On Thursday, Tesla shareholders will vote on whether or not to grant Elon Musk an unlimited pay package deal, the biggest ever awarded to a chief government 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 practically a 12 months in the past. On the 2024 assembly, Tesla shareholders had been urged to vote in favor of a $50 billion payday for Musk, in an effort to preserve 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 increased.
The proposal, put ahead by Tesla’s board in September, says that Musk should “fully remodel Tesla and society as we all know it” by delivering hundreds of thousands of humanoid robots and self-driving automobiles in an effort to earn the compensation. Conversely, Musk would get “zero” until he meets these “extremely bold” objectives.
The trillion greenback query
Beneath the proposed pay package deal, Musk would want to satisfy sure milestones, resembling producing 1 million robotaxis and 1 million humanoid robots, in addition to enhance Tesla’s valuation by trillions of {dollars}. Every milestone unlocks tens of billions of {dollars} in compensation for Musk. It might enhance 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 might gather $50 billion — the unique proposal from final 12 months that was struck down by a Delaware decide — even whereas lacking many of the targets set out within the proposal. Even hitting simply two of the simplest targets, together with modest inventory development, would web Musk $26 billion, in keeping with Reuters.
“Meaning 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 skilled at Arizona State College. “That’s very excessive for an government comp package deal. A typical public firm CEO would often get low single digit proportion level incentive package deal… I might say this seems extra like the kind of incentive package deal you’ll give managers at a portfolio firm owned by a non-public fairness agency.”
The automobile gross sales milestone, for instance, looks like a simple layup. If Tesla sells 1.2 million automobiles a 12 months over the subsequent 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 automobiles per 12 months than Tesla bought in 2024. And different product objectives are written in such imprecise language that Musk might 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? Perhaps the $1 trillion is only a distraction, a false objective, an try to generate outage and virality, which is at all times lurking Musk’s motivations. Perhaps all he must do is obtain modest development, ship a couple of robots, prop up a handful of robotaxis, in an effort to rake in extra money than God.
Picture: Cath Virginia / The Verge, Tesla
The end result of the vote is hardly in dispute. Not like the final vote, Musk will be capable of vote his personal shares this time, making the chance for achievement 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 advertisements, 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 12 months’s Annual Assembly is straightforward: Do you wish to retain Elon as Tesla’s CEO and encourage him to drive Tesla to develop into the main supplier of autonomous options and probably the most priceless 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 faculty. A large margin of help might assist reinforce Musk’s legitimacy and affect, particularly in gentle of Tesla’s struggles over the previous 12 months.
“He’s finished numerous issues which have clearly damage Tesla gross sales,” Lipton stated. “Now, should you assume Tesla’s a automotive firm, that’s an issue. He’s develop into extraordinarily polarizing. He’s managed to piss off individuals on each the appropriate and the left. So I feel they could be frightened about that.”
The stakes are excessive, given the present standing of Musk’s compensation. Final 12 months, a Delaware court docket 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 decide 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 might sign critical 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 determination, however it will carry symbolic weight, making it politically more durable for the justices to affirm the sooner ruling in opposition to Musk.
Institutional buyers are already exhibiting 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 Academics and numerous New York Metropolis retirement techniques, have additionally come out in opposition to it, as have main proxy advisory companies Institutional Shareholder Providers and Glass Lewis. In a latest earnings name, Musk referred to as these proxy companies “company terrorists.”
Whereas institutional buyers stay vital, Musk’s greatest base of help are his fanboys — the retail shareholders. Historically most retail shareholders don’t vote in a majority of these conferences. However Tesla has proven it will possibly mobilize this in any other case passive base of help. It did it final 12 months, when over 463 million retail shares voted within the 2024 shareholder assembly, representing over 38 p.c of an estimated complete of 1.21 billion retail shares, in keeping with 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 comparable fits from shareholders who personal lower than 3 p.c of the corporate, so one other problem appears unlikely.
This week, The Wall Avenue Journal reported that Musk is spending extra time at his AI firm, xAI, than at Tesla. The compensation package deal is geared toward luring him again to the EV firm, despite the fact that Musk appears extra motivated by the concept 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 not too long ago.
Tesla is inarguably one of many strangest, most unusual firms in American company historical past. Its market conduct is pushed much less by basic logic and extra by emotional or psychological elements 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 concern,” stated Stephen Diamond, a company governance skilled at Santa Clara College. “You simply have to wonder if that’s actually a rational option to run the corporate.”
If previous is prologue, shareholders are more likely to approve the board’s proposal to present Musk extra management over the corporate. They’d 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, might say extra about Tesla’s future than the result itself.
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