.
He gets more shares in tranches, with the final tranche being if TSLA’s market cap reaches $8.5 trillion.
Nvidia is hovering around $4T today.
For Musk to get the full award, Tesla’s operating profit will have to rise from about $17B last year to $400 billion, a 23X growth achievement.
He is prohibited from selling shares for years after earning them, so maybe no future Twitter purchase shenanigans (although he probably could borrow against them to raise money) .
I’m not saying this is great or bad for shareholders, but serious potential TSLA shareholders want the company to grow like this. Maybe not the best way to incent Musk to focus on the company instead of politics and other nonsense, though.
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That’s not a difficult target to reach - Tesla could have returns that substantially lag the historic return of the entire S&P 500 index and still hit the first two tranches, netting Musk somewhere around 70 million shares (north of $50 billion) for underperforming the market. Just matching the market gets the third tranche, for more than 100 million shares for average returns.
That’s why the present-day valuation of the grant is about $90 billion. Because the first three tranches don’t require any exceptional performance to vest.
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Note it’s not just share price but also operational objectives are required, like selling 10m FSD licenses and 1m robots.
At the current 1.7m vehicles/year and at 8m already, will take 7 more years to reach the first tranche.
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I’m fine with it. Tesla would need an $8 Trillion market cap for Elon the receive the $900 Billion. If he actually accomplishes that, he deserves it.
intercst
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Tesla only needs a $3.0 trillion market cap for him to get $100 billion. For underperforming the market (at least compared to historic returns on the S&P 500).
Hard to see how he would deserve that.
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A $3 Trillion market cap would triple current investors’ stake. It will be interesting to see if current shareholders see the $100 Billion as excessive. They have a history of being very generous. {{ LOL }}
intercst
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This coming from the guy that is constantly complaining about skim of 1% - for getting S&P500 (or less) performance.
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Yeah - over ten years. About 10.5% annual return. Which is roughly the same as the market has performed historically. Not really worth paying $100 billion. I don’t think there’s ever been a CEO that’s been paid even a single billion in a year, other than Musk - even when they’ve delivered mind-blowing performance like Apple or Nvdia.
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I’m not expecting the S&P 500 to grow 8-fold in the next 10 years.
intercst
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Tesla shareholders support this.
Its amusing to see opinion of others.
Omar was wrong on this, and so my summary of his tweet is wrong, too.
The first tranche is NOT tied to ANY of the Product Goals. Tranches are tied to 12 “Operational Milestones,” and there are 8 EBITDA and 4 Product Goals making up those 12.
So, Elon could - and I believe will - do nothing on the vehicle production front and let the 20m vehicle product goal satisfiy itself in 7-8 years just from the current rate of vehicle sales. He’ll focus on EBITDA and robots/taxis/FSD instead.
This is the best summary I’ve read/seen:
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But you probably do expect the S&P to double in the next 10 years. An annual return of about 7%. Historic returns are closer to 9-10%
Musk gets his first tranche - 35 million shares - if Tesla hits a $2 trillion market cap. That’s about a 6.3% rate of return over ten years. Do you think that Musk deserves a skim of about $12 billion for what would be underperforming the historic return of the market?
Keep in mind that no CEO in the history of capitalism has ever received that much compensation. Even the first tranche alone gets Musk about 100x more than the very highest year of any CEO’s compensation ever (AAPL 2021).
The board is really giving away the store here. They could have offered him 10% of this package and he would have taken it - 10% of it makes him the highest paid CEO that ever lived, all-but-guaranteed, with plenty of upside. And he got them to give him 10x that
Now that’s skim!
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I agree that it’s far more than any CEO in history has earned, but then Musk has a history of performance that we’ve never seen before.
For example, while GM was spending billions of dollars per year on advertising and marketing, Musk made the Tesla brand a best seller entirely with the nonsense he was posting for free on Twitter.
And while smoking pot and doing Ketamine, he’s managed to run circles around the Private Equity failures running Boeing, delivering manned crews to the Space Station years ahead of Boeing and at half the price.
If Tesla shareholders are good with it, I have to defer to their wisdom.
And note, this isn’t the same as a financial advisor skimming 1% per year from me through thick and thin. Elon has to actually deliver on that 6.3% return to get that first $12 Billion.
intercst
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Does anyone merit $12 billion for returning 6.3%? You could almost certainly earn that with an index fund and pay virtually no skim - let alone the richest payday for any CEO in history. From just the first tranche.
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I’m not sure Elon automatically earns $12 Billion with the first tranche. Take a look at the video on the vesting terms of the pay package Smorgasbord1 posted upthread.
intercst
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Anyone here really think the end goal here for Elon is to earn another $12B?
I mean, yeah, he could do nothing for 10 years, let the stock price rise to $610 or so, ship an easy 1.2 million cars/year and collect 35 million shares (worth $21B or so).
That won’t happen. For $21B, he’ll just give up on Tesla part way through and focus on Space-X or xAI instead.