TheChek News Flow

Elon Musk navigates from minimum wage to maximum payout

Elon Musk, billionaire entrepreneur and minimum wage earner. Tesla disclosed on Friday that Mr Musk earned just $37,584 last year as chief executive of the electric carmaker, California’s minimum. A day after a revolt over executive pay at BP, the filing might be a welcome tonic from the new economy for the excesses of the old. 

Like other low-paid workers in California, Mr Musk can look forward to a big increase in 2022. The state has just decided to impose a minimum wage of $15 an hour by then — a 50 per cent increase from today. There is a decent prospect, however, that his increase will be rather bigger.

Under an incentive plan launched in 2012, with a 10-year horizon, Mr Musk was given the opportunity to get 5.3m stock options for $31.17 a share (Tesla now trades at $254). They were to be paid in 10 tranches subject to 10 operational targets. Six related to putting the Model X and Model 3 into production. Three were for aggregate vehicle production, hitting 100,000, 200,000 and 300,000. Finally, Tesla has to make a gross margin of 30 per cent for four consecutive quarters. Importantly, each tranche is governed by a further condition — to get the payout, each time Tesla must add $4bn in market capitalisation, or $43.2bn to hit the maximum.

Tesla has always said these were a stretch. This year it resorted to bold letters and underlining to stress that the award had been intended to “take many years, if at all, to be achieved. Further, many of the requisite milestones were viewed as very difficult to achieve”.

Five of the 10 operational milestones have already been met, which deserves celebration. The company’s market value is now $34bn, 70 per cent of the way to a full payout for Mr Musk.

You can certainly quibble about the choice of goals, however. Tesla is still solidly lossmaking and a free cash flow metric might be useful.

As it is, there is only gross margin to help govern how much money the company makes under Mr Musk — and that’s one target that has not yet been hit.

Mr Musk — who owns 22 per cent of the company — could already collect half the award, worth $550m today.

If he succeeds in ticking off the others, he will earn at least $1.6bn overall — enough to make an oil boss blush.

A British Airways flight was struck by what is believed to be a drone as it came in to land at Heathrow airport on Sunday.

The aircraft, an Airbus A320 with 132 passengers and five crew on board, was examined by engineers and cleared to take off for its next flight following the incident.

A spokeswoman for Scotland Yard police said: “A pilot on an inbound flight into Heathrow airport from Geneva reported to police that he believed a drone had struck the aircraft” at about 12.50pm.

“The flight landed at Heathrow Terminal 5 safely. It transpired that an object, believed to be a drone, had struck the front of the aircraft.”

The incident is the latest in a series of similar incidents involving drones in UK airspace, leading British pilots to call for tougher regulation. An air safety report found four serious near-misses involved drones and aircraft last year.

Apart from Heathrow, incidents were reported at London Stansted, London City and Manchester.

While the most popular drones can weigh as little as 1.5kg, the fear is they could seriously damage a large commercial airliner if one were to fly into the jet engine.

The incident follows a warning earlier this year by the head of the International Air Transport Association that drones flown by the general public are “a real and growing threat” to civilian aircraft.

A spokesman for the UK Civil Aviation Authority told the BBC that drone users had to understand they were potentially flying their drones “close to one of the busiest areas of airspace in the world — a complex system that brings together all manner of aircraft including passenger aeroplanes, military jets, helicopters, gliders and light aircraft”.

Attempts by some of the world’s biggest oil producers to freeze output ended without a deal on Sunday night, after Saudi Arabia insisted Iran should be part of any agreement.

Talks in Doha aimed at achieving the first global oil deal in 15 years, which had appeared to be on course earlier in the day, broke up late on Sunday night as ministers failed to overcome opposition from Riyadh, which had hardened its stance in recent days.

The failure to reach an agreement risks setting off another drop in the oil price, with tensions between Saudi Arabia and its regional rival Iran proving too great to overcome.

Mohammed Bin Saleh Al-Sada, Qatar’s energy minister, said: “We all need time for further consultation.”

Delegates said Saudi Arabia had in effect torn up an earlier draft of the deal as it decided it could not be party to an agreement that would give Iran any leeway. Tehran had refused to join the freeze as it rebuilds its oil exports after years of sanctions.

Iran did not send a representative to the meeting, which was attended by major non-Opec producers such as Russia and Mexico, alongside countries from the cartel. Together they represent almost half of global crude production.

“The whole world was waiting for this to happen. We were all positive this morning,” said one delegate before the end of the meeting. “If it doesn’t, this is not good. If there is not a positive statement the price of oil will be down $5 [a barrel] tomorrow.”

