The new payment package essentially states that if Musk hits a series of performance milestones between now and January 2028, and he drives his electric car company’s market value 12 times higher — taking it from $54 billion to $650 billion — he’ll become one of the richest people on earth.
Musk currently owns approximately 20% of Tesla’s share worth about $12 billion.
Now, if Musk does drive a 12-fold increase in Tesla’s market value, that doesn’t necessarily mean the price of a single share in the company will be 12 times larger. The company can do things like issue new stock that could dilute the value of existing shares.
But let’s assume Musk’s Tesla stock would grow at least 10 times more valuable. That would mean just the shares Musk owns today would be worth $120 billion.
Plus, reaching the agreed upon milestones means Musk would get additional stock awards.
According to the new compensation plan, Tesla estimates the value of the stock awards to be $2.6 billion, using accounting methods for estimating the cash value of stock options. But if Tesla’s market value balloons just as the payment plan hopes, those stock awards could be worth nearly $56 billion, according to a public filing.
However, the filing cautions that $56 billion is the maximum possible profit he could make on the stock options, and that it is likely to sell additional shares to the public that would limit their value.
However, this mission won’t be easy. If Musk fails to hit the goals laid out in his pay package, Tesla won’t pay him at all.
“Elon will receive no guaranteed compensation of any kind — no salary, no cash bonuses, and no equity that vests simply by the passage of time,” the company wrote in a statement. “Instead, Elon’s only compensation will be a 100% at-risk performance award, which ensures that he will be compensated only if Tesla and all of its shareholders do extraordinarily well.”