The thing that makes Elon Musk’s latest Tesla compensation proposal so radical. If it succeeds, it would likely make him the planet’s first trillionaire. The plan includes aggressive manufacturing targets. Within the next 10 years, we expect to deploy one million Robotaxis into commercial operation and bring one million humanoid robots to market. If Musk meets all these targets, he would be entitled to the outrageous compensation package of about $900 billion.
His personal ownership stake in Tesla is now down to 13%, according to a Morgan Stanley analyst. This new compensation arrangement significantly raises his skin in the game. Second, it allows him to exert more control over Tesla’s day-to-day operations. Forbes did a net worth estimate on him last year and pegged it at $430 billion. If he achieves the ambitious goals set forth in this settlement, it will far surpass that increase.
In order to maximize that package Musk will have to increase Tesla’s market capitalization. He needs to do more than just raise it. He needs to raise it to an impressive $8.5 trillion. Reaching this milestone would do far more than just pad Musk’s bank account. It would directly benefit Tesla shareholders by billions via enhanced shareholder value.
The suggested pay plan comes on the heels of Musk’s $50 billion pay proposal from last year. A Delaware judge shot that package down twice. Chancellor Kathaleen McCormick of the Court of Chancery had already ruled those negotiations on that package flawed. It’s no wonder that Musk has since appealed this ruling – he clearly understood the need to win a favorable compensation structure.
Tesla’s new pay package is intended to keep Musk focused on Tesla for at least the next decade, and beyond. Analysts Robyn Denholm and Kathleen Wilson-Thompson highlighted that establishing a detailed set of compensation tranches and company benchmarks is vital for retaining Musk’s leadership and incentivizing his commitment during this critical period for Tesla. They stated,
“Tesla does not currently have a long-term CEO performance award in place to retain and incentivize Elon to focus his energies on Tesla and lead us through this pivotal moment in our history. It’s time to change that.”
Musk’s compensation plan reflects an understanding that it rewards him for expanding Tesla’s market cap and delivering strong returns for shareholders, according to Seth Goldstein, an analyst at Morningstar. Goldstein noted,
“It rewards Musk for growing Tesla’s market cap and delivering strong shareholder returns.”
Musk has made his views known on control at Tesla, saying,
“As I mentioned before, I think my control of Tesla should be enough to ensure that it goes in a good direction, but not so much control that I can’t be thrown out if I go crazy.”
This proposal constitutes a significant advance in Musk’s ongoing efforts to expand his ownership stake. It serves to highlight his importance in continuing to steer the company through the tumultuous shift in the automotive environment.
