Agenda: Tesla Pay Plan Offers Big Vision: Experts

By Melissa J. Anderson February 12, 2018

Tesla CEO Elon Musk got an earful from analysts questioning the automaker’s production timeline during last week’s earnings call on the electric car company’s fourth-quarter financial results. The CEO has his work cut out for him — a fact made clear by the aggressive 10-year performance plan announced by the board in January.

Pending the plan’s approval at Tesla’s upcoming special stockholder meeting — scheduled for March 21, 2018 — Musk could be entitled to a total of $55 billion over 10 years. However, to be entitled to the payout he must meet a series of aggressive market capitalization, revenue and adjusted Ebitda targets tied to 12 tranches of stock options. The plan’s ultimate milestone — a $650 billion market cap — would make Tesla one of the five largest companies in the U.S., according to The New York Times. Musk won’t take any salary or any other pay, and won’t receive any partial payments if he only comes close to meeting a prescribed set of goals.

Tesla says the plan is designed to align the goals of the company’s leader with those of shareholders, but experts say the award could be just as instrumental in keeping the mercurial Musk interested in leading the company. Musk, who has previously mused publicly about how long he’ll stay at the company, will only receive award tranches when the company hits milestones while he is either CEO or chief product officer and executive chair.

“If you think about this plan, and you think about the company compensating a very visionary and aggressive CEO, you kind of have to compensate better than the next thing he could have going,” says Robin Ferracone, CEO of Farient Advisors and a board director at Trupanion.

Investor Alignment

The new plan closely resembles the company’s last CEO performance plan, which Tesla says is responsible for its sharp growth over the past five years. Under the previous plan, Musk was given 5,274,901 options to purchase stock at an exercise price of $31.17 per share, provided the company achieved several market cap and operational targets mainly focused on prototype design and vehicle production. Tesla holds say-on-pay votes every three years and received strong support for that plan from shareholders at the 2014 and 2017 annual meetings.

A spokesperson for the company declined to comment for this story, but according to the proxy statement, compensation committee chair Ira Ehrenpreis and Tesla general counsel Todd Maron held phone calls with the company’s 15 biggest institutional investors to discuss the previous pay plan and how the investors would want to move forward on the next one.

At least one major Tesla investor is happy with the resulting plan. In an e-mailed statement, Donna Anderson, head of corporate governance at T. Rowe Price writes, “Tesla presents a unique challenge in executive compensation due to its ownership structure and the very long-term nature of its business. From our perspective, the board’s compensation committee addressed the challenge in the right way, thinking creatively about ways to structure the milestones and conducting outreach to gather investors’ perspectives and recommendations. We believe the final plan is well aligned with shareholders’ long-term interests.”

Representatives from other big Tesla investors, including Baillie Gifford, BlackRock, Fidelity, Tencent and Vanguard, either declined to comment or did not respond to interview requests.

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