The Industry

Elon Musk Will Not Get Paid Unless Tesla Meets Ambitious Goals

Musk will not be receiving any guaranteed income from Tesla.
Musk will not be receiving any guaranteed income from Tesla.
Mark Brake/Getty Images

Tesla announced Tuesday that Elon Musk will stay on as the company’s CEO for the next decade. The announcement ended much speculation about whether Musk would continue to serve as the chief executive after the next two years. He had sent few signals he planned to stay with the company for such a long stretch. In 2013, he said that he wanted to remain at the company’s helm through to the launch of the Model 3, a car that is supposed to be more affordable than its past models and was released to a select number of customers this past summer. In 2014, Musk indicated that he wanted to stay on for at least another four or five years.

But Tuesday’s announcement raised as many questions for its unusual—and ambitious—compensation plan. As the release reads, “Elon will receive no guaranteed compensation of any kind—no salary, no cash bonuses, and no equity that vests simply by the passage of time. … he will be compensated only if Tesla and all of its shareholders do extraordinarily well.”

While on its face the plan is sure to please stockholders, some commentators are debating whether the announcement might be public relations stunt from the famously flamboyant Musk.

Andrew Ross Sorkin writes in his New York Times piece, “Mr. Musk’s compensation plan is no illusion,” and points out that “it’s impossible for him to manipulate the system by trying to prop up the stock price for a temporary period.”

Musk will not get paid for his work unless Tesla reaches a dozen monumental market cap and operational revenue milestones. The company currently has a market cap of $59 billion. Musk’s deal compensates him for every $50 billion increase in market cap, starting with $100 billion and topping at $650 billion.

He also has to increase sales revenue initially to $20 billion and aims to eventually max it out at $175 billion.

If Musk is able to pull of this dazzling financial feat, his reward in stock shares will would be generous. As USA Today writes, “Musk would receive 1 percent of the company up to 12 times over the course of the next 10 years.” If he reaches the maximum goal of $650 billion in market cap, his personal shares would be worth $55 billion, and his electric car company would be worth more than Facebook and Walmart. (Inc notes that Tesla would also blow away all other auto manufacturers since Toyota, currently the largest in the world, has a market cap of about $175 billion.)*

The deal comes after a rocky stretch for the company. The rollout for the Model 3 was bit by delays in 2017, which was supposed to be its inaugural year for deliveries to customers. The company had aimed to build 1,500 units in the third quarter but only ended up making 260, which Tesla blamed on production “bottlenecks.” Many would-be customers, who had reservations to buy the car, were left waiting.

The production issues also reportedly extended to Tesla’s workforce. Last fall, the company cited performance reviews when they collectively fired what CNBC estimated to be at least 1,200 people. Yet, some dismissed employees questioned the company’s motivations, instead suggesting that downsizing due to production delays with the Model 3 was the actual impetus behind the pink slip storm. One person even sued the company in October for allegedly failing to abide by a California law that dictates employers must give workers advance notice in cases of widespread downsizing. (Tesla previously told Slate that the firings are not layoffs, since the positions will be backfilled, and will not affect production of the Model 3.)

However, Tesla seems to be having a better 2018 thus far, even though it is still cutting back on its production goals. It expects to manufacture 2,500 Model 3 units per week by the end of the first quarter this year; the goal had previously been to make 5,000 per week by January 1. Tesla has also begun shipping the car to East coast locations. Forbes points out that YouTube was brimming over the past week with reviews from enthusiastic new customers, who have been praising the car’s speed in particular—one reviewer found that his Model 3 was able to accelerate from zero to 60 miles per hour in 4.4 seconds, below the quoted 5.1 seconds.

*Correction, Jan. 24: This piece previously misstated Toyota’s market cap at $175 million. It’s $175 billion.