The first milestone is to increase Tesla's market capitalization to $102 billion with more stock options opening up at $51 billion intervals. Last year, according to Forbes, Musk's net worth passed $20 billion for the first time, helped by the rising value of SpaceX, of which he owns more than half.
The unexpected compensation arrangement - announced in the middle of the night in California - involves no salary or cash bonus but sets up rewards for Mr Musk multiplying Tesla's market value as much as ten-fold to $US650b ($F1.3 trillion) over the next 10 years. Each of the 12 tranches vests only if a pair of milestones are both met.
A $650 billion market capitalization would make Tesla the fourth-most valuable US company as of today, behind Apple Inc., Microsoft and Alphabet, and would exceed Volkswagen AG, the world's biggest carmaker, by nearly sixfold.
The performance award for Elon Musk will require Tesla Inc to reach certain goals before he can receive his pay, which is sitting in the form of vesting stock. To hit the final target Tesla will also have to hit sales and profits targets, including revenue of US$175 billion-a-year, which is more than General Motors' sales. This also ensures that the 36 years old will continue to lead Tesla over a very long term.
In reaction, the analyst reiterates a Sector Perform rating on TSLA stock with a $380 price target, which implies a 7% upside from current levels. If none of the 12 tranches is achieved, Elon will not receive any compensation.
The plan comes after Tesla's much-anticipated Model 3 sedan missed several production targets and as many on Wall Street expect the company to launch another round of capital raising. The 2012 plan formed the biggest part of the executive compensation program that Tesla shareholders overwhelmingly supported in the company's 2014 and 2017 Say on Pay votes.
Tesla granted the billionaire founder a $2.6 billion award, the largest-ever of its kind, underscoring the company's outsized ambitions and how intimately connected its future success is to Musk. Under Elon's leadership, the next phase of Tesla's development involves a number of exciting plans that will further accelerate the advent of sustainable energy.
Tesla, based in Palo Alto, California, has more than 33,000 employees worldwide and recently launched the Model 3 sedan, a more affordable electric auto that is the linchpin to the company's efforts to reach the mass market and profitability. Now, he once again manages to grab headlines with perhaps the most daring pay plan in corporate history. Although the Board granted this award to Elon on January 21, 2018, its effectiveness is subject to the approval of Tesla's shareholders, who will be asked to approve it at a special shareholder meeting that will be held in late March. Musk, and his brother Kimbal, who is Tesla's third-biggest shareholder, will recuse themselves from the vote.
But that hasn't dimmed investors' appetite for Tesla's stock.
The directors and executive officers of Tesla may be deemed to be participants in the solicitation of proxies from the shareholders of Tesla in connection with the proposed CEO Performance Award. Tesla disclaims any obligation to update any forward-looking statement contained in this press release. Various important factors could cause actual results to differ materially, including the risks identified in our SEC filings.