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Musk’s Multi-Billion-Dollar Tesla Comp Plan Is Shrewd Marketing Amid Rocky Patch

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Elon Musk

Everything about Elon Musk is larger than life these days, so it’s fitting that the new compensation package for Tesla’s visionary billionaire leader is equally audacious. It may also help should the company move to raise more funds this year to pay for Musk’s ever-expanding list of aspirations.

The package locks up Musk as either CEO or executive chairman and chief product officer for 10 years, with the sole compensation consisting of stock options that would be granted only if the company meets a series of performance goals. Among the most ambitious of them: Tesla’s market capitalization would have to ultimately swell to $650 billion, or about 11 times its current $59.4 billion level. Over the next decade, revenue from Tesla’s electric vehicles, batteries and solar panels has to reach an annual $175 billion, more than 10 times the likely level in 2017. There are no production volume goals, as was the case with his previous 2012 long-term compensation plan, though pre-tax earnings excluding certain items have to reach $14 billion to receive the maximum benefit.

Should all of that happen, Musk would be compensated with stock options equal to 1% of Tesla’s current outstanding shares, delivered over 12 tranches. It would expand his wealth by tens of billions of dollars, from Forbes’ estimate of $21 billion currently. The plan needs approval from Tesla shareholders, though given the faith so many of them place in Musk’s leadership, that seems likely to be a formality.

Certainly, if all the targets are met, it will be a remarkable accomplishment and worthy of remarkable compensation. A review of the package by The New York Times called it the “boldest pay plan in corporate history.” Not to be outdone, Musk himself told the paper: “I actually see the potential for Tesla to become a trillion-dollar company within a 10-year period.”

READ MORE: Roadblock: Elon Musk’s Net Worth Drops $800 Million In A Day

When Musk’s previous compensation plan was approved in 2012, the goals for the young company looked similarly audacious. At the time, it was not a foregone conclusion that the company that was just beginning to roll out its Model S sedan would be able to grow its market cap at the time from just over $3 billion by annual $4 billion increments. In fact, that happened even faster than anticipated, with its value swelling to nearly $60 billion. And of the targets Musk was to achieve in the original comp plan, including launching the Model X crossover and Model 3 sedan and aggregate production of 300,000 vehicles, at least nine of 10 have been met, according to the company.

So what’s the significance of this announcement right now, particularly given that Musk has given no indications that he’s considering stepping away from Tesla? Certainly, the news that he’s staying put, even in the event that he opts to relinquish CEO duties to a handpicked successor, will cheer his remarkably loyal owners and long-term investors. It also helps the company compete for talent, particularly as the role of technology companies in the area of next-generation transportation expands.

“The timing precedes what we expect to be an unprecedented era in the battle for capital and human talent,” Adam Jonas, an equity analyst for Morgan Stanley, said in a research note about the compensation plan.

“For much of Tesla’s history as a public company, the company has all but monopolized the OEM investment debate for Auto 2.0,” Jonas said. “Over the next 12 months, we anticipate that Tesla’s scarcity value amongst entities vying for supremacy in the new ecosystem will be challenged.”

READ MORE: Tesla Loses ‘Most Valuable US Carmaker’ Crown

And much like Musk’s over-the-top Tesla Semi and Roadster debuts late last year, turning attention to hopes for the future and away from current challenges – namely the struggle to achieve high-volume production of Tesla’s first (almost) mass-market car, the Model 3 – the sky-high performance goals keep the excitement for the brand very high. That’s important right now as soon-to-be-announced financial results for 2017’s fourth quarter, much like Tesla’s production results this month, may hold less to cheer about.

And if, as some analysts expect, Tesla issues new debt or stock for the ongoing expansion of its vehicle and manufacturing operations, development of new cars and trucks, an ever-larger global network of electric charging and vehicle maintenance facilities, it helps to have the brand’s symbol staying put.

Barclays equity analyst Brian Johnson estimated this month that Tesla will likely raise a further $2.5 billion this year, though probably not until the second half when, presumably, Model 3 production headaches are resolved or on their way to being solved.

Ultimately, the compensation package shows that eight years into its life as a public company that has become iconic, if not profitable, Tesla has no shortage of astonishing aspirations. And, of course, that the person who embodies, sets and guides those aspirations is sticking around for many years to come. – Written by 

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Billionaires

Luxury Goods Titan Bernard Arnault Becomes World’s Third $100 Billion Man

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One of the world’s ultimate taste-makers, Bernard Arnault entered an ultra-rarefied club this week. As of Thursday June 20, he was worth just over $100 billion, making him one of three people in the world with 12-figure fortunes.

