Tesla’s $1 Trillion Compensation Plan for Elon Musk Under Review
The $1 trillion compensation proposal for Tesla CEO, Elon Musk, will be discussed on Thursday as shareholders prepare to cast their votes on this unprecedented pay plan.
As per the suggested plan from September, Musk could earn up to 12% of his compensation tied to performance metrics if Tesla achieves a market capitalization of $8.5 trillion or hits other milestone goals within ten years. Currently, Tesla’s market cap stands at about $1.45 trillion, and Musk holds around 13% of the company’s shares.
This revised pay structure comes in the wake of legal complications surrounding a previous $56 billion compensation package that a Delaware judge deemed invalid in January 2024 and is still being contested in court.
Robin Denholm, Tesla’s board chair, alerted shareholders that if they reject Musk’s compensation plan, it might distract him from his other ventures.
Risk of Losing Musk
Denholm sent a letter to shareholders, urging them to consider whether they want Musk to remain as Tesla’s CEO and help elevate the company’s status as a top provider of autonomous solutions, and potentially leading it to become the world’s most valuable firm. She noted, “If we fail to create an environment that encourages Elon to produce strong results via a fair pay-for-performance strategy, we could risk losing his invaluable leadership.”
Musk’s Appeal to Shareholders
Musk recently addressed shareholders during Tesla’s earnings call, emphasizing the importance of their support for the pay package. He stated, “This gives you plenty of influence, but not so much that I’d be in trouble if I went off the rails.”
Nonetheless, not every shareholder backs the compensation structure. For instance, a significant investor publicly opposed the plan ahead of the vote.
Points of Contention
The Norwegian sovereign wealth fund, one of Tesla’s largest external investors, also announced it would vote against the compensation proposal. They expressed concerns regarding the overall compensation amount, dilution effects, and lack of adequate risk management for executives, which aligns with their stance on executive pay in general.
Moreover, proxy advisory firms Glass Lewis and ISS are recommending that shareholders reject the proposed compensation package.
In a similar context last year, Tesla shareholders voted on the reinstatement of Musk’s $56 billion compensation from 2018, where around 77% were in favor—fulfilling the necessary requirements. At that time, the total payroll for Tesla amounted to approximately $44 billion as the stock price experienced declines.
