Tesla Investors Back Elon Musk’s Near-$1 Trillion Compensation Plan

Tesla shareholders have approved Chief Executive Officer Elon Musk’s multiyear compensation package that could be worth almost $1 trillion if a series of ambitious financial and operational targets are met. Preliminary results released on Thursday during the company’s annual meeting in Austin, Texas, showed more than 75% of votes cast in favor of the plan, defying recommendations from two leading proxy advisory firms that had urged investors to reject it.

The package, introduced by Tesla’s board in September, outlines 12 tranches of stock awards tied chiefly to market-capitalization thresholds and performance milestones that extend through the next decade. If Musk achieves every goal, his ownership in the electric-vehicle maker would rise from roughly 13% to about 25%, adding more than 423 million shares to his holdings and increasing his voting control over corporate strategy.

The first tranche is triggered if Tesla’s market capitalization reaches $2 trillion, up from the company’s current valuation of about $1.54 trillion. Nine additional tranches vest as market value climbs in $500 billion increments to $6.5 trillion. The final two portions require $1 trillion jumps, meaning Tesla would need to hit $8.5 trillion for Musk to secure the full award.

Beyond market value, the agreement links future payouts to operational goals. Targets include delivering 20 million vehicles, signing up 10 million active subscriptions to the company’s Full Self-Driving (FSD) software, producing 1 million humanoid robots, and deploying 1 million robotaxis in commercial service. Tesla’s September proxy statement indicates the company has delivered more than 8 million vehicles to date.

The plan also specifies profit hurdles, beginning with $50 billion in annual adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) and scaling to $400 billion. For comparison, Tesla reported $4.2 billion in adjusted EBITDA in the third quarter. Certain goals could be reached without hitting every milestone; board documents note that Musk could earn more than $50 billion in stock by meeting only the more attainable objectives.

A series of “covered events” could allow awards to vest even if some operational targets are missed. These events include natural disasters, wars, pandemics, or changes in law or regulation that materially impede Tesla’s ability to design, manufacture, or sell its products.

Thursday’s vote followed a January 2024 ruling by the Delaware Court of Chancery, which found that Musk’s previous 2018 pay agreement had been improperly granted and must be rescinded. Musk has appealed, and the Delaware Supreme Court will decide the matter. While that legal process continues, the new compensation structure supersedes the earlier plan but remains subject to potential future challenges.

Proxy advisers Glass Lewis and Institutional Shareholder Services recommended voting against the proposal, citing concerns over size, dilution, and corporate-governance issues. Tesla’s board argued that the compensation is essential to retain Musk, who also leads rocket company SpaceX, satellite-internet provider Starlink, artificial-intelligence enterprise xAI, brain-computer interface startup Neuralink, and tunneling firm The Boring Company.

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Since early 2024 Musk has publicly pressed for a larger equity stake, asserting that a 25% holding is necessary to maintain influence over Tesla’s artificial-intelligence roadmap. Addressing shareholders in Austin, board members reiterated that tying the award to steep performance thresholds aligns executive incentives with investor interests.

The Full Self-Driving component of the plan does not clarify whether the 10 million subscriptions must be paid or could include free trials. Tesla currently sells a partially automated system branded “FSD Supervised” in the United States and intends to advance the technology until no onboard human supervision is required.

In addition to corporate responsibilities, Musk has played an increasingly visible role in national politics, supporting initiatives aimed at shrinking the federal government and campaigning to return former President Donald Trump to the White House. His political activity did not factor into the compensation discussion, according to meeting materials.

Information on U.S. executive-compensation regulations is available from the Securities and Exchange Commission.

The official vote count is expected to be certified in the coming days. Tesla said it would disclose final figures in a regulatory filing once tabulation is complete.

Crédito da imagem: Hamad I Mohammed | Reuters