Tesla Proposes a Potential $1 Trillion Compensation Plan for Elon Musk

Tesla Unveils Historic Compensation Plan for Elon Musk

Tesla (TSLA.O) has proposed a new compensation agreement for its CEO, Elon Musk, with a potential value of approximately $1 trillion USD. This plan is unprecedented in American corporate history. The long-awaited plan aims to incentivize Musk to continue leading Tesla in the coming years.

Ambitious Goals for Growth and Innovation

The plan includes a series of ambitious benchmarks that Musk must achieve to earn the "reward." These benchmarks include expanding Tesla's autonomous taxi business and increasing the company's market capitalization from approximately $1 trillion USD currently to at least $8.5 trillion USD. The plan spans 10 years.

Musk's Stake in Tesla

Under the terms of the plan detailed in Tesla's filings on Friday, the additional shares Musk could receive would give him at least a 25% stake in the electric vehicle manufacturer. Musk has publicly stated his desire to have such a stake.

Background of the Plan

This plan comes after a Delaware court rejected Musk's 2018 compensation plan, which was worth over $50 billion USD. However, Tesla is seeking other ways to compensate its CEO, including a mid-term stock award of approximately $30 billion USD.

Focus on Future Growth

The incentives in the new plan aim to focus Musk on Tesla as the company seeks to grow in new markets such as robotics and artificial intelligence. Friday's filings also included a non-binding shareholder proposal suggesting that Tesla invest in Musk's xAI startup.

Musk's Strong Control Over Tesla

This new agreement underscores Musk's strong control over the automaker, despite facing countless priorities. Musk, who has served as Tesla's CEO since 2008, also oversees four other companies: SpaceX, xAI, Neuralink, and The Boring Co. Musk indicated in a May interview that he intends to remain in his role as Tesla CEO for the next five years.

Challenges and Opportunities

Reaching a market capitalization of $8.5 trillion USD would be more than double the value of Nvidia, the world's most valuable company currently. Tesla saw a market capitalization of approximately $1.5 trillion USD at the end of 2024. The filings reveal that the latest CEO award is worth $87.8 billion USD, but could swell to about $1 trillion USD if Musk achieves all performance targets and receives all restricted shares. The filings also outline that Musk must participate in the board's creation of a long-term CEO succession framework to receive the final two tranches of the performance award.

Keeping Musk is Key

The board emphasized that incentivizing Musk is highly aligned with investor interests. If Tesla's growth stalls, he gets nothing.

Competing Priorities

Musk, 54, had urged the board to arrange a new compensation plan for him, suggesting that he would pursue the development of AI and robotics products elsewhere if he didn't have about 25% voting control at Tesla. While Musk remains Tesla's largest shareholder, he sold a significant portion of his stock to fund his acquisition of Twitter. That social media platform, rebranded as X, was acquired by Musk's xAI earlier this year.

Political and Financial Challenges

Despite Musk's many priorities, Tesla's board insists on working with him. In addition to overseeing other companies, his attention has increasingly turned to politics. He was a top financial backer of Trump in last year's election and briefly led efforts to reshape the federal government. This sparked backlash against Tesla, including arson or vandalism at its stores and charging stations. This negative reaction led to Tesla posting two of its worst financial reports in years, with its global car deliveries dropping 13%.

Return to Focus on Tesla

At the end of May was Musk's last official day as a special government employee and he vowed to dedicate more time to Tesla. Just days later, he engaged in a heated public dispute with Trump. In the past few months, Tesla has regained some momentum, launching its long-promised self-driving taxi service, which Musk believes is a critical component of its future business. The company launched a handful of autonomous taxis in Austin on June 22.