Elon Musk’s next massive payday looms

CEO Elon Musk doesn’t receive any cash salary or bonus. He’s paid only with stock options. But he has just about exhausted the options available from the compensation package he got from Tesla in 2018, a package that turned out to be the most lucrative package of stock options issued by any company, According to Courtney Yu, director of research at executive compensation firm Equilar.

The 93.9 million options Musk has received so far from that package were worth $86.8 billion as of Friday’s close, after taking into account the exercise price.

Musk got 25.3 million of those options just this past week due to the record earnings Tesla posted Wednesday. He’s likely to soon receive another 8.4 million options, probably after the company posts its second or third-quarter results, based on analysts’ revenue forecasts for the company.

But those 8.4 million options, worth billions, are a relatively small portion of what Musk ultimately might receive. Once he gets those additional options, he will have received all 101 million split-adjusted options that were part of that 2018 pay package. The question should be whether he’ll get even more options, perhaps tens of millions more options.

Musk dodged a question about such a payday during an investor call Wednesday, saying simply, “There are no discussions currently underway for incremental compensation for me.”

But that doesn’t mean he won’t be offered that kind of payday in the future.

Not all tech CEOs get options

Some tech billionaires have done just fine without stock options.

Amazon (AMZN) founder Jeff Bezos, who is the world’s second-richest person, (worth about $100 billion less than Musk, and Facebook (FB) founder Mark Zuckerberg have received no stock grants or options since their companies’ initial public offerings in 1997 and 2012, respectively. They also have not earned much in the way of salary. Bezos got $81,000 a year in salary while he was CEO and Zuckerberg has taken home a salary of $1 a year for most of the last decade.

They profited from the vast appreciation in value of the shares they have held since their companies went public.

Much of Musk’s net worth, estimated at $270 billion, comes from the appreciation in Tesla shares. But he has also regularly received stock options as a form of compensation since 2009, the year before the company’s IPO.

He has exercised many of those options as they were due to expire. Virtually all his remaining options come from his 2018 pay package.

Wall Street wants more Musk options

Many analysts believe it’s only a matter of time before Tesla comes up with another package of options for Musk.

Alex Potter, the analyst for Piper Sandler & Co. who asked Musk about a possible new compensation package on Wednesday’s investor call, took a moment to say that the previous package “seemed to work quite well.”

And 81% of Tesla shareholders who voted on Musk’s pay package in 2018 approved of it. Other analysts believe a new package will be good for the company, as well as Musk.

“Eventually the board will reload Elon’s plan. And that plan will be massive, just like the last plan,” said Gene Munster, managing partner at Loup Ventures. “Elon thinks big, and he has massive new markets to go after and build large businesses including autonomy and robots.”

Is there a public relations downside to lavishing the world’s richest person with additional options that could add tens, if not hundreds of billions, to his wealth?

“Elon is the richest person in the world, and he still can appeal to hardworking people,” Munsger said. “Those people would largely cheer him on with a massive new comp package.”

A new options package for Musk could do much to assure investors worried that he might lose his focus on Tesla due to his CEO position with SpaceX or his interest in buying and transforming Twitter.

“It will make Tesla investors sleep better at night knowing he has a five- to 10-year comp package signed, sealed and delivered,” said Dan Ives, tech analyst with Wedbush Securities.

Does Musk need more options to care about Tesla?

It’s tough to picture someone as wealthy as Musk, and as passionate as he is about Tesla, being motivated to spend more or less time on the company based on what he gets in his next compensation package. And if money is a motivating factor, the value of his current 265.5 million Tesla shares and options should provide all the incentive he needs.

“He’s already financially motivated for Tesla to continue to do well,” said Equilar’s Yu.

But advocates of a new package say it would answer many of the doubts about Musk’s focus that have been swirling since he announced his plans to buy Twitter (TWTR).

“Even though his DNA is not going to change whether or not he has new Tesla options, the street is going to want him to have another comp package,” said Ives.

There are costs to Tesla involved in giving Musk additional options, even though it’s non-cash compensation. The estimated accounting value of those options shows up as an expense in its earnings statement. Last year, Tesla booked $571 million in expenses related to Musk’s 2018 pay package alone. If he doesn’t get a new one, that expense will disappear from its profit and loss statement.

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And while a new package for Musk is sure to be criticized by those who believe executives are paid too much, Tesla shareholders, and no one else, will be making that decision.

“Musk is already either a hero or villain in eyes of people,” said Ives. “A new package is either going to cause people to hate him more, or be relieved he’s staying put.”

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