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How Elon Musk's Stock Award Compares To Tim Cook's

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At Tesla’s shareholder meeting on Wednesday the shareholders approved the Stock Performance Proposal for Elon Musk. Over a period of 10 years, he is eligible to receive upwards to 12% of the company’s stock, or 20.3 million shares, if all 12 milestones are achieved. (Note that I own Apple shares).

At the highest award level the company’s market capitalization would have to hit $650 billion, generate yearly revenue of $175 billion and the adjusted EBITDA, or Earnings Before Interest Taxes Depreciation and Amortization, goal is $14 billion. To reach such lofty goals Tesla will have to continue to sell the Model S and X, ramp the Model 3 production, execute on its semi-truck strategy and that the pedestrian fatality caused by an UBER self-driving vehicle doesn’t significantly delay autonomous driving.

Tesla SEC filing

Tim Cook’s award was 1 million shares in 2011

Shortly after Tim Cook became Apple’s permanent CEO, the Board awarded him 1 million shares (before the 7 for 1 stock split) of Restricted Stock that would vest over 10 years. Half of the award vested in 5 years and the remaining half was 5 years later. The stock was $376.18 when it was awarded, so it was worth $376.18 million.

Musk’s are at risk, Cook’s are pretty much guaranteed

There are 12 goals or tranches for Musk that have revenue and adjusted EBITDA milestones. To meet the first market cap milestone it has to almost double from the current $53 billion to $100 billion. To meet the operational milestones, Tesla must meet a set of escalating Revenue and Adjusted EBITDA targets. For a full rundown on the criteria and tranches I outlined them in this Forbes article.

Cook’s only criterion to receive his stock award is to be at the company for 10 years, starting on August 24, 2011. At 5 years, or August 24, 2016, he received half, or 500,000 shares. He receives the other half after another 5 years elapse, or August 24, 2021, just over 3 years away.

Musk’s are stock option, Cook’s are restricted stock

There is a big difference between stock options and restricted stock.

Stock options have a strike price ($350.02 for Elon Musk), which is the price that Musk will have to pay if he were to vest and exercise any of his options. This means that the options will only have value if the share price goes above $350.02. At Friday's closing price of $301.54 they would have no value but he does have 10 years for all of this to play out.

Restricted stock is an award of actual stock. In Cook’s case the shares were trading at $376.18 pre-split ($53.74 post the 7 for 1 split) when his award was announced. If Apple’s shares had remained at $376.18 he would have received the full value of them. And if the price had moved lower, he would have still benefited at whatever price they were. 

Musk’s could be much more valuable then Cook’s

Tesla made an estimate on the value of Musk’s award. There are a number of variables, including additional shares created for equity raises, other employee stock awards and when he exercises the options. The company’s estimate of the maximum value to Musk is $55.8 billion and that everyone else would have a benefit of $590.9 billion. Musk would receive 9.4% of the increased value vs. 90.6% for the other shareholders.

This does not take into account the 37.853 million shares of Tesla that he already owns, or 22% of the company. If he were to receive all 20.3 million shares he would own about 30% of Tesla .

Cook’s award was worth $376.18 million on the day it was awarded. As of Friday, with the shares at $164.94 his 7 million shares are worth about $1.2 billion. Cook owned 13,754 Apple shares when he received the award. If he were to not sell any of his shares he would own about 0.14% of Apple.