The history of U.S. corporate compensation plans is filled with giant payouts worth nearly $1 billion in today’s money, but none compare to the $46 billion package that Tesla shareholders handed to Chief Executive Elon Musk on Thursday.
The results of the shareholder vote, which ended today, were announced at Tesla’s annual meeting and drew a standing ovation from shareholders attending the event on Thursday at Tesla’s headquarters in Austin, Texas. Musk said: Already declared victory, He posted on his social media platform, X, late on Wednesday that shareholders had voted to approve the compensation package “by a large margin.”
“Wow, I love you guys,” an elated Musk said at the shareholders meeting after the results were announced. He also used the opportunity to tout Tesla’s success selling electric cars and what that means for the fight against climate change.
“It’s incredible. I think we’ve not only started a new chapter for Tesla, but a new chapter in our history,” he said, adding that “we are starting to make really measurable reductions in our carbon footprint.”
Tesla said in a regulatory filing on Friday that 72% of voting shares supported Musk’s compensation package, excluding votes cast by Musk himself and his brother Kimbal Musk, who serves on Tesla’s board of directors.
The compensation package has been the subject of much controversy over executive compensation, with some critics calling it a “ExcessiveSupporters say such a deal is necessary to keep Musk at Tesla and prevent him from leaving to start another business. The billionaire currently owns five businesses, including Tesla, X (formerly Twitter), Neuralink and SpaceX, where he also serves as CEO.
Shareholders boosted the company’s shares by 3% in trading on Thursday after Musk touted his apparent victory ahead of the final tally, a sign that many see the compensation package as essential to securing Musk’s future at the company.
“For Musk and Tesla shareholders, this is the moment to pop the champagne,” Wedbush Securities analyst Dan Ives said in a Thursday research note on the primary vote results.[L]After all, major shareholders knew that voting against them would risk Musk ultimately stepping down as CEO.”
Ives said he believes Musk’s compensation package, now likely approved, means he’s committed to remaining Tesla’s CEO for the next three to five years.
Still, doubts remain about whether Tesla will actually be able to pay Musk the compensation package, given that a Delaware court ruled earlier this year that shareholder approval of the plan was invalid in 2018. Meanwhile, Tesla shareholders on Thursday also approved a proposal to move the company’s legal jurisdiction from Delaware to Texas, which could affect whether Musk’s payment ever goes through.
For example, because Tesla shareholders approved the relocation to Texas, any reapproval of the compensation package could be handled as a Texas corporation, meaning the matter could fall under the jurisdiction of a Texas court.
Why should I vote on my salary package?
The vote on Musk’s compensation was Court ruling Tesla terminated the nearly $56 billion compensation deal earlier this year, but its value has since declined as Tesla’s stock price has fallen.
The package, approved by Tesla shareholders in 2018, sparked a shareholder lawsuit alleging that Musk and the Tesla board breached their duties and unfairly benefited the billionaire. A Delaware judge ruled that Musk and his company had failed to prove that the huge dividend was fair.
Tesla has been forced to abandon initial wage negotiations I said in April The company said it would put the matter back to shareholders for reapproval of the package.
How much does Musk make from Tesla?
Tesla hasn’t paid Musk a base salary since 2019, according to regulatory filings. Instead, he is paid through stock-option “performance awards” that are based on Tesla hitting certain milestones, such as producing vehicles or growing the company’s market capitalization.
After a Delaware court rejected the compensation package, Tesla Chairman Robin Denholm wrote to shareholders urging them to reapprove it, saying Elon “has not been compensated for his contributions to Tesla’s significant growth and shareholder value over the past six years.”
Denholm called the situation “fundamentally unfair and inconsistent with the will of the shareholders who voted in favor.”
But Musk is not without financial resources: He owns about 13% of Tesla, worth $73 billion. He also owns shares in SpaceX, worth $71 billion, and several other businesses, giving him a total net worth of $203 billion, according to the Bloomberg Billionaires Index. He’s the third-richest person in the world.
Why do some shareholders support remuneration packages?
Ives said some shareholders are concerned that if Musk isn’t compensated enough for working at Tesla, he will move on to other ventures or start a rival company — a threat Musk himself made in a January X post. He wanted 25% of the voting power. Tesla’s. Or he might leave.
Tesla Chairman John Denholm echoed the sentiment in a June shareholder letter, writing, “If Tesla wants to retain Elon’s attention and incentivize him to continue to devote his time, energy, ambition and vision to delivering comparable results, we must honor our contract.”
Will some shareholders vote against the remuneration agreement?
Yes, some shareholders, notably the California State Teachers Retirement System, were openly opposed to the package.
The major pension funds said on Tuesday they were voting against Musk’s pay “due to its size and the extremely dilutive effect it will have on shareholders and we are concerned about the lack of focus on the company’s profitability.”
Tesla’s top five institutional investors — Vanguard, BlackRock, State Street, Geode Capital and Capital Research — declined to release or comment on their votes. Together, they hold about 17% of the voting power.
What does Elon Musk’s compensation structure look like?
The compensation agreement is structured to issue Musk multiple rounds of stock options to purchase approximately 304 million shares of Tesla stock. Musk can receive each round of options whenever Tesla hits certain milestones, such as when the company’s market cap reaches $100 billion and at each $50 billion milestone thereafter. (Tesla’s current market cap is approximately $580 billion.)
Based on today’s stock price, the compensation package is worth about $46 billion.
The package also includes a requirement that Musk hold the shares for five years after exercising his options, according to regulatory filings.
Does high compensation lead to better CEO performance?
The question underlying the debate over Musk’s pay is whether such lavish compensation actually makes a difference to CEO performance. In other words, do CEOs actually perform better when they are given higher-than-usual compensation? And do they perform worse when they don’t receive such eye-popping rewards?
A 2017 study by investment research firm MSCI found that a high CEO compensation package doesn’t actually guarantee better performance. In fact, the analysis found that companies with the lowest stock incentive compensation outperformed companies with the highest packages by an average of about 39% over a 10-year period.
— The Associated Press contributed to this report.
