As if Tesla (NASDAQ:TSLA) hadn't announced enough unbelievable targets, the company has now proposed a new compensation plan for CEO, chairman, and co-founder Elon Musk that will only fully vest if the electric-car maker becomes one of the most valuable companies in the world. In addition, the compensation plan ties every cent of Musk's compensation package directly to performance.

What's most notable about this compensation package is that it's not only based solely on performance, but the built-in targets represent extraordinary performance. Here's what investors should know.

A Tesla Model X in a garage with its falcon-wing doors open, and a Tesla Powerwall

Tesla's Model X and Powerwall. Image source: Tesla.

To fully vest, Tesla would need a $650 billion market cap

A $650 billion market capitalization would make the Tesla one of the world's largest companies. Currently, the only companies with larger market caps are Apple, Alphabet, and Microsoft. Perhaps even more notable, however, is the fact that Tesla's market cap today stands at just $60 billion -- so it still has a long way to go.

For some further context, General Motors and Ford currently have market caps of $61 billion and $47 billion, respectively.

The plan requires market-cap and operational achievements

Importantly, for the awards to be paid out, Tesla will have to achieve both market-cap targets and operational targets. More specifically, the performance award will be paid out in 12 tranches, each based upon the achievement of a pair of a market-cap milestone and an operational milestone.

There are 12 market-cap targets, beginning at $100 billion and ending at $650 billion, increasing in $50 billion increments; for all 12 tranches, a market-cap milestone must be achieved. But each tranch will also require a milestone with either a revenue target or adjusted EBITDA target. In other words, 12 of 16 possible operational milestones must be achieved.

There are eight annual revenue milestones, beginning at $20 billion and ending at $175 billion. The eight adjusted annualized EBITDA milestones begin at $1.5 billion and end at $14 billion.

The only adjustment made to the EBITDA milestones, Tesla says, is the exclusion of stock-based compensation.

There's a 10-year term

These tranches won't vest if they are achieved after ten years. The compensation milestones have a 10-year term.

Each target achieved pays out 1.69 million shares

Tesla has set each compensation award to 1% of Tesla's current share count. This amounts to 1.69 million shares, worth just over $580 million at the time of this writing.

Elon Musk is required to stick around

For Musk to receive these compensation awards, he'll have to remain in a key leadership position. The plan requires Musk to either remain CEO or serve simultaneously as chairman and chief product officer. In either case, all leadership must report to Musk.

 Elon Musk, CEO of Tesla and SpaceX, in a SpaceX control room during a launch

Tesla CEO Elon Musk is also the CEO of SpaceX. Image source: SpaceX.

"This ensures that Elon will continue to lead Tesla's management over the long term while also providing the flexibility to bring in another CEO who would report to Elon at some point in the future," Tesla said. But the company was careful to clarify that there is currently no intention for Musk to step back from his CEO position.

This may ease some concerns that Musk might leave Tesla to devote most of his time to SpaceX after Model 3 production ramps up.

The plan is tied directly to performance

This proposed compensation plan is just as adamant about the types of compensation Musk won't receive as it is about its ambitious targets. The plan ensures there's no way for Musk to be compensated unless shareholders are rewarded.

Tesla explains:

Elon will receive no guaranteed compensation of any kind -- no salary, no cash bonuses, and no equity that vests simply by the passage of time. Instead, Elon's only compensation will be a 100% at-risk performance award, which ensures that he will be compensated only if Tesla and all of its shareholders do extraordinarily well. Because all Tesla employees are provided equity, this also means that Elon's compensation is tied to the success of everyone at Tesla.

Big targets come with big plans

While it's tempting to mock the hubris of this plan's proposed milestones, investors should consider that Musk's previous compensation plan was similarly viewed as extremely audacious. Put in place in 2012, the plan's target tranches required Tesla's market capitalization to rise in $4 billion increments. In addition, it required certain product development and production targets. Nine of 10 operational milestones were achieved, and Tesla's market cap soared from less than $4 billion in 2012 to about $60 billion today. Furthermore, Tesla's annual vehicle production increased from a few thousand vehicles per year to over 100,000 units this year.

A woman unlocking a Model 3 with her smartphone

Model 3. Image source: Tesla.

Looking ahead, Tesla is betting its Model 3 can help the company increase its annual production rate to 500,000. And by 2020, Tesla is aiming to produce about one million vehicles annually. Tesla intends to bring to market vehicles in a range of categories, including a semi, a supercar, and a pickup truck.

Tesla is also expanding beyond electric vehicles, ramping up its energy storage and generation business in hopes of becoming the world's first vertically integrated sustainable-energy company.

Finally, Tesla has also said it wants to launch its own autonomous-vehicle ride-hailing service, enabling its vehicle owners to earn money by deploying their Tesla vehicles into the fleet.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.