In the history of U.S. corporate compensation programs, many massive payouts have been made, worth nearly a billion dollars in today’s dollars. But none compare to the $46 billion pay deal that Tesla shareholders handed to CEO Elon Musk on Thursday.
The results of the shareholder vote, which concluded today, were announced at Tesla’s annual meeting, drawing a standing ovation from shareholders attending Thursday’s event at Tesla headquarters in Austin , in Texas. Musk had already declared victory, writing Wednesday evening on its X social media platform that shareholders were voting to approve the pay plan by “wide margins.”
“Damn, I love you guys,” Musk said exultantly at the shareholders meeting after the voting results were announced. He also took the opportunity to tout Tesla’s success in selling electric vehicles and what that means for the fight against climate change.
“It’s incredible. I think we’re not just starting a new chapter for Tesla, we’re starting a new book,” he said, adding: “We’re starting to significantly reduce carbon emissions.”
Tesla said in a regulatory filing Friday that 72% of voting shares supported Musk’s pay package, excluding shares voted by himself and his brother, Kimbal Musk, who serves on Tesla’s board of directors. You’re here.
The pay package has become a lightning rod compared to executive pay, with some critics calling it “excessiveSupporters argue that such a deal is necessary to tie Musk to Tesla and ensure he doesn’t decamp to start another company. Alongside Tesla, the billionaire currently owns five additional companies, including X (formerly Twitter), Neuralink and SpaceX, the latter of which he is also CEO.
As Musk announced his apparent victory before the final tally, shareholders sent the stock up 3% on Thursday, indicating that many view the pay package as key to securing Musk’s future at the company.
“This is a champagne moment for Musk and Tesla shareholders,” Dan Ives, an analyst at Wedbush Securities, noted in a research note Thursday on the preliminary results of the vote. “Ultimately, large shareholders knew that voting no would risk Musk eventually stepping down as CEO.”
Ives said he believed Musk would now likely commit to remaining CEO of Tesla for another three to five years, given the apparent approval of his pay package.
Still, questions remain about whether Tesla will actually be able to provide the pay package to Musk, given a Delaware court ruling earlier this year that overturned shareholder approval of the plan in 2018 At the same time, Tesla shareholders also approved a proposal on Thursday to move the company’s legal jurisdiction from Delaware to Texas, which could play a role in making Musk’s payment a reality.
For example, because Tesla shareholders approved the move to Texas, the reapproval of the pay package could now be treated as a Texas corporation, meaning the issue could fall under the jurisdiction of Texas courts.
Why does the salary package need to be voted on?
The vote on Musk’s payment stems from a Court decision in January, it canceled its previous wage deal, worth nearly $56 billion earlier this year. The value has since declined due to the decline in Tesla’s stock price.
That package, approved in 2018 by Tesla shareholders, sparked a shareholder lawsuit accusing Musk and the Tesla board of failing in their duties and unjustly enriching the billionaire. A Delaware judge ruled that Musk and his company failed to prove the massive payout was fair.
Because this initial salary agreement was canceled, Tesla said in April that he would bring the matter before his shareholders again, asking them to ratify the package again.
How much does Musk earn from Tesla?
Tesla has not paid Musk a base salary since 2019, according to the company’s regulatory filings. Instead, his compensation was paid in the form of “performance awards” in the form of stock options based on whether Tesla reached certain milestones, such as vehicle production or increasing of the market value of the company.
After the pay package was invalidated by the Delaware court, Tesla Chairman Robyn Denholm wrote to shareholders that they should reratify the package because “Elon has not been paid for any of his work for Tesla over the past six years, which has helped drive significant growth and shareholder value. »
Denholm described the situation as “fundamentally unfair and inconsistent with the will of the shareholders who voted in favor.”
However, Musk hardly lacks financial resources: he owns almost 13% of Tesla shares, worth $73 billion. He also owns stakes in SpaceX, worth $71 billion, and several other companies, giving him a total net worth of $203 billion, according to the Bloomberg Billionaires Index. This makes him the third richest person in the world.
Why do some shareholders support the salary package?
According to Ives, some shareholders fear that Musk will decamp for another company or start a rival company if he is not richly rewarded for his work at Tesla. It’s a threat that Musk himself has issued, saying in an article on X in January that he wanted 25% vote control of Tesla or he could leave.
Tesla Chairman Denholm echoed these sentiments, writing in a June letter to shareholders: “If Tesla wants to keep Elon’s attention and motivate him to continue devoting his time, energy, ambition and its vision to produce comparable results in the future, we must remain faithful to our commitments. agreement.”
Are some shareholders voting against the salary agreement?
Yes, some shareholders had spoken out publicly against the plan, including the California State Teachers’ Retirement System.
The large pension fund said Tuesday it would vote against Elon Musk’s compensation “because of its magnitude and because the award would be extremely dilutive to shareholders. We are also concerned about the lack of attention to the profitability of the company.
Tesla’s five largest institutional shareholders – Vanguard, BlackRock, State Street, Geode Capital and Capital Research – said they would not announce their vote or comment. They control about 17% of the votes.
How is Elon Musk’s compensation structured?
The pay deal is structured to provide multiple rounds of stock options that will allow Musk to purchase approximately 304 million shares of Tesla stock. Musk is able to receive each set of options once the company reaches certain milestones, such as when Tesla reaches a market value of $100 billion, and then every $50 billion beyond that. (Currently, Tesla’s market cap is around $580 billion.)
Based on the current stock price, the value of the salary package is approximately $46 billion.
The package also includes requiring Musk to hold the shares for five years after exercising the options, according to regulatory filings.
Do large payouts guarantee better CEO performance?
The underlying question in the debate over Elon Musk’s compensation is whether such grandiose packages actually make a difference in the CEO’s performance. In other words, do CEOs actually perform better when they receive larger packages than normal? And if they don’t receive such jaw-dropping offers, are they underperforming?
According to a 2017 study by investment research firm MSCI, generous CEO compensation doesn’t actually guarantee better results. In fact, the analysis found that companies with the lowest equity incentive bonuses outperformed those with the highest packages by almost 39% on average over a 10-year period.
— The Associated Press contributed to this report.