He joins Amazon’s founder Jeff Bezos, worth an estimated $157.5 billion, and Microsoft cofounder Bill Gates, worth an estimated $103.1 billion. Bezos, who first passed $100 billion in 2017, will soon give a slice of that fortune away.

READ MORE | Hip-Hop’s Next Billionaires: Richest Rappers 2019

He and his wife, MacKenzie, are in the process of finalizing their divorce. The couple announced in early April that she will receive a quarter of his Amazon stake, currently valued at more than $37 billion. Gates reached $100 billion in April, thanks to strong earnings from Microsoft.

Arnault’s luxury goods group, LVMH Moët Hennessy–Louis Vuitton, has been having a great year. In April, it announced record first quarter sales and profits on top of a strong 2018. Its shares are up more than 40% so far in 2019, boosting Arnault’s fortune by more than $20 billion.With his family, he owns 46% of LVMH and serves as both its chairman and CEO.

The growth comes as high-end buyers around the world continue to pick up luxury goods and spirits, despite fears that demand, particularly in China, would slow down. Thirty-five years after Arnault first got into luxury goods with the purchase of Christian Dior, he continues to refresh LVMH by finding ways to appeal to a new generation of customers while retaining the traditional values and high quality that have defined its brands. 

That includes innovative partnerships like the two with Rihanna — Fenty Beauty and Fenty fashion house — as well as recent deals such as the acquisition of Belmond, which operates luxury hotels, trains and even safaris.

“People do not understand that success stems from the cohabitation of two contradictory spirits: the artist’s vision and the logic of worldwide marketing,” Arnault told Forbes in 1997. “It’s a very complex process.”

Forbes first wrote about Arnault in 1991 when he was worth $200 million. He has since been featured several times and has appeared on our cover. He made his debut in our Billionaires ranks in 1997. Some readers may know his story well but it’s one worth retelling.

READ MORE | Jeff Bezos To Give MacKenzie 25% Of His Amazon Stake, Worth Tens Of Billions, In Divorce

A native of France’s cold, flat industrial north, Arnault was a star student at France’s prestigious Ecole Polytechnique. The son of a construction tycoon, Arnault spent three years in the U.S. in the early 1980s trying to establish a branch of his family’s real estate business, Ferinel, as a developer of Florida vacation properties.

After three years he returned home. But he learned a valued lesson in America, according to a 1997 Forbes profile on Arnault. Before leaving, he sold his Mediterranean-style home facing Long Island Sound in New Rochelle, N.Y. to American tycoon John Kluge, owner of the mansion next door. Kluge tore it down because it blocked his view.

“It was just incredible!” Arnault told Forbes. “It was a very nice place, but two days after he bought it, he tore my house down! It’s so very…American.” Lesson learned: “When something has to be done,” says Arnault, “do it! In France we are full of good ideas, but we rarely put them into practice.”

He returned back to France ready to make some moves. In 1984, Arnault put up $15 million of his family’s money to rescue bankrupt textile empire Boussac (Lazard put up the rest). Among Boussac’s mixed bag assets was money-losing fashion house Christian Dior.

That became the first of many Arnault acquisitions and the cornerstone of his massive luxury goods empire. Over the years, LVMH snapped up such brands such as Louis Vuitton, Givenchy and Sephora. Today LVMH has nearly $53 billion in sales from 70 brands and 4,590 retail stores.   

-Luisa Kroll; Forbes Staff

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Hip-Hop’s Next Billionaires: Richest Rappers 2019

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Back in 2007, Jay-Z made a bold statement in song about both his lyrical prowess and his future financial fortunes: “I’m already the G.O.A.T.–next stop is the billie.”

Sure enough, Forbes declared him hip-hop’s first billionaire earlier this month. The news caught the attention of observers around the world—not only due to the breadth of Jay-Z’s financial achievement, but because of what it means for others looking to follow in his footsteps.

“Jay-Z’s entire life is the real blueprint,” says hip-hop pioneer Fab 5 Freddy, longtime host of the show Yo! MTV Raps. “He’s one of the best examples in our lifetime of one who’s truly achieved the American dream and billionaire status.”

Naturally, Jay-Z tops this year’s ranking of hip-hop’s richest stars. Who will be the next billionaire from the rap world? The answer is almost certainly one of the names below.

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5. Drake

$150 million

The 32-year-old Canadian is the youngest on this list by a decade, but he’s quickly gaining ground on hip-hop’s elder statesmen. Drake’s fortune grew 50% over the past year, boosted by holdings ranging from real estate to his Virginia Black whiskey, as well as a lucrative tour and new residency at the XS Nightclub in Las Vegas.

