Tesla Shareholders Confirm Elon Musk's $56 Billion Pay Package

Tesla shareholders voted Thursday to restore CEO Elon Musk’s record $56 billion pay package at the electric vehicle maker’s annual shareholder meeting, sending a strong vote of confidence in his leadership of the electric vehicle maker.

Musk’s compensation package, believed to be the largest of any CEO of a publicly traded company in the U.S., was voided by a Delaware judge. The judge found that Tesla’s board failed to adequately disclose its members’ relationships with Musk and that the company was already on track to meet most of the performance-based package benchmarks. Consequently, Tesla had put the potential reinstatement of Musk’s pay package to a shareholder vote.

Additionally, Tesla has struggled with falling sales and profit margins as demand for electric vehicles slows worldwide.

However, at the company’s annual meeting on Thursday in Austin, Texas, Musk reassured shareholders that he would stick around, telling them he couldn’t sell any stock in the compensation package for five years.

“It’s not actually cash, and I can’t cut and run, nor would I want to,” he said.

Incentives for Shareholders

Earlier, Musk and Tesla encouraged shareholders to participate by offering a chance to win a personal tour of Tesla’s Gigafactory in Austin, Texas, guided by Musk. Entrants do not need to participate in the vote to enter the contest.

Tesla highlighted Musk’s achievements since the initial approval of his pay package in 2018, citing a nearly 1,100% total shareholder return. The package offers rewards in the form of stock options based on Tesla’s market value, which is currently around $555 billion, intending to reach $650 billion.

Support

Support for Musk’s package comes from various stakeholders, including Tesla board chair Robyn Denholm, who emphasized the need to retain Musk’s attention and motivation. Florida’s pension board, Tesla’s 80th largest investor, also voted in favour, citing high levels of pay-for-performance.

Prominent investor Ron Baron, founder of Baron Capital, expressed his support, highlighting Musk’s critical role in Tesla’s success. 

Criticism

Proxy advisory firm Glass Lewis wrote in late May that it opposed Musk’s compensation package because of its “excessive size” as well as the impact of Musk exercising his stock options and the concentration of the company’s ownership.

Glass Lewis also cited Musk’s “slate of extraordinarily time-consuming projects” that have increased after the acquisition of Twitter, now known as X and the billionaire’s other ventures. Another proxy advisory firm, Institutional Shareholder Services, also opposed the pay plan.

California Public Employees’ Retirement System (CalPERS) CEO Marcie Frost stated that the pension would oppose Musk’s pay package, writing that the “exorbitant compensation contradicts CalPERS’ longstanding views on executive pay.” She added that the compensation is “excessive when compared to executives at peer companies, highly dilutive to shareholders, and not tied to Tesla’s long-term profitability.”

“While we agree that Mr. Musk is entitled to be well compensated for his work, we also believe that a pay package should be commensurate to a company’s performance with reasonable salary caps. Those features are absent in the deal as structured,” Frost added.

New York City Comptroller Brad Lander also opposed the plan, arguing it could lead Tesla in undesirable directions. Norway’s $1.7 trillion sovereign wealth fund, the largest in the world, also announced its opposition.

The vote on Musk’s compensation package has sparked significant debate among shareholders and advisory firms, with opinions divided on its fairness and impact on Tesla’s future. Now, the approval underscores the support that Musk enjoys from Tesla’s retail investor base, many of whom are vocal fans of the mercurial billionaire.