LONDON (IT BOLTWISE) – Elon Musk has received a new compensation package from Tesla that could theoretically pay him up to $1 trillion. But the structure of the package poses risks for shareholders because it contains two loopholes that could reward Musk even if the highest goals are not achieved.
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Elon Musk has received a new compensation package from Tesla that could theoretically earn him up to $1 trillion. This package, approved by shareholders, is touted as an example of pay for performance. But a closer look reveals that it contains two loopholes that could reward Musk even if he fails to achieve the highest goals. This could be problematic for shareholders.
The compensation package consists of 12 staggered tranches of restricted shares. To unlock each tranche, both a valuation and an operational goal must be achieved. Market capitalization targets start at $2 trillion and increase in $500 billion increments to a maximum of $8.5 trillion. Operational milestones include sales targets for vehicles, humanoid robots and robotaxis, and subscriptions for fully autonomous driving software.
A critical point is that Musk could achieve the lowest targets relatively easily. Just a 48% rise in Tesla shares would push its market cap to $2 trillion, which would unlock the first target. In addition, the sales target of 20 million vehicles does not count from the time of package approval, but cumulatively since Tesla was founded. Since Tesla has already sold 8 million vehicles, Musk would only need to sell 12 million more vehicles to reach this goal.
For shareholders, this could mean they see little return while Musk still gets a significant payout. Should Tesla shares reach $1.95 trillion at the end of the package’s 10-year term, Musk would still receive a payout of nearly $900 million, although shareholders would only see an annual return of 5.9%. This structure could result in Musk being less motivated to achieve the more challenging goals, which could have a long-term negative impact on shareholders.
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