Elon Musk’s $1 trillion compensation package sanctioned by Tesla investors

Elon Musk, the CEO of Tesla, has received a groundbreaking compensation package that might reach almost $1tn (£760bn) approved by the shareholders.

This remarkable arrangement was endorsed by 75% of the votes and garnered significant applause from attendees at the company’s annual meeting on Thursday.

Musk, who is presently the wealthiest individual globally, must significantly enhance the market valuation of the electric vehicle company over the next decade. Upon accomplishing this alongside various goals, he will be granted hundreds of millions of additional shares.

The magnitude of the potential compensation has sparked controversy, yet the Tesla board insisted that Musk might depart the organization if it was not ratified – asserting that it could not afford to lose him.

After the announcement, Musk appeared on stage in Austin, Texas, dancing amid cheers of his name.

“What we’re about to venture into is not just a new chapter for Tesla, but an entirely new book,” he remarked.

“While other shareholder gatherings are dull, ours are exciting. Look at this. This is amazing,” he added.

The targets Musk must meet in the forthcoming decade encompass:

• Producing 20 million Tesla vehicles and one million robots
• Attaining 10 million subscriptions for Tesla’s Full Self-Driving feature
• Deploying one million self-driving Robotaxi vehicles into commercial use
• Generating up to $400bn in core earnings
• Eventually raising Tesla’s total market value to $8.5tn, from its current $1.4tn

He will not receive a paycheck according to the agreed terms.

However, accomplishing all aforementioned targets would entitle him to a stock grant exceeding 400 million additional shares of Tesla – valued at approximately $1tn if the company’s market capitalization increases sufficiently.

Musk’s initial comments on Thursday highlighted the Optimus robot, disappointing some longtime analysts and Tesla observers who wished for him to concentrate on rejuvenating the electric vehicle division.

Optimus, revealed as a prototype by the firm in 2022, is aimed to be an “autonomous humanoid robot” tasked with performing “unsafe, repetitive or tedious duties.”

Utilizing the same artificial intelligence (AI) technologies as those utilized in Tesla vehicles, it has been promoted by Musk as crucial for his company’s future.

He has previously stated that its capacity to walk, run, and lift objects would enable it to play an essential role in his factories – and eventually, in residential settings.

“Consider where Musk’s mindset is,” analyst Gene Munster, managing partner at Deepwater Asset Management, expressed on X.

“His narrative of the ‘new book’ commences with Optimus. No references to cars, FSD, and robotaxis yet.”

Later, Musk acknowledged FSD, the abbreviation for full self-driving, indicating that the company was “almost ready” to permit drivers to “text and drive essentially.”

US regulators are investigating Tesla’s self-driving functionality following numerous incidents where vehicles ran through red signals or on the contrary side of the road, leading to crashes and injuries.

Tesla’s stock experienced a slight uptick in after-hours trading yet has surged over 62% during the past half-year.

Sales have declined in the year since Musk associated himself with former US President Donald Trump – a relationship that fractured this past spring.

Tesla shareholder Ross Gerber informed BBC News that Musk’s compensation deal signifies “yet another instance of the outrageous events occurring in business.”

Musk has articulated his ambitions for Tesla, but the company confronts numerous hurdles, including its declining financial performance, commented Mr. Gerber, chief executive of investment enterprise Gerber Kawasaki.

It remains uncertain whether there will be significant demand for humanoid robots, stated Mr. Gerber. Additionally, Tesla is confronted with fierce competition in the robotaxi sector from other companies such as Waymo, he noted.

Mr. Gerber remarked that his firm recently reduced its investment in Tesla due to worries regarding “the polarisation of [Musk’s] image,” which has “diminished the brand’s worth.”

“Elon appears disconnected from the fact that his popularity among the public is quite low,” he stated.

Tech analyst Dan Ives from Wedbush Securities, a long-time supporter of Musk’s leadership at Tesla, referred to him as “Tesla’s greatest asset” in a note released following the vote.

“We still maintain that the AI valuation is being unlocked, and we believe the journey towards an AI-driven valuation for TSLA has now commenced over the next 6-9 months,” added Mr. Ives.

Ann Lipton, a professor of law at the University of Colorado, expressed uncertainty regarding Musk’s ability to meet the company’s outlined goals, yet emphasized how he “achieved those targets ahead of schedule” in 2018.

She noted that his political engagements had created some “polarisation,” but his compensation package did not “impose any limitations on his actions” beyond the firm.

Musk already owned 13% of Tesla shares. Shareholders had approved a pay arrangement valued in the tens of billions if he accomplished a tenfold increment in the company’s market value – which he successfully did.

However, a judge in Delaware dismissed that compensation agreement on the grounds that Tesla’s board members had too close ties to Musk.

Tesla re-incorporated from Delaware to Texas, and the Delaware Supreme Court is presently reviewing the decision of the lower court judge.

The new compensation plan was rejected by several significant institutional investors, including Norway’s sovereign wealth fund – the largest national wealth fund globally – and the California Public Employees’ Retirement System (CalPERS) – which is the largest public pension fund in the US.

This left Musk increasingly dependent on Tesla’s unusually high number of retail investors.

Both Musk and his brother Kimbal, who also sits on the Tesla board, were permitted to vote ahead of Thursday’s meeting.

In the past weeks, certain members of Tesla’s board of directors have assisted in campaigning for Musk’s new pay agreement with an extensive marketing push that has upset several corporate governance analysts.

A video shared on votetesla.com featured board chair Robyn Denholm and director Kathleen Wilson-Thompson commending Musk.

Kathryn Hannon, an investment manager at RBC Brewin Dolphin, stated that the updated pay package would grant Musk “increased voting power over the company,” which he has sought for several years.

“Elon Musk, regardless of personal opinions, is a visionary in this sector, and I suppose establishing appropriate governance and incentive frameworks around him to facilitate this does align him, ideally, with shareholders on that path to success.”