New York (CNN Business) – For an unpaid CEO, Elon Musk’s income in 2020 was huge.
He received four grants to buy 8.4 million Tesla shares in 2020. After payment of the exercise price, those blocks of stock options were worth $ 6.2 billion each at Wednesday’s closing price. The combined $ 24.8 billion worth of those options is more than Musk was worth a year ago when Forbes calculated his list of billionaires, when he ranked the 31st richest person in the world.
2021 and 2022 could be almost as lucrative for him.
The company’s annual financial presentation this week revealed that Musk will likely receive three additional options grants this year, each as large and lucrative as the one he received in 2020.
At current values, those three tranches of options would be worth $ 18.6 billion.
Analysts now predict Tesla’s financial results for 2022 will also hit heights that would give Musk three additional blocks of options. Tesla could hit one of those profit targets by 2021, which would mean Musk could match the four tranches of options he received last year.
Few investors complain about Elon Musk’s salary.
Its stock’s 743% rise in 2020 made it the biggest winner in the stock market as well as one of the most valuable companies in the world. That calmed most of the criticism he could have received.
“Tesla’s prestige is Musk,” said Daniel Ives, a technology analyst at Wedbush Securities. “The reason investors haven’t blinked is that because of Elon Musk’s strategic direction, Tesla is at the top of the mountain of electric vehicles and entering the golden age of electric vehicles. And it has set Tesla on the verge of becoming a billion dollar market capitalization company. “
Tesla’s surging stock price and his options to buy new stock makes Musk the richest person in the world, surpassing Amazon founder Jeff Bezos, according to Bloomberg.
LOOK: PHOTOS | Jeff Bezos, from Amazon’s founding in 1995 to the present day
Did Elon Musk Really Need More Options?
Unlike Musk, Bezos does not receive stock options from Amazon and earned a relatively modest salary of $ 81,840 in 2019, plus security services worth $ 1.6 million a year. But instead of taking advantage of stock options or grants like most CEOs do, you mainly benefit from increasing your Amazon stock.
Musk similarly owns 170 million Tesla shares, worth about $ 137.2 billion, in addition to existing shares, he has options to buy new ones. In fact, the nearly $ 123 billion gain in 2020 in the value of the stock that Musk already owns is smaller than the value of the additional options he received.
Musk, who bought a majority stake in Tesla in 2004 when it was a fledgling private company years after making his first car, is not getting a salary. Before his current lucrative compensation package, he had an older version that paid him with options to purchase 22.9 million custom Tesla shares divided by a price of $ 6.24 each. Those options are worth $ 18.3 billion today.
The options you received last year came from a second compensation package that was overwhelmingly approved by Tesla shareholders in 2018. This allows you to receive options to purchase up to 101 million custom shares at $ 70 each. Those options can come in 12 separate tranches of the same size.
If Tesla’s stock price continues to rise, so will the value of options. In late May, when Tesla confirmed that Elon Musk was receiving the first block of options for 2020, they were valued at “only” $ 770 million after the strike price. Today they are worth $ 6.2 billion.
Musk has not exercised any of his options. Executives often exercise them when they expire or to release money. Musk has never sold Tesla stock.
LOOK: The other factor (besides Elon Musk) that has made bitcoin grow enormously
Cost of Tesla Options
Those options come at a cost to Tesla, although it is not a cash outlay.
Share-based compensation had an impact of $ 1.7 billion on Tesla’s bottom line last year. The company does not disclose how much of that was Musk or how many shares there were for his other 70,750 employees.
The company makes the stocks available to its employees. His presentation said that “our compensation philosophy for all our employees reflects the origins of our startup, with an emphasis on share-based compensation.”
But the same filing says the company is not matching employee contributions to its 401 (k) plans, either in cash or in company stock.
When Elon Musk was recently asked on Twitter about the company’s lack of support for 401 (k) plans versus its own compensation package, he replied, “Everyone at Tesla is getting shares. My compensation is all shares / options that I do not withdraw. You do not take that into account.
Tesla said Musk had so many options, much earlier than expected, that it triggered the rise in stock-based compensation costs. In 2019, the share-based compensation was approximately $ 900 million.
Musk did not receive options in 2019, but some of that $ 900 million was an outlay that Tesla set aside because it believed Elon Musk would get options in early 2020.
While stock-based rewards don’t take money out of Tesla’s coffers, it does change the company’s earnings picture.
The company first reported positive net income in 2020, earning $ 721 million. Critics point out that the profit was much lower than the $ 1.6 billion Tesla received from the sale of legal credits to other automakers.
They argue that the company has actually lost money selling cars and that it cannot depend on the proceeds from the sale of those loans in the long run.
Without the $ 1.7 billion in stock-based compensation, Tesla’s net income would exceed the proceeds from the sale of those legal credits. And Tesla’s critics couldn’t claim he’d lost money selling cars.