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Business

BENEFITS: How much is Tesla CEO Elon Musk paid? And why?




How much a company's CEO does in a year seems like a simple question, but specifying which top executives really do (and when) is a surprisingly difficult task.

A recent report in The New York Times indicated that Elon Musk was $ 2.3 billion in 2018 as Tesla's CEO, but the situation is more complicated. Unless the electric car manufacturer achieves some truly amazing goals, Musk can't personally benefit from the huge price.

The key to the disagreement comes from the salaries calculated in accordance with the Securities and Exchange Commission's rules for reporting CEO's compensation, as opposed to what senior executives actually receive in a particular year.

Many CEOs receive most of the compensation in the form of shares or stock options to buy shares at a given price and time. These share or option grants often do not or become available to the CEO before some time has elapsed. Or, as in Tesla's case, some sets of performance targets are met.

It makes measurement exactly how much a given CEO does in a given year surprisingly difficult to quantify.

Become a technical leader in compensation

The Times published a ranking of compensation for 200 CEOs of major corporations in 201[ads1]8, based on an analysis of the expert consulting firm Equilar.

One of the most amazing results was the reported compensation for Musk. According to The Times and Equilar, the Tesla CEO received stock options worth almost $ 2.3 billion in 2018. Muska's reported compensation was more than 17 times that of the second top-ranking, Discovery Communications, CEO David Zaslav.

After Business Insider highlighted Musk's eyebrow compensation, Tesla reached out to us through a spokesman and disputed this characterization.

Here's Tesla's statement:

Elon actually earned $ 0 in total compensation from Tesla in 2018, and some reporting is otherwise incorrect and misleading. Unlike other CEOs, Elon receives no wages, no cash bonuses, and no equity that simply wipes out over time. His only compensation is a completely risky performance prize, specifically designed with ambitious milestones, such as doubling Tesla's current market value from around $ 40 billion to $ 100 billion. As a result, Elon's total compensation is directly linked to Tesla's and its shareholders' long-term success, and none of the equity from the 2018 performance package has been earned.

According to the proxy statement, according to the company's 2018 compensation plan for Musk, the CEO would receive a "10-year maximum option option to purchase 20,264,042 shares in Tesla's common stock, evenly distributed between 12 separate tranches each corresponding to 1 % of the issued and outstanding shares in Tesla's stock standard, "it would only be west if the company combined a combination of market capitalization, revenue and profitability environments, and Musk stick to the helm of the company.

The first of these milestones will be a combination of Tesla reaching a market value of $ 100 billion, and either $ 20 billion in revenue or $ 1.5 billion in earnings (formally adjusted earnings before interest, taxes, depreciation and EBITDA ).

Since the first market capitalization goal is more than double Tesla's market value as of June 10, the company has not beaten those goals, and none of Musk & # 39; s stock options under the compensation plan have not yet had it.

The New York Times wrote that the compensation plan was intended to secure Musk's long-term commitment to Tesla's growth and profitability, referring to the company's announcement of the plan that said it would "stimulate and motivate Mr. Musk to continue not only lead Tesla for a long time. term, but especially in light of his other business interests, to spend his time and energy in doing so. "

Several commentators at that time noted the unusual nature of the compensation package. Business Insider's Troy Wolverton reported that Musk already controls a large amount of Tesla's stock, so he already has strong incentives to increase the company's market value.

Read more : 5 reasons why Tesla is likely ready for a refund

According to Tesla's 2019 proxy statement filed with the SEC in 2018, the company compensated Musk with stock options worth an estimated $ 2,283,988,504 as part of the 2018 compensation plan. The value, listed on page 55 of the statement, was calculated in accordance with the SEC's accounting rules for equity-based compensation.

The reported $ 2.3 billion of stock options is based on Tesla's estimates of what the options may be worth, based on how the company's share price develops over time. According to the proxy statement, this estimate "does not necessarily correspond to the actual value that can be recognized by the appointed senior officers, which, among other things, depends on the market value of our regular stock."

