Tesla, recently, submitted a document to the Securities and Exchange Commission (SEC) this Thursday which certified that the CEO of the company, Elon Musk, earns a multi-billion-dollar pay package worth more than $700 million. This milestone allows him to purchase his first grouping or tranche of nearly 1.69 million shares at a steep discount.
According to the SEC document, Tesla’s market shares closed at $805.81 this Thursday, putting the pay package value at $775 million. This means Musk is able to purchase those stock options at $350.02 per share.
Moreover, as the tranche has become exercisable, Musk achieves the minimum five-year holding period that’s generally applicable to any shares he acquires.
Tesla’s CEO never accepted a salary. Instead, he opted for equity-based compensation plans with the approval of the company’s shareholders. This decision proved to be of great benefit for both Musk and the company.
Previously, Musk earned stock option of worth about $78 million in 2012 under the equity compensation plan once the company achieved its production and market value milestones.
Currently, the compensation plan 2018 consists of 20.3 million stock option awards broken up into 12 tranches of 1.69 million shares. These stock options will vest in 12 increments if the company hits specific milestones on market capitalization, revenue, and adjusted earnings. This excludes certain one-time charges like stock compensation.
When Tesla’s board and the company’s shareholders approved the package, Musk was able to earn nearly $56 billion theoretically, if no new shares were issued. However, last year the company was able to sell $2.7 billion in shares and convertible bonds.
To achieve the first tranche out of 12 stock options, Tesla’s market value needed to reach a six-month average of $100.2 billion. Moreover, they also needed to reach either $20 billion in annual revenue or $1.5 billion in adjusted EBITDA. And as the document reads, the company achieved the required milestone.
To meet the next milestone, the market capitalization of Tesla must increase by another $50 billion in value along with $35 billion in revenue or $3 billion in adjusted EBITDA.
The company’s board certifies the market capitalization and revenue milestone. At the moment, the company has achieved the next operational milestone relating to $1.5 billion adjusted EBITDA but it required formal certification by the board.
According to the company’s document, the company will be conducting the annual shareholder meeting on 7 July this year. In the said meeting, the board needs to certify that each milestone has been achieved before Musk can exercise those stock options. Furthermore, Tesla’s market cap will reach $650 billion once every tranche is unlocked.
This shows that the compensation plan 2018 not only ensured Musk would a be part of Tesla for the next decade, it also put a great emphasis on the market capitalization and revenue of the company.
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