How $1 a Year Salary is Worth Far More for Tesla Motor’s Elon Musk

The late Steve Jobs, cofounder and former CEO of Apple, famously drew a $1 per year salary from the time he returned to the company in 1997 until his resignation for health issues in 2011. He wasn’t alone either: before, during and after that period, some of Silicon Valley’s biggest and brightest leaders — not to mention those in other major industries outside of California –have drawn just $1 a year in salary for being the head of their respective companies… including Tesla CEO Elon Musk.

Tesla CEO Elon Musk took just $1 in salary last year -- but got lots of stock options too.

Tesla CEO Elon Musk took just $1 in salary last year — but got lots of stock options too.

In a post Great Recession world, how much bosses are paid is a matter of extreme scrutiny by politicians, citizens and the media alike, so for Musk, drawing a $1 a year salary from Tesla Motors [NASDAQ:TSLA] is just one way to ensure he’s not accused of taking advantage of the company he helped found.

Yet despite his low salary, Musk’s total renumeration will one day net him upwards of $900 million — if the company shares continue to rise, that is.

We’ll explain.

Careful accounting

The first thing to point out about Musk’s famous $1 a year salary is that it’s only possible with some creative accounting.

Under Californian law, it’s illegal for anyone to be paid just $1 a year for a job. That would violate several state laws on the minimum wage. So Musk only takes $1 of his ‘official’ salary from the electric automaker. The rest is left with Tesla.

If Tesla continues to do well, Musk's shares will be worth $900 million.

If Tesla continues to do well, Musk’s shares will be worth more than $900 million at current prices.

As detailed on Thursday by Tesla in an official filing with the U.S. securities regulators, Musk was official awarded a salary of $33,280 in 2013, but only drew the magic $1 of that.

Stock options

As the filing detailed however, Musk wasn’t just compensated by drawing $1 from his official salary for his duties as Tesla Motors CEO last year. In 2013 alone, he was given $36,709 in stock options.

Essentially a promise that a company gives to its CEO, employees or shareholders, stock options allow the individual in question the ability to buy shares in the company at a pre-determined price, insulated from any changes in share price.

When Tesla drew up Elon Musk’s stock options in 2012, it was set at the then current share price of $31.17.

On paper, Musk’s salary plus stock options during 2013 equate to a figure just shy of $70,000. That’s about as much as an entry-level Model S costs.

At the current public share price of  just shy of $200 per share however, his efforts last year are worth far, far more.

Elon Musk only drew $1 of his official 2013 salary. The rest stays with Tesla.

Elon Musk only drew $1 of his official 2013 salary. The rest stays with Tesla.

Take all of the shares Musk was approved to buy — totalling 5.3 million — and Musk’s total shareholding in Tesla is worth in excess of $900 million.

Under the terms of the stock option agreement however, which is supposed to compensate Musk with stock over a ten year period, Musk won’t be able to sell any of those shares until the company’s shares are worth in excess of $43.2 billion. At the moment, they are worth $25.6 billion, indicating there’s some way to go before Musk can exercise his stock options.

For now then, Musk is still, technically, paid just $1 a year. But if Tesla continues its rise in the automotive world by producing high-specification, long-range electric cars, Musk stands to dramatically increase his fortune on the back of the car company he helped build.

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