Elon Musk’s next huge payday looms up

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CEO Elon Musk does not receive a cash salary or bonus. He is paid only with stock options. But he has nearly exhausted available options from the compensation package he got from Tesla in 2018, a package that turned out to be the most lucrative stock options package issued by a company. according to Courtney Yu, director of research at Equilar, an executive compensation company.

The 93.9 million options Musk has received so far from that package were worth $86.8 billion at the close Friday, taking into account the strike price.

Musk got 25.3 million of those options last week because of the record earnings Tesla posted on Wednesday. He is likely to receive another 8.4 million options soon, likely after the company releases its second or third quarter results, based on analysts’ revenue forecasts for the company.

But those 8.4 million options, which are worth billions, are a relatively small portion of what Musk could end up receiving. Once he gets those extra options, he’ll have received all of the 101 million split options that were part of that 2018 pay package. The question should be whether he’ll get any more options, maybe tens of millions more options.

Musk dodged a question about such a payday during a conversation with investors Wednesday, simply saying, “There are currently no ongoing discussions about an incremental compensation for me.”

But that doesn’t mean he won’t get a payday like this in the future.

Not all tech CEOs get options

Some tech billionaires have done just fine without stock options.

Amazon AMZN founder Jeff Bezos, the second richest person in the world (worth about $100 billion less than Musk, and facebook FB founder Mark Zuckerberg has not received any stock grants or options since their company’s IPO in 1997 and 2012, respectively. They also did not earn much in terms of salary. Bezos got $81,000 a year in salary while he was CEO, and Zuckerberg has taken home a $1 a year salary for most of the past decade.

They benefited from the huge appreciation of the stocks they had since their companies went public.

Much of Musk’s wealth, estimated at $270 billion, comes from the appreciation of Tesla stock. But since 2009, the year before the company’s IPO, he also regularly received stock options as compensation.

He exercised many of those options because they were about to expire. Pretty much all of his remaining options come from his salary package 2018.

Wall Street Wants More Musk Options

Many analysts think it’s only a matter of time before Tesla comes out with another package of options for Musk.

Alex Potter, the Piper Sandler & Co. analyst, who asked Musk about a potential new compensation package during Wednesday’s investor call, took a moment to say that the previous package “appeared to be working quite well.”

And 81% of Tesla shareholders who voted on Musk’s pay package in 2018 approved it. Other analysts think a new package will be good for the company, as will Musk.

“Eventually, the board will reload Elon’s plan. And that plan will be huge, just like the last plan,” said Gene Munster, managing partner at Loup Ventures. “Elon thinks big, and he has huge new markets to enter and build big companies, including autonomy and robots.”

Is there a downside to public relations in giving the richest person in the world extra options that can add tens, if not hundreds of billions to their wealth?

“Elon is the richest person in the world and he can still rely on hard-working people,” Munsger said. “Those people would be mostly cheering him on with a massive new comp package.”

A new options package for Musk could mean a lot to investors who fear he might lose focus on Tesla because of his CEO position at SpaceX or his interest in buying and transforming Twitter.

“It will help Tesla investors sleep better at night knowing that he has signed, sealed and delivered a comp package for five to 10 years,” said Dan Ives, technical analyst at Wedbush Securities.

Does Musk Need More Options To Care About Tesla?

It’s hard to imagine someone as wealthy as Musk, and as passionate as he is about Tesla, being motivated to spend more or less time on the company based on what he gets in his next compensation package. And if money is a motivator, the value of his current 265.5 million Tesla shares and options should provide all the incentive he needs.

“He is already financially motivated for Tesla to continue to do well,” Equilar’s Yu said.

But proponents of the new package say it would answer many of the doubts about Musk’s focus that have swirled since he announced his plans to buy. Twitter TWTR

“Even though his DNA won’t change whether or not he has new Tesla options, the street will want him to have a different comp pack,” Ives said.

There is a cost to Tesla for giving Musk additional options, even if it is a non-cash fee. The estimated carrying amount of those options appears as an expense in the income statement. Last year, Tesla alone recorded $571 million in expenses related to Musk’s 2018 payroll package. If he doesn’t get a new one, that expense disappears from the income statement.

And while a new package for Musk will certainly be criticized by those who believe executives are being overpaid, Tesla’s shareholders, and no one else, will make that decision.

“Musk is already a hero or a villain in the eyes of people,” Ives said. “A new package will make people hate him more, or be relieved that he’s staying.”



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