Technology: Elon Musk got 'paid' $2.3 billion last year but actually earned $0, and this shows how complicated CEO compensation has become - PressFrom - Canada
  •   
  •   
  •   

TechnologyElon Musk got 'paid' $2.3 billion last year but actually earned $0, and this shows how complicated CEO compensation has become

17:16  12 june  2019
17:16  12 june  2019 Source:   msn.com

Tesla downgraded at Evercore on slowing demand across all models

Tesla downgraded at Evercore on slowing demand across all models Evercore downgraded Tesla to "underperform" from "in-line" on Monday, citing concerns on the decline in demand for the electric cars across all models.

Elon Musk got ' paid ' $ 2 . 3 billion last year but actually earned $ 0 , and this shows how complicated CEO compensation has Elon actually earned $ 0 in total compensation from Tesla in 2018 The chart illustrates how the reported compensation for ExxonMobil's CEOs over the past

Elon Musk got ' paid ' $ 2 . 3 billion last year but actually earned $ 0 , and this shows how complicated CEO compensation has become . Popular. FedEx no longer will fly your Amazon packages — and now pressure is mounting on the company as it gears up its in-house air-freight

Elon Musk got 'paid' $2.3 billion last year but actually earned $0, and this shows how complicated CEO compensation has become© Charles Sykes/Invision/AP, File

How much a corporation's chief executive makes in a single year seems like a simple question, but specifying what top executives truly make (and when) is a surprisingly difficult task.

A recent report in The New York Times indicated that Elon Musk made $2.3 billion in 2018 as CEO of Tesla, but the situation is more complicated. Unless the electric-car maker achieves some truly stunning goals, Musk may not personally benefit from the massive award.

The key to the discrepancy comes from the pay being calculated in accordance with the Securities and Exchange Commission's rules for reporting CEO compensation, as opposed to what top executives actually gain in a particular year.

Tesla loses $700 million after two profitable quarters

Tesla loses $700 million after two profitable quarters Despite a small rise in first-quarter Model 3 production, the pricier Model S and X fell sharply from the prior quarter

CEO Elon Musk said demand for Tesla's vehicles continues to be strong, despite concerns sparked by disappointing first-quarter delivery numbers. SEE ALSO: Elon Musk got ' paid ' $ 2 . 3 billion last year but actually earned $ 0 , and this shows how complicated CEO compensation has become .

Topping the list: Elon Musk , with a $ 2 . 3 billion package. The solid economy has bolstered companies’ sales, and President Trump’s corporate tax cuts have juiced profits. It’s not just the highest sum for last year ; it’s the biggest ever, according to compensation experts.

Many CEOs receive most of their compensation in the form of shares or stock options to buy shares at a given price and time. Often, those stock or option grants don't vest or become available to the chief executive until some amount of time has passed. Or, as in Tesla's case, some set of performance goals are met.

That makes measuring exactly how much a given CEO makes in a given year surprisingly hard to quantify.

Getting technical about executive compensation

The Times published a ranking of compensation for 200 CEOs of major companies in 2018, based on an analysis by the executive-compensation consulting firm Equilar.

One of the most stunning results was the reported compensation for Musk. According to The Times and Equilar, the Tesla CEO received stock options estimated to be worth nearly $2.3 billion in 2018. Musk's reported compensation was more than 17 times that of the next-highest executive on the list, Discovery Communications CEO David Zaslav.

Elon Musk owes $507 million to banks helping Tesla raise capital

Elon Musk owes $507 million to banks helping Tesla raise capital Elon Musk owes $507 million to banks helping Tesla raise capital

Goldman had also recently sold three other companies to Salesforce, including MuleSoft. It's unclear whether Tableau spoke with any other companies during the Elon Musk got ' paid ' $ 2 . 3 billion last year but actually earned $ 0 , and this shows how complicated CEO compensation has become .

Every year , more than 100,000 Antarctic icebergs slough off the ice sheet and melt into the ocean. These bergs are often hundreds of times bigger than their Elon Musk got ' paid ' $ 2 . 3 billion last year but actually earned $ 0 , and this shows how complicated CEO compensation has become .

