Tesla CEO Elon Musk has earned a performance-based compensation payment worth more than $700million, the company confirmed Thursday.
The payout was triggered by the company reaching several financial metrics which included hitting $20 billion in total revenue for four previous quarters.
Musk has foregone a base salary with the company in exchange for a shot at a fortune in deeply discounted Tesla shares.
Thursday’s payment is one of the biggest corporate pay packages in U.S. history and is just the first of 12 different bundles Musk will receive if Telsa meets different financial goals.
A Tesla stockholder is challenging the compensation plan, however, after claiming that it is excessive and a breach of board members’ fiduciary duty.
Tesla confirmed Thursday that CEO Elon Musk will get the first tranche worth nearly $770 million of a stock-based compensation package triggered by the company meeting several financial metrics. Musk has foregone a base salary in exchange for a shot at the fortune
The filing says Musk can buy 1.69 million shares of Tesla stock for $350.02 each, but it wasn’t clear whether he had exercised the stock options.
His payout is based on the difference between the option price and Thursday’s closing share price of $805.81.
Musk earned the option as part of an audacious compensation package approved by the board in 2018.
According to the filing, the board certified that Tesla had reached the milestones by hitting a total market value of $100 billion on a 30-day and six-month trailing average, as well as the $20 billion in total revenue for the previous year.
The company also reached $1.5 billion in adjusted pretax earnings, but that must still be certified by the board, the filing said.
Musk has to hold the stock for a minimum of five years, under the terms of the compensation package.
‘As of the date of this proxy statement, one of the 12 tranches under this award has vested and become exercisable, subject to Mr. Musk’s payment of the exercise price of $350.02 per share and the minimum five-year holding period generally applicable to any shares he acquires upon exercise,’ the filing said.
Tesla shareholders will be asked to endorse the compensation at an annual meeting of investors in early July.
Musk’s payout is based on the difference between the option price his was offered to buy the stocks at of $350.02 each and Thursday’s closing share price of $805.81, pictured
Musk can afford to wait before cashing in on his latest windfall, given his wealth is estimated at $39 billion by Forbes magazine, despite not currently taking a salary.
All told, the incentives approved by Tesla’s board in 2018 consist of 20.3million stock options that will be doled out in 12 different bundles if the company is able to reach progressively more difficult financial goals.
In order for Musk to receive all 20.3 million stock options, Tesla will have to generate adjusted annual earnings of $14 billion on annual revenue of $175 billion coupled with a market value of $650 billion.
The compensation plan is being challenged by Telsa shareholder Richard Tornetta, however, who has brought a lawsuit against Musk and members of Tesla’s board.
He alleges that Tesla’s board has breached its fiduciary duty by awarding Musk excessive compensation.
Tornetta had asked that the pay package be rescinded and the board of Tesla be overhauled to better protect investors.
Musk will have the change to buy 20.3million stock options that will be doled out in 12 different bundles if Tesla is able to reach progressively more difficult financial goals
Musk’s windfall comes just two weeks after he listed five California properties for a combined $97.5million and placed two Bel Air homes on the market for $39.5million following a Twitter rant where he vowed to sell off his material possessions.
In a series of tweets on May 1, the Tesla founder announced that he intends to sell ‘almost all physical possessions’.
‘Will own no house,’ Musk wrote. Just days later on May 4, it was revealed that the billionaire had listed two Bel Air properties on Zillow.
On May 13, Musk listed five more homes for sale. Four of the Los Angeles homes were listed on Zillow as a multi-property listing with an asking price of $62.5million.
Musk assured his followers that the selling of his possessions was not financially motivated.
‘Don’t need the cash. Devoting myself to Mars and Earth. Possession just weigh you down,’ Musk tweeted.
In the past four quarters, Tesla, which is based in Palo Alto, California, has reported adjusted earnings totaling $3.6 billion on revenue totaling $26 billion.
According to FactSet, Musk owned 18.5 percent of the company as of May 1. The stake was worth about $24 billion.
By Thursday, this rose to 20.8 percent — a total of 38.7 million shares.
Musk’s compensation package passed shareholder approval in 2018 with about 73 percent of votes cast, excluding votes by Musk and his brother Kimbal.
The vote result indicated some, but not all, big investors were prepared to support a large payout at the founder-led company, which has struggled to produce its electric vehicles efficiently and profitably.
Tesla stock prices tumbled by ten percent early in May after Musk tweeted that the stock price was too high but they have since recovered.
Musk also recently got the Tesla auto assembly plant near San Francisco back in operation after a clash over the shutdown of businesses in the state due to the coronvirus pandemic.
On Wednesday, the SpaceX company created by Musk scrubbed a landmark launch to the International Space Station due to fears of a lightning strike.
With NASA astronauts Bob Behnken and Doug Hurley strapped into the Crew Dragon capsule, the launch pad platform retracted and rocket fueling underway, SpaceX made the call to abort.