Elon Musk’s next big payday looms

CEO Elon Musk receives no cash salaries or bonuses. He is paid only with stock options. But he has pretty much exhausted the options available in the compensation package he got from Tesla in 2018, a package that has proven to be the most lucrative stock option package issued by any company. ., according to Courtney Yu, director of research at executive compensation firm Equilar.

The 93.9 million options Musk has received so far from that package were worth $86.8 billion at Friday’s close, after accounting for the strike price.

Musk got 25.3 million of those options last week due to record earnings Tesla posted on Wednesday. He is expected to receive an additional 8.4 million options soon, likely after the company releases its second or third quarter results, based on analysts’ earnings forecasts for the company.

But those 8.4 million options, worth billions, are only a relatively small portion of what Musk might ultimately receive. Once he gets those extra options, he will have received the 101 million pay-as-you-go options that were part of that 2018 salary package. The question should be whether he gets even more options. options, maybe tens of millions more options.

Musk dodged a question about such a payday during a call with investors on Wednesday, simply saying, “There are currently no ongoing discussions for additional compensation for me.”

But that doesn’t mean he won’t be offered that kind of salary in the future.

Not all tech CEOs have options

Some tech billionaires have done very well without stock options.

Amazon (AMZN) founder Jeff Bezos, who is the second richest person in the world (worth about $100 billion less than Musk, and Facebook (Facebook) founder Mark Zuckerberg has not received any stock or option awards since their companies’ IPOs in 1997 and 2012, respectively. They also didn’t earn much in terms of salary. Bezos received $81,000 a year in salary while CEO, and Zuckerberg earned a salary of $1 a year for most of the past decade.

They have benefited from the vast appreciation in the value of the shares they have held since their companies went public.

Much of Musk’s net worth, estimated at $270 billion, comes from appreciation in Tesla stock. But he has also regularly received stock options as compensation since 2009, the year before the company went public.

He exercised many of these options as they were about to expire. Virtually all of his remaining options come from his Salary 2018.

Wall Street wants more Musk options

Many analysts believe it’s only a matter of time before Tesla offers another set of options for Musk.

Alex Potter, the Piper Sandler & Co. analyst who asked Musk about a possible new compensation package during Wednesday’s investor call, took a moment to say that the previous package “seems to be working very well.”

And 81% of Tesla shareholders who voted on Musk’s salary package in 2018 approved of it. Other analysts think a new package will be good for the company, as well as Musk.

“Eventually the board will reload Elon’s plan. And that plan will be massive, just like the last plan,” said Gene Munster, managing partner at Loup Ventures. “Elon is thinking big, and he has huge new markets to conquer and build great businesses, including autonomy and robots.”

Is there a public relations downside to lavishing the world’s richest person with extra options that could add tens or even hundreds of billions to their wealth?

“Elon is the richest person in the world, and he can always attract hard-working people,” Munsger said. “These folks would largely cheer him on with a massive new roster package.”

A new options package for Musk could do much to reassure investors who fear he may be focusing on Tesla because of his CEO role at SpaceX or his interest in buying and transforming Twitter.

“This will allow Tesla investors to sleep better at night knowing that it has a five- to 10-year compensation package signed, sealed and delivered,” said Dan Ives, technology analyst at Wedbush Securities.

Does Musk need more options to care about Tesla?

It’s hard to imagine someone as wealthy as Musk and as passionate about Tesla as he is, motivated to commit more or less time to the company based on what he gets in his next program. remuneration. And if money is a motivating factor, the value of his current 265.5 million Tesla shares and options should provide all the incentive he needs.

“He’s already financially motivated to keep Tesla doing well,” said Equilar’s Yu.

But supporters of a new package say it would answer many of the doubts about Musk’s direction that have swirled since he announced his intention to buy. Twitter (TWTR).

“Even though his DNA isn’t going to change whether or not he has new Tesla options, the street is going to want him to have another mockup package,” Ives said.

There are costs to Tesla involved in offering Musk additional options, even if it is non-monetary compensation. The estimated book value of these options appears as an expense in its income statement. Last year, Tesla recorded $571 million in expenses related to Musk’s 2018 salary package alone. If he doesn’t receive a new one, that expense will disappear from its income statement.

And while a new package for Musk will certainly be criticized by those who think executives are overpaid, it’s Tesla shareholders, and no one else, who will make that decision.

“Musk is already either a hero or a villain in people’s eyes,” Ives said. “A new package is either going to make people hate it more or be relieved that it’s sticking around.”

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