Shareholders of Tesla Inc, the electric car and solar panel maker have agreed to deliver an incredible pay package to famous CEO Elon Musk worth $50 billion if he makes the company reach their targets over the next 10 years, stated a person participating in the vote which took place in California, where Tesla’s headquarters are found.
The participant, who preferred to remain anonymous because official vote results have not yet been released states that the agreement was by a large margin. The final results will be shared next week in a filing to the U.S. Securities and Exchange Commission.
Tesla says the pay package, an all-or-nothing agreement is worth $2.6 billion looking at the current stock values, but it could increase significantly if Musk reaches the 12 incredible targets which include raising the company’s market capitalization tenfold to $650 billion. Elon Musk also has to increase adjusted pretax income and the revenue of the company.
If Elon Musk does indeed reach those targets, it would make his company the fourth most valuable US Company – after Apple, Amazon and Microsoft according to current valuation standings – and Musk would be among the richest people on Earth.
However, two companies that specializes in evaluating proxies for investors advised the board to vote against the pay plan, which they reported to be unparalleled in size for a U.S. public company. The firms, Institutional Shareholder Services and Glass Levis, both agreed on pegging down Musk’s package at $3.7 billion. The main concern is that Tesla has never been able to turn a full-year net profit despite being active for 15 years already.
On the other hand, two large shareholders and Tesla’s board fully supported the proposal, believing it’s mandatory to keep Musk involved in the company and motivated to go forward with their vision of making the world switch from oil consumption transportation machines to greener and more sustainable alternatives. Indeed, the Tesla CEO is also Chief Executive of rocket company SpaceX and co-founder of OpenAI, a nonprofit that conducts researches in Artificial Intelligence (AI) and he founded The Boring Co. recently that is a tunnel-building firm.
The package plan would be cancelled but not automatically abandoned if Musk takes a leave, wrote a note destined to investors from the company. “These issues both potentially undermine the board’s given objectives of retaining Musk and further aligning his interests with those of shareholders,” ISS wrote.
“We believe as a board and executive team that we can actually achieve these milestones,” said board member Antonio Gracias, who also reminded us that in 2012, after an incentive package was processed, the Tesla CEO raised its market capitalization by 17 times to reach above $50 billion last year. “It’s very important to think about the specifics of Tesla and what we have already achieved.”
For each of the 12 targets set up that Tesla achieves, Musk, who already boasts over 20 percent of the company, will receive 1 percent worth of stock from Tesla. “The shareholders get 99 percent, Elon gets 1 percent,” Gracias said.
To reach the milestones set, Musk will have to expand Tesla’s range of products to include the previously announced semis, a new SUV model and a pickup truck. The company must also successfully integrate their solar roofs to its energy storage business.
However, Tesla has to resolve the matter of production delays, which have happened on all of Tesla’s current vehicle models. The company currently has to increase the production of its Model 3, which received a good reception on the market, and demand is rising, as more people are interested in buying the electric car intended for the masses with a price tag of $35,000.
Gracias admits that shareholders realize that Tesla tends to be over-optimistic concerning their production milestones but work hard to reach them. “We always hit our goals eventually. We are sometimes late,” he stated, before adding, “Sometimes the application of engineering takes longer than we think.”