Elon Musk, the founder and chief executive of electric car company Tesla, would smash all pay records and become the richest man in the world if an extraordinarily ambitious new incentive scheme pays out.
The 46-year-old entrepreneur, who is already a multi-billionaire, has agreed to work unpaid for the next 10 years – after which he would collect an unprecedented $55.8bn (£40bn) bonus if builds the 14-year-old business into a $650bn company within a decade.
If Musk achieves the hugely ambitious target it would be by far the biggest ever executive windfall.
“Elon will receive no guaranteed compensation of any kind – no salary, no cash bonuses, and no equity that vests by the passage of time,” the company said of the new pay plan. “Instead, Elon’s only compensation will be a 100% at-risk performance award, which ensures that he will be compensated only if Tesla and all of our stockholders do extraordinarily well.
“For Elon to fully vest in the award, Tesla’s market cap must increase to $650bn.”
The vast pay deal is designed to end speculation that Musk might leave Tesla to focus on some of his other ventures, including his plan to colonise Mars using rockets made by his space exploration company, SpaceX. The long-term renumeration plan, which the company announced on Tuesday, will only pay out if he continues to serve as CEO, executive chairman and chief product officer.
The maximum payout will only be made if Tesla’s market value increases to at least $650bn, an increase of about 1,000% on the company’s current market capitalisation of $59bn. At today’s share prices, only three companies in the world are worth more: Apple ($908bn), Google’s parent company, Alphabet ($807bn) and Microsoft ($707bn).
“We believe Tesla has a unique opportunity to continue delivering stockholder value,” Tesla’s board, which includes James Murdoch, said in a letter to shareholders.
“Our aspirations may appear ambitious to some, and impossible to others, and that is by design. We like setting challenging, hard-to-achieve goals for ourselves, and then focusing our efforts to make them happen. This is why we based this new award on stretch goals and why we gave Elon the ability to share in the upside in a way that is commensurate with the difficulty of achieving them.”
The award will pay out in 12 tranches, depending on market capitalisation and revenue targets. To collect the first payout of 1% of the company’s shares – worth about $600m at today’s share price – Tesla’s market value must hit $100bn. Musk will collect additional 1% stock grants for every additional $50bn increase in market value. To hit the final target Tesla will also have to hit sales and profits targets, including revenue of $175bn-a-year, which is more than General Motors’ sales.
Musk, who is already the world’s 44th richest person with a $21.5bn fortune according to Bloomberg’s billionaires index, is Tesla’s biggest shareholder with a 21.9% stake.
If he keeps all his current shares and achieves the maximum bonus target, he could end the decade with 28.3% of Tesla’s shares (if the company does not release any more). If Tesla hits the $650bn valuation target, his stake would be worth $184bn, making him easily the world’s richest man.
Tesla’s shareholders will vote on the proposals in March. Musk, and his brother Kimbal, who is Tesla’s third-biggest shareholder, will recuse themselves from the vote.