Axon (Nasdaq: AAXN), a global leader in public safety technology, today announced a 10-year CEO performance award for CEO and founder Rick Smith tied entirely to achieving market cap and financial performance milestones that would make Axon one of the most valuable companies in the public safety sector.
For the award to fully vest, Axon's market cap would have to grow ten-fold from recent levels to $13.5 billion, and key revenue and profitability goals would also have to be achieved. The award is modeled after the recently announced 2018 Tesla CEO compensation plan for Elon Musk, which the New York Times described as “about as friendly to shareholders as they come.”
Under this performance award, Smith will only be compensated if Axon generates extraordinary shareholder value, the company says. He will not receive a salary or cash bonus, nor any new equity compensation that vests automatically with the passage of time.
“Today’s announcement bolsters Axon’s bold 10-year vision for growth, innovation, and social change with a compensation plan that inspires and motivates,” said Hadi Partovi, Axon Board member and CEO of Code.org. “In every technology company I’ve backed, the long-term vision and drive of the founder/CEO has played a critical role. Axon’s plan ensures that Smith is fully committed for the long haul, with outstanding incentives to deliver outstanding results.
The performance award consists of a 10-year grant of stock options that vests in 12 tranches. Each of the 12 tranches vests only if a pair of milestones are both met.
* Market Cap Milestones: The first set of milestones are based on Axon's six-month average market cap with the first milestone at $2.5 billion, nearly double the average today. For each of the remaining eleven milestones, Axon's market cap must continue to increase in $1 billion increments. For the full award to vest, Axon's market cap must increase to $13.5 billion - more than ten times the company's market cap today using the same six-month average.
* Financial Performance Milestones: To meet the financial performance milestones, Axon must achieve a set of escalating revenue or adjusted EBITDA targets chosen to motivate top-line and bottom-line operational rigor. Revenue milestones start at approximately two times current levels and adjusted EBITDA milestones start at approximately three times current levels. (The revenue and EBITDA targets aren't matched to each other. This structure ensures a focus on proving the profitability of new lines of business while not becoming a constraint against investment flexibility in the long run.)
By combining market cap, revenue, and EBITDA milestones, Smith is motivated to generate long-term value for shareholders through delivering operational results, without incentives to engage in short-term measures.
For each of the 12 tranches that is achieved, Smith will vest in 538,488 stock option shares (corresponding to 1% of Axon's current outstanding shares). If none of the market cap or financial performance objectives are achieved, Smith will receive no compensation.
Smith has been instrumental to Axon's market leadership in less-lethal weapons, body cameras, and evidence management software. Axon has an even bolder vision for the next 10 years: to make the bullet obsolete, and to enhance transparency in our justice systems ensuring fair, effective justice for all.
Axon says its weapons have saved 196,000 lives and are broadly used by law enforcement worldwide. Smith's personal goal is to launch a TASER weapon that can outperform a lethal handgun within the next decade, offering a new solution to the problems of gun violence, which are painfully highlighted by recent events.
Axon's wearable cameras and cloud services have transformed public safety, bringing the light of transparency to corners of society where brave men and women confront dangers most of us never see. We plan to revolutionize this sector further with artificial intelligence technology to help law enforcement save time and save lives.
Rick Smith remains Axon's largest individual shareholder, and today's award (which is contingent on his continued leadership) ensures his commitment and focus on delivering on a 10-year vision that can increase shareholder value, the company says.