NEW YORK – Billionaire Elon Musk is making one of his biggest requests of Tesla investors yet – asking shareholders to reapprove his US$56 billion (S$76 billion) compensation package that was squashed by a US court earlier in 2024.
It was one thing for shareholders to approve his moonshot pay package in 2018, when it contained seemingly audacious goals and the market for electric vehicles was still Tesla’s to lose. In requesting that they ratify the same package again, Mr Musk and Tesla’s board are gambling that the billionaire’s cult following and his role in the carmaker’s stock surging about 700 per cent over the past six years will outweigh the fact that much has changed for Tesla since 2018.
The pay package was voided in January by a Delaware court, ruling on a complaint by an individual shareholder alleging that Mr Musk dictated his terms to the board, which was not sufficiently independent from its star chief executive.
What is at stake for Mr Musk are Tesla stock options that make up nearly a quarter of his net worth, according to the Bloomberg Billionaires Index. But so, too, according to the April 17 filing by Tesla’s board, is his future as CEO.
“If the 2018 CEO performance award is not ratified, then Tesla may need to negotiate a replacement compensation plan with Mr Musk,” the filing said. “There is a risk that failure to ratify would further delay any compensation for the CEO, which could affect his incentive to continue devoting time and energy to Tesla, which is essential to the company.”
The unprecedented compensation package awarded him 12 tranches of options dependent on the company hitting increasingly steep targets related to market value, revenue and adjusted earnings.
There was significant doubt about whether the targets were achievable at the time – the filing cites a New York Times article that called the top market capitalisation goal of US$650 billion “a figure that many experts would contend is laughably impossible” – but they were all met by the end of 2022.
Shareholders were willing to bet their money alongside Mr Musk’s in 2018. About 73 per cent of disinterested shareholders voted to pass the package.
But things have changed since then. For one thing, shareholders know the goals related to the moonshot package have already been achieved. Rather than betting on targets that could also make them wealthy, now it is only Mr Musk getting rich – to the tune of about 8 per cent of Tesla’s current market capitalisation.
The vote also comes at an awkward time for the electric carmaker. The company is cutting more than 10 per cent of its workforce amid slowing growth, and shares are down about 37 per cent in 2024, making it the second-worst performer on the S&P 500 Index.
More awkward still, the company has “un-met” some of the award’s original goals. Tesla’s stock is currently trading well below its highest market capitalisation target, for instance. But Mr Musk would still receive all the options if the pay package is approved.
Still, dozens of institutional shareholders have contacted Tesla and expressed support for the 2018 compensation plan, including four of the top 10, according to the filing. The carmaker also said that thousands of retail investors have sent letters and e-mails to the board expressing the same sentiment.
Although Tesla’s board says the voiding of Mr Musk’s 2018 pay package means he has not been compensated for any of his work for the past six years, he is not struggling financially. Mr Musk owns about 13 per cent of the company, excluding the options package, a stake that has appreciated by more than US$55 billion over the past six years. He also sold stock worth more than US$39 billion during that time.
Mr Musk is worth US$173.8 billion, according to the Bloomberg Billionaires Index, which considers the options part of his fortune until there is clarity around his pay package. After starting 2024 in the ranking’s top position, he is now the fourth-richest person in the world, having lost US$55 billion largely due to Tesla’s stock decline.
If the compensation package is rejected, Mr Musk’s net worth would drop by US$40.2 billion and he would be the eighth-richest person on the planet, behind Google co-founder Larry Page.
However, Tesla’s board would probably need to quickly approve an alternative package, and the special committee reviewing Mr Musk’s compensation made it clear he was unlikely to accept much less.
Tesla launched a website to encourage its shareholders to vote for the compensation deal, www.supportteslavalue.com, which says shareholders should vote in favour of the compensation plan both to reward Mr Musk for the company’s growth and to “honour the concept that the decisions of stockholders must be upheld”. BLOOMBERG
