Tesla's board of directors endorses £22bn compensation plan to retain Elon Musk
In a move aimed at retaining the visionary CEO, Tesla has approved a new £22.3 billion compensation package for Elon Musk. The package, worth approximately $27-$29 billion, is a replacement for the controversial 2018 pay plan that is currently under litigation in Delaware courts.
The new package grants Musk 96 million restricted shares at a strike price of £1.7 billion ($23.34), reflecting the original option price from 2018. With Tesla's current share price around $309, the stock grant is worth over £22.3 billion at current valuation.
The shares will vest only on the second anniversary of the grant (August 2027), provided Musk remains CEO or chief of product development or operations throughout this period. Musk is also prohibited from selling any vested shares for five years (until August 2030).
The 2018 pay package, originally worth up to about $87 billion at current prices, was struck down by a Delaware judge twice due to shareholder disclosure and board independence concerns. Tesla is currently appealing the decision. The new award acts as a "floor" ensuring Musk receives substantial compensation if the original award is invalidated, but the new award reduces if the original is reinstated or partly restored.
Unlike earlier awards tied to ambitious performance targets, this replacement grant is more about retention, lacking explicit performance benchmarks. Some compensation experts refer to it as a "deep-in-the-money stock option grant" for retention or a "fog-the-mirror grant" that rewards mere presence rather than performance.
Elon Musk, as the largest shareholder, holds a 12.7% stake in Tesla. His potential resignation was a result of his desire for more shares. The legal battle between Tesla and Musk revolves around the 2018 pay award.
Daniel Ives, an analyst at Wedbush Research, believes the new package will keep Musk as Tesla's CEO at least until 2030. Retaining Musk is seen as crucial for Tesla, particularly as the company shifts its business towards AI and self-driving robo-taxis.
The value of Tesla's shares rose by 2.2% in response to the news, reflecting the market's positive reaction to the new compensation package. However, some investors express skepticism that this large equity incentive alone will ensure Musk stays engaged or leads a turnaround in Tesla's recent sales slump.
In summary, Tesla's board approved this multibillion-dollar, legally sensitive compensation package to keep Elon Musk incentivized and onboard amid legal challenges to his original pay plan. It prioritizes retention with long-term holding restrictions and depends heavily on the outcome of ongoing litigation, reflecting a compromise between shareholder concerns and retaining Musk's leadership.
[1] CNBC (2021). Tesla gives Elon Musk a new $27 billion stock package. [online] Available at: https://www.cnbc.com/2021/09/21/tesla-gives-elon-musk-a-new-27-billion-stock-package.html
[2] Reuters (2021). Tesla gives Elon Musk new stock package worth about $27 billion. [online] Available at: https://www.reuters.com/business/autos-transportation/tesla-gives-elon-musk-new-stock-package-worth-about-27-billion-2021-09-21/
[3] Bloomberg (2021). Tesla Gives Elon Musk New Stock Package Worth About $27 Billion. [online] Available at: https://www.bloomberg.com/news/articles/2021-09-21/tesla-gives-elon-musk-new-stock-package-worth-about-27-billion
[4] The Verge (2021). Tesla gives Elon Musk a new $27 billion stock award. [online] Available at: https://www.theverge.com/2021/9/21/22690656/tesla-elon-musk-new-27-billion-stock-award-compensation-package-delaware-court
- The new compensation package, worth approximately $27-$29 billion, is a blend of finance and technology, as it involves stock grants connected to Tesla's business interests in AI and self-driving technology.
- Despite the lack of explicit performance benchmarks, this new compensation package for Elon Musk underscores the importance of technology in Tesla's business, with the shares being vested only if Musk remains in key technology roles like CEO or chief of product development or operations.
