Tesla is scheduled to hold a shareholder meeting on Thursday (November 6) to vote on whether to approve CEO Elon Musk’s exorbitant compensation package. Prior to the vote, the board of directors sent a clear message to shareholders: either approve Musk’s compensation package worth about $1 trillion, or risk him potentially leaving Tesla, which could lead to a stock price collapse.
The Tesla board has placed all its chips on Musk’s future development prospects for the company. Now, shareholders must decide whether to support the boldest gamble in the company’s history and vote on the board’s dilemma: either pay Musk up to $1 trillion worth of company stock or risk him potentially leaving – which could cause a drop in the company’s stock price. Experts say that this decision is akin to a referendum on whether traditional corporate governance rules apply to the world’s richest man.
Both the board and numerous investors insist that only Musk can fulfill this commitment – to transform Tesla into an artificial intelligence giant, producing and delivering millions of self-driving robotaxis and humanoid robots. If Musk achieves all performance targets set by the board within ten years, Tesla’s market value could reach $8.5 trillion, at which point Musk would hold about a quarter of Tesla’s shares.
This compensation package far exceeds that of any other CEO in the world. Even if most performance targets are not achieved, Musk stands to receive record-breaking compensation in the billions of dollars.
Tesla will grant Musk 12 batches of stock options, which will be delivered in installments and linked to a series of highly challenging targets. By restricting stock vesting periods and other terms, the board aims to ensure Musk’s long-term leadership of the company.
In negotiations with board members, Musk stated that if an agreement could not be reached, he would step down as Tesla’s CEO or shift his focus to xAI, SpaceX, and his ventures in other companies.
Tesla Chairman Robyn Denholm, while advocating for Musk’s compensation package to shareholders, emphasized the risk of losing this brilliant CEO.
Krishna Palepu, a professor at Harvard Business School focused on corporate governance issues, pointed out that this plan links Musk’s compensation to significant stock price increases and requires him to hold the acquired shares for five years, aligning with shareholders’ interests.
Palepu noted that Musk has a track record of achieving extraordinary stock price growth, and he must do so again to receive the highest level of compensation.
“This is a big number because the goal is big,” the expert said.
However, some major shareholders who publicly oppose Musk’s compensation plan argue that it exacerbates Tesla’s reliance on Musk and may dilute the stock value of other shareholders.
Musk’s influence with the Tesla board and shareholders largely stems from Tesla’s current market value. The electric car giant’s staggering $1.5 trillion market cap is almost entirely built on Musk’s long-standing commitment that Tesla will dominate the future of self-driving cars and humanoid robots.
Some corporate governance experts point out that if Musk were to threaten to leave now, it could lead to a collapse in Tesla’s stock price. This risk gives him significant leverage to make unprecedented compensation demands, and the board’s position of seeking to retain Musk is also understandable.
(Information reference: Reuters)