Rivian awards CEO RJ Scaringe a compensation plan similar to Musk’s, totaling as much as $4.6 billion.

Rivian CEO’s $4.6 Billion Pay Plan

On Friday, Rivian revealed plans for a compensation package for its CEO that could reach up to $4.6 billion over the next decade. This structure resembles the record pay plan given to Tesla’s Elon Musk, with Rivian’s goals tied to new profit targets and specific stock price milestones.

This decision by Rivian’s board indicates that Musk’s compensation model may be influencing other companies aiming for rapid growth. Depending on company performance, CEO RJ Scaringe’s pay could become one of the most lucrative ever offered.

The new pay structure emphasizes Rivian’s intention to keep its founder motivated while aiming for growth and profitability. This is particularly relevant as the automaker, known for its R1S SUV and R1T pickup, prepares to launch a smaller, more cost-effective R2 SUV, which will compete directly with Tesla’s popular Model Y crossover.

Tesla shareholders had just approved a remarkable $1 trillion package for Musk, based on a mix of operational metrics and valuation over a decade.

“Rivian isn’t an outright copycat, but there are definitely some shared traits with Musk’s approach,” noted Yonat Assayag from ClearBridge Compensation Group, a firm specializing in executive pay.

She further mentioned that Rivian’s proposal reflects a trend among companies looking to tie CEO compensation to significant market opportunities. Some firms have even reached out to her for similar executive compensation strategies, indicating Musk’s influence in the industry.

Under the new system, Scaringe will have the option to buy up to 36.5 million shares of Rivian’s Class A stock at $15.22 each, which is about 16 million more shares than his earlier grant, according to a filing made with the Securities and Exchange Commission.

The compensation is contingent on Rivian hitting a stock price goal of between $40 and $140 per share over the next ten years, alongside achieving new operational and cash flow targets over the following seven years.

Previously, the pay structure from 2021 was linked to Rivian’s stock reaching $110 and eventually $295. However, the company later retracted that plan, stating those goals were unlikely to be achieved.

As of last Thursday, Rivian’s stock closed at $15.22, with a median one-year price target estimated at around $14, according to data from LSEG.

A spokesperson from Rivian explained that the rigorous milestones linked to this new option grant are designed so that vesting only happens if significant value is generated for shareholders.

If the company meets the associated milestones, the total payout could reach $4.6 billion, including the costs of option exercises, although Rivian claims that shareholders would see a $153 billion value in the long run.

Notably, the potential payment would account for about a quarter of Rivian’s market value of $18.7 billion, slightly surpassing its cash reserves of $4.4 billion as of late September.

Additionally, Rivian’s board has doubled Scaringe’s base salary to $2 million, a decision made with the advice of an independent compensation consultant to better align his pay with shareholder interests.

On another note, Scaringe was also awarded 1 million common units in Mind Robotics, a new Rivian spin-off focused on developing industrial AI technology. He stands to earn up to a 10% financial return if profits cross certain thresholds.