Stunning gamble
In 2018, Musk signed a 10-year compensation gamble agreement with the Tesla board.
The content of the agreement is broken down as follows:
1. Musk does not receive any compensation for 10 years.
2. Musk's compensation comes from an options incentive plan divided into 12 stages, with the execution terms as follows.
A. Based on the current market value of $59 billion, for every $50 billion increase in market value, Musk will receive approximately 17 million Tesla stock options, with the exercise price being the Tesla stock closing price on the date of the agreement.
B. The 12-stage options incentive corresponds to a gradient of a $50 billion increase in Tesla's market value, and the Tesla board grants Musk approximately 17 million Tesla stock options.
After the completion of the C.12 group gradient and the achievement of Tesla's great goal of a market value of 659 billion, this gamble agreement will end. If completed smoothly, Musk will receive approximately 20.26 million Tesla stock options.
3. Tesla underwent stock splits twice in 2020 and 2022. Once split 5-for-1 and once split 3-for-1, totaling to what was originally 1 share becoming the current 15 shares. Thus, Musk can obtain a corresponding number of options amounting to 303.9 million shares, approximately 12% of Tesla's total equity.
4. The so-called options simply mean that, according to the agreement, Musk will have the right to buy 303.9 million shares of Tesla stock at the closing price at the time the agreement was signed. However, the realization of the options is calculated based on the difference between the stock price at that time and the current stock price, and the beneficiary receives the price difference.
The closing price of Tesla stock on June 13, 2024, was $182, at which point the market value corresponding to 303.9 million shares was $55.5 billion, which is the origin of the $56 billion astronomical salary.
Misunderstanding of 56 billion, but this statement is actually incorrect for the following reasons.
· The options are a price difference. They are not direct stock gifts. The closing price at the time of signing the agreement, adjusted for stock splits, was $23, and the stock price has increased by about 8 times since then. Therefore, Musk can theoretically obtain 303.9 million × (182 - 23) ≈ $48 billion.
· However, even with $48 billion, it is not cash given directly by the company to walk away with. Because the agreement signed by the board and Musk requires Musk to buy 303.9 million shares at the agreement date price (approximately $23/share after adjustments) and then he can only sell them five years later. The price difference after five years will be Musk's real benefit, and it is currently impossible to determine whether it will be more or less.
From a market value perspective alone, Tesla's total market value has exceeded $660 billion, and Musk indeed has the right to obtain this option.
Astronomical salary uncertain future
Unfortunately, this compensation plan has sparked widespread controversy and was declared invalid by a Delaware judge in January 2024 on the grounds of 'excessive compensation and unfairness to shareholders.'
However, at Tesla's shareholder meeting on June 13, 2024, shareholders reaffirmed this compensation plan by a significant margin.
On December 2, 2024, U.S. District Court Judge Katherine St. John McCormick decided to uphold her ruling from January of this year, stating that the Tesla board was influenced by Musk when it approved Musk's compensation plan in 2018, and again rejected this compensation plan.
Musk's Tesla board may appeal to the federal circuit court, and Tesla has even threatened to withdraw from Delaware.
Of course, with his connections to Trump, Musk may indeed be able to recover the massive wealth dismissed by the district court in the federal circuit court.