“Every year, we just want to get more prepared and better at touring and better at things that make money,” he told Forbes in 2013 (his average gross has since surged from $500,000 to more than $2 million per stop). “That’s pretty much my objective every year, other than making good music.”

richest rappers Kanye
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4. Kanye West

$240 million

A onetime protégé of Jay-Z, the superproducer has been making headlines recently for his Sunday Service, an invitation-only get-together mostly in Southern California that is reportedly frequented by the likes of Courtney Love and Tyler, the Creator. He took the show on the road in April for a Coachella service on Easter Sunday featuring appearances by Chance the Rapper, DMX and a gospel choir—while hawking socks and “holy spirit” sweatshirts. But selling church clothes alone won’t be enough to push West into ten-figure territory.

Despite declaring himself $53 million in debt and beseeching Mark Zuckerberg for $1 billion to fund future creations in 2016, West makes his debut on this list thanks to a another patron: Adidas, which lured West and his Yeezy shoe line from Nike several years ago. Our accounting of West’s wealth is almost entirely predicated on a conservative estimate of that brand’s value. As it continues to scale up, he could one day join his sister-in-law, Kylie Jenner, as a billionaire.

richest rappers Diddy
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3. Diddy

$740 million

“I started my business career at age 12, delivering newspapers,” Diddy explained two years ago in our centennial issue, where we named him one of the world’s greatest living business minds. “Since then, I’ve always understood that if I give the customers my best and service them differently, whether music, clothing or vodka, I’ll get a return on my hard work.”

The artist formerly known as Puff Daddy dips to No. 3 on this list as industry trends weigh on some of his holdings, including cable network Revolt and clothing line Sean John (though Diddy has sold much of his stake in the latter, he retains a sizeable piece). But Ciroc, the main driver of his fortune, is growing again after case volumes fell from all-time highs in recent years—making the impresario perhaps the most likely candidate to join Jay-Z in the billion-dollar club.

richest rappers dr dre
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2. Dr. Dre

$800 million

It’s been five years since Dr. Dre proclaimed himself a billionaire, but Forbes still doesn’t agree with the assessment made in the wake of Apple’s $3 billion 2014 purchase of his Beats By Dr. Dre headphone line. The superproducer owned an estimated 20%-25% of the company at the time; of the $2.6 billion Apple paid upfront in cash, another $295 million was earmarked to cover debt payments, leaving Dre with a little over $500 million.

Even with the vesting of his final slug of Apple stock last summer, Dre hasn’t quite made it into billionaire territory. He has spent heavily over the years on property (he paid $40 million for Tom Brady and Gisele Bundchen’s Los Angeles estate) and charitable donations (along with Beats cofounder Jimmy Iovine, he gave $70 million to start a school at USC). And with his formal involvement at Apple seemingly wrapping up, Dre will likely need to get back on the festival circuit—or start a new company—if he’s to make good on his 2014 declaration.

richest rappers jay-z
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1. Jay-Z

$1 billion

Though he’s hip-hop’s first billionaire, Jay-Z’s lead on the rest of the pack is even larger if his entire family fortune is taken into consideration: He and wife Beyoncé are now worth a combined $1.4 billion. So much for the notion that music is a dying business.

“To convince artists that you can’t be an artist and make money … was the greatest trick in music that people ever pulled off,” Jay-Z told Forbes in 2010. “I think the people that were making the millions said that.”

Methodology

In order to compile our ranking of the richest rappers, we use the same procedures employed in the calculation of our annual billionaires list: poring over financial documents, valuing major assets, and consulting with analysts, managers, attorneys and other industry insiders.

Cover photographs: Getty Images (Dr. Dre: AP Images)

-Zack O’Malley Greenburg; Forbes Staff

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Artist, Icon, Billionaire: How Jay-Z Created His $1 Billion Fortune

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Nine years ago, two unlikely lunch partners sat down at the Hollywood Diner in Omaha, Nebraska. One, Warren Buffett, was a regular there. The other, Jay-Z, was not. The billionaire and the rapper ordered strawberry malts and chatted amiably, continuing the conversation back at Buffett’s Berkshire Hathaway offices.

Buffett, then 80, walked away impressed with the artist 40 years his junior: “Jay is teaching in a lot bigger classroom than I’ll ever teach in. For a young person growing up, he’s the guy to learn from.” This moment, which was originally captured in our 2010 Forbes 400 package, made it clear that Jay-Z already had a blueprint for his own ten-figure fortune. “Hip-hop from the beginning has always been aspirational,” he said.

