WASHINGTON (McClatchy) — Elon Musk has a lot riding on the growth of Tesla Inc.: his entire paycheck.
The electric car manufacturer said Tuesday that a new 10-year compensation plan for Musk, its chief executive, could result in a windfall for the billionaire entrepreneur if the company’s stock value rises sharply.
If the stock hits none of the 12 milestones set by Tesla, Musk would get nothing.
“Elon will receive no guaranteed compensation of any kind — no salary, no cash bonuses, and no equity that vests simply by the passage of time,” Tesla announced.
“Instead, Elon’s only compensation will be a 100 percent at-risk performance award, which ensures that he will be compensated only if Tesla and all of its shareholders do extraordinarily well,” the company said. “Because all Tesla employees are provided equity, this also means that Elon’s compensation is tied to the success of everyone at Tesla.”
Tesla said the pay plan would keep Musk at the company while allowing flexibility for his role to change.
“This ensures that Elon will continue to lead Tesla’s management over the long term while also providing the flexibility to bring in another CEO who would report to Elon at some point in the future,” the company said in its announcement, adding: “there is no current intention for this to happen.”
The plan is modeled after Musk’s 2012 performance package, which also was tied to growth in the company’s stock. But with the company much larger now — its value, based on market capitalization, is $59 billion — the stakes are higher.
For Musk to receive the maximum compensation, Tesla’s market capitalization would have to swell more than tenfold to $650 billion over the next 10 years.
Musk will get paid in 12 tranches if he meets market capitalization and operational milestones, Tesla said. The first tranche would kick in if Tesla’s market capitalization hits $100 billion and the company reaches targets for revenue and earnings.
Each additional tranche requires a $50-billion increase in market capitalization and escalating revenue and profitability targets.
With each tranche, Musk will vest in stock options equal to 1 percent of the company’s outstanding shares — currently about 1.69 million shares. If Tesla’s market capitalization reaches $100 billion, for example, that first tranche would be worth $1 billion. But for Musk to receive further tranches, the company’s value has to grow, so the tranches’ value would grow too.
If Musk doesn’t meet any of the milestones, he won’t get any compensation. Tesla’s board of directors created the plan, which shareholders will be asked to approve at a special meeting in March.
In Musk’s 2012 pay plan, he was paid for hitting market capitalization targets in $4-billion increments and operational milestones, including vehicle production targets. The company said Musk hit all of the market capitalization targets and nine of the 10 operational milestones.
Tesla stock has increased more than seventeenfold in that period. Musk now owns about 20 percent of the company’s stock, valued at nearly $12 billion.
