$1tn Elon Musk Pay Package

Tesla has unveiled a new pay plan for chief executive Elon Musk worth as much as $1tn over the next decade, if the carmaker can hit a series of stretching market value and operational milestones. The proposal, released ahead of the company’s annual meeting in Austin on 6 November, would be the largest executive compensation package ever attempted.

No Salary, Only Shares

Under the plan, Musk will forgo any salary or cash bonus. Instead, he would unlock up to 423mn new Tesla shares in instalments, provided the company meets demanding valuation and performance goals. Each tranche equates to around 1 per cent of Tesla’s outstanding stock and could only be exercised if two conditions are met: a market-capitalisation hurdle and a second target relating to earnings or product roll-out.

The first hurdle is a $2tn valuation, nearly double Tesla’s current market cap of about $1.1tn. At each $500bn or $1tn step thereafter, up to a maximum of $8.5tn, Musk could gain stock if Tesla also delivers on one of a range of business objectives. These include selling millions more electric cars, generating subscription revenue from autonomous driving, registering robotaxis, or commercialising humanoid robots.

Formidable Milestones

The top-end targets underline the scale of the ambition. Tesla must sell a further 12mn vehicles, sign up 10mn subscribers to its Full Self-Driving system, operate 1mn robotaxis, and sell 1mn AI-powered robots. Financially, it must expand adjusted earnings before interest, tax, depreciation and amortisation from $16.6bn last year to $400bn — a 24-fold increase.

Each goal must be achieved in tandem with a valuation threshold and sustained for at least six months to trigger a share award. Even then, Musk would be unable to sell the stock for seven and a half years. Any disposal would also require board approval to avoid volatility in Tesla’s share price.

Echoes of 2018 Deal

The structure closely resembles Musk’s 2018 compensation package, which at the time was dismissed by many observers as unattainable. In practice, Tesla’s valuation surged from $59bn to more than $650bn, enabling Musk to secure stock options then valued at $56bn, the largest award in corporate history.

That deal was later struck down by a Delaware judge who ruled that the board had been too close to Musk and that the package was excessive. Tesla has appealed the ruling to the state’s supreme court and recently shifted its corporate domicile to Texas.

In the meantime, the company awarded Musk an interim grant of 96mn shares, worth about $30bn, to be cancelled if the original 2018 package is reinstated.

Control at Stake

If the new 2025 scheme pays out in full, and if Tesla also wins its Delaware appeal, Musk’s stake could rise to roughly 32 per cent of the company. After accounting for tax and dilution, that would equate to about a quarter of voting rights.

Musk has argued that such a level of control is essential to protect Tesla from activist investors or hostile takeovers, particularly as it develops advanced artificial intelligence and robotics technology. He has previously suggested he might reduce his commitment, or even leave the company, without stronger voting rights.

Investor Alignment

Robyn Denholm, Tesla’s chair, said the package was designed to align Musk’s incentives with shareholder value. “Retaining and incentivising Elon is fundamental to Tesla becoming the most valuable company in history,” she wrote in a letter to investors. “He will receive nothing if Tesla’s growth stalls.”

The board has stressed that Musk’s rewards are conditional on extraordinary performance and that ordinary investors would benefit from the share price appreciation required to activate the tranches.

Challenges Ahead

Despite Tesla’s current $1.1tn valuation, the hurdles appear formidable. The company has sold 8mn cars in its history, far short of the additional 12mn now required. It has yet to sell a single humanoid robot or operate a robotaxi fleet. Sales of its Full Self-Driving system remain limited, and adjusted earnings last year were a fraction of the $400bn target.

Tesla’s shares have also fallen by about 30 per cent since December, reflecting weaker demand for its vehicles, rising competition in the electric car market, and investor unease about Musk’s divisive public profile.

Governance and Vote

The plan will be put to shareholders at Tesla’s annual meeting in Austin. Unlike under Delaware law, Musk and his brother Kimbal, a board member, will be allowed to vote their holdings. Approval requires a simple majority of votes cast.

If endorsed, 423mn new shares would be issued on top of Tesla’s existing 3.2bn outstanding, diluting other investors but significantly increasing Musk’s influence if the company performs.

A Test of Confidence

The vote will serve as a test of investor confidence both in Musk’s leadership and in Tesla’s long-term strategy. Supporters argue that Musk has repeatedly defied sceptics, citing the success of the 2018 deal and Tesla’s transformation into the world’s most valuable carmaker. Critics warn that the targets are unrealistic, the dilution heavy, and the award excessive given Musk’s existing fortune of $374bn from Tesla and his other ventures.

What is not in dispute is that no other chief executive has been offered so much, tied so directly to results. The outcome in November will show whether shareholders believe Musk can once again deliver the improbable, and whether they are prepared to stake a trillion-dollar bet on his vision.