6 days ago
Tesla chair Robyn Denholm sets easy path for Elon Musk's $US30bn payday
Australia's Robyn Denholm set the hurdles so low on Elon Musk's stunning $US30bn ($46.5bn) stock award that it all but guarantees a windfall even if the EV boss goes rogue or fails to deliver on promised growth bets in coming years.
The Tesla board, led by Denholm are pushing the boundaries of executive pay in its 'good faith' award simply to keep onside with Musk. They just need to be upfront about why they are throwing remaining governance out the window.
In her letter to investors seeking support to back the monster shareholder package, Denholm justified the future payments to reward Musk for the creation of past value at Tesla.
Essentially, this makes up for a 2018 package worth around $US55bn that remains caught up in shareholder challenges. A US court overturned that package last year, declaring it was excessive. This has been an irritation for Musk ever since.
All that Musk has to do to collect the multi-billion dollar package is turn up to work at Tesla for the next two years and then hold onto these new shares for another five years. For most employees – even executives – this is not an onerous ask. In a single swoop, Denholm has removed any additional incentive for Musk to grow the EV maker at the same rate as the past decade.
There's no minimum hours – as a collection of big investors have demanded – there are no earnings or even share price targets. There's no clawback for behaving badly. Importantly, there's no tying Musk's reward to the successful delivery of Tesla new growth options – AI-led autonomous driving and robotics.
Musk simply has to protect the company's shares from losing 90 per cent of value. Technically, if Tesla can hang on to its existing cash pile, $36bn. That gives it plenty of cushion. Play it again
The argument goes along the lines of he's done it before and will do it again. Despite coming off a year of falling sales and rising competition.
Arguably, Tesla is at a point when it needs guardrails in place as Musk bets it all on AI and robotics.
'Tesla is at a critical inflection point, Denholm says in her letter. However, Musk has an 'unparalleled track record of delivering shareholder value'.
Denholm says the new award will incentivise him to remain there for the coming years, 'energising and focusing' him on Tesla so he can drive the carmaker into the next era of growth.
Already, the bulk of Musk's net worth of more than $US360bn is tied to the value of his cornerstone stake in Tesla. It's a big call to expect he'd simply walk away without some sort of succession planning.
Stock options or restricted stock packages are usually designed as stretch targets or hurdles. In this case, the strike price is at $23.34 a share. Tesla last traded at $US309.26. The difference represents the profit that would go to Musk. Shareholders will have the chance to vote on the deal at Tesla's November annual meeting.
The $23.34 number comes from the exercise price set in the 2018 package. Using 2025's conditions set, the strike price allows for zero risk and ignores major changes in the market from then to now. At the time, Tesla had little competition and its technology was ahead of the pack. Today it is losing ground to Chinese EV rivals which have leapfrogged in terms of sales and tech.
Tesla can do what it wants in terms of lucrative compensation packages, as long as it's transparent and gets support from shareholders for the move. The bigger issue is the risk that this gives other companies cover to also test the boundaries of executive pay.
johnstone@ Read related topics: Elon Musk Eric Johnston Associate Editor
Eric Johnston is an associate editor of The Australian. He has more than 25 years experience as a finance journalist, including a former business editor of The Australian. He has been business editor of The Sydney Morning Herald and The Age and financial services editor with The Australian Financial Review. His work has also appeared in The Wall Street Journal. Companies
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