Musk on Cusp of $730 Million Award, Even After Tweet Tanks Stock
Musk is poised to meet the final performance threshold needed to claim the first of 12 tranches of the moonshot pay package
(Bloomberg) -- Not even a pandemic -- or a tweet -- can push Elon Musk off the path toward claiming the first piece of his moonshot pay package.
Barring a sudden and massive plunge in the electric-car maker’s market value, its chief executive officer is poised to meet the final performance threshold needed to claim the first of 12 tranches as early as next week, data compiled by Bloomberg show.
The options would yield Musk a windfall of about $730 million if he exercised them immediately and sold the shares, based on Thursday’s closing price, but that’s unlikely given that Musk, 48, hasn’t sold any Tesla stock for years, except to satisfy tax obligations.
It seemed like an insurmountable challenge when Tesla Inc. shareholders approved the award in March 2018. But a remarkable recent run-up in the stock has put the first payout within reach, and it’s highly unlikely that his Twitter feed will change that.
“Tesla stock price is too high,” he tweeted Friday. The shares promptly tumbled and were down 8.9% at 12:22 p.m. in New York.
The pay package is remarkable because of its sheer size and the lofty ambition that underpins it: turning Tesla into one of the world’s biggest companies, particulars be damned.
“It’s a lot of money going to one person,” said Robin Ferracone, chief executive officer of Farient Advisors, an executive-compensation consulting firm. “The quantum, even in the best of times -- absent Covid-19 -- seems overblown.”
Musk already has a $39 billion fortune and ranks No. 22 on the 500-member Bloomberg Billionaires Index. His Tesla stake comprises the majority of his net worth, while his stake in Space Exploration Technologies Corp., which he also leads as CEO, accounts for much of the rest.
Representatives for Tesla didn’t respond to a request for comment.
The past few years have been quite the roller-coaster ride for Tesla investors. The shares closed at a record $917.42 on Feb. 19, having tripled in the span of a few months. By mid-March they had tumbled more than 50% as the coronavirus pandemic roiled markets. By the end of April, they had recouped most of the decline.
The initial October surge followed a surprise third-quarter profit and news that Tesla’s Model Y would launch earlier than planned. In April, Tesla reported it delivered 88,400 vehicles in the first three months of the year, exceeding Wall Street estimates, and on Wednesday the company posted its third consecutive quarterly profit on higher-than-expected revenue.
Still, bullish and bearish analysts agree on at least one thing: Tesla won’t escape unscathed from the effects of the pandemic, which has slashed demand for autos and forced factories to close worldwide.
To weather the downturn, Tesla has furloughed non-critical employees and temporarily cut managers’ salaries by as much as 30%. Furloughed workers aren’t paid but keep health-care benefits. During an earnings conference call Wednesday, Musk unleashed a profane rant scorning shelter-in-place orders, saying they will cause undue strife for many businesses.
Musk himself has never accepted a salary. Instead, his pay has consisted of massive awards of options that he can collect only if the company meets ambitious targets.
The most recent iteration, unveiled in early 2018, was the largest-ever corporate pay deal struck between a CEO and a board of directors. It includes 20.3 million options, split into 12 tranches, that could yield Musk more than $50 billion if all goals are met, according to Tesla’s estimates.
Getting all of it, however, is still far from certain. Each tranche is tied to several distinct targets for revenue, adjusted earnings before interest, taxes, depreciation and amortization; and Tesla’s average trailing market capitalization over 30 days and six months. The first market-value threshold was set at $100 billion, with the others following in $50 billion increments.
Tesla reached its first milestones for sales and Ebitda -- $20 billion and $1.5 billion, respectively -- last year. And its 30-day market value average has been well above $100 billion threshold for some time. Once the six-month average exceeds that level, Musk can claim the first 1.69 million options and exercise them at will.
At Thursday’s market close, Tesla’s market value was $144.9 billion, and the average trailing six-month figure stood at $99.1 billion, according to data compiled by Bloomberg.
Musk must hold on to all the shares he obtains from those options for at least five years before selling them.
©2020 Bloomberg L.P.