Tesla’s board unveiled a compensation package for the chief executive that could be worth $900 billion if he meets ambitious targets.
All the compensation would be in the form of Tesla shares. The package, which must be approved by the company’s shareholders, is expected to be put to a vote at an annual meeting on Nov. 6.
Mr. Musk has a net worth of more than $400 billion, according to Forbes. The new pay could add around $900 billion to that fortune if he succeeds in raising Tesla’s stock market value to $8.5 trillion from about $1.1 trillion today.
Mr. Musk has played down the importance of car sales, saying Tesla’s future is in artificial intelligence, self-driving cars and humanoid robots. The compensation plan calls for Tesla to have sold a total of 20 million cars by 2035, from eight million today. That implies the company would need to sell only 1.2 million a year, far fewer than it sold last year.
I think that misses the main part of the compensation plan. The full package requires that Tesla moves from its current $1 trillion market value to $8.6 trillion in 10 years. If he pulls that off, everyone who is currently a TSLA stock owner would benefit quite a bit.
Why is that a bad thing? If Musk causes my Tesla stock holdings to substantially outperform the S&P in 10 years, why should I care how much stock he gets as compensation?
The devil of course is in the details, but I don’t see anything in your link to be all that negative. Heck, that $900 billion carrot may be good for the country if it keeps Elon away from all those conspiracy rabbit holes to focus on Making Tesla Great Again.
Because if the board gives him $800 billion for something that he would have given the company for “only” $100 billion, then he’s taken $700 billion of value out of the company that could have (and arguably should have) been reserved for shareholders.
No CEO of any company (other than Musk) has ever received even a single billion dollars in compensation. Ever. In the history of American capitalism. The next highest ever received was $770 million in one year for a total comp package (for AAPL in 2021, IIRC). What’s more egregious, he’ll receive the highest compensation in history every year for the 10 years he’s locked in from just the first tranche, which only requires that he grow Tesla’s value by about 6.3% per year for the next ten years. Note that the S&P 500 typically returns about 9-10% per year.
He gets more than $12 billion if Tesla underperforms the market by a lot. He gets about $26 billion if Tesla’s market cap grows by about 8.5% per year - also probably underperforming the market. He’ll get close to $50 billion if Tesla grows by 10.5% per year. Again, no other CEO has ever earned more than $0.7 billion in a single year.
The amount of value they’re giving to Musk is both unprecedented and completely unnecessary to align his interest with that of the company. Had they given him 10% of this offer he would have received more compensation than any CEO has ever received. The rest is because he controls the company, and can take whatever he wants away from shareholders.
Why is that the question? He doesn’t have to make Tesla an $8 trillion company to earn more than any other CEO in the history of capitalism. He just has to make it a $2 trillion company. In ten years, or about 6.5% return per year.
Nope. I’m not qualified to be a CEO. But they could have gotten Musk to do this for much smaller comp. Just reduce the first three tranches to, I don’t know, maybe 3.5 million shares each. So he gets only a billion dollars for each tranche that is still underperforming the market? Still more than every CEO in history has ever made?
Look at bad-case scenarios, what do you suppose the value of Tesla would be if Elon were to be somehow incapacitated, whether by accident, assassination, health incapacitation or any other means?
It appears the Board thinks the company is him and him alone. Even Steve Jobs never got that kind of treatment. Or Thomas Edison, JP Morgan, Andrew Carnegie, Henry Ford, Cornelius Vanderbilt or JD Rockefeller, for that matter.
But if Tesla shareholders go along with it, so be it - it just sets a terrible precedent for the future development of corporate America.
Tesla is currently a $1 trillion company with a 200 p/e. Some math with simplifying assumptions sees price/share at $300 and earnings/share at $1.5 to give that unsustainable p/e.
Let’s assume a more reasonable (but still outlandish) p/e of 50 (Nvidia’s current p/e) in 10 years at constant share number. A $2 trillion valuation gives a price/share of $600. To get a 50 p/e the earnings/share has to get to $12. From 1.5 to 12 is an 8X increase.
An 8-fold increase in earnings in 10 years seems like a heavy lift to me. That’s about 24% increase per year. The only way I think it would happen is if Tesla becomes far more than just a car company. The only one likely to be able to pull that off is Elon.
And that’s just a $2 trillion valuation. If Tesla gets anywhere near an $8 trillion market valuation, then Elon is underpaid.
Tesla has a 200 p/e. The only way that is possibly justified to a long-term investor is if one believes the narrative of Tesla dominance in industries other than BEVs. Like battery storage, AI, robots, robotaxis, etc. That narrative is Musk’s narrative and I tend to agree that he is probably the only one who could possibly pull it off.
Meanwhile, Warren Buffett has made me a lot of money (and I’m small potatoes) and got paid $100k a year.
Mr. Buffett ate his own cooking.
According to Google, Musk owns 410 million shares of Tesla. At $350/share, that amounts to $143 billion, if my calculator and fat fingers are accurate.
If that isn’t enough incentive to double or quadruple the share price, nothing is. How greedy, I mean how much incentive does one man need?
