Discussion #1

Elon Musk About to Get Another $1.8 Billion Payday from Tesla!!
Key words and Definitions
Agency theory – the theory that attempts to explain the relationship that exists between principals (stockholders) and the agents (management) acting on their behalf.
Executive stock options – long-term rights granted to upper management to allow them to purchase a fixed number of shares of the firm’s stock at a fixed price.
Agency costs – expenses or costs incurred when an agent acts on behalf of a principal.

Summary: Key Points in the Article.
Tesla CEO Elon Musk recently received company stock options worth $1.8 billion. Musk does not receive a salary or cash bonuses in his role but instead tied all of his compensation to performance metrics that trigger stock options. Over the next ten years he could receive 12 equal blocks of 1.7 million options if Tesla meets all of the required operational and market value goals. The compensation plan was approved by shareholders in 2018.
Elon Musk reached the first performance milestone of the company’s market capitalization averaging over $100 billion over the previous six months on May 28, 2020. However, Tesla’s stock price is up over 500% over the past year and Musk is set to earn his second block of stock options as long as the stock price remains constant for another two weeks. The remaining ten option blocks are tied to market capitalization goals and revenue or EBITDA goals. Tesla’s current market value makes the firm the most valuable automaker in the world followed by Toyota which is now in the number two position.

https://www.cnn.com/2020/07/10/investing/elon-musk-tesla-payday/index.html (FULL ARTICLE HERE)

ANSWER ~~Thinking Critically Questions:

How do executive stock options help align the goals of managers and shareholders?
Why are executive stock options an agency cost?
Why is Tesla’s market capitalization so high?

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