Tesla Approves $29 Billion Pay Package for Elon Musk

Tesla Announces New $29 Billion Compensation Package for Elon Musk

The board of directors at Tesla has revealed a revised compensation arrangement for CEO Elon Musk, valued at approximately $29 billion in shares. This decision stems from the increasingly competitive landscape for artificial intelligence talent and Tesla’s current pivotal position within the industry.

Details of the Compensation Plan

This substantial pay package is being implemented through an existing 2019 Equity Incentive Plan, previously authorized by shareholders, thus negating the need for a new shareholder vote. A vote on a “longer-term CEO compensation strategy” is still planned for the company’s annual meeting in November, as indicated in a regulatory filing and confirmed by Ann Lipton, a professor at the University of Colorado Law School.

The validity of Musk’s new compensation is contingent upon the outcome of a Delaware Supreme Court review. Should the court uphold a January 2024 ruling that invalidated Musk’s 2018 compensation package – valued at around $56 billion – due to concerns regarding its negotiation process, the current plan will be rescinded.

Musk’s Stance and the AI Landscape

Prior to this announcement, Musk voiced concerns that he might curtail his work on AI and robotics at Tesla if he lacked greater control over the company’s direction. These statements coincided with an escalating competition for talent within the artificial intelligence sector, marked by significant mergers and acquisitions.

Concurrently, Musk has been developing xAI, a separate AI venture that now encompasses his social media platform, X. This development has occurred amidst a period of slowing sales growth for Tesla and damage to its brand reputation linked to Musk’s political affiliations.

Formation of a Special Committee

Tesla disclosed that a special committee, comprised of chairwoman Robyn Denholm and board member Kathleen Wilson-Thompson, was established earlier this year to formulate a new compensation package for Musk.

Terms of the New Award

The finalized award consists of 96 million shares, vesting over a two-year period, contingent upon Musk’s continued service in a senior leadership role at Tesla and a five-year holding period for the stock. Notably, this new package does not appear to be directly linked to specific company performance metrics, such as stock price increases, unlike previous awards.

Based on Monday’s premarket trading price, the shares are currently valued at approximately $29 billion. Musk will acquire these shares at a price of $23.34 per share, resulting in a current award value of roughly $26.7 billion. Tesla has clarified that the package will be forfeited if the Delaware Supreme Court rules against the company’s appeal, preventing any “double dip” scenario.

Recusal and Previous Legal Challenges

Tesla confirmed that both Musk and his brother, Kimbal Musk, a fellow board member, abstained from the process of designing this new compensation package. Musk’s involvement in the 2018 compensation plan was a key factor in Delaware Chancery Court Judge Kathaleen McCormick’s decision to invalidate it, following a shareholder lawsuit.

Judge McCormick deemed the creation of the 2018 plan “deeply flawed” due to Musk’s influence and his close relationships with Tesla’s board members. She also criticized the lack of provisions requiring Musk to remain with Tesla for a defined period – a deficiency addressed by the two-year service pledge in the new plan.

Aftermath of the Initial Ruling and Re-domiciliation

McCormick’s decision sparked considerable controversy among Tesla’s supporters and shareholders. It also prompted Tesla to explore re-incorporating from Delaware to Texas, a state with less stringent shareholder protections. Tesla even held a shareholder vote to “re-affirm” the original pay package, but McCormick reaffirmed her ruling in December 2024, dismissing the vote and Tesla’s legal arguments as inconsistent with established legal precedents.

Note: This article has been updated to reflect the board’s approval of the award and the absence of a required shareholder vote.