In a historic move, Tesla shareholders approved a staggering $46 billion pay package for CEO Elon Musk, marking one of the largest executive compensations in U.S. corporate history. The vote, concluded during Tesla’s annual meeting at the company’s Austin, Texas headquarters, was met with a standing ovation from the attending shareholders.
Musk, who had already declared victory on his social media platform X, expressed his gratitude and excitement at the meeting. “Hot damn, I love you guys,” he exclaimed, celebrating the approval. Musk used the occasion to highlight Tesla’s achievements in electric vehicle sales and their impact on combating climate change. “We’re not just opening a new chapter for Tesla; we’re starting a new book,” he said. “We’re starting to make a real noticeable dent in carbon emissions.”
According to Tesla’s regulatory filing, 72% of voting shares supported Musk’s pay package, excluding those owned by Musk and his brother, Kimbal Musk, a Tesla board member.
A Controversial Package
Musk’s pay package approval has ignited a fiery debate over executive compensation. Critics decry the package as excessive, while supporters argue it is vital for retaining Musk and ensuring his ongoing leadership at Tesla. Beyond Tesla, Musk helms other ventures like X (formerly Twitter), Neuralink, and SpaceX, where he also serves as CEO.
The pay package approval nudged Tesla’s stock up by 3% on Thursday, reflecting investor faith in Musk’s enduring role. Wedbush Securities analyst Dan Ives dubbed the vote a “pop-the-champagne moment” for Musk and Tesla shareholders, emphasizing that major shareholders knew rejecting the package might risk Musk stepping down as CEO. Ives forecasts Musk’s continued leadership for another three to five years.
Legal Hurdles and Relocation
Despite the shareholder approval, questions linger about the package’s viability due to a previous Delaware court ruling that invalidated its 2018 approval. In response, Tesla shareholders also voted to move the company’s legal jurisdiction from Delaware to Texas, potentially shifting the legal landscape in favor of Musk’s compensation.
The Need for Reapproval
The necessity for a new vote on Musk’s pay package arose from a January court decision that struck down his earlier compensation deal, which was valued at nearly $56 billion. This initial package had sparked a shareholder lawsuit accusing Musk and Tesla’s board of unjustly enriching the CEO. The Delaware judge ruled that Tesla failed to prove the fairness of the payout.
With the initial pay deal invalidated, Tesla sought shareholder re-ratification. Tesla Chairwoman Robyn Denholm emphasized Musk’s lack of direct compensation for years of work that drove significant growth and stockholder value. “Elon has not been paid for any of his work for Tesla for the past six years,” Denholm wrote, calling the situation “fundamentally unfair.”
Musk’s Wealth and Performance Incentives
Despite the uproar, Musk remains firmly ensconced in financial stability, clutching nearly 13% of Tesla shares, which are valued at roughly $73 billion, alongside hefty stakes in SpaceX and other ventures. His total net worth sits at a staggering $203 billion, per the Bloomberg Billionaires Index, ranking him as the world’s third richest individual. Musk’s compensation from Tesla revolves around performance awards, with stock options linked to the company’s milestone achievements.
The new pay package, valued at about $46 billion, allows Musk to buy 304 million shares of Tesla stock as the company achieves specific market value targets. The options include a five-year holding requirement post-exercise.
Do Mega Payouts Ensure Better Performance?
The debate over Musk’s compensation stirs up broader concerns about the efficacy of hefty executive pay packages. A 2017 MSCI study revealed that companies with the smallest equity incentive awards outperformed those with the largest by almost 39% over a decade, hinting that gigantic payouts don’t necessarily ensure superior CEO performance. As Tesla maneuvers through future hurdles, the approval of Musk’s pay package highlights the company’s heavy dependence on its dynamic and ambitious leader for driving growth and innovation.
