Tesla Floats New Pay Package for Musk, Potentially Boosting His Voting Control

Tesla (TSLA) is seeking shareholder approval for a new, ambitious compensation package for CEO Elon Musk, reigniting the debate over executive pay, according to a recent SEC filing. The proposal arrives after a Delaware court invalidated Musk’s 2018 pay plan, deeming it excessive and improperly approved.

The proposed plan outlines 12 tranches of stock options that vest upon achievement of specific market capitalization and operational milestones over the next decade. Beyond financial incentives, the agreement aims to grant Musk increased voting power within the company, a provision he has publicly advocated for to ensure greater control over Tesla’s strategic direction, particularly regarding AI and robotics initiatives.

Tesla Chair Robyn Denholm, in an interview, framed the plan as critical for motivating Musk and ensuring his continued focus on delivering value for shareholders. “The targets are incredibly ambitious, the plan is designed to keep the CEO focused,” she stated, emphasizing that the equity awards are contingent on exceeding market capitalization thresholds and achieving operational targets.

The full award could potentially grant Musk over 423 million additional shares. Currently, he holds roughly 13% of Tesla’s outstanding shares. The success of this new effort to incentivize Musk will be a significant factor to monitor for shareholders.

Achieving the first tranche requires Tesla to nearly double its current market capitalization to $2 trillion, while the ultimate target is an $8.5 trillion valuation. This ambitious goal signals Tesla’s confidence in its future growth potential, particularly in areas like full self-driving (FSD) and robotics.

Operational milestones detailed in the 2025 CEO Performance Award are equally challenging. They include delivering 20 million Tesla vehicles, securing 10 million active FSD subscriptions, deploying 1 million robots, operating 1 million Robotaxis commercially, and meeting a series of adjusted EBITDA benchmarks. Successfully hitting these targets would cement Tesla’s dominance in the automotive industry and its expansion into new technological frontiers. This also requires the successful and rapid scaling of operations that Tesla has historically struggled with.

Musk’s oversight extends across a diversified portfolio of companies, including SpaceX, The Boring Company, Neuralink, and xAI, recently merged with his social media platform, X. The breadth of his responsibilities has prompted scrutiny over his ability to effectively manage Tesla, despite his track record of innovation and disruption.

Adding another layer to the shareholder vote, Tesla is also seeking approval to invest in Musk’s AI venture, xAI. Musk initially proposed the idea via an informal poll on X, suggesting a potential investment of $5 billion. This proposal has raised eyebrows regarding potential conflicts of interest and the allocation of Tesla’s capital.

xAI, founded in 2023, has established a data center in Memphis and aims to build another facility to support its AI model training and chatbot development. The connection between Tesla and xAI, particularly concerning data and technological synergies, warrants careful consideration from investors. Any decision by the shareholders could potentially be seen as a way to create an umbrella of power for Musk and his many related companies.

Pay Plan Controversy

The timing of the new pay proposal coincides with the ongoing legal battle surrounding Musk’s 2018 pay package. The Delaware Court of Chancery ruled last year that the package was excessive, the Tesla board of directors failed to give shareholders the appropriate information, and rescinded it due to perceived conflicts of interest and inadequate oversight.

The court determined that Musk exerted undue influence over pay negotiations at Tesla, and the board failed to fulfill its fiduciary duty to shareholders. The court’s decision underscored the importance of independent oversight and transparency in executive compensation matters.

The legal challenge to the 2018 pay plan is currently under appeal, adding further complexity to the situation. The outcome of the appeal could have far-reaching implications for executive compensation practices and corporate governance. Given history, this may be seen as a risky effort for Tesla shareholders.