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CNN
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Tesla shareholders confirmed Thursday that they want Elon Musk to receive a massive, record-breaking compensation package for leading Tesla for the past six years. The question now is: how much will he earn in the future?
The package, consisting of 303 million stock options worth more than $47 billion based on the current value of Tesla shares, was thrown out in January by a judge in Delaware, where Tesla was incorporated. Delaware Court of Chancellor Kathaleen McCormick ruled in favor of a shareholder lawsuit, saying the process by which Musk obtained the options was “deeply flawed” and did not satisfy the burden of fairness.
It’s unclear whether, even with the new shareholder vote, Musk will have the options returned, according to legal experts.
“It’s not an automatic solution. This does not overturn the decision,” Samantha Crispin, partner and chair of the corporate department at global law firm Baker Botts, told CNN. “The chancellor found a number of flaws in the process.”
But Tesla shareholders also approved moving Tesla’s state of incorporation to Texas, partly in response to the Delaware decision. So even if Delaware courts continue to rule against the pay package, Tesla’s board could grant a new stock option grant to Musk, even though it would have rather negative tax implications. than simply voting to restore previous options.
Musk, who receives no cash salary or bonus at Tesla, has been working essentially for free for more than a year, ever since Tesla hit financial targets that awarded him the last of the options available in the 2018 package.
It’s clear that Musk feels he needs to receive additional stock options. Earlier this year, he said he would not want to make Tesla a leader in artificial intelligence and robotics – areas he has promised to grow in – without a compensation plan that would give him ownership of ‘approximately 25% of the company’s shares. That would be about double the roughly 13% stake it currently holds. However, if the 303 million stock options just re-approved by shareholders were reinstated and he exercised those options, his stake would exceed 20%.
“I’m not comfortable making Tesla a leader in AI and robotics without having approximately 25% voting control. Enough to have influence, but not so much that you can’t be overthrown,” Musk said. tweeted in January, shortly before McCormick’s decision. “If that’s not the case, I would prefer to build products outside of Tesla.” But Musk hinted that the issue of a new pay package would likely be delayed until questions surrounding the 2018 package were finally settled.
Musk was not asked about the new pay package at Thursday’s annual shareholder meeting, which observers may view as a veritable love fest as shareholders heaped praise on the billionaire tech tycoon technology.
But Tesla’s board has made clear that it believes some form of meaningful compensation is crucial so it can stay focused on Tesla and the challenges ahead, including its promises to make cars widely available autonomous and humanoid robots.
“What we recognized in 2018 and continue to recognize today is that one thing Elon certainly does not have is unlimited time,” the board chair wrote. Tesla, Robyn Denholm, to Tesla shareholders before the most recent vote. “He also has no shortage of ideas and other areas where he can make an incredible difference in the world. We want these ideas, this energy and this time to be at Tesla, for the benefit of you, our owners.
Other Musk fans in the investment community also want to see him get additional shares of Tesla, even if it means their own holdings are diluted. They view Musk as the driving force behind Tesla’s success and as crucial to its future success. Some are particularly eager to see him implement his plans for self-driving cars and robo-taxis, which they say will change the economics of personal transportation even more than Tesla changed the auto industry by spurring widespread use electric vehicles.
“The idea of him acquiring more shares doesn’t scare me,” said Tasha Keeney, director of investment analysis at ARK Invest, who has the most bullish forecast for Tesla. “I think this is an extreme pivotal moment. That’s why it’s important to have Elon at Tesla, engaged and incentivized appropriately.
Musk told shareholders on Thursday that he had no plans to go anywhere and said he believed Tesla could succeed even without him, although he described himself as an “accelerator” of this success.
It’s unclear how much additional holdings would be needed to provide Musk with financial incentives to focus on Tesla and bring it to unprecedented levels of wealth. If the company’s stock performs as well as Musk and his fans predict, the value of his current holdings would increase so much that his $47 billion pay package for 2018 will seem like an afterthought.
Ark Invest has a five-year price target for Tesla stock of $2,600 per share. That would represent a 1,300% gain from its current value, bringing its total market capitalization to around $8 trillion, more than the current values of Microsoft and Apple combined. by 2029.
Even if Musk doesn’t get the 2018 options back, his current holdings of 411 million shares, worth just $73 billion today, would be worth more than $1 trillion if Tesla shares hit that target. $2,600. This would likely make Musk the world’s first billionaire, with his net worth increasing more than the current net worth of the next five people on Bloomberg’s billionaires list – Jeff Bezos, Bernard Arnault, Mark Zuckerberg, Larry Page and Bill Gates – combined . And that doesn’t even count its stakes in other companies like SpaceX.
Not everyone on this list got there through stock option packages. For example, Bezos, the founder of Amazon, and Zuckerberg, who co-founded Facebook, both took significant stakes in their companies as founders, but neither received any funding. stock or option grants since these companies made their IPOs in 1997 and 2012, respectively. .
In his ruling, McCormick rejected the argument that Musk would not be compensated if the package was rejected, writing: “Musk’s pre-existing ownership interest provided him with tens of billions of dollars for his efforts.” »