Elon Musk: Why Tesla approved massive payday for CEO

It hasn’t been a perfect week for Elon Musk, but the maverick tech tycoon has ended it on the right note, adding another billion dollars to his net worth.

A disappointing week for one of billionaire Elon Musk’s companies has had a happy end for its founder as he becomes eligible to receive a huge payday from one of his other companies.

Mr Musk’s SpaceX rocket company had hoped to become the first private company to send people into space on Thursday morning, but the launch was postponed to Sunday morning due to poor weather.

Meanwhile, the Tesla board he was forced to step down as chairman of in 2018 after joking about taking the company private on Twitter has now approved the first tranche of shares in Mr Musk’s 2018 “performance award”.

The details are contained in Tesla’s latest filings with the US Securities and Exchange Commission.

Elon Musk at a press conference ahead of a postponed launch that would have been the first time a private company sent people into space. Picture: Saul Martinez/Getty Images/AFP

Tesla has historically paid Musk a salary that “reflected the applicable minimum wage requirements under California law”, though he didn’t accept the money anyway.

From May last year, and at his request, Tesla stopped paying him a salary altogether.

Over the years he has been granted stock options in the company to “create incentives for continued long-term success”.

In 2012, Musk was granted a performance award that gave him the option of purchasing 5,274,901 shares of Tesla’s common stock, 5 per cent of Tesla’s total issued and outstanding shares at the time.

All of the market capitalisation targets and all but one of the performance targets in that award have now been met.

Tesla just needs to have a gross margin of 30 per cent or more for four consecutive quarters for Musk to be granted access to the last of the ten tranches in the 2012 award.

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In 2018, Elon Musk tweeted he would take Tesla private at $420 a share. While under investigation by the SEC he went on a podcast and smoked some (legal) “pot”. Picture: The Joe Rogan Experience

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A new performance award was approved by 73 per cent of Tesla shareholders (not including Elon and his brother Kimbal) in 2018, which contains 12 tranches of stock options designed to “continue to incentivise Mr Musk to lead Tesla through the next phase of its development”.

One of those tranches has now been unlocked after performance and market capitalisation targets were met.

“One operational milestone relating to $US20 billion total revenue and, one market capitalisation milestone of $US100 billion have been achieved and certified by the Board,” the filings read.

This means Musk is now able to purchase an additional 1,688,670 shares in Tesla for $US350.02 each.

Tesla shares closed on the NASDAQ yesterday at $805.81 a share.

NASA and SpaceX are trying to send two astronauts into space, and appropriately a Tesla is taking them to and from the launch pad. Picture: John Raoux/AP

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The price he will pay for the shares compared to how much they’re worth on the market equates to a profit of nearly $US770 million ($A1.16 billion).

But there’s a catch.

While Musk’s net worth grows on the news, he can’t actually cash out on the shares for at least another five years.

As is the point of the tranches, Musk will now be looking to further grow Tesla’s share value, bolstering the worth of his holding, and unlocking even more tranches of the performance award in the future.

Recent estimates placed Musk’s net worth at $US36.5 billion ($A55 billion).