Tom Maloney
Elon Musk is making a habit of collecting 12-figure compensation packages.
The latest come from SpaceX, which revealed in a stockmarket filing on Wednesday that Musk, the firm’s founder and chief executive officer, could receive more than 1.3 billion shares if the rocket, AI and social media company hits certain market capitalisation and operational milestones.
Structured as two awards, they’re worth about $US760 billion ($1.06 trillion) combined at the top of their respective market value targets, according to calculations by the Bloomberg Billionaires Index.
To be sure, to get the maximum payout Musk will need to achieve milestones that sound realistic only in the realm of science fiction, including establishing a permanent human colony on Mars with at least 1 million inhabitants.
Along with a similarly structured pay deal at Tesla, where Musk is also CEO, the 54-year-old now has about $US1.8 trillion of equity awards on the line if his companies meet the targets. Taken individually, each would be the most expensive compensation plan ever granted if vesting conditions are achieved.
The awards “are obviously unprecedented and it’s kind of hard to wrap your brain around it,” said Jason Schloetzer, associate professor of accounting at Georgetown University’s McDonough School of Business.
Musk and SpaceX didn’t reply to requests for comment.
The larger SpaceX package was granted by the board in January and includes as many as 1 billion performance-based restricted Class B shares split into 15 equal tranches. For Musk to get the full amount Space Exploration Technologies Corp., as the company is formally known, must achieve a market value of $US7.5 trillion. Additionally, none of the awards vest until SpaceX establishes a colony on Mars.
If the maximum market capitalisation is reached under that arrangement, the award would be worth roughly $US600 billion, according to Bloomberg calculations.
The smaller compensation package is a restructured version of a deal Musk had at xAI, his artificial intelligence and social media company that merged with SpaceX in February. It consists of 302.1 million shares split into 12 equal tranches, with market capitalisation goals ranging from $US1.065 trillion to $US6.565 trillion. For any of the tranches to vest, the company must establish “non-Earth-based data centres capable of delivering 100 terawatts of compute per year”.
If SpaceX meets those goals, Musk’s award would be worth nearly $US160 billion.
“I think you have to look at some of these things and go, this is an aspiration,” said Dan Walter, an independent pay consultant. “There’s only a very few, bordering on science fiction, ways that he could make the Mars colonisation thing happen in his lifetime.”
SpaceX hasn’t yet recognised any share-based compensation expenses for the two awards because “both performance milestones were considered improbable,” the company said in the filing. Both deals are subject to Musk’s continued employment, but aren’t subject to a defined performance period, meaning there’s no time limit on when the goals can be achieved.
Musk is the world’s richest person with a net worth of $US722 billion, according to Bloomberg’s wealth index, and is likely to become a trillionaire if SpaceX is valued at $US1.75 trillion or more in its IPO. His net worth calculation doesn’t include his compensation packages at Tesla or SpaceX.
Tesla’s latest pay deal for Musk was partly justified by the company as a way to ensure that he had significant voting control, a point of contention for the CEO, who said he didn’t want to create “a robot army” if he didn’t at least have strong influence.
At SpaceX he already controlled most of the company’s votes without the compensation packages. The larger of the two awards was granted to “further incentivise Mr Musk to achieve our long-term business objectives,” according to the filing.
“At some point there has to be a diminishing return where the incremental dollar doesn’t get you more attention,” Schloetzer said.
Musk’s second-in-command at SpaceX, President Gwynne Shotwell, had total compensation of $US86 million last year, with the bulk of that coming from a special options award granted in October, according to Wednesday’s filing. Her long-term incentive compensation target is $US5 million, and she receives a salary of about $US1 million. Shotwell, 62, has been at SpaceX since 2002, the year the company was founded.
Excluding unvested compensation her stake in SpaceX is about 0.1 per cent, compared with Musk’s 40 per cent.
Whether Musk’s performance goals are achieved will be determined by SpaceX’s board. Because he controls the majority of its voting rights, he’s able to elect all board members, and the company plans to rely on exemptions from requirements that its compensation and nominating committee be composed entirely of independent directors.
“Not only does he seem to be pushing the frontiers of space, he’s also pushing the frontiers of governance,” Schloetzer said.
The fact that the company that’s likely to pull off the biggest IPO of all time is controlled by a single person has some concerned.
“There will be many ‘me too’ companies now that SpaceX has breached the conventional norms by creating a trillion-dollar, controlled company,” said Shiva Rajgopal, professor of accounting and auditing at Columbia Business School. “It’s a moment of truth for the gatekeepers of capital markets — ratings agencies, proxy advisers, index inclusion committees, and the like.”
Bloomberg
The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.
