Elon Musk should receive an enormous record compensation package for leading Tesla for the past six years, as affirmed by Tesla shareholders on Thursday. How much more will he get in the future is the question at hand.
A Delaware judge dismissed the package in January. It included 303 million stock options, which, given the current value of Tesla shares, would have been worth almost $47 billion. Tesla is headquartered in Delaware. Chancellor Kathaleen McCormick of the Delaware Chancery Court granted a shareholder complaint, finding that Musk’s awarding method for the options was “deeply flawed” and failed to meet the standard of fairness.
Legal experts say it’s unclear whether Musk will get the options back, even with the fresh shareholder vote.
It’s not a simple solution. It doesn’t overturn the ruling, as Samantha Crispin, a partner and chair of Baker Botts’ business department, explained to CNN. “The chancellor discovered several flaws in the procedure.”
However, in part in response to the Delaware ruling, Tesla’s shareholders also supported the company’s move to Texas as its state of incorporation. Therefore, the Tesla board might give Musk a new award of stock options even if Delaware courts continue to rule against the compensation package—though doing so would have negative tax consequences—instead of just voting to reinstate the earlier options.
Since Tesla met its financial goals and granted Musk the remaining options in the 2018 package, he has been working for free for more than a year. Musk receives no cash income or bonus from Tesla.
Musk’s belief that he should be granted more stock options is evident. He stated earlier this year that he would not want to see Tesla get to the forefront of robots and artificial intelligence—areas in which he had pledged growth—without a pay plan that would provide him a stake of about 25% in the business. That would be almost twice as much as his present ownership holding of nearly 13%. However, his holding would exceed 20% if the 303 million stock options that the shareholders recently reapproved are reinstated and he executes those options.
“Growing Tesla to be a leader in robots and AI without having about 25 percent voting control makes me uneasy. Not so much that I can’t be overthrown, but enough to be influential,” Musk tweeted in January, just before McCormick’s decision. “I would prefer to build products outside of Tesla unless that is the case.” However, Musk has indicated that the discussion of a potential new compensation package will probably wait until issues around the 2018 package are resolved.
During Thursday’s annual shareholder meeting, which some may have viewed as a total love fest as investors showered the billionaire tech tycoon with accolades, Musk was not questioned about a potential pay increase.
However, the Tesla board has stated that it feels he needs to be paid handsomely in order to remain focused on Tesla and the next challenges, such as fulfilling his pledge to make humanoid robots and self-driving cars broadly accessible.
“What we acknowledged in 2018 and still acknowledge now is that one thing Elon most definitely does not have is endless time,” Robyn Denholm, the chair of the Tesla board, wrote to shareholders before to the most recent vote. He also has no lack of inspiration or further opportunities to change the world for the better. For the benefit of you, our owners, we want those concepts, that energy, and that time to be at Tesla.
Even if it means diluting their own holdings, other investors who are supporters of Musk also want to see him acquire more Tesla shares. They believe that Musk is the main reason for Tesla’s success thus far and will be essential to it going forward. Some are especially excited to see him carry out his plans for robotaxis and self-driving cars, which they believe will transform the economics of personal transportation in a way that will be even more significant than Tesla’s transformation of the auto industry through the broad adoption of EVs.
According to Tasha Keeney, director of investment analysis at ARK Invest, which has the most optimistic outlook for Tesla, “the idea of him acquiring more shares doesn’t scare me.” See this as a really important turning point, in my opinion. Elon Musk has to be properly engaged and motivated at Tesla for this reason.
Musk said to Tesla’s stockholders on Thursday that he has no intention of leaving the company and that he believes it could flourish even without him, calling himself only a “accelerant” of that accomplishment.
It’s unclear how much in additional holdings Musk would need to reach previously unheard-of wealth levels and provide him the financial motivation to concentrate on Tesla. Should the company’s shares rise as much as Musk and his supporters anticipate, the value of his present holdings would soar, making his $47 billion 2018 compensation plan seem insignificant.
The five-year target price set by Ark Invest is $2,600 per share for Tesla stock. By 2029, its overall market cap would have increased by 1,300% from its current value, surpassing the combined values of Apple and Microsoft. This would bring its entire market cap to approximately $8 trillion.
Musk’s existing holdings of 411 million shares, which are currently only worth $73 billion, would be worth more than $1 trillion if Tesla shares reach that $2,600 target—even if he is unable to get his 2018 options returned. With his net worth increasing faster than the current combined net worths of the next five billionaires on Bloomberg’s list (Jeff Bezos, Bernard Arnault, Mark Zuckerberg, Larry Page, and Bill Gates), Musk would most certainly become the world’s first trillionaire. Not to mention his investments in other businesses like SpaceX.
Not all of the people on the list were there because they had purchased stock options. For instance, both Zuckerberg and Bezos, the co-founders of Facebook and Amazon, made significant investments in their businesses when they first started them, yet neither has ever received stock grants or options after those businesses’ first public offerings in 2012 and 1997, respectively.
The claim that Musk would not receive payment if the package was rejected was rejected by McCormick, who stated in her ruling that Musk was compensated for his efforts with tens of billions of dollars due to his prior equity investment.
