Tesla Inc. (NASDAQ:TSLA) founder and chief executive Elon Musk could be set for one of the biggest corporate payouts of all time – although only if he increases the electric carmaker’s market value to US$650bn within a decade.
It is a tough ask for a company currently worth US$59bn, but if he succeeds, Musk stands to take home a whopping US$7.2bn based on today’s prices.
All-or-nothing
It is an all-or-nothing move from the already eccentric billionaire as he won’t receive any guaranteed pay over that period. So if he fails to hit the targets set out for him, he will essentially have been working for free.
“Elon's only compensation will be a 100pc 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 in a statement.
“Because all Tesla employees are provided equity, this also means that Elon's compensation is tied to the success of everyone at Tesla.”
12 milestones, each worth US$600mln at today’s prices
The California-based firm has outlined 12 demanding milestones that Tesla, under the leadership of Musk, must hit if the 46-year-old is to trigger payouts equal to 1% of Tesla’s outstanding shares.
It is more than just market value as well; Musk must also meet various revenues and earnings targets, ultimately generating sales of US$175bn and earnings of US$14bn.
READ: Tesla shares weak after Model 3 build slowdown
For each of the 12 milestones achieved, he will be entitled to stock options equal to 1% of Tesla’s outstanding shares – about 1.7mln shares at the moment. At the current stock price of US$355, each milestone is worth just shy of US$600mln.
That means Musk is in line for a US$7.2bn paycheck but should the shares continue to rise, as they will inevitably have to do if he is to meet his targets, the payout could be far greater.
Musk has to remain at the helm
The agreement also ties Musk to Tesla for the foreseeable future, as he must remain chief executive or executive chairman for the awards to vest.
Given that he has agreed to link all of his compensation to Tesla’s performance, Musk is obviously confident that the company is set to grow rapidly over the coming years.
Not all analysts are as optimistic though, given that Tesla has repeatedly missed production targets, is yet to make a profit and burnt through almost US$500,000 an hour last year, according to Bloomberg.
A special shareholder meeting next month (February) will give investors a chance to vote on the proposed deal.
Tesla shares rose 1% to US$355 in pre-market trading on Tuesday.