Tesla Proposes Unprecedented $1 Trillion Compensation for Musk

Tesla Inc. has introduced a groundbreaking compensation agreement for Chief Executive Officer Elon Musk, potentially worth about $1 trillion. This unprecedented package is designed to motivate Musk to spearhead Tesla’s growth over the next decade. The ambitious plan sets out rigorous performance benchmarks that Musk must achieve to secure the full payout, including expanding Tesla’s emerging robotaxi business and increasing the company’s market capitalization from approximately $1 trillion to a staggering $8.5 trillion.

The proposal, detailed in a proxy filing on October 15, 2023, outlines that Musk could increase his ownership stake in Tesla to at least 25% if he meets the specified targets. This compensation structure marks a significant shift from a previous package valued at over $50 billion, which was recently invalidated by a Delaware court. As Tesla continues to appeal that decision, the board is exploring alternative ways to reward Musk, including an interim stock award estimated at about $30 billion.

Incentives and Ambitions

The new compensation plan aims to keep Musk focused on Tesla’s strategic goals while the company ventures into new markets, including robotics and artificial intelligence. The filing also included a non-binding proposal for Tesla to invest in Musk’s startup, xAI, a notion that has been previously discussed by Musk. Tesla’s board stated in a letter, signed by Chair Robyn Denholm and director Kathleen Wilson-Thompson, that retaining and incentivizing Musk is crucial for the company to aspire to become the most valuable corporation in history.

Despite the demands on his time, Musk has expressed a commitment to remain at the helm of Tesla for at least five more years. He currently oversees four other companies, including SpaceX, Neuralink, and The Boring Company. Earlier this year, he acquired the social media platform Twitter, renamed X, through his venture xAI. Although Musk remains Tesla’s largest shareholder, he has sold a substantial portion of his stock to fund his other business pursuits.

Market Expectations and Challenges

Tesla shares experienced a modest increase of 1.9% following the announcement, although the stock has seen a decline of 16% this year. Achieving a market capitalization of $8.5 trillion would position Tesla as a market leader, surpassing Nvidia Corp., the current most valuable company. Tesla’s market value reached a peak of about $1.5 trillion in late 2024.

To receive the shares tied to the new compensation plan, Musk must fulfill twelve operational and market capitalization milestones. These include delivering 1 million Optimus robots and 20 million Tesla vehicles, as well as operating 1 million robotaxis commercially, and achieving an adjusted EBITDA of $400 billion.

The previous compensation plan, which was approved by shareholders in 2018, allowed Musk to earn stock options based on meeting ambitious performance goals. Initially valued at around $2.6 billion, the options soared in value to approximately $56 billion as Tesla met its milestones. However, the award faced legal challenges, leading to a ruling by Delaware Chancery Court Chief Judge Kathaleen St. J. McCormick, who found that Musk had undue influence over the compensation process.

As the company continues to navigate these legal complexities, Tesla has amended its corporate bylaws to require investors to hold at least 3% of shares before filing lawsuits, a measure likely aimed at preventing future disputes over executive compensation. The board’s strategy reflects its commitment to Musk and its confidence in his leadership as Tesla embarks on its next chapter of growth.