Does the richest person on the planet need another huge pay package? That’s the decision facing Tesla’s board of directors.
CEO Elon Musk does not receive any salary or cash bonus. He pays only with stock options. But he just exhausted the options available from the compensation package he got from Tesla in 2018, which turned out to be the most lucrative package of stock options issued by any company.And 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 as of Friday’s close, after taking into account the exercise price.
Musk acquired 25.3 million of these options last week just because of the record earnings that Tesla posted on Wednesday. It will likely receive another 8.4 million options soon, perhaps after the company reports second- or third-quarter results, based on analysts’ forecasts for the company’s revenue.
But those 8.4 million options, worth billions, are a relatively small part of what Musk might get in the end. Once he gets those extra options, he’ll have received the 101 million split adjusted options that were part of the 2018 wage package. The question should be whether he’ll get more options, perhaps tens of millions more.
Musk dodged a question about this payday during a call with investors on Wednesday, saying simply, “There are no discussions currently underway for my additional compensation.”
But this does not mean that he will not be offered this type of payment in the future.
Some tech billionaires have done just fine without stock options.
Amazon (AMZN) founder Jeff Bezos, who is the second richest person in the world, (about $100 billion less than Musk, and Facebook (FB) founder Mark Zuckerberg) have not received any stock grants or options since their companies’ initial public offerings in 1997 and 2012 respectively And they also didn’t make much of a salary, Bezos earned $81,000 a year in salary while he was CEO, and Zuckerberg earned a salary of $1 a year for most of the past decade.
They have benefited from the massive appreciation of the value of the shares they own since their companies went public.
Much of Musk’s net worth, estimated at $270 billion, comes from rising Tesla shares. But he has regularly received stock options as a form of compensation since 2009, the year before the company went public.
He exercised many of these options because they were about to expire. Practically all his remaining options come from him Payment plan 2018.
Many analysts believe it’s only a matter of time before Tesla comes up with another package of options for Musk.
Alex Potter, analyst at Piper Sandler & Co. Who asked Musk about a possible new compensation package on Wednesday’s investor call, took a moment to say the previous package “appeared to be working well.”
It was approved by 81% of Tesla shareholders who voted on Musk’s wage package in 2018. Other analysts believe the new package will be beneficial for the company, as well as for Musk.
“Eventually the board will reload Elon’s plan. That plan is going to be huge, just like the previous one,” said Jane Munster, managing partner at Loup Ventures. “Elon is thinking big, and has huge new markets to pursue and build great businesses including autonomy and robotics. ”
Is there a downside in PR to laundering the richest person in the world with additional options that could add tens, if not hundreds of billions, to his fortune?
“Elon is the richest person in the world, and he can still attract hardworking people,” Munsger said. “These people are going to cheer him up pretty much with a huge new comp package.”
Musk’s new package of options could do a lot to reassure investors worried that he could lose focus on Tesla because of the CEO position at SpaceX or his interest in buying and converting Twitter.
“This will make Tesla investors sleep better at night knowing he has a five to ten-year corporate package signed, sealed and delivered,” said Dan Ives, technical analyst at Wedbush Securities.
It’s hard to imagine someone as wealthy as Musk, and as passionate as Tesla, being motivated to spend more or less time at the company depending on what they get in their next compensation package. And if money is a motivating factor, the value of the 265.5 million shares and current Tesla options should provide all the incentive he needs.
“He was already financially motivated for Tesla to continue to do well,” said Equilar’s Yu.
But advocates of a new package say it will answer many of the doubts about Musk’s focus that have been swirling since he announced his plans to buy Twitter (TWTR).
“While his DNA won’t change whether he has new Tesla options or not, Street wants him to have another comp,” Ives said.
There are costs to Tesla in connection with giving Musk additional options, although it is a non-cash compensation. The estimated accounting value of those options is shown as an expense in its earnings statement. Last year, Tesla booked $571 million in expenses related to Musk’s 2018 salary package alone. If he doesn’t get a new one, those expenses will disappear from the profit and loss statement.
And while Musk’s new package is sure to be criticized by those who think CEOs are being paid too much, Tesla shareholders, and no one else, will make that decision.
“Musk is really either a hero or a villain in people’s eyes,” Ives said. “The new package will either make people hate him more, or feel better about him staying put.”