Tesla wrote in the proxy statement: "We are required to report under applicable SEC rules any stock options to Mr. Musk for values ​​determined on the basis of their respective grant dates and driven by certain assumptions" set out in the Financial Accounting standards Board guidelines.

That is, SEC rules require Tesla to report a measure of the market value of the vesting options from Musk's compensation plan, according to the standard accounting rules of the CEO.

But the company said that under the terms of the compensation plan and as pointed out above, none of these shares has yet won, with the first tranche only earned if Tesla first reaches a market value of $ 100 billion and one of Revenue and Profitability targets is achieved.

In addition to the funded share option compensation, the proxy letter also includes a $ 56,380 salary, according to California's minimum wage law. Tesla pointed out in the letter that "Mr. Musk has not accepted his salary in amounts of $ 56,380, $ 49,920 and $ 45,936, respectively, for 2018, 2017 and 2016." Musk has traditionally refused his annual paycheck from Tesla.

What is reported may be different from what is practically happening

In the proxy statement, Tesla pointed to the difference between the compensation level reported and Musk's actual financial gain: "As a result, there may be a significant interconnection between what is reported as compensation for Mr. Musk in any given year in such sections and the value actually achieved as compensation in that year or over a period. "

The company also repeated the long-term, benefit-based nature of Musk's compensation:

Further gives the vast majority of compensation for previous stock options to Mr. Musk, including the 2012 CEO Performance Award and the 2018 CEO Performance Award, were incentives for future performance, and the value is only realizable if Tesla's share price is valued against the dates of the grants and the company achieves applicable requirements for earnings.

To put it all: Tesla reported to the SEC that they granted options worth an estimated $ 2.3 billion in stock options to Musk in 2018 as part of the long-term compensation plan. But he can't really take advantage of these options until the company hits at least one of its ambitious goals.

Courtney Yu, director of research at Equilar, executive compensation and corporate governance data business that worked with The Times on its CEO ranking, explained the situation in an email to Business Insider.

"While the SEC requires a certain calculation, such as the use of the fair value of the allotment of unallocated share issues granted, this often does not reflect what the management actually receives when stock prices are reached or options are exercised," Yu wrote. .

Yu emphasized the conditional nature of the reported CEO's salary.

"When all is said and done, Elon Musk could realize a total of $ 2.3 billion of this option price, or he couldn't figure out anything because the company didn't meet performance targets," he said.

Yu also said that a method of compensation, including the grant date for unwoven equity, as reported to the SEC, is still a useful calculation to compare CEO's pay-to-pay "because there is a standardized calculation across the board."

Companies often publish other remedies from the CEO alongside the compensation reported under the SEC guidelines to give a fuller sense of what managers earn.

"But it is also quite common that companies offer alternative calculations, such as the value of securities and exercised options, because they believe this gives a better picture of what a CEO really does," Yu wrote.

This dividing line is quite common

As an example of another company showing both reported compensation under SEC rules and the actual realized compensation for CEOs, Yu led us to ExxonMobil's proxy task 2018, which contained a chart showing that the realized value of executive compensation tends to be much lower than the reported compensation:

Exxon-Mobile via SEC

The figure illustrates how the reported compensation for ExxonMobil CEOs during the Of the last decade – roughly analogous to the $ 2.3 billion reported by Tesla – painters, a completely different image than the realized wage actually received by the oil company's CEOs each year. In 2017, CEO Darren Woods actually realized only 29% of his about $ 17 million in reported compensation. Between 2008 and 2017, the average realized salary was only shy of half of the average reported salary.

Tesla's Musk Compensation Plan remains different due to the high potential value of Musk and the extremely ambitious corporate performance targets associated with that compensation. The fundamental split between what a company is required to report to the SEC and its actual increase in net asset value is not uncommon among large companies.

While the astonishingly reported compensation is incredibly high, the nuances of how corporate executives are paid mean that Musk ultimately does not get any real value in terms of actual new Tesla shares from the billions of dollars in options.



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