Rivian has granted its founder and CEO RJ Scaringe a new performance-based stock award. This award could ultimately be worth approximately five billion dollars if all the underlying performance goals are met. According to a new filing, Scaringe’s salary is also being doubled to two million dollars per year. Additionally, he was given a ten percent stake in Rivian’s newest spinout company, Mind Robotics.
This announcement arrives just one day after Tesla shareholders voted to approve a compensation package for its CEO Elon Musk that could be worth one trillion dollars, the largest in corporate history. Unlike Musk’s pay package, Scaringe’s award is not subject to a shareholder vote. The compensation committee on Rivian’s board of directors canceled a similar-sized performance award given to Scaringe in 2021 as part of a company-wide equity incentive plan adopted that year. The new award is being issued under the same, already-approved 2021 equity incentive plan.
The committee decided to cancel the 2021 performance award partly because of the unlikeliness that Scaringe could reach the required goals. The 2021 award consisted of over twenty million stock options that vested based on stock price increases. Six years past the grant date, if Rivian’s share price passed one hundred ten dollars, one hundred fifty dollars, two hundred twenty dollars, and two hundred ninety-five dollars, Scaringe would be able to purchase the stock options in corresponding tranches for just twenty-one dollars and seventy-two cents.
Rivian’s stock shot up to around one hundred twenty-nine dollars following its IPO in November 2021. However, it fell to around thirty dollars over the next six months and has spent the last few years typically trading between ten and twenty dollars. According to the company, this made it harder for Scaringe to access even part of the 2021 award, let alone its total value of around six billion dollars. Scaringe was awarded another 6.8 million stock options in 2021 that simply vest over time and are not tied to performance; the company says those have not been canceled.
In the filing, Rivian wrote that this situation created a lack of incentive. So the compensation committee decided to replace the old award with this new one. Following a review and input from an independent compensation consultant, the Compensation Committee canceled the CEO’s 2021 Performance Grant and issued a new performance stock option while also increasing the CEO’s base salary. Rivian stated this new award is designed to retain and incentivize Scaringe to execute on the company’s critical next phase as it progresses its technology roadmap and launches the R2 vehicle.
Similar to how Tesla pitched its new award to Musk, Rivian said the performance grant to Scaringe is structured to ensure the options only vest should the company deliver significant value to its shareholders. The company pointed out that Scaringe will not see one dollar from the award before he helps add thirty-two billion dollars in value to Rivian. Shareholders will see one hundred fifty-three billion dollars of value creation if he hits all the milestones.
The maximum amount of shares available to Scaringe under the new performance award is thirty-six million five hundred thousand. He has ten years to hit milestones that unlock the full amount. If he does, he would own an additional three percent of the company. Scaringe currently owns about one percent of Rivian, down from around two percent earlier this year after he transferred a portion of his holdings to his ex-wife as part of their divorce settlement.
A majority of those stock options, twenty-two million, are tied to new stock price hurdles. Scaringe will earn two million shares once Rivian’s stock hits forty dollars, and then another two million shares for every ten-dollar increase up to a stock price of one hundred forty dollars. The remaining fourteen million five hundred thousand stock options are locked away until Rivian reaches certain adjusted operating income and cash flow targets. Scaringe will have to pay a strike price of fifteen dollars and twenty-two cents per share to exercise these options, a possible total of around five hundred fifty-five million dollars.