“$1 trillion” Tesla payday for Elon Musk
Tesla’s board has said the pay package will keep Musk “focused and incentivised” in the face of rising competition from Chinese EV makers. This is despite an ongoing legal dispute over Musk’s previous 2018 pay package of $56 billion. The proposed $1 trillion sum is worth around 18 times that.
However, the proposal is yet to be approved – and comes with strings attached. Musk will receive no salary or cash bonus, as the compensation would be entirely performance-based. Instead, the proposal would essentially give Musk as much as 12 per cent of Tesla’s stock, which would be worth roughly $1.03 trillion – on the condition that Tesla hits its target market value of $8.6 trillion. So, it rests on Tesla’s valuation increasing by $7.5 trillion – nearly eight times its current valuation – during the next decade. The amount Musk receives is then split into tranches based on a number of conditions around company performance.The board has stated that these conditions would include market capitalisation as well as ‘operational milestones’ such as 20 million Tesla vehicle deliveries; plus mass production of robotaxis and the humanoid ‘Optimus’ robots; however, there will be no conditions placed on Musk in terms of the amount of time he puts into the company.
Looking at a table provided by Reuters, the milestones are based on market value, with each increase tied to an operational milestone. For example, market value at $2 trillion is accompanied by 20 million vehicle deliveries; at $3 trillion, the board expects to see 1 million robot deliveries; while at $3.5 trillion, Tesla will be expected to have 1 million robotaxis in operation. If all conditions are met, the shares would significantly increase Musk’s voting power on the board from his current stake of approx. 13 per cent.
The proposal has been criticised for its eyewatering scale. Adam Sarhan, CEO of 50 Park Investments in New York, said: “While bold compensation tied to performance is nothing new, the sheer scale here sets a new bar for CEO incentives and will dominate boardroom debates everywhere.”
Brian Quinn, professor at Boston College Law School, also commented: “This is a ridiculously large pay package. It raises a lot of questions, but last year, Musk moved Tesla from Delaware to Texas in order to avoid all those questions. Given that Tesla’s stock price is basically all vibes and appears to have very little to do with the automaker’s actual performance, I suspect they will approve this package.” (Quinn here refers to the reincorporation of Musk to Texas after a Delaware court annulled Musk’s 2018 pay package).
It follows news earlier this year that Tesla’s board had approved a compensation package for Musk worth roughly $29 billion in restricted stock. A filing by the company states the proposal will go to a shareholder vote in November of this year.
Regarding the milestones, it’s worth taking a look at Tesla’s current progress. Earlier this year, the company launched its Robotaxi service in San Francisco and Austin, Texas; although in San Francisco, its vehicles are manned by a human driver. Since Musk’s short-lived involvement in the Trump administration, Tesla sales have also dropped with the market share of competitors – particularly in China – increasing.
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