Cars and Drivers

Elon Musk's Pay Tied to $600 Billion Increase in Market Cap

Douglas A. McIntyre

Published: January 23, 2018 4:47 am

Last Updated: January 12, 2020 4:14 am

It seems impossible that Tesla Inc. (NASDAQ: TSLA) could have one of the largest market caps of any company in the world. It needs to add $600 billion sometime in the next 10 years for its CEO and founder, Elon Musk, to get any significant payout as CEO.

The auto company said:

Tesla today announced a new 10-year CEO performance award for Elon Musk with vesting entirely contingent on achieving market cap and operational milestones that would make Tesla one of the most valuable companies in the world. In order to fully vest, Tesla’s market cap would have to grow to $650 billion (an increase of almost $600 billion), and important revenue and profitability goals would also have to be achieved. The award is modeled after Elon’s 2012 performance award, which helped bring about a more than 17-fold increase in Tesla’s market cap in the five years after it was put in place.

Musk will not receive a salary, cash bonus, or stock awards simply because he is Tesla’s CEO. The comp pack is based on long-term vesting, as well as financial success:

The performance award consists of a 10-year grant of stock options that vests in 12 tranches. Each of the 12 tranches vests only if a pair of milestones are both met.

Market Cap Milestones: To meet the first market cap milestone, Tesla’s current market cap must increase to $100 billion. For each of the remaining 11 milestones, Tesla’s market cap must continue to increase in additional $50 billion increments. Thus, for Elon to fully vest in the award, Tesla’s market cap must increase to $650 billion.

Operational Milestones: To meet the operational milestones, Tesla must meet a set of escalating Revenue and Adjusted EBITDA targets (the only adjustment to EBITDA is for stock-based compensation). These milestones are even more directly aligned with shareholder value creation than those used in Elon’s 2012 performance award. They are designed to ensure that as Tesla’s market cap grows, the company is also executing well on both a top-line and bottom-line basis.

Microsoft Corp. (NASDAQ: MSFT), which has the second highest market cap of any U.S. company after Apple, is at $660 billion.