Elon Musk's Pay Package, Explained (2024)

Elon Musk's Pay Package, Explained

But how did it get to be that big?

Musk was given 10 years of performance targets to hit, targets that when reached would result in a payout of stock options. Musk could earn 303 million options—the number has been adjusted for stock splits—equivalent to about 12% of Tesla stock outstanding in 2018.

Those options would be delivered in 12 separate tranches, with the board awarding Musk 1% of the stock outstanding for each set of goals completed. To reach those tranches, Musk had 28 targets he needed to hit. Of those, 12 were tied to market capitalization measured in $50 billion increments up to $650 billion, eight were tied to earnings, and eight to revenue.

Tesla hit $650 billion in market value in late 2020, and it has also met all eight earnings milestones. Only a few revenue milestones remain and all but one revenue goal.

As a result, according to the 2023 proxy statement, Musk has earned all but 25 million of the options available to him.

The entire package is worth $56 billion at current prices. Each option has a strike price of about $23 a share—adjusted for stock splits—and Tesla stock is worth about $650 billion at just over $200 a share. Hitting $650 billion means the value of Musk’s options is worth about $180 each. That’s the difference between the stock price, at $650 billion, and the option strike price. The $180 per option figure multiplied by the 303 million options equals roughly $56 billion.

The package was essentially Musk’s bet on himself. He was betting he could get Tesla stock to rise from a valuation of $60 billion to at least $650 billion, a 983% rise, while making it profitable over ten years.

It’s safe to say Musk won.