READ MORE | Inside Nipsey Hussle’s Blueprint To Become A Real Estate Mogul

Less than a decade later, it’s clear that Jay-Z has accumulated a fortune that conservatively totals $1 billion, making him one of only a handful of entertainers to become a billionaire—and the first hip-hop artist to do so. Jay-Z’s steadily growing kingdom is expansive, encompassing liquor, art, real estate (homes in Los Angeles, the Hamptons, Tribeca) and stakes in companies like Uber.

His journey is all the more impressive given its start: Brooklyn’s notorious Marcy housing projects. He was a drug dealer before becoming a musician, starting his own label, Roc-A-Fella Records, to release his 1996 debut, Reasonable Doubt. Since then he’s amassed 14 No. 1 albums, 22 Grammy awards and over $500 million in pretax earnings in a decade.

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Crucially, he realized that he should build his own brands rather than promote someone else’s: the clothing line Rocawear, started in 1999 (soldfor $204 million to Iconix in 2007); D’Ussé, a cognac he co-owns with Bacardi; and Tidal, a music-streaming service.

Kasseem “Swizz Beatz” Dean, the superproducer behind some of Jay-Z’s biggest hits (“On To The Next One,” Beyoncé’s “Upgrade U”), looks at Jay-Z as something others can model: “It’s bigger than hip-hop … it’s the blueprint for our culture. A guy that looks like us, sounds like us, loves us, made it to something that we always felt that was above us.”

“If he’s a billionaire now, imagine what he’s about to be,” Swizz Beatz says. “Because he’s only just starting.”

READ MORE | The Forbes Five: Hip-Hop’s Wealthiest Artists 2018

What’s Jay-Z Worth?

To calculate his net worth, we looked at the artist’s stakes in companies like Armand de Brignac champagne—applying our customary discount to private firms—then added up his income, subtracting a healthy amount to account for a superstar lifestyle. We checked our numbers with a roster of outside experts to ensure these estimates were fair and conservative. Turns out, Jay-Z really is a business, man.

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Armand de Brignac

$310 million

Armand-de-Brignac-bottles

Jay-Z has used his music to shill the $300 gold bottles of the “Ace of Spades” champagne since launching the brand with the 2006 video “Show Me What You Got.” More recently, his verse on Meek Mill’s “What’s Free” put a half-billion-dollar value on the wine, which seems like a bit too bubbly a number.

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Cash & investments

$220 million

A vast investing portfolio includes a stake in Uber worth an estimated $70 million. He reportedly purchased his piece for $2 million back in 2013—and then wired founder Travis Kalanick another $5 million in an attempt to increase his holdings, but was rebuffed.

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D’Ussé

$100 million

Jay-Z’s cognac, a joint venture with beverage giant Bacardi, moves almost 200,000 cases and has grown nearly 80% annually. “Jay-Z resonates with consumers who are attracted to the ultra-premium lifestyle,” says Eric Schmidt, Beverage Marketing Corp.’s Director of Alcohol Research.

Tidal

$100 million

In 2015, Jay-Z submitted a bid to purchase the Scandinavian streaming service’s parent company for just shy of $60 million. He relaunched Tidal later that year with a roster of celebrity investors including his wife, Beyoncé, and other music luminaries, from Kanye West to Calvin Harris.

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Roc Nation

$75 million

This wide-ranging entertainment company started over a decade ago as part of a joint venture with concert giant Live Nation. Roc Nation represents some of the top stars in the entertainment through its sports agency (Kevin Durant, Todd Gurley) as well as its record label and artist-management arms (Rihanna, J. Cole).

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Music catalog

$75 million

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Before the beginning of his stint as Def Jam’s chief in 2004, Jay-Z negotiatedthe eventual return of his master recordings from the aforementioned label that helped launch his career; in a separate deal with EMI, he clawed back his publishing rights. Wise move: his hits now clock close to 1 billion streams annually.

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Art collection

$70 million

In the song “Picasso Baby,” Jay-Z boasted about a “Basquiat in my kitchen corner.” He probably wasn’t kidding. For over a decade, he’s been scooping up masterpieces like Basquiat’s “Mecca,” purchased in 2013 for a reported $4.5 million. “He’s rapped about it all in detail,” says Fab 5 Freddy, a contemporary and friend of the late painter. “Jay-Z helped educate millions of hip-hop fans mentioning Jean-Michel.”

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Real estate

$50 million

This is the incredible $88 million mansion Jay Z and Beyonce purchased in August 2017, the home has 8 bed, 11 bath and is 30,000 square feet
CJT/ MEGA/ NEWSCOM

After welcoming twins in 2017, Jay-Z and Beyoncé bought a pair of homes to match: a $26 million East Hampton mansion and a $88 million Bel Air estate. Jay-Z also owns a Tribeca penthouse, snagged for $6.85 million in 2004.

Zack O’Malley Greenburg;Forbes Staff

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