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Musk will receive no guaranteed compensation of any kind—no salary, no cash bonuses, and no equity that vests simply by the passage of time. The only compensation will be a 100% at-risk performance award, which ensures that he will be compensated only if Tesla and all of its shareholders do extraordinarily well.

The performance award consists of a 10-year grant of stock options that vests in 12 tranches. Each of the 12 tranches vests only if a pair of milestones are both met.

• Market Cap Milestones: To meet the first market cap milestone, Tesla’s current market cap must increase to $100 billion. For each of the remaining 11 milestones, Tesla’s market cap must continue to increase in additional $50 billion increments. Thus, for Elon to fully vest in the award, Tesla’s market cap must increase to $650 billion.

• Operational Milestones: To meet the operational milestones, Tesla must meet a set of escalating Revenue and Adjusted EBITDA targets (the only adjustment to EBITDA is for stock-based compensation). These milestones are even more directly aligned with shareholder value creation than those used in the 2012 performance award. They are designed to ensure that as Tesla’s market cap grows, the company is also executing well on both a top-line and bottom-line basis.

For each of the 12 tranches that is achieved, Musk will vest in stock options that correspond to 1% of Tesla’s current total outstanding shares (1% of that amount is approximately 1.69 million shares).

For vesting to occur when the milestones are met, Musk must remain as Tesla’s CEO or serve as both Executive Chairman and Chief Product Officer, in each case with all leadership ultimately reporting to him. This ensures that Musk will continue to lead Tesla’s management over the long-term while also providing the flexibility to bring in another CEO who would report to Elon at some point in the future.

The new performance award was created by Tesla’s Board of Directors (with Elon and Kimbal Musk having recused themselves) after more than six months of careful discussion and analysis and in consultation with Compensia, Inc., a third-party compensation consultant. Although the Board granted this award to Elon on 21 January 2018, its effectiveness is subject to the approval of Tesla’s shareholders, who will be asked to approve it at a special shareholder meeting that will be held in late March. Elon and Kimbal Musk will recuse themselves from that vote.