The Advisors' Blog

– Broc Romanek

Here’s the teaser for this memo from FW Cook:

Many believe that Elon Musk already has revolutionized automotive technology, rocketry, and solar energy. He now may have done the same to U.S. executive compensation with shareholder approval of his new incentive compensation arrangement at Tesla’s annual shareholder meeting on March 21st. The shares held by Musk and his brother did not count in the vote, so the outcome cannot be attributed to ownership control.

The new incentive compensation arrangement is essentially 12 tranches of performance stock options, each vesting when Tesla’s market-capitalization value grows in $50 billion increments starting from $100 billion for the first option tranche and ending at $650 billion over 10 years. Market-cap was about $53 billion on the date of shareholder approval, making the goals aspirational. But if achieved, the earned compensation value delivered from the award is estimated to be $55.8 billion. This is a value-sharing ratio of 8.5% for Musk ($55 billion ÷ $650 billion).

Our comments are not a critique of the arrangement’s structure or rigor of the goals. It is on three potential high-level implications that we see as indicated in this memo.