Tesla’s board is asking investors to approve a new pay plan for CEO Elon Musk that would make him the world’s first trillionaire.
If approved by shareholders at the company’s Nov. 6 annual meeting, the plan would award Musk more than 423 million shares of Tesla, but with some really big caveats.
Investors will have to carefully consider details in voting on the plan to retain and motivate the already richest man in the world.
The plan calls for 12 performance tranches with truly incredible goals that Tesla must hit or Musk receives no salary at all.
Here’s a look at the proposed plan and some of the pros and cons:
The nearby CNBC chart highlights the incredibly ambitious milestones that must be hit for Musk to be awarded additional shares.
You’ll note that the company’s market capitalization would have to double to hit the first tranche target, and ultimately the company’s value would have to grow by an incredible 800% over the next decade to hit them all.
Note the comparable valuations to other Magnificent 7 stocks in the chart.
Operational milestones to trigger awards under the plan would include:
- Increasing Tesla’s annual operating profit to $400 billion from $17 billion
- Delivering 20 million Testa vehicles (probably most in white 😊)
- Hitting 10 million active full self-driving (FSD) subscriptions
- Delivering 1 million Tesla Bots (humanoid robots)
- Launching and commercially operating 1 million robotaxis
It seems clear that no one would disagree that these are incredible — perhaps even unachievable — goals.
And the plan would require Musk to stay with Tesla for 7½-10 years, with awarded shares being restricted from sale for several additional years.
Tesla chairwoman Robyn Denholm told CNBC that the plan meets one of Musk’s top priorities: gaining more voting control to help assure the technology is used for societal good.
“If Musk fails to deliver, he gets nothing.”
Tesla’s board says the plan will help retain and motivate the visionary CEO and recommends that shareholders approve the plan.
It can be argued that shareholders would be richly rewarded with outsized returns if Musk can lead the company to these goals. Imagine seeing your TSLA shares increase from the current price of about $350 to more than $2,800 over the next 10 years — more than a 20% annualized return.
And, if Musk fails to deliver, he gets nothing.
However, there are some pretty good arguments against the plan, too.
First, Musk already owns about 14% of Tesla, making him the world’s richest man, and isn’t that enough motivation to stay with the company and make it grow?
Warren Buffett and Jeff Bezos got big stakes in their businesses at the beginning but didn’t demand more, and both they and their companies did awfully well.
Second, the additional shares will substantially dilute existing shareholders.
Third, the plan apparently has no work requirements and does not address Musk’s future involvement with his other interests like SpaceX, xAI, Neuralink, The Boring Company or any new ventures.
Finally, it’s not unfair to simply ask, “how much is enough?”
Approval of the plan is uncertain. Leading proxy advisory firms like ISS (Institutional Shareholder Services) and Glass Lewis have recommended against mega pay packages in the past, arguing that they are excessive and dilutive to other shareholders.
Both firms recommended against Tesla’s proposed 2018 Musk pay plan, citing it as “excessive,” and a Delaware court voided the plan as excessive and having a flawed approval process.
Note that Telsa moved its incorporation to Texas from Delaware in June 2024, shortly after the Delaware court decision, reflecting Musk’s desire for a more favorable legal environment. Who knows what Texas courts might do if they get involved?
So, we will need to watch what happens as Tesla’s board continues to advocate for the plan, insisting that Musk’s leadership is vital to meet the company’s ambitious goals.
Stay tuned as we see if reruns of The Six Million Dollar Man are replaced with “Elon, the Trillionaire.”
