Tesla’s New Strategy Includes ‘Not Paying’ Elon Musk and an Astronomical Share Price

Elon Musk

Tesla Motors has announced that its CEO, Elon Musk, won’t be paid unless its already high stock valuation blasts into the stratosphere. The executive’s compensation is now tied to a dozen operational milestones. The first of these requires bringing the company’s current market cap to $100 billion, followed by 11 more set at $50 billion increments.

Agreeing to the program, Musk now has to stay with Tesla until 2028 as both its executive chair and product officer. While this does allow him to bring in another CEO sometime in the future, the company is likely hoping to dispel any speculation that he would abandon the position. It’s good to see Musk putting some serious skin into the game but, as a multi-billionaire, his not being paid unless Tesla’s stock valuation climbs isn’t the biggest threat to his financial security. 

He’ll also be able to fall back on minimum wage if everything falls apart, as Californian law stipulates all employees must be paid something. However, whether or not Musk decides to cash those modest checks is entirely up to him. Otherwise, his entire payment is linked to the aforementioned 10-year grant of stock options that are directly linked to Tesla’s valuation milestones. For each one met, the CEO gets another 1.69 million shares (about 1 percent of Tesla’s current total outstanding shares).

“For Elon to fully vest in the award, Tesla’s market cap must increase to $650 billion,� the automaker said.

That’s a lot of money and none of it has to do with the company’s production or profitability. Still, if Tesla didn’t bolster its current output, it’s difficult to imagine the company ever achieving those share price milestones. The company’s current valuation sits just shy of $60 billion.

Elon is already Tesla’s largest shareholder, owning 20 percent of the company, so the incentives for him to jack up its stock value are already in place. That makes this whole thing feel like publicity stunt aimed at psyching up investors, which we suppose is a sound enough strategy — especially considering this is extremely similar to how he already gets paid. Ultimately, the announcement seems like little more than a phenomenal way to make shareholders feel warm and fuzzy inside. But, no matter how you feel about Musk or his business, his commitment to the cause is genuine.

Were Tesla to achieve its proposed $650 billion valuation, it would become one of the largest corporate entities in the United States. Some financial experts are sure to scoff, however, it wasn’t all that long ago when the automaker was less than a tenth of its current size. But can Tesla continue to grow such a breakneck pace?

Musk certainly thinks so. Speaking with The New York Times, the CEO said, “I actually see the potential for Tesla to become a trillion-dollar company within a 10-year period.”

[Image: Tesla Motors]