Elon Musk’s $56B Tesla Pay Package Heads to Shareholder Vote This Week
Elon Musk’s $56 billion pay package is up for a vote again at Tesla (TSLA)’s shareholder meeting this Thursday (June 13), despite it previously being voided by a Delaware court and facing pushback from esteemed proxy advisory firms. If Tesla shareholders approve the package, it will be the largest CEO compensation plan in history and an unprecedented rebuke of the Delaware court system, which oversees two-thirds of Fortune 500 companies incorporated in the tiny mid-Atlantic state. If the package is rejected, however, Musk has threatened to leave Tesla.
The Delaware Court of Chancery, led by Chancellor Kathaleen McCormick, voided the giant pay package in February over Musk’s significant influence on its creation—information that had been shielded from shareholders when they originally voted to approve the package in 2018. The court also ruled that the pay plan was unnecessarily large since Musk already owned 22 percent of Tesla at the time.
Tesla’s board has since called the package back for a vote and put its full endorsement behind it. It maintains the website www.votetesla.com, arguing that the pay package is “100 percent aligned with stockholder interests.” Proxy advisors Institutional Shareholder Services (ISS) and Glass Lewis recently pushed back on reinstating the pay package during this year’s shareholder meeting, calling it “excessive.” These firms are known for advising shareholders on their best interests. There is a good chance Musk will have his way. According to the trading platform eToro, 24 percent of Tesla shareholders have already cast their votes, with over 80 percent in favor of Musk receiving the gargantuan package.
To guard itself from Delaware courts, Tesla is also asking shareholders to approve moving its articles of incorporation from Delaware to Texas. Musk moved the electric carmaker’s corporate headquarters to Austin in 2021.
What’s in Musk’s pay package and how much has he received?
Musk’s 2018 pay package included 303 million split-adjusted stock options that he could exercise if the company hit highly ambitious financial milestones, giving him roughly 1 percent of the company for every $50 billion in market cap added.
The plan would award Musk with stock options in 12 tranches over 10 years if he can meet a set of lofty performance goals, including growing Tesla’s market capitalization to $650 billion (more than 10 times the company’s value in 2018). Tesla does not award Musk any other compensation, and despite Musk hitting all 12 targets in 2023, he never received any of the 2018 pay package due to the ongoing legal battle. If fully vested, the stock options would be worth $56 billion.
Tesla’s board has not said exactly how Musk will be awarded stock options (if approved this week), though it would likely grant Musk newly issued shares or transfer ownership of non-outstanding shares to him. This would dilute existing shareholders’ stake in the company by around 8.7 percent, since the number of shares outstanding (what retail and institutional investors can buy and sell) would increase without changing Tesla’s total market valuation. This risk of dilution is another reason proxy firms have advised against shareholders approving the package.
“I thought the comp plan was the most “skin in the game” in history,” the New York Times columnist Andrew Ross Sorkin posted on X last week. “Admittedly, I was skeptical he’d hit the most ambitious targets of the package. But he did — having put his entire comp at risk. Isn’t that what we want when we say ‘pay for performance?'”
Tesla’s market cap briefly surpassed $1 trillion in late 2021. But it has lost more than half of the peak and is down 30 percent year-to-date. Shareholders may question why they need to compensate their CEO for work that has already been done—and somewhat undone.
Musk argues that he would need 25 percent of Tesla to make the company an A.I. leader. He currently owns 13 percent after selling shares to acquire Twitter (now X) in 2022.