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In 2012, to create incentives for continued long term success beyond the Model S program and to further align executive pay with increases in stockholder value, the Compensation Committee reviewed Mr. Musk’s equity compensation and retained Compensia to advise in such review. Following such review, the Compensation Committee recommended to the Board of Directors a new stock option grant to Mr. Musk. On August 1, 2012, our Board of Directors approved a grant to Mr. Musk of options to purchase 5,274,901 shares of our common stock at an exercise price of $31.17 per share representing 5% of our total issued and outstanding shares as of August 13, 2012, the effective date of such grant (the “2012 CEO Grant”). The 2012 CEO Grant consists of ten equal vesting tranches, with a vesting schedule based entirely on the attainment of both operational and market capitalization milestones, as further detailed below.
Each of the ten vesting tranches requires that the Company meet a combination of an operational milestone achievement and a significant increase in our market capitalization of $4.0 billion. Since our average market capitalization for the 30 trading days prior to August 13, 2012, the date of grant, was $3.2 billion, the first tranche will only vest when we more than double our market capitalization to $7.2 billion and at least one of the operational milestones described below is met. The second tranche would vest only if there is another $4.0 billion increase in our market capitalization to $11.2 billion and when two of the operational milestones described below are met. The remaining tranches are structured in a similar manner, so that the 2012 CEO Grant would be fully vested when we achieve a market capitalization of $43.2 billion and all ten operational milestones described below have been achieved. Market capitalization for purposes of milestone achievement will be determined based on a rolling six month historic average (based on trading days only). The market capitalization for a particular trading day is equal to the closing price multiplied by outstanding shares of common stock as of the end of such trading day. To give some perspective on these targets, note that, as of April 11, 2013, Ford Motor Company and General Motors Company had market capitalizations of approximately $53 billion and $40 billion, respectively. The term of the 2012 CEO Grant is ten years, so that if any vesting tranches remain unvested after expiration of the 2012 CEO Grant, they will be forfeited. In addition, Mr. Musk will forfeit any unvested options if he is terminated as CEO of the Company, whether for cause or otherwise.
In addition to the market capitalization milestones, vesting for each of the ten tranches requires achievement of certain operational milestones. To illustrate, vesting of the first tranche requires the achievement of any one of the ten defined operational milestones, vesting of the second tranche requires the achievement of any two of the ten defined operational milestones, etc. The ten operational milestones for the 2012 CEO Grant are:
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Successful completion of the Model X Engineering Prototype (Alpha);
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Successful completion of the Model X Vehicle Prototype (Beta);
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Completion of the first Model X Production Vehicle;
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Successful completion of the Gen III Engineering Prototype (Alpha);
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Successful completion of the Gen III Vehicle Prototype (Beta);
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Completion of the first Gen III Production Vehicle;
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Gross margin of 30% or more for four consecutive quarters;
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Aggregate vehicle production of 100,000 vehicles;
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Aggregate vehicle production of 200,000 vehicles; andAs of the date of this filing, no vesting milestones for the 2012 CEO Grant have been achieved and no shares subject to the 2012 CEO Grant have vested.
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Aggregate vehicle production of 300,000 vehicles.
The 2012 CEO Grant will not accelerate in the event of a change in control of the Company. However, in a change in control event, the achievement of market capitalization-related vesting milestones for the 2012 CEO Grant will be based solely on our market capitalization as of the effectiveness of such change in control rather than the rolling six month historic average. The 2012 CEO Grant will not need to be adopted by an acquirer and, to the extent unvested on such date, will expire.
anybody want to explain what this document means to us shareholders?
Oh it's pretty clear what that document shows... If Teslas market capitalization where 43.2 billion, you'd be looking at a $400+ per share of TSLA, if it's valuation where similar to how it's done as of today. These are all goals to try and retain Elon, and make Tesla a major player in auto manufacturing.
Elon suffers more from dilution than a buy-and-hold shareholder because:Could it be that the aggressiveness of this package would be taken by cynics as an indication of impending secondary public offering and Tesla trying to sweeten the medicine? This would be the only immediate reason that I can see that announcement of this compensation package would cause a slide in stock price.
That said, I cannot see how you can grow the company this aggressively without selling more equity at some point. Note, though, that current Tesla has not tapped the corporate bond market; all of the balance sheet leverage currently comes from the DoE loan (which is going away).
This compensation plan tied to aggressive goals is not uncommon for a public company executive. What is unconventional is the fact that the 5 year strategic plan milestones have been laid out for all to see.