Oil prices have already rallied from below $30 a barrel in mid-January to $43 at the end of last week, partly due to the plans for an output freeze that were led by Qatar, Russia and Saudi Arabia.

A second draft that had been circulating last night suggested a freeze would only take place if “all major exporting nations” were unanimous on a deal.

Saudi Arabia said in late 2014 that it did not care if oil prices slid to $20 a barrel, but it had recently indicated a shift in its approach amid pressure on the country’s finances.

A senior Opec delegate said last month that the Saudis would comply with an output freeze, even without Iran’s involvement. But the country’s deputy crown prince, Mohammed bin Salman, said last week that Saudi Arabia would not sign up without Tehran.

“We are very very disappointed,” said Falah Alamri, the Iraqi representative. “This will effect the [oil] price and our earnings. We wanted a deal”

Emerging Markets Brace for Fed Interest-Rate Rise

Developing countries’ finance ministers, central bankers show concern about effect on fragile economies

Emerging-market finance ministers and central bankers, who gathered in Washington in recent days for the International Monetary Fund’s spring meetings, said they were bracing themselves for renewed financial volatility. Economists expect another move from the Fed in mid-June.

“It’s going to happen and the emerging economies should be prepared,” Mexican Finance Minister Luis Videgaray said in an interview. “We’ve prepared ourselves but still it’s going to have an impact.”

The Fed in December raised its interest-rate target by a quarter percentage point, its first move in seven years, and indicated plans for four more increases this year. The action contributed to global financial volatility and sparked outflows of money from emerging markets toward safer shores.

After months of market unrest, the Fed last month scaled back its projections to only two rate increases this year, citing risks from “global economic and financial developments.” That calmed investors and sent many back into emerging economies.

“At the beginning of the year there was this sentiment that the Fed was going to push forward no matter what,” said Mr. Videgaray. “They are data-dependent and part of the data they look at is the global economy and that became very clear in February. That put a lot of people at ease.”

In Mexico, the early-year volatility in financial flows, combined with low oil prices, pushed the Mexican peso to record lows against the dollar in February. That prompted a rare coordinated move from the government announcing spending cuts worth 0.7% of gross domestic product combined with a surprise rate increase by the central bank. The peso has stabilized since then and inflation has remained within the central bank’s target.

Still, Mr. Videgaray said he remained wary of the next Fed move. “The most important threat that we are facing is the high volatility and fragility of financial flows,” he said.

Raghuram Rajan, head of the Reserve Bank of India, said the Fed’s pause has “helped take a little bit of pressure off.” Now, he said in an interview, the question is “are other countries capable of using the time well, or are the problems beyond their actions?”

“Whether we’re simply reinflating asset prices only to see them fall down the line hinges on whether…this time is spent doing good things: getting investment back, getting growth on a more sustainable basis,” he said.

One of the main worries across the developing world is a drying up of credit. After years of expanding lending, the cycle has now turned and credit is pulling back, said J.P. Morgan Chase & Co. economist Joseph Lupton.

“The big question is how much damage is that going to do as we move through this cycle,” he said. “History has been varied, but largely unkind to a large leverage unwind.”

Particularly vulnerable are emerging-market firms whose earnings are already insufficient to cover their interest payments, potentially pushing governments toward costly bailouts. The IMF estimates such firms owe about $650 billion in corporate debt, roughly 12% of all the emerging-market corporate debt in the fund’s sample.

Some countries have worked aggressively to readjust economies. Indonesia, for instance, has sought to increase infrastructure investment to boost growth. It also managed to cut interest rates without sparking a significant weakening of the currency, giving the economy more room to expand.

Other countries have had more trouble. Brazil saw its currency fall to record lows against the dollar last year, in part because the government built up one of the world’s largest fiscal deficits. Efforts to improve the economy have been thwarted by a political crisis that threatens to take down President Dilma Rousseff.

Brazilian central banker Alexandre Tombini, in a statement to the IMF’s policy committee, acknowledged “the current political environment” as an important constraint.

Beyond Brazil, Mr. Tombini noted the more favorable environment in global markets of late due to the Fed’s “reassessment” and other actions in China. But he said “this calmness may not be stable” with the Fed’s outlook still diverging from its struggling counterparts in Europe and Japan.

One silver lining for emerging-market officials: For now, Fed officials seem attuned to their concerns. Chairwoman Janet Yellen has repeatedly emphasized the state of the global economy would influence the central bank’s future rate decisions.

That has earned her high marks from many policy makers abroad and offered some confidence the U.S. won’t forget them as it slowly tightens monetary policy.

“They certainly are paying more attention and talking about paying more attention, which I think is a very welcome step,” Mr. Rajan said.