Tesla confirms Elon Musk unlocks first tranche of his compensation plan worth ~$800 million

Tesla has confirmed that the first tranche of Elon Musk’s massive CEO compensation plan has vested, and it’s worth almost $800 million.

While Musk doesn’t accept a salary from Tesla, shareholders granted him a very generous and ambitious stock compensation plan in 2018.

The plan is linked to a significant increase in revenue, adjusted EBITDA, and a massive increase in Tesla’s market valuation.

After those milestones are achieved, each $50 billion increase in Tesla’s market capitalization would result in Musk receiving 1.69 million shares at a set price — starting at $350 a share.

Here are the main details of the compensation plan:

As we reported earlier this month, it seemed like Tesla had achieved all the requirements for the first tranche to vest.

In a document announcing Tesla’s 2020 shareholder’s meeting, the company has confirmed that the first tranche has vested:

In particular, the 2018 CEO Performance Award is comprised of 12 equal tranches, each vesting only upon the achievement of a market capitalization milestone matched to one of eight revenue-based operational milestones or eight Adjusted EBITDA-based operational milestones, all of which were viewed as difficult hurdles at the time of grant. While our stockholders benefit from each incremental increase in Tesla’s performance and stock price, aligning their interests with Mr. Musk’s incentives, the tranches under the 2018 CEO Performance Award vest only upon the full achievement of specific milestones, making it even more challenging for Mr. Musk to realize value from such increases. As of the date of this proxy statement, one of the 12 tranches under this award has vested and become exercisable, subject to Mr. Musk’s payment of the exercise price of $350.02 per share and the minimum five-year holding period generally applicable to any shares he acquires upon exercise.

At today’s closing of $805 per share, the shares are worth $1.36 billion.

After the cost of exercising the options at $350 per share, Musk would see an income before taxes of $768.5 million.

Musk has to hold the shares for five years after he exercises the options — at which point he will also have to pay taxes on the gain.

Most employees and executives receiving large stock options will sell shares. Musk currently holds over 20 million shares of Tesla in order to cover the tax obligations.

In the past, Musk has instead opted to borrow against his shares in order to pay his taxes, but it has never been for an amount even close to the taxes he is going to owe once he exercises those shares.