Does Elon Musk deserve his $56 billion mega-bonus?

Attacked by a shareholder who wants to cancel a bonus of 56 billion dollars, Tesla’s board of directors justifies its decision by highlighting the extraordinary performance of the company’s stock market.

$56 billion in revenue. The sum that Elon Musk is due to receive from Tesla over 10 years is hard to pass up to an automaker shareholder. This shareholder, Richard Tornetta, is seeking to cancel the unprecedented compensation plan in the history of capitalism before a court in Delaware.

This Wednesday, the Tesla boss removed himself for a few hours from the Twitter frenzy to defend in court the huge compensation plan that Tesla gave him in 2018.

While in France, the 19 million euro salary for Stellantis CEO Carlos Tavares was controversial in April and was even considered “excessive” by the President of the Republic, what about Elon Musk’s? The Tesla boss is expected to collect $56 billion in stock over 10 years. Reduced to an annual average ($ 5.6 billion), this represents 294 times the amount awarded to Carlos Tavares and is considered “excessive”.

Over a year of turnover

If we relate this to the activity of the American car manufacturer, this amount seems out of proportion. As a reminder, this allocation started in 2018. Since then, the brand has sold 2.96 million vehicles (from 2018 to the 3rd quarter of 2022). Therefore, Elon Musk’s 56 billion represents more than 18,900 dollars per Tesla sold in the last four years (for an average cost of 63,800 dollars per Tesla sold).

In terms of revenue, Elon Musk’s compensation represents more than the company’s total revenue in 2021 ($53.8 billion) and nearly 30% of the $188.6 billion Tesla made between 2018 and 2022.

According to the plaintiff, Elon Musk would have dictated his terms to Tesla directors who, because of their relationship with the iconic entrepreneur or their personal interests, were not independent enough to oppose it. And this, while he didn’t even work full time for Tesla because he was also the head of the space company SpaceX and the start-ups Neuralink and The Boring Company.

Richard Tornetta, who also believes Tesla shareholders didn’t have all the relevant information when they approved the plan, is calling for its cancellation.

This amount promised to Elon Musk was greater at the time than Tesla’s capitalization which in 2018 was “only” 53 billion dollars.

12 levels to cross

How can administrators agree to award this extraordinary bonus?

First of all, it should be noted that this is compensation in shares (stock options) and not in cash. Tesla doesn’t need to dip into its cash flow to pay its CEO.

In addition, in order to hold his billion dollar shares, Elon Musk had to cross a certain number of market capitalization thresholds. Twelve in all.

The plan is that he should hold some of those shares when Tesla crosses the 100 billion mark in the stock market (which happened in January 2020) and then all the new 50 billion in valuation and this, up to 650 billion. dollar (level reached in December 2020). Elon Musk also had to commit to staying at least 10 years with the company.

However, this value of stock options is still surprising. Musk held 20% of Tesla’s capital at the time (15% today). So he had a clear interest in seeing the stock price rise even without that $56 billion mega-bonus. In the United States, big billionaire bosses like Warren Buffett or Jeff Bezos usually have “symbolic” salaries. The founder of the Berkshire Hathaway fund receives $ 100,000 a year to run his company and Amazon $ 82,000 as chairman (+ 1.6 million for his security costs). Their fortunes are tied solely to the prices of their shares.

Tesla’s share price fell 54% in 2022

Why give such a gift to Elon Musk? It is in time for the directors to reward a high-profile boss whose personality has contributed to the success of Tesla. Apple did the same to Steve Jobs in the 2000s when he only received a salary of 1 dollar per year.

But it’s also a question of putting friendly pressure on the CEO to prevent him from spreading himself too thin. The purpose of the plan is to get Elon Musk to “focus on Tesla’s goals,” said Antonio Gracias, a Tesla director called to testify at the trial. With the soap opera of the Twitter acquisition and the chaotic management of Musk’s social network, it seems that this strategy was not entirely successful.

But the Tesla directors were nevertheless satisfied. No one obliges him to devote a minimum time to the company, the businessman “does not invoice according to the time”, said Antonio Gracias, emphasizing that due to the explosion in Tesla’s value on the stock market since 2018, the plan worked. and shareholders are adequately rewarded.

However, since the beginning of the year, Tesla’s share price has more than halved (-54% since January 3) and the market capitalization, which reached 1,250 billion dollars in January, has since fallen to less than 580 billion. . Will Elon Musk still have the unwavering support of his board of directors for a long time?

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