How Elon Musk, CEO of multiple unprofitable companies, could become world’s richest man

Elon Musk

Elon Musk (Credit: AP/Stephan Savoia)


Entrepreneur and billionaire Elon Musk made headlines again this week ��� not��because of his net worth��or his nonviable��space travel goals, but because of��a new compensation plan that some experts believe might��make him the world’s richest person in the��coming��years.


The Tesla and SpaceX CEO has been known to be an unconventional business man, and while it���s been unclear what his future is with Tesla Motors, his new Tesla compensation plan revealed on Tuesday��is designed to incentivize him in an ���all or nothing��� way.


Here are the details of the compensation plan: As Tesla CEO, Musk will only be paid if he achieves a series of milestones, including achieving a market valuation of $650 billion in ten years. The company���s valuation goal starts at $100 billion and increases in $50 billion increments. Currently, Tesla���s market cap is at $59.4 billion.


Tesla also established various revenue and adjusted profit goals. Upon hitting all of the goals outlined, Musk would receive 1.69 million shares of the company, which could be worth billions.��The New York Times��described the compensation plan as the ���most radical in corporate history.��� Tesla calls it a ���10-year CEO performance award.���


���Elon will receive no guaranteed compensation of any kind ��� no salary, no cash bonuses, and no equity that vests simply by the passage of time,��� the��company’s��press release explains. ���Instead, Elon���s only compensation will be a 100% at-risk performance award, which ensures that he will be compensated only if Tesla and all of its shareholders do extraordinarily well.���


The announcement also highlights that Musk���s compensation ���is tied to the success of everyone at Tesla.”


Increasing Tesla���s value to $650 billion would make the company one of the five largest in the country, according to the New York Times ��� meaning his stock could be worth as much as $55 billion.


���If all that happens over the next 10 years is that Tesla���s value grows by 80 or 90 percent, then my amount of compensation would be zero,��� he��told the New York Times. ���I actually see the potential for Tesla to become a trillion-dollar company within a 10-year period.���


For vesting to happen, Tesla explains Musk must ���remain as Tesla���s CEO or serve as both Executive Chairman and Chief Product Officer, in each case with all leadership ultimately reporting to him.���


As Bloomberg explains, if all goes well, Musk would become��the richest man on the planet�������sidling up alongside��Jeff Bezos, Bill Gates, Warren Buffet, and Mark Zuckerberg, according to Bloomberg���s billionaire tracker ��� assuming the aforementioned billionaires��remain in their current spots in the wealth ranking.


Predicting��Musk’s placement at the top of the list��redefines what it��would mean to be a billionaire, and the route to get there. Note that Tesla still isn���t profitable: in the third quarter of 2017 Tesla lost��$671 million on a $3 billion total revenue. If this trend continues,��Musk��could be the richest man in the world who is leading an unprofitable company. To simplify: you don���t have to make money to become incredibly wealthy; you just need to have an idea that investors want to throw a lot of money at, and a lot of confidence that you won���t fail. Snap Inc. CEO Evan Spiegel (net worth $3.2 billion) and Twitter���s Jack Dorsey (net worth $3.3 billion) are��other notable examples of rich CEOs who head unprofitable companies.


Indeed, this pattern forms part of a trend that Silicon Valley has exhibited for quite some time: Big tech companies continue to reach the initial public offering (IPO) stage despite��lack of��profitability; Cloudera��is one recent example.


As��Salon’s Angelo Young wrote, ���once startups make their way to the public markets through initial public offerings, founder-CEOs can continue to reap billions from their company���s valuations without the companies making a dime in profit.��� Musk epitomizes that trend, it seems.


Meanwhile, the United States at large is becoming one of the most unequal first-world countries. The three richest men in the country, Jeff Bezos, Bill Gates and Warren Buffett, collectively hoard more wealth than half the United States ��� 160 million people.



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Published on January 24, 2018 13:55
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