Tesla shareholders could soon give CEO Elon Musk, already the wealthiest person on the planet, the chance to become the world’s first trillionaire – or risk him walking away entirely.
Musk’s new pay package is the key measure that will be up for a vote at Tesla’s annual meeting Thursday afternoon. Shareholders have widely approved Musk’s pay packages in the past, but this year holds an added risk – the company warned in September that Musk “raised the possibility that he may pursue other interests” should it be denied.
The compensation would come in the form of a stock grant that would give Musk as much as 423.7 million additional shares of Tesla stock over the next 10 years. Those shares would be worth about $1 trillion, assuming the company reaches the $8.5 trillion market cap needed to have Musk qualify for the full potential payout.
In addition to increasing the Tesla’s market cap over this ten-year period, Tesla would also need to achieve a series of either operational or financial targets for him to get the full options.
For Tesla to reach $8.5 trillion in market value, it would need an increase of 466% from today’s stock price. That’s also about 70% higher than the world’s most valuable company, Nvidia, which hit a record $5 trillion market cap last week.
However the company has had rocky financial performance so far this year that saw sales and profits plunge in the first half of the year, and strong financial headwinds going forward from the loss of US government support for EV sales.
But Musk and Tesla executives dismiss those problems, saying Tesla is shifting focus from merely selling electric vehicles to selling self-driving cars, including a fleet of “robotaxis,” as well as humanoid robots.
Those products and concepts are still under development and haven’t gone on sale, however. So even if the pay package passes, it’s not certain that Musk will ever see any of its potential hundreds of millions of shares. He will need to straighten out the problems the company faces first, and start living up the big promises that he’s made for the future.
But Musk, as well as some Wall Street analysts and investors, think that the company is on course to reach that $8.5 trillion target and beyond, by shifting focus from merely selling electric vehicles to selling self-driving cars as well as humanoid robots as well as rides in a fleet of “robotaxis.”
Still, Musk’s fans insist he is pivotal to the future, which makes them more certain the package needs to pass.
“Shareholders are going to support this overwhelmingly, because Musk is the key asset for Tesla,” said Dan Ives, analyst for Wedbush Securities and one of the biggest Tesla bulls on Wall Street. “Tesla needs Musk to take it into the autonomous driving, robotic future.”
Even those who don’t support Musk’s vision say they have little doubt the pay package will pass. In the most recent vote on his pay, 84% of shares were voted to approve the package.
“I think it passes no matter what,” said Ross Gerber, CEO of Gerber Kawasaki Wealth & Investment Management, who was an early major shareholder of Tesla, but is now a harsh critic of Musk and the company.
Gerber describes some of the operational and financial targets tied to the pay package as “softball.” He also questions the size of the pay package, no matter how well the company and its stock price might do going forward.
“So if you get a trillion dollars over 10 years, that’s $275 million a day,” he said, calculating how much Musk would earn daily, on average, if the package pays off as planned.
“I just don’t know in the world anybody thinks of that as fair to shareholders,” he said.
Numerous investment funds have already announced they’re voting against the package, including Norges Bank Investment Management, which is Norway’s massive sovereign wealth fund. Some US public pension funds in California, New York, and elsewhere have also come out against the package and urged others to vote no. Some of those have voted no in the past.
Influential advisory firms Glass Lewis and ISS have also recommended that institutional investors vote against the package, arguing that the options that Musk could be granted would dilute shareholders’ stakes.
“The performance targets included in the (Musk’s proposed pay package) are in many cases vague, undemanding, and subject to significant discretion by the board,” said Glass Lewis in a note that recommends voting against the package.
Musk attacked both firms during Tesla’s recent investor call, calling them “corporate terrorists.” He added that their influence over some investor firms that hold shares and vote is the reason he needs a greater stake in the company.
“It’s not like I’m going to go spend the money,” Musk said on the call. “There needs to be enough voting control to give (me) a strong influence – but not so much that I can’t be fired if I go insane.”
