Elon Musk's next massive payday is looming - New Style Motorsport

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

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

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

But those 8.4 million options, worth billions, are a relatively small portion of what Musk could ultimately receive. Once he gets those additional options, he will have received the 101 million adjusted split options that were part of that 2018 pay package. The question should be whether he will get even more options, perhaps tens of millions more options.

Musk dodged a question about that payday during an investor call Wednesday, saying simply: “There are currently no ongoing discussions about incremental compensation for me.”

But that doesn’t mean you won’t be offered that type of payday in the future.

Not all tech CEOs get options

Some tech billionaires have done well without stock options.

Amazon (AMZN) founder Jeff Bezos, who is the second richest person in the world (worth about $100 billion less than Musk, and Facebook (full board) Founder Mark Zuckerberg has received no grants or stock options since his companies’ initial public offerings in 1997 and 2012, respectively. They also haven’t earned much in the way of salary. Bezos received a salary of $81,000 a year while he was CEO and Zuckerberg took home a salary of $1 a year for most of the last decade.

They benefited from the huge appreciation in share value they have had since their companies went public.

Much of Musk’s net worth, estimated at $270 billion, comes from the appreciation of Tesla shares. But he has also regularly received stock options as a form of compensation since 2009, the year before the company went public.

He has exercised many of those options when they were about to expire. Virtually all of your remaining options come from your 2018 payment package.

Wall Street wants more options from Musk

Many analysts believe it is only a matter of time before Tesla comes up with another option package for Musk.

Alex Potter, the Piper Sandler & Co. analyst who asked Musk about a potential new compensation package on Wednesday’s investor call, took a moment to say the previous package “seemed to work pretty well.”

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

“Eventually the board will reload the Elon plan. And that plan is going to be huge, just like the last plan,” said Gene Munster, managing partner at Loup Ventures. “Elon thinks big, and he has massive new markets to go to and build big businesses that include autonomy and robots.”

Is there a PR downside to lavishing the world’s richest person with extra options that could add tens, if not hundreds of billions, to his wealth?

“Elon is the richest person in the world and he can still attract working people,” Munsger said. “Those people would really encourage him with a massive new compensation package.”

A new option package for Musk could go a long way to reassure investors worried that he might lose his focus on Tesla because of his CEO role at SpaceX or his interest in buying and transforming Twitter.

“It will put Tesla investors to sleep better at night knowing they have a five- to 10-year compensation package signed, sealed and delivered,” said Dan Ives, technology analyst at Wedbush Securities.

Does Musk need more options to worry about Tesla?

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

“He is already financially motivated to keep Tesla doing well,” Equilar’s Yu said.

But proponents of a new package say it would answer many of the questions about Musk’s approach that have been swirling since he announced his purchase plans. Twitter (TWTR).

“Although his DNA is not going to change, whether or not he has new options from Tesla, the street will want him to have another compensation package,” Ives said.

There are costs to Tesla involved in giving Musk additional options, even though it’s not cash compensation. The estimated book value of those options appears as an expense on your income statement. Last year, Tesla set aside $571 million in expenses related to Musk’s pay package alone for 2018. If he doesn’t get a new one, that expense will disappear from his profit and loss account.

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And while a new package for Musk is sure to be criticized by those who believe executives are paid too much, Tesla shareholders, and no one else, will make that decision.

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

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