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Up to 55 billion over 10 years

Issued: 2018-03-21

Tesla Inc. shareholders have approved a mammoth 10-year pay package for Chief Executive Elon Musk.

A Tesla representative said Wednesday the plan passed by a "large" margin. A securities filing with further details is expected to be posted on Tesla's website later in the day.

Although nominally valued at $2.6 billion, the package could generate $55 billion or more for Musk if Tesla hits a series of aggressive financial goals.The pay plan approval comes weeks before the Palo Alto, Calif., automaker reveals whether its troubled Model 3 electric-sedan program is getting back on track and before it announces first-quarter losses that some analysts say could reach $1 billion.

But if Musk can turn things around, he'll position himself for huge paydays and stockholders for enormous gains in market value. Unlike most executive pay plans, Musk's is a pure performance package: no salary, no bonus, no stock grants without strings attached.

Only stock options will be offered, pegged to Musk's ability to lift Tesla's total market value far above its current $56 billion while meeting specific revenue and profit milestones.

"It's a win-win for shareholders and for Musk," said Efraim Levy, stock analyst at CFRA Research. "If the stock goes up, they both gain. On the other hand, is it really necessary to incentivize him [Musk] so highly? He's already an owner and has staked his personal reputation" on Tesla's success.

The plan requires Tesla's market value to hit $100 billion, up from $53.7 billion today. With every $50-billion gain after that, Musk is richly reward with stock options, until the company's market value hits $650 billion.

Musk's former pay plan, formulated in 2012, was also based mainly on stock options linked to performance. But the focus was more on making sure products get out to market, and less on financial metrics. Options accounted for much of the 22% share of the company Musk now owns. Last year, Musk's salary amounted to $49,720. Under the new plan, he will no longer be offered a salary.

The value of Musk's current Tesla holdings, $12 billion, will increase by billions of dollars if the company's market value continues to grow. A maximum payout under the new plan would put Musk's total ownership at about 28% with a market value around $182 billion.

Two major firms that advise institutional shareholders — Glass Lewis and Institutional Shareholder Services — had advised clients to reject the plan, mainly because of its large size and questions about whether the pay package would provide real motivation for Musk.


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