Rivian’s Ambitious CEO Compensation Plan

Rivian Automotive announced on Friday a new CEO pay plan for founder RJ Scaringe worth up to $4.6 billion over the next decade, following a model similar to Tesla’s record package for Elon Musk. The package is designed to align CEO incentives with shareholder returns while retaining Scaringe to lead the company’s growth and profitability efforts.

The new plan replaces a previous 2021 grant with higher stock-price targets, which the board deemed unlikely to be achieved. By lowering thresholds, the company aims to provide realistic incentives while encouraging long-term growth, particularly as Rivian prepares to launch its smaller R2 SUV, aimed at competing with Tesla’s Model Y crossover.

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Structure of the Pay Package

Under the revised plan:

• Stock Options: Scaringe receives options to purchase up to 36.5 million Class A shares, roughly 16 million more than the previous grant. The exercise price is $15.22 per share.
• Vesting Milestones: Awards vest if Rivian hits stock-price targets from $40 to $140 per share over 10 years, along with operating income and cash flow goals over seven years.
• Base Salary: Doubled to $2 million annually.
• Mind Robotics Stake: Scaringe was granted 1 million common units in a Rivian spinoff developing industrial AI technology, giving him up to 10% economic interest if profitability thresholds are met.

If all milestones are met, Scaringe could earn $4.6 billion, while the company projects that shareholders could see $153 billion in value creation.

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Musk-Style Inspiration

Industry analysts note that Rivian’s plan mirrors the approach Tesla used for Musk, linking outsized executive rewards to ambitious performance targets rather than fixed compensation. Yonat Assayag of ClearBridge Compensation Group said:

“While Rivian may not be a direct copycat, there are definitely Elon Musk characteristics that are similar. The award structure is inspired by Musk’s model, tying pay to long-term company value.”

Amit Batish of Equilar cautioned that such ambitious packages may not always materialize due to economic headwinds, regulatory changes, and shifting market conditions.

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Strategic Context for Rivian

Rivian is navigating a challenging environment for EV makers, including:

• The removal of key EV tax credits, which may reduce demand in the short term.
• Recent layoffs of approximately 600 employees, or 4.5% of the workforce, as part of cost-cutting measures.

The company aims to incentivize Scaringe to maintain focus on profitability, growth, and the successful rollout of new EV models while managing shareholder interests.