Tesla Announces New Long-Term Performance Award for Elon Musk
January 23 2018 - 3:30AM
Compensation is Tied to Market
Capitalization and Operational Milestones that are Based on Tesla
Becoming One of the Most Valuable Companies in the
World
Tesla today announced a new 10-year CEO performance award for Elon
Musk with vesting entirely contingent on achieving market cap and
operational milestones that would make Tesla one of the most
valuable companies in the world. In order to fully vest, Tesla’s
market cap would have to grow to $650 billion (an increase of
almost $600 billion), and important revenue and profitability goals
would also have to be achieved. The award is modeled after Elon’s
2012 performance award, which helped bring about a more than
17-fold increase in Tesla’s market cap in the five years after it
was put in place.
Elon will receive no guaranteed compensation of any kind – no
salary, no cash bonuses, and no equity that vests simply by the
passage of time. Instead, Elon’s only compensation will be a 100%
at-risk performance award, which ensures that he will be
compensated only if Tesla and all of its shareholders do
extraordinarily well. Because all Tesla employees are provided
equity, this also means that Elon’s compensation is tied to the
success of everyone at Tesla.
CEO Performance Award Details
The performance award consists of a 10-year grant of stock
options that vests in 12 tranches. Each of the 12 tranches vests
only if a pair of milestones are both met.
- Market Cap Milestones: To meet the first market cap milestone,
Tesla’s current market cap must increase to $100 billion. For each
of the remaining 11 milestones, Tesla’s market cap must continue to
increase in additional $50 billion increments. Thus, for Elon to
fully vest in the award, Tesla’s market cap must increase to $650
billion.
- Operational Milestones: To meet the operational milestones,
Tesla must meet a set of escalating Revenue and Adjusted EBITDA
targets (the only adjustment to EBITDA is for stock-based
compensation). These milestones are even more directly aligned with
shareholder value creation than those used in Elon’s 2012
performance award. They are designed to ensure that as Tesla’s
market cap grows, the company is also executing well on both a
top-line and bottom-line basis.
For each of the 12 tranches that is achieved, Elon will vest in
stock options that correspond to 1% of Tesla’s current total
outstanding shares (1% of that amount is approximately 1.69 million
shares). If none of the 12 tranches is achieved, Elon will not
receive any compensation.
Leading Tesla Through Its Next Phase of
Growth
For vesting to occur when the milestones are met, Elon must
remain as Tesla’s CEO or serve as both Executive Chairman and Chief
Product Officer, in each case with all leadership ultimately
reporting to him. This ensures that Elon will continue to lead
Tesla’s management over the long-term while also providing the
flexibility to bring in another CEO who would report to Elon at
some point in the future. Although there is no current intention
for this to happen, it provides the flexibility as Tesla continues
to grow to potentially allow Elon to focus more of his attention on
the kinds of key product and strategic matters that most impact
Tesla’s long-term growth and profitability.
Patterned After 2012 Performance Award
This new performance award is similar to the structure of Elon’s
last compensation award, which was put in place in 2012. Under that
plan, Elon was awarded stock options that vested only if the
company’s market cap continued to increase in $4 billion increments
and if it achieved matching operational milestones, including
vehicle production targets and developmental milestones relating to
the Model X and Model 3 programs. While these milestones were
viewed at the time as very difficult to achieve, all of the market
cap milestones and 9 of the 10 operational milestones have been
achieved. The 2012 plan formed the biggest part of the executive
compensation program that Tesla shareholders overwhelmingly
supported in the company’s 2014 and 2017 Say on Pay votes. That
plan was instrumental in helping Tesla complete the roadmap laid
out in its original Master Plan, and in ensuring that Elon only
received compensation based on the enormous success of the company,
its employees, and all its other shareholders.
As with the 2012 plan and Tesla’s original Master Plan, the new
performance award has been designed so that Tesla and Elon remain
tightly aligned with shareholder interests as they now execute on
Master Plan, Part Deux – continuing to build what is the world’s
first vertically-integrated sustainable energy company, from
generation to storage to consumption. Under Elon’s leadership, the
next phase of Tesla’s development involves a number of exciting
plans that will further accelerate the advent of sustainable
energy. These include expanding solar energy generation through
Solar Roof and other solar products and seamlessly integrating them
with battery storage, building out the company’s vehicle product
line to cover all major forms of terrestrial transport, continuing
to advance autonomous technology to create a fully-self driving
future, and enabling sharing so that your car can make money for
you when you aren’t using it.
Upcoming Shareholder Vote
The new performance award was created by Tesla’s Board of
Directors (with Elon and Kimbal Musk having recused themselves)
after more than six months of careful discussion and analysis and
in consultation with Compensia, Inc., a third-party compensation
consultant. Although the Board granted this award to Elon on
January 21, 2018, its effectiveness is subject to the approval of
Tesla’s shareholders, who will be asked to approve it at a special
shareholder meeting that will be held in late March. Elon and
Kimbal Musk will recuse themselves from that vote so that Tesla’s
other shareholders have the opportunity to determine the
outcome.
Anyone who is a shareholder of record or beneficial owner of
Tesla shares as of the record date (currently projected to be
February 7, 2018) will be entitled to vote their shares at the
special meeting and the award will only become effective if a
majority of the votes cast are in favor of the proposal. Tesla has
posted on its website a preliminary proxy statement
(bit.ly/CEOPerformanceAward) providing complete details of the
award along with additional materials for Tesla shareholders, and
Tesla will be filing that with the SEC today.
Additional Information and Where to Find It
Tesla, Inc. (“Tesla”) plans to file with the Securities and
Exchange Commission (the “SEC”), and furnish to its shareholders a
proxy statement in connection with the proposed CEO performance
award for Elon Musk (the “CEO Performance Award”). The proxy
statement described above will contain important information about
the proposed CEO Performance Award and related matters.
SHAREHOLDERS OF TESLA ARE URGED TO READ THESE MATERIALS (INCLUDING
ANY AMENDMENTS OR SUPPLEMENTS THERETO) AND ANY OTHER RELEVANT
DOCUMENTS THAT TESLA WILL FILE WITH THE SEC WHEN THEY BECOME
AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT
TESLA AND THE CEO PERFORMANCE AWARD. Shareholders will be able to
obtain free copies of these documents and other documents filed
with the SEC by Tesla through the website maintained by the SEC at
www.sec.gov. In addition, shareholders will be able to obtain free
copies of these documents from Tesla by contacting Tesla’s Investor
Relations by e-mail at ir@tesla.com, or by going to Tesla’s
Investor Relations page on its website at ir.tesla.com.
Participants in the Solicitation
The directors and executive officers of Tesla may be deemed to
be participants in the solicitation of proxies from the
shareholders of Tesla in connection with the proposed CEO
Performance Award. Information regarding the interests of
participants in the solicitation of proxies in respect of the
Special Meeting will be included in Tesla’s proxy statement to be
filed with the SEC.
Forward-Looking Statements
Certain statements herein, including statements regarding future
development plans, are forward-looking statements that are subject
to risks and uncertainties. These forward-looking statements are
based on management’s current expectations. Various important
factors could cause actual results to differ materially, including
the risks identified in our SEC filings. Tesla disclaims any
obligation to update any forward-looking statement contained in
this press release.
A photo accompanying this release is available
at http://www.globenewswire.com/NewsRoom/AttachmentNg/edfcfa2e-bcb6-43ed-ab53-4b08b3bf21ca
Investor Relations Contact:
ir@tesla.com
Press Contact:
press@tesla.com
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