The past few days have been full of highs for Elon Musk, the famous billionaire behind the equally famous Tesla. As if SpaceX, his rocket company, sending 4 astronauts into space was a foreshadow for what the rest of the week had in store for Musk, Tesla’s stocks increased by an estimated $12 billion overnight earlier this week.
This leap in fortune was largely due to the S&P 500 Index announcing Tesla’s addition to its list, a subject that had been on the table for consideration for months.
The S&P 500 is a weighted index of market capital that includes the largest 500 publicly-traded companies in the US. In order to be included, a company must have a minimum market cap of $8.2 billion, have positive reported earnings over the 4 most recent quarters, be based in the US, and share common stocks.
Tesla checked all these boxes and was expected to join the list earlier this year in September when it was unexpectedly left out. This exclusion caused the company’s stocks for that week to drop by 10%. While it is unclear why this happened, Tesla’s addition has now been confirmed and will be formalized on December 21st, 2020.
The surge in fortune had an upper limit of 15% according to Bloomberg. After closing at $408.09 on Monday night, the trading price increased to $460 during the night, due to a flux in demand.
Elon Musk: The Third Richest Man in the World
The $12 billion increase in Musk’s individual net worth this has brought about has made him the third richest person in the world, according to the Bloomberg Billionaires Index.
His net worth is now an estimated $114 billion, surpassing Facebook founder and CEO Mark Zuckerberg’s net worth, who previously held this spot at $106 billion.
While stock prices are subject to rise and fall, it is safe to assume Tesla’s confirmed addition to the S&P 500 will keep its stocks fairly high in price due to higher demand from now on.
Apart from overall gains for the company, being added to the list will also have personal benefits for Musk. These benefits, however, are not as obvious as they may seem.
Known as the highest paid executive in the world, Musk’s “salary” package is anything but straight forward.
Instead, Musk is paid based on a 12-level compensation package which lists down certain goals the company must achieve under Musk’s leadership. At the successful achievement of each goal, Musk is liable to receive a predetermined compensation of stock options.
If this 12-step map plays out as it is anticipated to, his total earnings at the end of this payment system could be as much as $55 billion, increasing his net worth to around $160 billion at least.
The first tier of this program was “unlocked” earlier this year in January when Tesla’s valuation on the stock market surpassed $100 billion for the first time. On maintaining this for the next 6 months, Musk would receive compensation of about $2 billion.
While these large numbers seem impressive, they lend an insight into the “more and more” mentality of the stock exchange. Furthermore, it highlights how intangible and circular this particular flow of cash can be. Such significant increases in the wealth of corporations and billionaires have become an alarming trend in 2020 due to the worldwide recession all economies seem to be in.