However, after Business Insider highlighted Musk's eye-popping compensation, Tesla reached out to us through a spokesperson and disputed this characterization.

Related video: Elon Musk tops the list of highest paid CEOs in 2018 (provided by Yahoo Finance)

Here's Tesla's statement:

"Elon actually earned $0 in total compensation from Tesla in 2018, and any reporting otherwise is incorrect and misleading. Unlike other CEOs, Elon receives no salary, no cash bonuses, and no equity that simply vests by the passage of time. His only compensation is a completely at-risk performance award that was specifically designed with ambitious milestones, such as doubling Tesla's current market capitalization from approximately $40 billion to $100 billion. As a result, Elon's entire compensation is directly tied to the long-term success of Tesla and its shareholders, and none of the equity from his 2018 performance package has vested."

Buffett on Tesla's plan to sell insurance: 'I'd bet against any company in the auto business'

Buffett on Tesla's plan to sell insurance: 'I'd bet against any company in the auto business' "The success of the auto companies getting into the insurance business is probably as likely as the success of the insurance companies getting into the auto business," says Buffett.

Read more: Elon Musk just said Tesla has a 'good shot' of setting a record for deliveries this quarter. As Tesla increases battery production, it will have to consider Elon Musk got ' paid ' $ 2 . 3 billion last year but actually earned $ 0 , and this shows how complicated CEO compensation has become .

SEE ALSO: Jeff Bezos has said that Amazon has had failures worth billions of dollars — here are some of the biggest ones. NOW WATCH Elon Musk got ' paid ' $ 2 . 3 billion last year but actually earned $ 0 , and this shows how complicated CEO compensation has become .

According to the proxy statement, under the terms of the company's 2018 compensation plan for Musk, the CEO would receive a "10-year maximum term stock option to purchase 20,264,042 shares of Tesla's common stock, divided equally among 12 separate tranches that are each equivalent to 1% of the issued and outstanding shares of Tesla's common stock," that would vest only if the company hit a combination of market-capitalization, revenue, and profitability milestones, and Musk remained at the helm of the company.

The first of those milestones would be a combination of Tesla reaching a market capitalization of $100 billion and either revenues of $20 billion or earnings of $1.5 billion (formally, adjusted earnings before interest, taxes, depreciation, and amortization, or EBITDA).

As the first market-capitalization goal is more than double Tesla's market capitalization as of June 10, the company has not hit these goals, and so none of Musk's stock options under the compensation plan have yet vested.

The New York Times wrote that the compensation plan was intended to ensure Musk's long-term dedication to Tesla's growth and profitability, quoting the company's announcement of the plan that said it would "incentivize and motivate Mr. Musk to continue to not only lead Tesla over the long-term, but particularly in light of his other business interests, to devote his time and energy in doing so."

Musk Gets Head Start on Bezos Launching SpaceX's Satellites

Musk Gets Head Start on Bezos Launching SpaceX's Satellites Elon Musk’s SpaceX has made a business out of launching satellites for commercial customers, NASA and the U.S. military. On Thursday evening, the company will launch orbital objects of its own in a key step toward creating a space-based constellation that beams broadband to underserved areas across the globe. It’s a bet Musk is making along with fellow billionaire Jeff Bezos on bringing in revenue as an internet provider from outer space. Musk founded SpaceX in 2002 with a goal of colonizing Mars. In a phone call with journalists, Musk sounded cautious but excited.

Studies have shown that higher pay for government officials can reduce corruption and increase lawmakers' responsiveness to constituents. Elon Musk got ' paid ' $ 2 . 3 billion last year but actually earned $ 0 , and this shows how complicated CEO compensation has become .

Trump and Macron enjoy putting on a show of exaggerated handshakes, kisses and taps on the back, but they disagree on key issues, including climate change Elon Musk got ' paid ' $ 2 . 3 billion last year but actually earned $ 0 , and this shows how complicated CEO compensation has become .

