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Abu Dhabi, UAETuesday 16 October 2018

Elon Musk in line for $2.6bn pay day as Tesla shareholders contemplate

The unprecedented pay package would likely have slim chances of getting passed at any other company.

Tesla’s success in recent years has underscored the company’s dependence on Mr Musk, but there are concerns that his other ventures, including SpaceX, will rob the company of his full attention. Mike Blake / Reuters
Tesla’s success in recent years has underscored the company’s dependence on Mr Musk, but there are concerns that his other ventures, including SpaceX, will rob the company of his full attention. Mike Blake / Reuters

Two of Tesla’s largest shareholders are supporting a plan to award Elon Musk a compensation package valued at US$2.6 billion (Dh9.54 bn), a show of confidence in the electric-car maker’s bid to keep its visionary chief executive around for the long haul.

Baillie Gifford & Co and T Rowe Price Group Inc, which combined own about 14 per cent of Tesla stock, indicated that they will vote in favour of the board’s proposal at the March 21 special meeting.

The proposed award, resembling one Mr Musk received in 2012, consists $20.3 million worth of stock options that will vest in 12 increments if market-value thresholds and other financial targets are met. Each tranche equals about 1 per cent of Tesla’s outstanding shares. The company’s market value has to reach $650 billion for the award to fully vest – roughly a 12-fold increase.

Mr Musk, who owns about 20 percent of Tesla, and his brother Kimbal Musk, a company director, will not vote on the plan at the company’s special meeting.

The unprecedented pay package, which could significantly dilute shareholders, would likely have slim chances of getting passed at any other company. Proxy adviser Glass Lewis & Co has recommended that investors turn down the plan. But Tesla is not a typical company and Musk, 46, is not a conventional CEO.

“We think what Tesla has achieved so far is pretty remarkable, but there’s more they can do in not just automotive, but the energy markets,” Tom Slater, a Baillie Gifford partner and fund manager, said on Wednesday. “Elon Musk – his drive and his vision – has been a really important part of getting us to this point. Tesla still needs that drive and that vision to push the business.”

Edinburgh-based Baillie Gifford, founded in 1908 and one of the world’s most active technology investors, owns about 7.6 per cent of Tesla’s shares. Baltimore-based T Rowe Price holds about 6.4 per cent.

“We believe the final plan is well aligned with shareholders’ long-term interests,” an emailed statement from T Rowe Price said. It added that while Tesla’s ownership structure and the long-term nature of its business presents a “unique challenge,” the board’s compensation committee addresses this “in the right way.”

The proposed award, resembling one Mr Musk received in 2012, consists $20.3 million worth of stock options that will vest in 12 increments if market-value thresholds and other financial targets are met. Each tranche equals about 1 per cent of Tesla’s outstanding shares. The company’s market value has to reach $650 billion for the award to fully vest – roughly a 12-fold increase.

Tesla’s success in recent years has underscored the company’s dependence on Mr Musk and has spurred some concern that his other ventures, including Space Exploration Technologies Corp and Boring Company, will rob the company of his full attention.

“I expect to remain CEO for the foreseeable future,” Mr Musk said during Tesla’s earnings call in February. “There are no plans to make a change at this time.”

“Tesla without Elon wouldn’t be the same company,” Joel Grant, an automotive and industrial analyst at T Rowe Price, said in a phone interview. “The package was designed to retain him, and we are on board with the intention. We want to make sure that Elon stays and uses Tesla as a vehicle for a lot of growth.”