Editor’s note: CORRECTS possible payout for Russell in subhead and 2nd paragraph; amount of money raised in SPAC in 5th paragraph; executive payout terms in 9th paragraph and clarifies treatment of Milton’s stock awards in 13th paragraph
Nikola Corp. (NASDAQ: NKLA) CEO Mark Russell and other top executives of the startup electric truck company are playing the long game, accepting $1 a year in salaries and stock-based compensation that could bring huge payouts if the scandal-battered shares regain value.
The company’s proxy statement issued Wednesday shows that all executive compensation is at risk for three years. But if the stock returns to $55 a share by then, CEO Mark Russell could realize a $267.2 million payout. Other named executives could receive tens of millions.
“We believe the best measure of our performance is how we are valued over the long term,” according to the proxy. “To focus our executives on the achievement of key initiatives and reward them with the creation of long-term value, we pay them primarily with restricted stock unit awards that have long vesting periods.”
Tens of millions … or a buck
So, if the maker of battery-electric and hydrogen fuel cell-powered Class 8 trucks flounders, the executives get a buck a year. Nikola is on track to assemble 50 to 100 battery-electric Tre models at plants in Ulm, Germany, and Coolidge, Arizona, by the end of the year. Fuel cell truck production is to follow in 2023.
Each executive received a cash salary for the first five months of 2020 as part of Nikola agreeing to a business combination with special purpose acquisition company (SPAC) VectoIQ Acquisition Corp. that raised more than $700 million to take Nikola public.
Shares rose as high as $93.99 last June before beginning a long descent, partly driven by a scandal that hangs over the company in the form of Securities and Exchange Commission and Justice Department investigations into fraud allegations.
Stock-based compensation was reset Sept. 20 when founder and Chief Executive Officer Trevor Milton left the company. Executives asked the board of directors to let them risk their salaries against stock grants that would regain shareholder value. The board agreed.
“Our low-cash, high-stock pay mix demonstrates that our executive officers believe in our long-term potential and aligns the interests of our executive officers with our stockholders,” the proxy said.
Calculations for the stock payouts are based on the original $10 price of VectorIQ shares. The executives earn nothing unless Nikola stock exceeds $25 a share, followed by $40 a share and ultimately $55 a share. None of the shares can be redeemed until June 3, 2023, and then only if one or more of the share price targets is met.
To meet all three share price milestones, Nikola would have to add approximately $18 billion to its initial market capitalization of approximately $4 billion.
“Our executive compensation program is designed to reward the successful development and commercialization of transportation and energy solutions, objectives we expect to take multiple years to fully realize,” the proxy said. “We do not reward the narrow achievement of a few discrete, short-term performance goals, financial or otherwise.”
Nikola made a chart of production milestones public as part of a rehabilitation that followed Milton’s departure, characterized as a termination for the first time in the proxy.
Milton remains the company’s largest shareholder with 20.2% of the approximately 400 million outstanding shares. He voluntarily forfeited 6 million restricted shares granted last June. The company valued 600,000 time-based restricted stock units Milton kept upon his separation at $16.5 million.
Milton’s bravado and statements about the company’s technological prowess and achievements were systematically deconstructed by short seller Hindenburg Research in September 2020. An internal Nikola investigation found that nine of Milton’s statements were either partly or wholly untrue when he made them.
In attempts to break with the recent past of Milton-driven hype, Nikola added three experienced outside directors and recently declared that all board members would stand for election each year instead of a staggered election that would subject only a third of the members to election.
Operationally, Nikola canceled several of Milton’s pet projects, including a battery-electric pickup truck called the Badger and shuttered a Powersports division. Both were deemed distractions to Nikola’s pursuit of electric trucks and a network of hydrogen fueling stations, Russell previously told FreightWaves.
In addition to the $6 million in restricted stock compensation, Russell owns about 39.9 million shares in a business with Milton. Only Russell can sell those shares. Milton has the voting rights. Russell also has 1 million solely owned shares and options to purchase 8.8 million more shares by early July.
VectoIQ CEO Steve Girsky, who took over as Nikola chairman after Milton’s departure, has 1.78 million shares, including 181,441 shares he received in private warrants exercisable at $11.50 each, and 25,665 restricted stock units that vest in early July.