Tesla’s board has reportedly accumulated over $3 billion from stock awards, which appears to significantly outstrip what directors at other major U.S. tech firms have received. This assessment comes from Equilar, a firm specializing in compensation and governance, and it highlights some striking figures.
Kimbal Musk, brother of CEO Elon Musk, has reaped almost $1 billion since 2004 through stock options. Other notable sums include $869 million for director Ira Ehrenpreis and $650 million for board chair Robyn Denholm, with all these amounts corresponding to stock value increases over the years.
Interestingly, the board hasn’t granted itself any new stock grants since 2020. To address a lawsuit from shareholders concerning excessive compensation, they suspended director pay starting in 2021. Nevertheless, from 2018 to 2020, Tesla directors averaged about $12 million each in cash and stock compensation—around eight times more than their counterparts at Alphabet during that same timeframe.
The surge in stock values has greatly contributed to these riches. While the other six companies in the “Magnificent Seven” group—Nvidia, Alphabet, Meta, Apple, Microsoft, and Amazon—have also seen rising stock prices, Tesla stands out as the only one where the initial stock awards played such a significant role in board members’ wealth accumulation. Remarkably, Tesla directors’ average compensation between 2018 and 2024, even considering the pay suspension, was 2.5 times higher than that of directors at Meta.
A Tesla spokesperson stated that the compensation structure is tied to stock performance and the creation of shareholder value. They emphasized that board members invest considerable time, attending a significant number of meetings, apparently well above industry standards.
Another peculiarity is that Tesla’s board has mainly compensated itself with stock options rather than shares. This approach faces scrutiny from corporate governance experts since it increases upside potential for directors without any corresponding downside risks. While directors have exercised large amounts in options, they still retain significant numbers of them, according to Equilar’s findings.
Stock options allow directors to buy shares at a set price after a certain period, providing no risk if the stock price falls below this predetermined cost. Experts generally advocate for compensating board members in actual shares, as this aligns their interests more closely with those of shareholders. Only about 5% of the largest 200 firms in the S&P 500 grant options to their directors, as noted by the National Association of Corporate Directors.
The spokesperson for Tesla argued that options foster a more “at-risk” incentive for directors, as they benefit only if the stock appreciates in value. Some governance professionals, however, contend that Tesla’s compensation practices compromise the independence of its board, particularly regarding oversight of Elon Musk.
One governance consultant described Tesla’s directors as “ridiculously overpaid” and questioned whether such pay is genuinely motivating. Other experts echoed the sentiment, advocating for alternatives like restricted stock, which includes a vesting period that better aligns directors’ interests with shareholders who can experience losses as well.
The compensation also faced criticism in a previous Delaware court ruling that voided a 2018 pay package for Musk valued at $132 billion at current prices. The ruling cited excessive director compensation and personal connections to Musk as factors influencing negotiation dynamics. The board has appealed the judgment, proposing a new compensation package that could potentially award Musk up to $1 trillion over the next decade.
Equilar’s analysis assessed directors’ average compensation within the Magnificent Seven group, revealing Tesla directors earned about $1.7 million annually, despite most of that period involving pay suspension. In contrast, Meta directors made nearly $685,000, while Amazon’s stood at about $307,000.
The analysis also explored lifetime compensation, tabulating earnings from stock options and shares. Remarkably, Tesla’s total compensation exceeds $3 billion for just five current non-executive directors, with others having joined the board after pay suspension began. Notably, all five have also liquidated options, with board chair Denholm cashing out the most, around $595 million.
While some directors at other companies similarly capitalized on stock increases, the Equilar analysis highlights the complexities involved in comparing compensation due to variations in service length and personal stock purchases by board members. For Tesla, all stock purchases are publicly disclosed since its board members did not serve prior to regulations requiring such transparency.
In recent discussions about board compensation practices, experts noted that Tesla is unique among its peers for facing legal scrutiny due to director pay. Their awards appear more generous, raising questions about the appropriateness of such packages when compared to industry standards.
Denholm and Wilson-Thompson, both involved in determining Musk’s pay, have acknowledged that their Tesla compensation forms a significant part of their wealth. Denholm, for instance, remarked that her earnings have been “life-changing,” enabling her to invest in various ventures.
However, the high salary levels and board members’ dependence on these earnings may lead to compromises in their roles. Governance experts are left pondering the question: what exactly makes Tesla directors’ positions so deserving of higher compensation compared to others in similar roles?
