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Remember the legal brawl CEO Elon Musk faced over his $56 billion moonshot pay package at Tesla? As SpaceX prepares to go public in a $75 billion initial public offering next week, Musk is pushing the limits of his pay package into a whole other universe, and this time, he\u2019s designed it so that he will never have to fight that kind of battle again.<\/p>\n
What sets Musk\u2019s SpaceX pay package apart is how thoroughly insulated it is from the kind of lawsuit that nearly cost Musk his, at-the-time, unprecedented award from Tesla, which was the largest in U.S. corporate history. First, the Tesla board granted Musk the 2018 award after the company was already public, which allowed a shareholder to argue it was an after-the-fact transfer of wealth from investors who never signed off. A Delaware Chancery Court judge agreed and voided it. This time, Musk\u2019s massive stock grant, with a potential $1.1 trillion value, is spelled out clearly in SpaceX\u2019s IPO registration statement for any investor to read about before buying a single share.<\/p>\n
To boot, SpaceX is no longer incorporated in Delaware, the state whose court struck down the Tesla package. In fact, Musk very publicly moved SpaceX to Texas after the court rescinded his Tesla award, where a shareholder would need to own 3% of the company\u2014a multibillion-dollar stake at SpaceX\u2019s projected $1.8 trillion valuation\u2014merely to bring a legal claim, which a special Texas business court would hear with no jury. <\/p>\n
There are no surprises here, said Jay Ritter, a University of Florida finance professor and longtime scholar of IPOs. <\/p>\n
\u201cIf you don\u2019t like it, you don\u2019t have to buy it at that price,\u201d said Ritter, referring to the $135 per-share price planned for the IPO.\u00a0 \u201cAnd that\u2019s a big difference; with the Tesla pay package\u2014the company was already public.\u201d\u00a0<\/p>\n
Musk\u2019s SpaceX compensation deal, which is currently valued at $175 billion with the potential for up to $1.1 trillion in upside, requires him to achieve never-before-seen feats such as a $7.5 trillion market capitalization, a human community on planet Mars, and data centers somewhere other than Earth. <\/p>\n
The astronomical pay package and eye-popping performance targets are on brand for Musk, whose track record of innovation is perhaps matched only by his thirst for attention. In this case, they serve the practical purpose of getting the world buzzing about both him and the SpaceX IPO.<\/p>\n
\u201cThis is marketing 101,\u201d said Eric Hoffmann, chief data officer at compensation consulting firm Farient Advisors. \u201cThey\u2019re driving hype to drive the stock price and the amount of money they can raise.\u201d<\/p>\n
In fact, a close reading of the 300-page-plus IPO prospectus suggests that Musk\u2019s stock-compensation package is not really designed for him not to reap the full payout. SpaceX describes those data center and Mars milestones as \u201cimprobable,\u201d meaning even the company doesn\u2019t think Musk can do it. <\/p>\n
So why build a payday around goals Musk will almost certainly never reach? <\/p>\n
They ensure the world\u2019s richest man maintains something he might value even more from the compensation deal: his near-iron grip over SpaceX. <\/p>\n
Here again, the Tesla experience in instructive. Musk\u2019s 2018 $56 billion moonshot grant at Tesla was structured as a stock option package, and thus didn\u2019t give him nearly the same level of sway over the company and board without first hitting the goals laid out in the award. The SpaceX stock-based awards\u2014which consist of a 1.3 billion super-voting Class B shares with 10 votes per share\u2014flip that equation on its head. Because of the unusual way the stock-based awards are structured, Musk will receive the voting benefits of the shares even if he never hits the performance targets necessary to unlock their financial value.<\/p>\n
\u201cHe has a 0.00% chance of hitting those two project-based goals,\u201d said Eric Hoffmann, chief data officer at compensation consulting firm Farient Advisors, referring to the Mars colony and the data centers. \u201cHe wants to make sure he has complete control over this company\u2014which he has done.\u201d<\/p>\n
Another feature of the moonshot grants, which Hoffmann dubbed a \u201cMars-shot,\u201d is that they don\u2019t include a timeframe in which the goals need to be hit. They only require that Musk remain employed at SpaceX, noted Hoffmann.<\/p>\n
