Tesla Inc ( TSLA) shares traded higher on Tuesday after CEO Elon Musk tied his paycheck directly to the long-term performance of Tesla stock.
Tesla has announced a new compensation plan for Musk that will pay him nothing unless Tesla hits aggressive growth targets over the next decade. Under the new plan, Musk will earn Tesla stock options only if Tesla hits a series of 12 market capitalization and operational milestones.
[Read: Elon Musk Is Determined to Change the World.]
On the market cap side, Musk’s first payout will come when the company hits the $100 billion level. Tesla’s current market cap is $59.9 billion. To hit the $100 billion mark under the current share structure, Tesla’s stock price would need to rise from $356 to about $532 per share.
Each additional market cap payout will be triggered at $50 billion increments.
The first operational milestones start at $20 billion in Tesla revenue and $1.5 billion in earnings before interest, taxes, depreciation and amortization. In the most recent quarter, Tesla reported revenue of $2.98 billion and a net income loss of $619.4 million.
If Tesla hits all of Musk’s targets under the new plan, the CEO could theoretically earn a payout of $56 billion. However, the true potential value of the plan is difficult to determine. In a statement, the company said “some amount of future dilution is a certainty.”
Tesla investors likely see Musk’s financial commitment to the company as good news after the company has repeatedly fallen short of Musk’s Model 3 production goals. Musk initially said Tesla would be producing 5,000 Model 3s per week by the end of 2017, but has twice bumped that target back. In its most recent update, Tesla said it will reach the 5,000 goal “by the end of Q2.”
The new payment plan also seemingly puts to rest fears that Musk will be stepping down as Tesla CEO in the near future. In November, Tesla short seller and Kynikos Associates founder Jim Chanos took shots at Tesla’s inflated share price and predicted Musk would resign as Tesla CEO by 2020.
[See: The 10 Most Valuable Auto Companies in the World.]
“Obviously this is not being valued as a car company, it’s being valued on Musk … he’s the reason people own the stock,” Chanos said, according to Reuters.
Even if Tesla fails to hit Musk’s payment milestones, the billionaire certainly won’t be struggling to put food on the table. Bloomberg estimates Musk’s net worth at $21.5 billion.
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Tesla Inc (TSLA) CEO Musk Puts His Money Where His Mouth Is originally appeared on usnews.com
