$56 billion in revenue. The sum that Elon Musk must receive from Tesla over 10 years is struggling to pass to a shareholder in the automaker. This shareholder, Richard Tornetta, requests before a Delaware court the cancellation of this unprecedented compensation plan in the history of capitalism.
This Wednesday, the head of Tesla distanced himself for a few hours from the turbulence on Twitter to defend in court the huge compensation plan that Tesla granted him in 2018.
While in France the remuneration of 19 million euros for the general director of Stellantis Carlos Tavares was controversial last April and was even described as “excessive” by the President of the Republic, what about Elon Musk? The Tesla boss is expected to raise $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 considered “excessive.”
More than one year of billing
If we relate it to the activity of the American car manufacturer, this amount seems disproportionate. As a reminder, this allocation dates back to 2018. Since then, the brand has sold 2.96 million vehicles (from 2018 to Q3 2022). Elon Musk’s $56 billion therefore represents more than $18,900 per Tesla sold in the last four years (for an average of $63,800 per Tesla sold).
Relative to 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 earned by Tesla between 2018 and 2022. .
According to the plaintiff, Elon Musk would have dictated his terms to the Tesla directors who, given their relationship with the iconic businessman or their personal interests, were not independent enough to oppose. And that, even though he didn’t even work full-time for Tesla to the extent that he also heads the space company SpaceX and the start-ups Neuralink and The Boring Company.
Richard Tornetta, who also believes that Tesla shareholders did not have all the relevant information when they approved the plan, calls for its cancellation.
This sum promised to Elon Musk was at the time greater than the capitalization of Tesla, which in 2018 was “only” 53 billion dollars.
12 levels to cross
How could the administrators agree to award this extraordinary bonus?
First of all, it should be remembered that it is a remuneration in shares (stock options) and not in cash. Tesla won’t have to tap into its cash flow to pay its CEO.
Also, in order to touch his billions of dollars worth of stock, Elon Musk had to cross a certain number of market capitalization thresholds. Twelve in all.
The plan was that I was going to touch some of those shares when Tesla crossed 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. dollars (crossed level in December 2020). Elon Musk also had to commit to staying at least 10 years with the company.
Still, this number of stock options is still staggering. Musk owned 20% of Tesla’s capital at the time (15% now). So he had a clear interest in seeing the stock price go up even without that $56 billion mega bonus. In the United States, billionaire big bosses like Warren Buffett or Jeff Bezos often have “tongue” salaries. The founder of the Berkshire Hathaway fund receives $100,000 a year to run his company and Amazon’s $82,000 as president (+1.6 million for his security costs). Their respective fortunes are tied solely to their share prices.
Tesla stock price fell 54% in 2022
Why then give that gift to Elon Musk? It was time for the directors to reward a high-profile boss whose personality had contributed to Tesla’s success. Apple did the same thing to Steve Jobs in the 2000s when he was only paid $1 a year.
But it was also about putting friendly pressure on the CEO to keep him from going too far. The purpose of the plan was to get Elon Musk “focused on Tesla’s goals,” said Antonio Gracias, a Tesla director called to testify at the trial. With the soap opera taking over Twitter and Musk’s chaotic management of the social network, it seems that this strategy has not been entirely successful.
But Tesla’s directors are nonetheless satisfied. Nothing forces him to dedicate a minimum of time to the company, the businessman “does not bill by the hour,” Antonio Gracias pointed out, stressing that given the explosion in Tesla’s value on the stock market since 2018, the plan worked. and shareholders were amply rewarded.
Still, since the beginning of the year, Tesla’s share price has more than halved (-54% since January 3) and its market capitalization, which hit $1.25 trillion in January, has fallen since then to less than 580 billion. Will Elon Musk have the unwavering support of his board of directors for a long time?
Source: BFM TV
