[WASHINGTON] Tesla proposed a new compensation agreement for chief executive officer Elon Musk potentially worth around US$1 trillion, a massive package without precedent in corporate America.
The long-awaited proposal, designed to incentivise Musk to lead Tesla for years to come, sets a series of ambitious benchmarks he must meet to earn the full payout, including expanding Tesla’s nascent robotaxi business and growing the company’s market value to at least US$8.5 trillion from around US$1 trillion today. The plan spans 10 years.
The additional shares Musk could receive would push his stake in the electric-vehicle maker to at least 25 per cent, according to the terms detailed in Tesla’s proxy filing on Friday (Sep 5). Musk has publicly stated he wants a stake of that size.
The plan dangles a financial windfall and expanded control of the company to Musk, already the world’s richest person, after his 2018 package valued in excess of US$50 billion was struck down by a Delaware court. While Tesla appeals that decision, the board is seeking other ways to compensate its CEO, including with an interim stock award in early August valued at about US$30 billion.
The incentives in the new plan aim to keep Musk’s focus on Tesla while it pursues growth in newer markets including robotics and artificial intelligence. Friday’s filing also included a non-binding shareholder proposal for Tesla to take a stake in Musk’s xAI startup, an idea Musk has previously discussed. The shareholder meeting is set for Nov 6.
The new agreement underscores Musk’s iron grip on the automaker, despite the myriad demands on his time. Musk, who has served as Tesla’s top executive since 2008, oversees four other companies: SpaceX, xAI, Neuralink and the Boring. He told Bloomberg in an interview in May that he’s committed to still being at the helm of Tesla in five years.
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Despite the stock having fallen 16 per cent so far this year, Tesla’s multiple of projected 2025 earnings recently cracked 200 times for the first time.
A market capitalisation of US$8.5 trillion would be more than double that of Nvidia, currently the world’s most valuable company. Tesla’s value peaked in late 2024 at about US$1.5 trillion.
The value of the latest CEO award, at US$87.8 billion in the filing, would swell to about US$1 trillion if Musk hits all the performance targets and gets to collect all the restricted shares. The massive package suggests Musk could be afforded more opportunities to borrow against the value of his shares, which he has done before.
The proxy also outlines that Musk must participate in the board’s development of a framework for long-term CEO succession in order to earn either of the last two tranches of the performance award.
“Simply put, retaining and incentivising Elon is fundamental to Tesla achieving these goals and becoming the most valuable company in history,” Tesla said in a shareholder letter signed by chair Robyn Denholm and director Kathleen Wilson-Thompson.
If Tesla meets the milestones the new award would, by itself, make Musk close to a trillionaire. But combined with his existing shares and options from his 2018 package, Musk’s total stake in Tesla would be worth roughly US$2.5 trillion in the event he receives the full award.
Musk, 54, has previously urged the board to arrange a new compensation package for him, suggesting he would pursue artificial intelligence and robotics products elsewhere if he didn’t have roughly 25 per cent voting control at Tesla. While Musk remains Tesla’s largest shareholder, he sold a significant portion of his stock to fund his acquisition of Twitter. The social-media platform, which he renamed X, was acquired by Musk’s xAI earlier this year.
Tesla’s board is sticking with Musk despite his competing priorities. Besides overseeing other companies, his attention has increasingly turned to politics. He was President Donald Trump’s biggest financial backer in last year’s election and briefly led efforts to remake the federal government. This sparked a backlash against Tesla that included sporadic cases of arson and vandalism at stores and charging stations.
The blowback contributed to a volatile first half, with Tesla reporting two of its worst quarters in years and a 13 per cent decline in worldwide vehicle deliveries.
Late May marked Musk’s last official day as a special government employee, and he committed to spending more time at Tesla. Only days later, he and Trump had a bitter falling-out.
Tesla regained some momentum the last few months, rolling out its long-promised driverless-taxi service that Musk sees as an important part of its future business. The company launched June 22 with a handful of robotaxis in Austin.
The board in Friday’s filing acknowledged that “Musk’s high public profile attracts significant scrutiny, and that some have questioned whether his personal views or outside activities might be a distraction from his leadership of Tesla. While media coverage often emphasises these concerns, our direct experience with Musk does not support that characterisation.”
Still, as part of the compensation discussions, the board said that it sought to “receive assurances that Musk’s involvement with the political sphere would wind down in a timely manner.”
During the negotiations, Musk threatened to leave Tesla to “pursue his other interests” if he didn’t receive assurances that he both acquire at least a 25 per cent voting interest in Tesla and be “fully paid for his past services.”
Under the new plan, Musk must remain at Tesla as either CEO or executive officer responsible for product or operations in order to receive the shares, which are divided into 12 tranches. To receive them, Musk has to hit 12 market capitalisation milestones matched with 12 operational milestones, such as delivery of 1 million Optimus robots and 20 million Tesla vehicles, having 1 million robotaxis in commercial operation, and growing adjusted Ebitda to US$400 billion.
At the 7.5 year mark and the 10 year mark, when the shares become his, he has to pay US$334.09 per share to collect them – equal to Tesla’s closing price on Sept 3 – like paying to exercise a stock option. He can do this by giving Tesla cash, or he can do it by relinquishing shares equal to the amount he owes.
The cost of obtaining them will very quickly amount to billions of dollars, which could force Musk to pay by relinquishing shares. The higher the share price is at the 7.5 year mark and 10 year mark, the fewer of the vested shares he’ll have to relinquish to collect the rest.
A board committee met with Musk 10 times throughout the process to negotiate the package and to discuss his role and vision for Tesla’s future. During the discussions the board determined four core product lines to drive the company – its driver-assistance technology called Full Self-Driving, robotaxis, robots and the expansion of Tesla’s vehicle fleet – underscoring the point that producing actual cars still matters to the EV maker.
Tesla investors in 2018 voted to award Musk a package of stock options that vested upon meeting certain milestones widely viewed at the time as moonshots. The options initially had a fair value of about US$2.6 billion and were worth around US$56 billion once Tesla achieved the final milestone. The value of the options rise and fall based on the company’s share price and at times have been worth over US$100 billion, according to the Bloomberg Billionaires Index.
The award was challenged by a shareholder who argued that Tesla’s directors didn’t make proper disclosures about the package and the performance benchmarks. Delaware Chancery Court Chief Judge Kathaleen St J McCormick agreed, finding that Musk had undue influence over the process and that the board, which includes his longtime friends and associates, was rife with conflicts of interest.
Tesla has appealed that decision to the Delaware Supreme Court, which has scheduled oral arguments for Oct 15. Shareholders voted last year to re-ratify the prior package, part of a symbolic effort to bolster Musk’s legal case. Musk later cited the pay dispute as part of the reason that Tesla shifted its corporate home to Texas from Delaware.
Tesla revealed on May 16 that it had changed its corporate bylaws to require investors to own at least 3 per cent of the company’s shares before filing a lawsuit, likely preventing future challenges over compensation. BLOOMBERG
