The Advisors' Blog

Last week, every news outlet reported on Tesla’s newly announced pay package for Elon Musk. Since it’s hard to piece together from the news what you may want to know about this grant in your professional life — or even for cocktail party banter — here’s the TL; DR on what happened from a legal and compensation perspective:

– On Friday morning, Tesla filed its preliminary proxy statement for its much-anticipated 2025 annual meeting happening November 6. It includes 16 proposals.

– The proxy “unveils a longer-term CEO compensation strategy” consisting of a new performance award that is in some ways similar to, and in other ways different from, the 2018 award. (A chart on page 70 compares Musk’s 2012 award, 2018 award and 2025 award.)

– Performance Milestones: There are 12 milestones relating to market capitalization, starting at $2 trillion and going up to $8.5 trillion, over the 10 year performance period. Tesla stresses that If Elon achieves all the performance milestones, Tesla would become the most valuable company in history. The award also includes 12 operational milestones relating to products — like 10 million active autonomous driving subscriptions, 1 million AI robots delivered and 1 million robotaxies in commercial operation — and Adjusted EBITDA goals, which includes achieving Adjusted EBITDA of $400 billion over four consecutive fiscal quarters.

– Other Features: The shareholder letter says the award has “innovative structural features, born out of the special committee’s considered analysis, and extensive shareholder feedback.” For example:

• Vested shares remain subject to a five-year holding period from the date they’re earned (if still in effect at the time of vesting).
• The award gives Musk voting rights as the shares are earned, while economic rights remain subject to vesting over a 7.5+ year period.
• Two tranches are only earned if Mr. Musk has developed a framework for CEO succession.
• And two interesting “features” are meant to avoid volatility. First, Musk is supposed to dispose of these shares in an “orderly” way in coordination with Tesla. Second, there are only two dates the shares will vest despite the many tranches. Shares earned by the award’s 5th anniversary vest on the 7.5th anniversary and shares earned after the 5th anniversary vest on the 10th anniversary.

– The proxy asks shareholders to approve this new long-term grant — not for fiduciary purposes but under stock-exchange listing rules (so Elon and Kimbal Musk are entitled to vote on the proposal). Approximately 15 pages are dedicated to background and discussion of the process followed by the two member special board committee. The special committee’s full report is also appended to the proxy.

– The proxy also asks shareholders to approve an amendment and restatement of Tesla’s 2019 equity plan to increase the share pool. The original 2019 equity plan seems to have been intended for awards to employees other than Musk. The amended and restated plan creates a special share pool for the previously-announced $30 billion replacement grant to Musk and increases the general share pool for grants to other employees.

The proxy says the preliminary aggregate fair value estimate of the new award is $87.75 billion. Why are news outlets reporting the value at almost $1 trillion? That’s what the approximately 12% stake would be worth if the greatest market cap target is achieved. Not surprisingly, everyone seems to be sharing reactions on LinkedIn, and they range from Obi-Wan to Twister.

– Meredith Ervine