Musk holds a total of 5.6 billion Class B shares of SpaceX stock, according to the company\u2019s S-1, making his combined total voting power 85.1% before the IPO. A significant chunk of those shares were granted in January and March of this year when Musk received two grants totaling 1.3 billion performance-based restricted shares of Class B stock. <\/p>\n
To actually earn and monetize 1 billion of the shares, Musk has to hit\u00a015 market capitalization milestones\u00a0up to $7.5 trillion and establish a \u201cpermanent human colony on Mars with at least one million inhabitants.\u201d\u00a0<\/p>\n
To get the other 300 million shares, he has to hit 12 market cap milestones from $1 trillion to $6.6 trillion and\u00a0set up data centers capable\u00a0of delivering 100 terawatts of compute per year. That 100\u00a0terawatts, equivalent to 100 trillion watts of power, is roughly\u00a030 times\u00a0the U.S.\u2019s average power consumption in 2022 and five to six times average power use globally, according to the data from the U.S. Energy Information Administration.\u00a0<\/p>\n
Whether or not any of that actually happens however, is almost besides the point. In exhibits accompanying the SpaceX registration statement, the company makes it clear Musk has \u201call the rights and privileges of a holder of Class B Common Stock in respect the Restricted Shares that have not been forfeited, including the right to vote the restricted shares from the date of grant.\u201d So, even though the shares don\u2019t vest until the performance targets are met, they confer immediate voting rights. <\/p>\n
Musk is hardly alone among tech founders in seeking to maintain control of their company through a dual class stock structure. Meta\u2019s Mark Zuckerberg, Snap\u2019s Evan Spiegel, and Google founders Larry Page and Sergey Brin all took their companies public with similar arrangements. For Musk however, the move comes after learning firsthand how difficult it can be to gain control of a public company\u2014and how to get around the obstacles.<\/p>\n
After Musk\u2019s 2018 Tesla stock options grant was challenged, Tesla awarded Musk another moonshot with a potential $1 trillion upside in 2025 and structured it as performance-based restricted stock\u2014same as his SpaceX awards. Musk earns the voting rights on each tranche as he hits milestones, even years before they financially vest and before he can sell them. If he earns all the tranches at Tesla, Musk will hold about 25% of the electric vehicle maker, a larger stake that he sought publicly last July.\u00a0<\/p>\n
At the time, Musk said, \u201cI think my control over Tesla should be enough to ensure that it goes in a good direction, but not so much control that I can\u2019t be thrown out if I go crazy.\u201d<\/p>\n
At SpaceX, Musk may have the power and freedom to go as crazy as he wants without worrying about his job. <\/p>\n
The rocket ship and Starlink satellite internet provider\u2019s block of Class B shares, held mostly by Musk, will get to elect 51% of SpaceX\u2019s board, for as long as any Class B stock exists, and Musk will retain 82.4% of that voting power after a potential IPO. Based on an amendment to the registration statement this week, Musk\u2019s total 6.4 billion shares (including his Class A and B shares) will be locked up\u2014meaning they can\u2019t be sold\u2014for 366 days.\u00a0Other executives are allowed to start selling earlier in staged releases.\u00a0SpaceX did not immediately respond to a request for comment.<\/p>\n
SpaceX is clear that it will be what is technically called a \u201ccontrolled\u201d publicly listed company, which means some traditional governance rules that apply to most other large publicly traded companies won\u2019t apply to it. For instance, it won\u2019t need to have a compensation committee made up of all independent board members. For now, SpaceX has said it expects Ira Ehrenpreis, Antonio J. Gracias, and Luke Nosek to serve as compensation and nominating committee members, meaning they\u2019ll determine who joins the board and how much Musk gets paid.\u00a0<\/p>\n
Ehrenpreis is considered independent, but has a longstanding relationship with Musk as a board member of Tesla. Gracias is a longtime confidante of Musk\u2019s, and has served on the SpaceX board since 2010 and is a board member of Neuralink and The Boring Company, two other Musk-founded companies. SpaceX states in its disclosures that investors, which would include the general public, \u201cwill not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of Nasdaq and Nasdaq Texas.\u201d<\/p>\n
Still, some experts argue the dual-class, controlled-company structure isn\u2019t necessarily cause for alarm. Ritter, whose nickname is \u201cMr. IPO\u201d for his research into the subject, notes that tech IPOs with dual-class stock have, on average, outperformed their single-class peers\u2014pointing to Google and Meta as prime examples. The reason, said Ritter, is that founder-CEOs like Mark Zuckerberg with large, equity-compensated workforces still have significant reasons to care about the share price.\u00a0<\/p>\n
