Elon Musk received a portion of his incentive compensation for Tesla. The company filed a document with the Securities and Exchange Commission (SEC) on May 28th, according to which Musk is being given around 1.7 million of Tesla’s shares that are worth $775 million. As of Thursday, the closing share price was at $805.81 with a strike price of $350.02.
The document also revealed that Tesla’s next annual shareholder meeting will take place on July 7th. According to it, Elon Musk was given one of a total of 12 tranches as a part of his performance-based compensation plan. Upon acquiring the stock options after paying the strike price (also known as the exercise price), the shares would be under a holding period of at least five years. We don’t know if Musk has exercised these options yet.
As we’ve mentioned, the payout of these tranches is performance-based, as opposed to fixed. Musk was awarded the first tranche for maintaining the market capitalization of Tesla at $100 billion for the past 6 months and 30 days.
This was only one of the conditions that were to be met to unlock the payout. A regulatory document filed in 2018 said that the company also aimed at a trailing-four-quarter revenue of $20 billion (basically, the total income for four consecutive quarters), or EBITDA (earnings before interest, tax, depreciation and amortization) minus the stock-based compensation of $1.5 billion.
These are the goals outlined only for the first payment. Each of the other eleven has its own stipulations, with the total market capitalization requirement being $650 billion.
This is the only kind of payment that Musk receives (at least currently) as he isn’t paid a salary. He owns approximately 18.5% of Tesla’s equity, valued at $24 billion, as at May 1st. In the next 27 days, his stake increased to 29.8%, consisting of 38.7 million shares. This includes 18.5 million shares that are used as collateral for Musk’s debt.
You probably think that this system is fair. Well, Tesla shareholder Richard Tornetta disagrees. He filed a lawsuit against Elon Musk and the company’s board of directors on the basis that Musk is given more compensation than what was previously agreed upon.
The Covid-19 pandemic and the subsequent nation-wide lockdown orders are getting in the way of the achievement of the compensation milestones. In one analyst call, Musk called the actions of the government ‘fascist.’ Moreover, the assembly plant in Fremont, California, was not given permission to continue operations as it wasn’t considered an essential service. Only basic minimum operations, such as inventory control, were allowed.
Tesla did reopen its plant earlier this month. However, it had already suffered the blow of the bear market as the share price plummeted by over 10% in a day. They were able to recover these losses though.
You may remember a legal dispute between Tesla and the SEC when Musk alleged on Twitter that he received $420 per share to privatize Tesla. This was illegal as he did not show any evidence for his claims. The dispute was settled on the condition that, among others, Musk would submit public financial statements to be vetted by lawyers prior to sharing them. The recent tweet by Musk about his company’s share price may have violated this condition.