Tesla board to shareholders: Pay Musk or face the consequences!
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Tesla's board is presenting shareholders with the most expensive choice in history: either pay Elon Musk up to $878 billion in stock compensation, or risk the company's stock price crashing if he leaves.
On November 5th, according to media reports, Tesla shareholders will vote on this stark choice on Thursday (November 6th). Board chair Robyn Denholm repeatedly emphasized the risk of losing Musk while promoting the compensation package, warning that losing Musk could cause Tesla to “lose significant value,” as the company’s valuation largely relies on its future promises of self-driving cars and humanoid robots.
The board and many investors believe that only Musk can deliver on the promise to transform Tesla into an artificial intelligence giant, achieving the goal of millions of self-driving taxis and humanoid robots. If Musk achieves all the performance targets set by the board within ten years, Tesla’s market value will grow to $8.5 trillion, and Musk will hold about one quarter of the shares.
But major shareholders, including the U.S.'s largest public pension fund CalPERS and Norway's sovereign wealth fund, have publicly opposed the plan. Norges Bank Investment Management said on Tuesday that the compensation proposal could dilute shareholder value and fails to mitigate the “key person risk” of hinging Tesla’s future on Musk.
It is reported that during negotiations, Musk told board members that unless an agreement was reached, he might shift his focus to his many other businesses— including rocket company SpaceX, AI startup xAI, and brain-machine interface company Neuralink.
An Unprecedented Compensation Gamble
This is compensation far beyond any other CEO, and even if Musk fails to achieve most of the performance targets, he will still receive a record tens of billions of dollars in compensation. Some investors aren't concerned about these astronomical figures.
Nancy Tengler, CEO and chief investment officer of Tesla investor Laffer Tengler Investments, said: "If the stock price has to increase six-fold— which is what's required here— I'll make a lot of money. If he can achieve the transformation and vision, why should I care how much he earns?"
But executive compensation experts and other major shareholders warn that this proposal poses significant risks for investors.
Experts say that this plan violates governance principles, not just because of its size, but also because the board so explicitly ties Tesla’s future to a leader with multiple conflicts of interest, possibly consolidating unchecked power over the company.
Charles Elson, founding director of the Weinberg Center for Corporate Governance at the University of Delaware, said, Tesla's board is being “blackmailed” by a “superstar CEO.” “In my view, the proper answer should be to say ‘good luck,’” Elson said.
Krishna Palepu, a Harvard Business School professor focused on corporate governance, believes the proposal serves shareholder interests by linking Musk's compensation with significant stock price increases and requiring him to hold acquired shares for five years. “The numbers are big because the goals are big,” Palepu said.
Musk’s Negotiating Leverage
Musk's influence over the board and shareholders mainly stems from Tesla’s current market valuation— which far exceeds the fundamentals of its declining electric vehicle business.
Tesla's $1.5 trillion market cap is almost entirely built upon Musk’s long-standing promises that Tesla will dominate the future of driverless cars and humanoid robots.
David Larcker, director of the Corporate Governance Research Initiative at Stanford Graduate School of Business, stated, “From a purely economic perspective, the board's desire to retain Musk is understandable.” “If you think Musk might leave and the stock price would plummet, that’s not something you want to happen while you’re in office,” he said.
Board chair Denholm alluded to this in a letter to shareholders on October 27 last year: “Without Elon, Tesla may lose significant value because our company may no longer be valued for our ambitions.”
Gautam Mukunda, a lecturer at Yale School of Management, points out that Musk already owns enough Tesla stock, and if he achieves the board's performance targets, he will become the world’s first trillionaire, almost without needing a ‘second trillion’ in incentives from company investors.
He stated that the board should not be intimidated by the departure threat of Tesla’s largest shareholder— the one who would lose the most if the stock price drops. Mukunda said:
“This is like someone holding a gun to their own head and saying: ‘Give me one trillion dollars.’ The board’s duty is not to nod like bobbleheads every time the CEO asks for something.”
Facing Thursday’s vote, Musk holds a potentially decisive voting bloc— his own 15% stake.
Tesla has re-registered in Texas, where local laws allow Musk to vote on his own compensation plan.
Previously, when Tesla was registered in Delaware, a judge overturned Musk’s 2018 compensation package in a shareholder lawsuit, calling it an “unimaginable sum” derived from negotiations involving directors closely associated with Musk and rife with conflicts of interest.
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