Tesla’s $1 Trillion Pay Proposal Faces Scrutiny
Tesla Inc. has found itself in the spotlight again as a $1 trillion pay proposal for CEO Elon Musk is being questioned. On Friday, the proxy advisory firm ISS called on shareholders to reject what could potentially be the largest compensation package in corporate history.
This marks the second consecutive year that ISS has recommended investors turn down Musk’s compensation plan. These advisory firms often collaborate with major institutional investors, such as passive funds that hold substantial shares in Tesla.
The ISS’s recommendation adds pressure on Tesla’s board as the upcoming shareholder meeting on November 6 draws nearer. Additionally, it raises concerns following a recent court decision in Delaware that set aside Musk’s previously proposed $56 billion pay package.
Even if Musk falls short of meeting many of the ambitious objectives in his pay plan, the structure could still lead to payouts in the billions, given that it rewards partial achievements and benefits from rising stock prices.
Last month, Tesla’s board unveiled the eye-popping $1 trillion compensation deal aimed at establishing high performance benchmarks while addressing Musk’s requests for increased authority within the company.
According to ISS, although the board’s intention is to retain Musk due to his proven track record and vision, the 2025 compensation plan “locks in excessively high salary opportunities over the next decade” and limits the board’s capacity to effectively modify future compensation levels.
Following the announcement of the new compensation plan, Tesla’s stock experienced an uptick, as investors viewed this move as a way to keep Musk focused on the company’s strategic direction.
“Many individuals are drawn to Tesla specifically because of Elon, so we see that keeping him engaged will ultimately help us attract and retain top talent,” board director Kathleen Wilson Thompson stated in a video posted on Tesla’s X account.
In contrast to the 2018 salary agreement, Musk will now have the ability to vote his stock, giving him approximately 13.5% of Tesla’s voting power, as outlined in last month’s securities filing. This voting stake alone could be significant enough for approval.
The proxy advisor pointed out the “astronomical” scale of the proposed grant and design features that might lead to exceptionally high payouts for merely partial goal completion, as well as potential dilution for current investors.
Tesla responded by asserting that ISS “once again completely misses the fundamental point of investment and governance,” while also encouraging shareholders to vote on all proposals. They added, “It’s easy for ISS to advise others on how to vote when they lack understanding.”
ISS estimated the stock-based compensation’s value at $104 billion, which exceeds Tesla’s own prediction of $87.8 billion.
This proposed compensation could only be vested if Tesla meets specified market capitalization milestones of up to $8.5 trillion, as well as operational goals like delivering 20 million vehicles, producing 1 million robotaxis, and achieving $400 billion in adjusted core profits.
The guidance from the proxy advisor regarding Musk’s compensation was part of a larger advisory issued on Friday.
