Is Elon Musk’s $56 billion or Rs 4.62 lakh crore pay package an annual salary?
Not really.
The pay package cleared on Thursday is actually a performance-based compensation plan that was approved by Tesla’s board and shareholders and upheld by a US court this week. Here’s how it would work:
1. Performance Milestones: The package is tied to specific operational and financial milestones that Tesla must achieve over a period of ten years. These milestones include reaching certain market capitalizations and operational targets such as revenue and profitability.
2. Market Capitalization Targets: The compensation plan is divided into 12 tranches, with each tranche linked to a $50 billion increase in Tesla’s market capitalization, starting from $100 billion and going up to $650 billion.
3. Operational Milestones: Besides market cap targets, each tranche also requires Tesla to hit certain operational milestones, like revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) targets.
4. Stock Options: For each milestone achieved, Musk receives stock options that allow him to purchase Tesla shares at a set price of $350.02 per share, regardless of the current market price. This can potentially result in substantial gains if Tesla’s stock price increases.
5. No Guaranteed Salary or Cash Bonus: Unlike traditional pay packages, Musk’s plan does not include any guaranteed salary, cash bonus, or other stock awards. His compensation is entirely tied to Tesla’s performance and his ability to meet the set milestones.
The total potential value of this compensation plan was estimated to be up to $56 billion if all milestones are achieved, making it one of the largest and most ambitious pay packages in corporate history. This structure is designed to align Musk’s interests with those of Tesla’s shareholders, incentivizing him to drive long-term growth and performance.
