Shareholders at Tesla OK deal for CEO

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

A Tesla representative said Wednesday that the plan passed by a “large” margin. A securities filing with further details was 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 big paydays and stockholders for large 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 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 would be richly rewarded with stock options, until the company’s market value hits $650 billion.

For each of 12 milestones Tesla achieves, Musk, will get stock worth 1 percent of Tesla. “The shareholders get 99 percent, Elon gets 1 percent,” Tesla board member Antonio Gracias said.

To get there, Musk will have to expand Tesla’s product lineup to include previously announced semis, a new SUV and a pickup. Plus the company’s solar roofs will have to be successfully integrated into its energy storage business.

There’s also the issue of production delays, which have occurred on all of Tesla’s current vehicles. The company currently is trying to raise production

to meet demand of its Model 3, a mass-market electric car that starts at $35,000.

Gracias says shareholders realize that Tesla is often optimistic about hitting production milestones and is working hard to achieve them. “We always hit our goals eventually. We are sometimes late,” he said. “Sometimes the application of engineering takes longer than we think.”

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 percent 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 percent 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 size and questions about whether the pay package would provide real motivation for Musk.

On the question of motivation, Tesla has said Musk is dedicated to spreading human civilization to other planets, starting with Mars, which would require large sums of money.

Rumors have spread that Musk wants to leave Tesla and focus on his rocket company, SpaceX. Musk has denied those rumors.

Right now, Musk is a long way from hitting any of the pay plan milestones. The crucial Tesla Model 3 introduction

is in trouble, as Musk and his team struggle with serious production problems.

Originally Musk had planned to be turning out hundreds of thousands of Model 3s by now. The demand appears to be there — last year, the company said about 455,000 people had put down $1,000 refundable deposits.

In the week of April 1, the company is expected to reveal whether it has met its most recent goal of producing 2,500 cars a week.

The company continues to burn cash and lose money. Analysts say the success of the Model 3 is crucial to its ultimate success.

Tesla still boasts legions of believers. Although its stock has been under pressure in recent weeks, Tesla’s market value tops General Motors’ by about $1 billion.