Tesla CEO Elon Musk Won’t Get Paid Unless Milestones are Achieved

Tesla is preparing everything from a new Semi truck and electric pickup to the Model Y small SUV and second-gen Roadster that’s promised to hit 60 mph in under 2 seconds. Now, the company has announced a new plan to make sure its plans align with the interest of shareholders.

In a new CEO performance plan announced today, Tesla guarantees no salary or compensation of any kind for Elon Musk. Instead, Musk will get paid if he achieves certain milestones, which will include growing Tesla’s market cap to $650 billion in the next 10 years. Achieving this goal would make Tesla one of the most valuable companies in the world. Tesla says the new plan “ensures that he will be compensated only if Tesla and all of its shareholders do extraordinarily well.”

Just how well? To put it mildly, Tesla’s goals are incredibly ambitious. Musk will have 12 market cap milestones to complete in increments over the course of 10 years to fully vest in the CEO performance award consisting of stock options. The first one will require him to lead Tesla to a market cap increase of $100 billion, up from about $60 billion today. In each of the remaining milestones, Tesla’s market cap must grow $50 billion before reaching the final goal of $650 billion—a staggering valuation that would place the automaker ahead of Amazon and just behind other giants such as Apple, Microsoft, and Google parent company Alphabet. Failing to achieve any of the 12 milestones will result in no compensation. Musk will also be tasked with reaching milestones related to revenue and profitability.

If Musk somehow manages to achieve all the targets, he will receive up to $78 billion in compensation, reports Reuters. But if Tesla’s value hits $650 billion—a increase of roughly $600 billion from today’s market cap—the 20-percent stake he owns in Tesla would be worth $130 billion.

The plan also ensures that Musk stays on to lead Tesla for the long haul. To earn compensation for each of the milestones, Musk must serve as Tesla’s CEO or as both executive chairman and chief product officer. Tesla says there is no intention for Musk to leave his post as CEO, although the plan allows for this option as long as he continues to direct Tesla’s management.

Tesla modeled the new plan on the CEO performance award it created in 2012. That plan resulted in a 17-fold increase in Tesla’s market cap within five years, Tesla points out, claiming that milestones in the new award align even more directly with shareholder value creation than those in the old plan. In the old plan, Musk achieved nine of the 10 operational milestones.

The new 10-year CEO performance award is subject to approval of Tesla shareholders, who will vote in late March. Meanwhile, Tesla is coming off its best quarter for combined Model S and Model X deliveries. Despite some significant bottlenecks in Model 3 production, Tesla was able to increase the model’s production rate dramatically toward the end of the last quarter of 2017. Can it catch up on deliveries, let alone increase its value by a factor of more than 10 times? Only time will tell.

Source: Tesla, Reuters

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