Rivian has approved a new performance-based stock award for its founder and CEO, RJ Scaringe, which could be valued at approximately $5 billion if all objectives are met, according to a recent filing.
Scaringe’s annual salary is also being increased to $2 million, and he was granted a 10% stake in Rivian’s recently created spinout, Mind Robotics.
This announcement comes right after Tesla shareholders approved a staggering compensation package for CEO Elon Musk, which could potentially reach $1 trillion, marking the largest in corporate history.
Unlike Musk’s pay package, Scaringe’s award doesn’t require a shareholder vote. Rivian’s compensation committee has canceled a performance award of similar size that was previously granted to Scaringe in 2021 under an equity incentive plan. The new award falls under the same 2021 plan, which had already been approved.
The decision to cancel the 2021 performance award stemmed partly from the “unlikeliness” that Scaringe would meet the required goals. That award included 20,355,946 stock options that were contingent on stock price increases. Six years after the grant date, if Rivian’s stock reached $110, $150, $220, and $295, Scaringe would be able to purchase the options at a price of $21.72 each.
Rivian’s stock surged to around $129 following its IPO in November 2021, but then dropped to about $30 over the next six months, often trading between $10 and $20 in recent years. This decline made it challenging for Scaringe to access any portion of the 2021 award, let alone the full potential value of around $6 billion. However, another 6.8 million stock options from that award, which vest over time and aren’t tied to performance, remain intact.
In the filing, Rivian indicated that this situation created a “lack of incentive.” Thus, the compensation committee decided to offer a new award to replace the old one.
“After a review and input from an independent compensation consultant, the Compensation Committee canceled our CEO’s 2021 Performance Grant and issued a new performance stock option while increasing our CEO’s base salary,” Rivian stated. “This new award aims to retain and motivate RJ to execute the Company’s critical next phase as it advances its technology roadmap and launches R2.”
Similar to Tesla’s approach with Musk, Rivian emphasized that Scaringe’s performance grant is “structured so that the options only vest if the company delivers significant value to our shareholders.” The company noted that Scaringe won’t see any financial benefit unless he helps create $32 billion in value for Rivian, with shareholders looking at a potential “$153 billion of value creation” if he meets all milestones.
The revised performance award allows Scaringe a maximum of 36,500,000 shares, which he has ten years to unlock through achieved milestones. If successful, he would increase his ownership to an additional 3% of the company, up from the current 1% he holds, having reduced his stake from about 2% earlier this year due to transferring a part of his holdings to his ex-wife as part of their divorce settlement.
Most of the stock options—22 million—are linked to new stock price targets. Scaringe will earn 2 million shares when Rivian’s stock reaches $40, with an additional 2 million shares for every subsequent $10 increase, capping at a stock price of $140.
The remaining 14,500,000 stock options are contingent on meeting specific adjusted operating income and cash flow targets. Scaringe will need to pay a strike price of $15.22 per share to exercise these options, which could total around $555 million.
