Attacked by a shareholder who wants to cancel the bonus of 56 billion dollars, the board of directors of Tesla justifies its decision by highlighting the exceptional stock market performance of the company.
$56 billion in revenue. The sum that Elon Musk must receive from Tesla over 10 years is struggling to pass to a shareholder of the automaker. This shareholder, Richard Tornetta, is asking for the cancellation of this unprecedented compensation plan in the history of capitalism before a court in Delaware.
This Wednesday, the boss of Tesla extricated himself for a few hours from the turbulence at 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 CEO of Stellantis Carlos Tavares was controversial last April and was even deemed “excessive” by the President of the Republic, what about that of Elon Musk? The Tesla boss is expected to collect $56 billion in stock over 10 years. Reduced to an annual average ($ 5.6 billion), this represents 294 times the amount awarded to Carlos Tavares and deemed “excessive”.
More than one year of turnover
If we relate it to the activity of the American car manufacturer, this amount seems out of proportion. As a reminder, this allocation dates back to 2018. Since then, the brand has sold 2.96 million vehicles (from 2018 to the 3rd quarter of 2022). Elon Musk’s 56 billion therefore represents more than 18,900 dollars per Tesla sold over the past four years (for an average amount of 63,800 dollars 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 made by Tesla between 2018 and 2022.
According to the plaintiff, Elon Musk would have dictated his terms to the directors of Tesla who, given their relationship with the iconic entrepreneur or their personal interests, were not independent enough to oppose it. And this, while he did not even work full time for Tesla insofar as he is also at the head of 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, is calling for its cancellation.
This sum promised to Elon Musk was at the time greater than the capitalization of Tesla which was in 2018 “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 this is compensation in shares (stock options) and not in cash. Tesla won’t have to dip into its cash flow to pay its CEO.
In addition, to be able to touch his billions of dollars of shares, Elon Musk had to cross a certain number of market capitalization thresholds. Twelve in total.
The plan was that he was to touch some of those shares when Tesla crossed the 100 billion mark on the stock market (which happened in January 2020) and then all the new 50 billion in valuation and this, up to 650 billion. dollars (level reached in December 2020). Elon Musk also had to commit to staying at least 10 years with the company.
Still, this amount of stock options is still surprising. Musk held 20% of the capital of Tesla 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, big billionaire bosses like Warren Buffett or Jeff Bezos generally have “symbolic” salaries. The founder of the Berkshire Hathaway fund receives $ 100,000 a year to run his company and that of Amazon $ 82,000 as chairman (+ 1.6 million for his security costs). Their respective fortunes being linked solely to the prices of their shares.
Tesla’s share price fell 54% in 2022
Why then give such a gift to Elon Musk? It was at the time for the directors to reward a high-profile boss whose personality had contributed to the success of Tesla. Apple did the same with Steve Jobs in the 2000s when he only received a salary of 1 dollar per year.
But it was also a question of putting friendly pressure on the CEO to prevent him from spreading too thinly. The purpose of the plan was to get Elon Musk to “focus on Tesla’s goals,” said Antonio Gracias, a Tesla director called to testify at trial. With the soap opera of the takeover of Twitter and the chaotic management of the social network by Musk, it seems that this strategy has not been entirely successful.
But the directors of Tesla are nevertheless satisfied. Nothing obliges him to devote a minimum of time to the company, the businessman “does not invoice by the hour”, noted Antonio Gracias, stressing that in view of the explosion in the value of Tesla on the stock market since 2018, the plan worked and shareholders were amply rewarded.
Still, since the start of the year, Tesla’s share price has more than halved (-54% since January 3) and market capitalization, which reached 1,250 billion dollars in January, has since fallen to less than 580 billion. . Will Elon Musk have the unwavering support of his board of directors for a long time yet?