\u201cWhile this is bad corporate governance, Elon Musk knows that if the stock doesn\u2019t do well, he\u2019s going to have a whole lot of employees who are really ticked off,\u201d said Ritter.<\/p>\n
He pointed to Zuckerberg\u2019s unsuccessful $70 billion Metaverse push, which drove share values down to about $90 in late 2022 before they recovered to more than $600. Despite Zuckerberg\u2019s control over Meta, he pulled back on spending and refocused the company. There was nothing stopping him, noted Ritter, but employees watched their paper wealth decline and that mechanism serves as a check on a CEO even when public shareholders can\u2019t force their hand, he added.<\/p>\n
Takis Makridis, CEO of valuation and equity compensation accounting firm Equity Methods, noted that the design of the moonshot award itself is also sound. There are long performance periods with increasing hurdles, and the marriage of operational milestones with market-cap results. Pure financial goals can often be gamed, he said. CEOs can hit earnings targets by cutting costs and shrinking investments, which could eventually leave a company in worse shape. Musk\u2019s grants seem to be audacious and difficult-to-achieve by design.\u00a0<\/p>\n
\u201cThis is a human who gets out of bed and says, \u2018If I don\u2019t set a nearly impossible goal, I\u2019m not achieving my full potential,\u2019\u201d said Makridis.\u00a0<\/p>\n
In addition, under the rules governing equity awards no compensation expense is recognized by SpaceX while a performance milestone is deemed \u201cimprobable,\u201d which is the exact word SpaceX used to describe the Mars community and the data centers. If the milestones remain improbable, they\u2019ll never run through the income statement as an expense.\u00a0<\/p>\n
\u201cZero expense in the general ledger,\u201d said Makridis, meaning SpaceX could carry the package at no reported cost for years.\u00a0<\/p>\n
Critically, SpaceX is headquartered in Starbase, Texas and has applied for its Class A shares to be dual-listed on Nasdaq and Nasdaq Texas. Musk moved its physical headquarters to the Lone Star state following a July 16, 2024 announcement on X that he would move SpaceX HQ from Hawthorne, California to its operations in Texas. The company officially reincorporated in February 2024 just weeks after the Delaware court voided Musk\u2019s 2018 Tesla moonshot in late January 2024 after finding that Musk had influenced the Tesla board, and that the board itself was conflicted in granting it.\u00a0<\/p>\n
The court ruling led the grant to be rescinded, although Tesla shareholders ratified the plan a second time in 2024, and ultimately the Delaware Supreme Court reinstated the grant. In the interim, however, Musk led what became known as \u201cDExit,\u201d which was a movement for public companies to incorporate in Texas, rather than Delaware where the majority of public companies are incorporated. But the 2025 reinstatement did not overrule the lower court\u2019s finding about Musk\u2019s control and the board.\u00a0<\/p>\n
With SpaceX incorporated in Texas, it will be governed by the Texas Business Organization\u2019s Code, which is far less shareholder-friendly than Delaware and means that a shareholder hoping to challenge his pay plan would have to own 3% of the company\u2019s stock. It also makes the Texas Business Court, 11th Division the \u201cexclusive forum\u201d for challenges.\u00a0<\/p>\n
\u201cThe selection of the Business Court as the exclusive forum for Internal Disputes may limit a shareholder\u2019s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, other managerial officials, or other employees, which may discourage lawsuits against us and our directors, officers, other managerial officials, and other employees,\u201d the registration statement reads. It gives a legal challenge, like the one he faced over his pay package from Tesla, a much higher bar to clear.\u00a0<\/p>\n
For Ritter, the elevated bar is almost beside the point, because the SpaceX grants differ fundamentally from the Tesla fight. <\/p>\n
Everyone buying into the IPO, he added, \u201chas no excuse about, \u2018I didn\u2019t know Elon Musk was going to grab an even bigger share of the company\u2019s profits.\u2019 It\u2019s all out there in the S-1.\u201d<\/p>\n<\/div>\n
#Elon #Musk #bulletproofed #trillion #Marsshot #pay #SpaceX #pay #brawl #Tesla<\/p>\n","protected":false},"excerpt":{"rendered":"
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