Several commentators at the time noted the unusual nature of the compensation package. Business Insider's Troy Wolverton reported that Musk already controls a large amount of Tesla's stock, so he already has strong incentives to boost the company's market cap.

Read more: 5 reasons why Tesla is probably poised for a rebound

According to Tesla's 2019 proxy statement filed with the SEC in 2018, the company compensated Musk with stock options worth an estimated $2,283,988,504 as part of the 2018 compensation plan. That value, noted on page 55 of the statement, was calculated in line with SEC accounting rules for equity-based compensation.

The reported $2.3 billion value of the stock options is based on Tesla's estimates of what the options could potentially be worth, based on how the company's stock price evolves over time. According to the proxy statement, that estimate does "not necessarily correspond to the actual value that may be recognized by the named executive officers, which depends, among other things, on the market value of our common stock."

Tesla wrote in the proxy statement, "We are required to report pursuant to applicable SEC rules any stock option grants to Mr. Musk at values determined as of their respective grant dates and which are driven by certain assumptions" laid out in Financial Accounting Standards Board guidelines.

Tesla slices prices on Models S and X as stock plunges

Tesla slices prices on Models S and X as stock plunges After a big first-quarter loss, and signs of slowing demand for its cars, Tesla is under pressure to deliver profits

Last year , a fake video showing former President Barack Obama cussing and insulting President Donald Trump circulated online. Elon Musk got ' paid ' $ 2 . 3 billion last year but actually earned $ 0 , and this shows how complicated CEO compensation has become .

Two women involved in the assassination told courts they believed they were involved in a prank game show during a long and bizarre trial that played out after Kim Elon Musk got ' paid ' $ 2 . 3 billion last year but actually earned $ 0 , and this shows how complicated CEO compensation has become .

That is, SEC rules require Tesla to report a measure of the market value of the unvested options from Musk's compensation plan, following standard accounting rules for CEO pay.

But the company said that, under the terms of the compensation plan and as pointed out above, none of those shares have yet vested, with the first tranche vesting only if Tesla first hits a market capitalization of $100 billion and one of the revenue and profitability goals is achieved.

In addition to the unvested stock option compensation, the proxy letter also includes a $56,380 salary, following California's minimum-wage law. Tesla pointed out in the letter that "Mr. Musk has not accepted his salary in the amounts of $56,380, $49,920 and $45,936 for 2018, 2017 and 2016, respectively." Musk has traditionally refused his annual paychecks from Tesla.

What gets reported can be different from what practically happens

In the proxy statement, Tesla pointed out the difference between the compensation level reported and Musk's actual financial gain: "As a result, there may be a significant disconnect between what is reported as compensation for Mr. Musk in a given year in such sections and the value actually realized as compensation in that year or over a period of time."

The company also reiterated the long-term, performance-based nature of Musk's compensation:

Moreover, the vast majority of compensation in respect of past stock option grants to Mr. Musk, including the 2012 CEO Performance Award and the 2018 CEO Performance Award, were incentives for future performance and their value is realizable only if Tesla's stock price appreciates compared to the dates of the grants, and the Company achieves applicable vesting requirements.

UPDATE 2-First satellites for Musk's Starlink internet venture launched into orbit

UPDATE 2-First satellites for Musk's Starlink internet venture launched into orbit SPACE-EXPLORATION/SPACEX (UPDATE 2, TV, PIX):UPDATE 2-First satellites for Musk's Starlink internet venture launched into orbit

Morgan Stanley CEO James Gorman said the Wall Street bank is planning to invest in its wealth management business in "core Asia" out of offices in Hong Elon Musk got ' paid ' $ 2 . 3 billion last year but actually earned $ 0 , and this shows how complicated CEO compensation has become .

