Those 16 goals (or “keys”) are more than enough to open the 12 boxes in the vault. Since its shares closed at $693.73 on March 12, one award is worth a mind-boggling $5.271 billion, net of the $70 purchase price.Įach sales and Ebitda category has eight milestones that get increasingly difficult. Musk’s strike price is $70, at which Tesla was selling when the program launched. At the plan’s origin in late 2017, each slice represented 1.0% of Tesla’s shares today, grants to employees and new stock offerings have lowered the dilution caused by each award to 0.88%. What’s left are sales and Ebitda goals that a CEO could gin up without increasing a company’s value.” First, let’s look at the building blocks of Tesla’s “2018 CEO Performance Award.” The program grants Musk the right to purchase options in 12 equal tranches of 8.45 million shares each. But now he’s satisfied all the market-cap metrics before anyone dreamed he could. “The original was great because it resembled leveraged stock options they vested only if Musk raised Tesla’s value. “The plan’s a victim of its own success,” says Bennett Stewart, cofounder of consulting firm Stern Stewart and developer of the economic value added, or EVA, tool for squeezing maximum profits from each dollar in added capital. This is a 10-year plan that triumphed so fast that it’s mostly gone obsolete after just three years.
While the Musk model has proved a runaway winner for folks and funds who’ve held his shares in the past, it’s a lot less promising for investors buying today. That’s how a great comp plan is supposed to work. In fact, it’s such a small sliver of the mountain of value he’s built that it’s costing his shareholders relatively little in dilution. Although the numbers sound mammoth, his big take is being paid out of what he created. Musk deserves every one of those multiple billions. His reward is what this writer anticipates to be the largest stock options award, secured in a brief period, in the annals of capital markets: $31.7 billion since May 2020, including over $10 billion alone in the first quarter of 2021. Musk hit many of the laddered targets that trigger the awards years earlier than the board could possibly have anticipated, leapfrogging one market-cap goal after another. In the just over three years the program’s been in place, Musk has multiplied the EV pioneer’s value 12-fold to $647 billion at the market close on March 9. The structure is highly innovative in rewarding Musk for raising Tesla’s market value, and it has delivered brilliantly.
In 2018, the Tesla board fashioned a 10-year pay plan for founder and CEO Elon Musk that so far stands as the most successful long-term compensation blueprint in history.
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