Which is one of the reasons I don’t invest in Tesla stock (although I’m sure I own some in my mutual funds).
Which might be true, but it still doesn’t mean that the board or shareholders should pay him $15 billion to do it, rather than, say, $1.5 billion.
What? He’d be overpaid no matter what he did - even $8 trillion. If he would have done the job for $80 billion, and you pay him $800 billion instead, you’ve overpaid him. Because the board failed to do its job and negotiate a reasonable offer to put before the shareholders, they’ll approve the unreasonable one.
The board is paying Elon Musk NOTHING! ZERO! ZILCH! NADA!
The board is enabling Elon Musk to collect $15 billion (if that is the amount) from the market. The shares that must be created, issued, (a secondary offering) are funded by the market. I’ll be contributing a few dollars myself. Not out of cash but out of TSLA dilution. Do I mind? Not at all. The world has seldom, if ever, seen a more productive industrialist, worth every penny.
Way back, I tended to promote, considered buying a tesla, but after seeing the childlike performances, slash n burn attempts in the political world, it soured the whole game, as it has in a lot of the world, it’s quiet a bit now, at least they aren’t egging, trashing the various eccles now, but there’s a different view of Musk himself, way to squirrelly to put any investment bucks in that pot… Way too many negative vibes…
Exactly. Which is why I wrote that neither “the board or shareholders should pay him $15 billion.” The board has authorized this oversized amount of compensation, and the shareholders will have to pay the cost through TSLA dilution. You know how stock options work. It isn’t free to the shareholders to provide compensation through options.
He’s not worth every penny. You could have had his services for a tenth the cost, if not less. There have been other industrialists that have created more value (Jensen Huang comes to mind) and have received a fraction of that compensation.
I don’t think it is greed. I think Musk wants control of the company and feels that 25% ownership would give him enough voting influence to accomplish what he wants. That’s why this compensation package is only about stock. To repeat, it is only about stock.
Musk has a vision for Tesla and wants to accomplish that. I don’t fault him and frankly, I would like him to accomplish it as well. I’d give him 25% ownership of the company now and see where he takes us.
Which is a total misunderstanding of the situation. You think it is only about dollars. This is about effective control of the company. Musk wants a pathway to get to 25+% ownership. Anything less than that is not going to fly.
That was the point of the 2018 compensation package and is most certainly the point of the latest effort.
If this was simply about control, the board could create a favorable share class just like Facebook/Meta did so that he has control with Class B super shares but at 1/10 the value.
Edit:
And here is exactly how it could be done:
Step-by-Step Analysis
Creating Abundance, Inc. with Class B Shares
Concept: Abundance, Inc. could be established as a holding company under Texas law (where Tesla is incorporated) with a dual-class share structure. Class A shares (similar to Tesla’s current common stock) would have one vote per share, while Class B shares would carry enhanced voting rights (e.g., 10 votes per share, a common ratio in dual-class structures like Alphabet or Meta).
Feasibility: Tesla’s current Certificate of Formation, as noted in the X thread, doesn’t allow super-voting shares due to Nasdaq Rule 5640, which prohibits post-IPO introduction of multi-class structures unless specified at the IPO stage. However, Abundance, Inc. would be a new entity, and its initial bylaws could include a dual-class structure, potentially sidestepping this restriction if structured correctly.
I think that’s completely implausible. Of course, there’s the obvious reason that Hawkwin pointed out - there’s ways to give him “effective control” without giving him a trillion dollars.
But it’s utterly implausible anyway. Musk today is almost like a god at Tesla - revered by the shareholders with a supine board. You couldn’t name a CEO of another public company that has more “effective control” of their company than Musk - even the ones that own a majority of shares.
Might that change one day? Of course - but this compensation package doesn’t change that one whit. Why not? Because the scenario in which Musk might actually start to lose “effective control” over the company is the one where he hasn’t lived up to the promises/expectations that underly that 200 P/E. But that’s the scenario where he doesn’t get all the shares! The scenario where he gets all those shares is the one where he has successfully delivered both autonomy and humanoid robots at scale. Is it the least bit plausible that the Elon Musk in that timeline might be at risk of losing “effective control” of Tesla?
Finally, there is the obvious issue that if Musk wanted “effective control” of Tesla by getting to a 25% share, he could do what every other person who wants effective control of a company has to do - buy more shares. No one forced him to sell a huge stake to buy Twitter. No one’s stopping him from selling that stake today and using the proceeds to buy more Tesla shares again. Or selling part of his stake in SpaceX, or XAI - or any of the other ventures that make him a part time CEO of Tesla. Of course he’d love to have a 25% stake in Tesla and get to keep all his other stuff as well….but that’s not really something that the board should have cared too much about.
I think this proposal will get approved by Musk and shareholders. I think a proposal that gave him a tenth of these shares would also have been accepted by Musk and the shareholders. I think a proposal that removed all the first 6 tranches and doubled the last 6 tranches would have been approved by Musk and shareholders, also. Of those three alternatives, the one the board chose is the least defensible.