For years , unwavering support for Israel has been one of the rare topics on which there's been bipartisan agreement in Washington — but that's beginning to change. Elon Musk got ' paid ' $ 2 . 3 billion last year but actually earned $ 0 , and this shows how complicated CEO compensation

To put that all together: Tesla reported to the SEC that they awarded stock options worth an estimated $2.3 billion in stock options to Musk in 2018 as part of the long-term compensation plan. But he cannot actually benefit from those options until the company hits at least one of its ambitious goals.

Courtney Yu, the director of research at Equilar, the executive-compensation and corporate-governance data firm that worked with The Times on its ranking of CEO pay, explained the situation in an email to Business Insider.

"While the SEC requires a certain calculation, such as using the grant date fair value of unvested equity awards granted, this often doesn't reflect what the executive actually receives once stock awards are vested or options are exercised," Yu wrote.

Yu emphasized the contingent nature of the reported CEO pay.

"When it's all said and done, Elon Musk could realize all $2.3 billion of that option award, or he could realize nothing because the company doesn't meet performance goals," he said.

Yu also said a compensation measure including the grant-date value of unvested equity, as reported to the SEC, is still a useful metric for comparing CEO pay between companies "because it's a standardized calculation across the board."

Companies often publish other measures of CEO pay alongside the compensation reported according to SEC guidelines in order to give a fuller sense of what executives earn.

"However, it's also pretty common for companies to provide alternative calculations, such as the value of vested stock awards and exercised options, because they think this provides a better picture into what a CEO really makes," Yu wrote.

This divide is pretty common

As an example of another company showing both reported compensation under SEC rules and the actual realized compensation for CEOs, Yu directed us to ExxonMobil's 2018 proxy statement, which included a chart showing that the realized value of executive compensation tended to be much lower than the reported compensation:

Elon Musk claims he's deleting his Twitter account

Elon Musk claims he's deleting his Twitter account Elon Musk claims he's deleting his Twitter account 10 months after his use of the social media site landed him in trouble with U.S. regulators. The Tesla CEO changed his Twitter display name to Daddy DotCom on Father's Day. Daddy.com is an existing website that provides parenting information to new and expecting fathers. Musk got in trouble with the Securities & Exchange Commission in August for tweets about taking the company private and saying he had secured funding to do so with no evidence to back that up. Musk and Tesla each paid $20 million in to settle with the SEC.

Traditional pay -TV providers are losing subscribers more and more rapidly, and satellite services including DirecTV and Dish are experiencing some of the worst losses. Elon Musk got ' paid ' $ 2 . 3 billion last year but actually earned $ 0 , and this shows how complicated CEO compensation

Elon Musk got 'paid' $2.3 billion last year but actually earned $0, and this shows how complicated CEO compensation has become© Exxon-Mobil via SEC

The chart illustrates how the reported compensation for ExxonMobil's CEOs over the past decade - roughly analogous to the $2.3 billion reported by Tesla - paints a very different picture than the realized pay that the oil company's CEOs actually received each year. In 2017, CEO Darren Woods actually realized just 29% of his roughly $17 million in reported compensation. Between 2008 and 2017, the average realized pay was just shy of half the average reported pay.

Tesla's compensation plan for Musk remains different because of the high potential value for Musk and the extremely ambitious corporate performance goals attached to that compensation. The basic split between what a company is required to report to the SEC and its CEO's actual increase in net worth is not uncommon among big corporations.

While the eye-popping reported compensation is stunningly high, the nuances of how corporate CEOs are paid mean that Musk may end up gaining no real value in the form of actual new Tesla shares from those billions of dollars in options.

Elon Musk claims he's deleting his Twitter account.
Elon Musk claims he's deleting his Twitter account 10 months after his use of the social media site landed him in trouble with U.S. regulators. The Tesla CEO changed his Twitter display name to Daddy DotCom on Father's Day. Daddy.com is an existing website that provides parenting information to new and expecting fathers. Musk got in trouble with the Securities & Exchange Commission in August for tweets about taking the company private and saying he had secured funding to do so with no evidence to back that up. Musk and Tesla each paid $20 million in to settle with the SEC.

—   Share news in the SOC. Networks

Topical videos:

usr: 4
This is interesting!