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.