On Thursday, Tesla shareholders will vote on whether or not to grant Elon Musk an infinite pay package deal, the most important ever awarded to a chief govt by orders of magnitude, or danger him leaving the corporate in a huff.
If this sounds weirdly acquainted, it’s as a result of the identical factor unfolded almost a yr in the past. On the 2024 assembly, Tesla shareholders had been urged to vote in favor of a $50 billion payday for Musk, so as to hold him on the job as CEO. This time the cash is far larger — estimated to be value $1 trillion — and the stakes for Tesla are a lot greater.
The proposal, put ahead by Tesla’s board in September, says that Musk should “utterly rework Tesla and society as we all know it” by delivering hundreds of thousands of humanoid robots and self-driving vehicles so as to earn the compensation. Conversely, Musk would get “zero” except he meets these “extremely bold” objectives.
The trillion greenback query
Beneath the proposed pay package deal, Musk would want to satisfy sure milestones, equivalent to producing 1 million robotaxis and 1 million humanoid robots, in addition to improve Tesla’s valuation by trillions of {dollars}. Every milestone unlocks tens of billions of {dollars} in compensation for Musk. It could improve his stake over a decade from about 15 p.c to round 25 p.c.
However Tesla’s claims that Musk will get nothing if he fails to hit these benchmarks isn’t precisely true. He may accumulate $50 billion — the unique proposal from final yr that was struck down by a Delaware choose — even whereas lacking a lot of the targets set out within the proposal. Even hitting simply two of the best targets, together with modest inventory development, would internet Musk $26 billion, based on Reuters.
“Which means he will get one-seventh of the worth that he would create, one thing like 12 to 13 p.c,” stated Gregory Shill, regulation professor and company governance professional at Arizona State College. “That’s very excessive for an govt comp package deal. A typical public firm CEO would often get low single digit proportion level incentive package deal… I’d say this seems extra like the kind of incentive package deal you’d give managers at a portfolio firm owned by a personal fairness agency.”
The car gross sales milestone, for instance, looks like a simple layup. If Tesla sells 1.2 million vehicles a yr over the following decade, on common, Musk earns $8.2 billion in inventory — so long as Tesla’s market worth grows from $1.4 trillion as we speak to $2 trillion in 2035. That’s a half-million fewer vehicles per yr than Tesla offered in 2024. And different product objectives are written in such obscure language that Musk may nonetheless see huge payouts with out considerably boosting revenue, Reuters says.
So the $1 trillion query is: does Musk even want to succeed in $1 trillion to develop into the richest man alive — or the richest in historical past? He already occupies that perch as we speak. How rather more wealth can one man accumulate? Possibly the $1 trillion is only a distraction, a false aim, an try to generate outage and virality, which is all the time lurking Musk’s motivations. Possibly all he must do is obtain modest development, ship a couple of robots, prop up a handful of robotaxis, so as to rake in more cash than God.
Picture: Cath Virginia / The Verge, Tesla
The end result of the vote is hardly in dispute. In contrast to the final vote, Musk will be capable of vote his personal shares this time, making the chance for fulfillment extraordinarily excessive. And but Tesla’s board members have been engaged in an intense lobbying marketing campaign all through the autumn, warning shareholders that failure to grant Musk his huge payout would compromise Tesla’s future and maybe spur the mercurial CEO to depart the corporate.
They’ve run digital and social media adverts, together with on Musk’s personal platform, X, and even created a devoted web site advocating for a sure vote. Tesla board chair Robyn Denholm has taken the additional step of showing in quite a few TV interviews, dangling the potential for instantly appointing a brand new CEO within the aftermath of a “no” vote.
“The basic query for shareholders at this yr’s Annual Assembly is straightforward: Do you wish to retain Elon as Tesla’s CEO and inspire him to drive Tesla to develop into the main supplier of autonomous options and essentially the most precious firm on the earth?” Denholm wrote in a latest letter to shareholders.
Tesla isn’t content material with a mere victory; it must run up the scoreboard to show that Musk — and solely Musk — can lead this firm to new heights, stated Ann Lipton, a professor of company governance on the College of Colorado’s regulation college. A large margin of assist may assist reinforce Musk’s legitimacy and affect, particularly in mild of Tesla’s struggles over the previous yr.
“He’s carried out a whole lot of issues which have clearly damage Tesla gross sales,” Lipton stated. “Now, when you suppose Tesla’s a automobile firm, that’s an issue. He’s develop into extraordinarily polarizing. He’s managed to piss off folks on each the appropriate and the left. So I believe they could be anxious about that.”
The stakes are excessive, given the present standing of Musk’s compensation. Final yr, a Delaware courtroom voided Musk’s $50 billion pay package deal, arguing that the deal was flawed and that Musk held undue affect over the board. Shareholders had voted twice to approve the hefty compensation, however the choose nonetheless upheld her ruling blocking it. Tesla has appealed the choice to the Delaware Supreme Court docket. In response, Musk orchestrated a vote to maneuver the corporate’s incorporation to Texas, which doesn’t have the many years of company authorized precedent like Delaware.
If the brand new pay package deal passes however with a decent margin, it may sign severe doubts about Musk’s management and Tesla’s governance, Lipton stated. The larger victory wouldn’t immediately affect on the Delaware Supreme Court docket’s resolution, however it could carry symbolic weight, making it politically tougher for the justices to affirm the sooner ruling in opposition to Musk.
Institutional buyers are already displaying indicators of wariness over the vote. Norway’s sovereign-wealth fund, which owns a 1.2 p.c stake in Tesla, voted in opposition to it. Smaller public pension funds, such because the American Federation of Lecturers and numerous New York Metropolis retirement techniques, have additionally come out in opposition to it, as have main proxy advisory corporations Institutional Shareholder Companies and Glass Lewis. In a latest earnings name, Musk referred to as these proxy corporations “company terrorists.”
Whereas institutional buyers stay vital, Musk’s greatest base of assist are his fanboys — the retail shareholders. Historically most retail shareholders don’t vote in most of these conferences. However Tesla has proven it may possibly mobilize this in any other case passive base of assist. It did it final yr, when over 463 million retail shares voted within the 2024 shareholder assembly, representing over 38 p.c of an estimated whole of 1.21 billion retail shares, based on an evaluation by Columbia College.
Not all Tesla shareholders are fanboys. Musk’s 2018 pay package deal was voided after a shareholder sued the corporate, arguing that Tesla’s board was too chummy with its already very wealthy CEO. Texas regulation bans related fits from shareholders who personal lower than 3 p.c of the corporate, so one other problem appears unlikely.
This week, The Wall Road Journal reported that Musk is spending extra time at his AI firm, xAI, than at Tesla. The compensation package deal is aimed toward luring him again to the EV firm, regardless that Musk appears extra motivated by the thought of making a “robotic military.”
“I’m not going to construct a robotic military if I could be kicked out,” he stated on the All-In podcast lately.
Tesla is inarguably one of many strangest, most unusual firms in American company historical past. Its market habits is pushed much less by basic logic and extra by emotional or psychological components surrounding Musk himself. It’s the granddaddy of all meme shares.
“There’s little or no proof of any dissent or daylight between the board and Musk on any difficulty,” stated Stephen Diamond, a company governance professional at Santa Clara College. “You simply have to wonder if that’s actually a rational solution to run the corporate.”
If previous is prologue, shareholders are prone to approve the board’s proposal to present Musk extra management over the corporate. They might be silly to not, given the corporate’s inventory efficiency even amid falling gross sales and rising Nazi salutes. The margin of that vote, although, may say extra about Tesla’s future than the result itself.
