Rivian Automotive recently made some big headlines when it disclosed a major change to executive pay, namely for its CEO, RJ Scaringe. The new performance-based stock grant that company awarded him. This grant could be worth as much as $5 billion if he hits certain financial goals. This new award, which is part of Rivian’s previously approved 2021 equity incentive plan, is intended to align Scaringe’s incentives with the company’s long-term objectives.
In addition to the stock grant, Rivian has matched this with a doubling of Scaringe’s annual salary, bringing it to $2 million per year. In return, he was given a 10% ownership in Mind Robotics. Created to bolster Rivian’s technological prowess, this newly announced spinoff by Rivian has plans to further diversify their development business. Expect Scaringe’s compensation to get an overhaul. This decision follows the rescission of his 2021 performance award.
The 2021 award consisted of 20,355,946 stock options which were scheduled to vest only if the company’s stock price outperformed a peer group. If Rivian’s share price had surpassed important milestones of $110, $150, $220, and $295 within six years, Scaringe would have taken the opportunity to purchase these options. He would have been able to buy them for only $21.72. Production and delivery Rivian’s stock price skyrocketed to over $129 immediately after its initial public offering (IPO) in November 2021. Instead, it immediately fell back down to around $30 over the following half year. In fact, until last year, the stock had regularly fluctuated in the $10-20 range.
Rivian’s compensation committee had the courage—and much more impressive teeth—to rescind the former performance award. They decided it was “unlikely” that Scaringe would be able to achieve the goals required for vesting. The decision is a welcome sign that the company is taking a more prudent approach to executive compensation considering the company’s stock volatility and operating performance headwinds.
“Following a review, and input from an independent compensation consultant, the Compensation Committee cancelled our CEO’s 2021 Performance Grant and issued a new performance stock option and increased our CEO’s base salary,” – Rivian
The new performance-based award for Scaringe will not be subject to a shareholder vote. This stands in stark contrast to the recent compensation package recently approved for Tesla CEO Elon Musk, which could be worth as much as $1 trillion. First, Rivian is doubling down on the issue of executive incentives not aligning with shareholder interests. This decision reinforces their ambitions to move past the electric vehicle market’s challenges.
The new award is designed so that options only vest if Rivian creates significant value for its shareholders. The company’s board of directors is certain the new structure will do a better job of retaining and keeping Scaringe motivated. This is especially timely, given the company’s progress on its technology roadmap and preparation for commercializing their first R2 vehicle.
“This new award is designed to retain and incentivize RJ to execute on the Company’s critical next phase as it progresses its technology roadmap and launches R2.” – Rivian
His compensation as CEO of Rivian was recently modified to further tie leadership incentives more closely with long-term shareholder interests. This shift addresses some historic difficulty in achieving performance targets. The company itself is changing quickly. It is dedicated to providing remarkable value by creating transformation and producing job opportunities through the electric vehicle industry.
