Tesla (TSLA) has moved to offer Elon Musk about $26 billion price of shares as a part of a brand new CEO compensation plan with out shareholders’ approval.
The corporate’s final CEO award dates again to 2018, but it surely was rescinded by a choose final yr after a protracted litigation decided that CEO Elon Musk just about negotiated the award in opposition to himself resulting from his management of the board.
In a letter to shareholders, Tesla’s board described the brand new award, which is defined as an “interim award to make it proper by Musk”:
- 96 million restricted shares of inventory, topic to Elon paying a purchase order value upon assembly a two-year vesting time period, to be delivered after receipt of antitrust regulatory approval;
- The acquisition value can be equal to the break up adjusted train value of the inventory choices awarded to Elon below the 2018 CEO Efficiency Award ($23.34 per share);
- A requirement that Elon serve repeatedly in a senior management position at Tesla throughout the two-year vesting time period;
- A pledging allowance to cowl tax funds or the acquisition value;
- A compulsory holding interval of 5 years from the grant date, besides to cowl tax funds or the acquisition value (with any gross sales for such functions to be carried out via an orderly disposition in coordination with Tesla); and
- If the Delaware courts totally reinstate the 2018 CEO Efficiency Award, this interim award can be forfeited or returned or a portion of the 2018 CEO Efficiency Award can be forfeited. To place it merely, there can’t be any “double dip.” Elon will be unable to maintain this new award along with the choices he can be awarded below the 2018 CEO Efficiency Award ought to the courts rule in our favor.
Tesla made it sound like this award has been mechanically awarded after board approval, and in contrast to earlier awards, Tesla shareholders received’t vote on it.
Right here’s how the brand new compensation package deal differs from the earlier one:
| Side | 2018 CEO Efficiency Award | 2025 CEO Interim Award |
|---|---|---|
| Construction | Inventory choices (303.96 million shares, post-stock-split adjusted) with an train value of $23.34 per share. | Restricted inventory (96 million shares) with a purchase order value of $23.34 per share (matching the 2018 train value). |
| Vesting Situations | Efficiency-based: Vested in 12 tranches, every requiring Tesla’s market cap to extend by $50 billion (as much as $650 billion whole) plus income or adjusted EBITDA milestones. Absolutely vested by early 2023 in spite of everything targets have been met. | Time-based: Vests after 2 years of steady service in a senior management position at Tesla. No efficiency milestones required. |
| Worth | Grant-date honest worth: ~$2.3 billion. Potential realized worth: As much as ~$56 billion (fluctuated with inventory value; valued at ~$46.8 billion in mid-2024). Web worth relied on inventory appreciation above strike value. | Gross worth: ~$29 billion (based mostly on Tesla’s inventory value of ~$300 per share). Web worth after buy value: ~$26.7 billion. |
| Length/Time period | 10-year plan, with milestones spanning the total interval. | 2-year vesting interval, plus a 5-year obligatory holding interval after grant (aside from protecting taxes or buy value). |
| Threat and Alignment | Excessive danger/excessive reward: Tied to unprecedented development targets (e.g., market cap from ~$50B to $650B+), leading to ~$735 billion in shareholder worth created. Musk acquired no base wage or different pay throughout this time. | Decrease danger: Primarily retention-focused, with vesting assured upon service. Contains provisions for pledging shares to cowl taxes/buy value. Interim nature ties it to ongoing 2018 authorized decision. |
| Further Phrases | Required shareholder approval (handed in 2018, reaffirmed in 2024). No express long-term maintain requirement past commonplace govt guidelines. | Requires antitrust regulatory approval. If 2018 award is reinstated, that is offset/forfeited. Accredited by board’s particular committee (Musk recused). An extended-term compensation technique is deliberate for shareholder vote in November 2025. |
| Objective/Context | Lengthy-term incentive to drive explosive development in EVs and vitality. Musk’s first main comp since 2012. | Interim retention amid AI/robotics pivot and expertise competitors. Acknowledges previous worth from 2018 milestones whereas authorized battles proceed (no significant pay for Musk since 2017). |
Individually, the board additionally introduced {that a} new “longer-term” CEO award is being put collectively by the board and can be introduced on the upcoming shareholders’ assembly in November.
Electrek’s Take
One of many largest paydays in historical past, and it’s to the CEO of an organization in evident decline with internet revenue in freefall for the final two years.
Nonetheless, it’s moot to debate present efficiency since Tesla clearly frames this as a option to substitute the 2018 compensation package deal.
But it surely’s nonetheless unimaginable that to unbiased outsiders watching Tesla, the corporate is clearly in decline. But, Tesla’s board has simply given Musk $26 billion, regardless of him being undoubtedly accountable for this decline, and says that it’s going to provide him an even bigger, longer-term contract quickly on high of it.
It’s going to be onerous to beat the allegations that the board is solely in his pocket after that.
Additionally, that’s regardless of Musk already being the particular person most incentivize to make Tesla succesful as the most important Tesla shareholder and him breaching his fiduciary obligation to shareholders final yr when he threatened to not construct AI merchandise at Tesla, somethign he mentioned was essential to the corporate’s success, if he didn’t get 25% management over the corporate’s shares.
This new grant will solely bump him to a few 15% stake.
I anticipate this new compensation package deal in November to push him to 25%.
At the latest earnings assembly, Musk said that his aim for larger management over Tesla is to make sure that activist buyers can’t oust him, however “not a lot management that he can’t be thrown out if he goes loopy.”
He already went loopy and the board rewarded him with a $26 billion payday and an upcoming new compensation plan.
He clearly already has loads of management over the corporate.
