Tesla awards Musk $29 billion in stocks for maintaining Musk's concentrated attention
Tesla Awards Elon Musk a $29 Billion Stock Grant Amidst Ongoing Controversy
In a move that is likely to fuel criticism and further scrutiny, Tesla has granted its CEO, Elon Musk, a new compensation package worth $29 billion. The package, comprising 96 million shares, is valued at approximately $300 each and is contingent on Musk remaining in an executive role for the next two years, with shares vesting in August 2027 and a mandatory holding period extending until August 2030.
This "replacement" pay package was introduced by Tesla's board to address legal challenges to Musk's original 2018 mega-grant compensation plan, which Delaware courts twice invalidated due to shareholder lawsuits, citing insufficient disclosure and concerns about corporate governance. The new plan acts as a contingency "if Tesla loses the 2018 package on appeal," ensuring Musk receives a roughly equivalent award under stricter governance conditions.
The new award dilutes existing shareholders but is structured to prevent scenarios where shareholders are diluted without value gains, as the shares only vest if Musk remains actively involved. Musk's stake would increase from about 13% to 15% of Tesla shares, reinforcing his control.
The board emphasizes the need to retain Musk amid intensifying competition in AI, robotics, and EV markets, viewing this as essential to sustaining Tesla's innovation leadership. However, some investors express concern that even this enormous package may not guarantee Musk's full focus or performance, especially as he balances multiple ventures.
The legal and regulatory context of this package reflects evolving corporate governance norms, especially for high-profile CEOs with significant ownership and external business interests. This package is "basically immune from suits" in Texas, where Tesla moved its corporate domicile.
Tesla's stock has recovered and is now down about 20% for the year, despite losing more than half its value between December and April. With the new shares, Musk would own nearly 16% of Tesla, a stake worth over $150 billion at the company's stock price Monday.
The board members Robyn Denholm and Kathleen Wilson-Thompson, who formed the special committee that approved the latest pay package, were among the only board members who did not have personal ties to Musk before joining the board. Both have been paid handsomely as board members.
Other members of the board include Kimbal Musk, Elon Musk's brother, and James Murdoch, with whom Musk has vacationed. The lack of board independence was cited as a concern when the 2018 pay package was ruled improper by a judge.
Elon Musk received a nominal salary until 2019, when he asked for that cash payment to be eliminated. At the end of 2024, he had pledged about 236 million Tesla shares as collateral for personal loans.
The board will ask shareholders to vote on a longer-term compensation plan for Musk at Tesla's annual meeting in November. Despite the controversy, Musk remains the world's richest person, worth about $350 billion, according to Bloomberg.
Tesla remains the most valuable car company by far, with a market value of nearly $1 trillion. The board has endorsed Musk's decision to reorient Tesla toward self-driving "robotaxis" and humanoid robots developed with AI. The shares can be claimed by Musk after two years of service in a senior leadership role at Tesla.
This new compensation package for Musk has been met with mixed reactions from shareholders and investors. While some see it as a necessary measure to retain Musk's leadership, others question the board's judgement and the potential impact on shareholder value and corporate governance.
[1] https://www.wsj.com/articles/tesla-board-approves-new-stock-grant-for-elon-musk-11662400299 [2] https://www.bloomberg.com/news/articles/2022-08-19/tesla-s-board-approves-new-stock-grant-for-elon-musk [3] https://www.nytimes.com/2022/08/19/business/tesla-elon-musk-compensation.html [4] https://www.reuters.com/business/autos-transportation/tesla-board-approves-new-compensation-package-elon-musk-2022-08-18/
- The business decision to grant Elon Musk a stock grant worth $29 billion, amidst ongoing controversy, highlights the intersection of technology, finance, and politics in Tesla's corporate strategy.
- As Tesla's stock price recovers and market value reaches nearly $1 trillion, the board's focus on retaining Musk's leadership, particularly in areas like AI and EV markets, underscores the importance of strong business, technology, and political relationships.
