Tesla's shareholders have ratified a $29 billion stock grant for CEO Elon Musk, a move designed to secure his continued leadership amidst legal battles and a shifting market landscape. The compensation package, consisting of approximately 96 million shares, aims to incentivize Musk to remain focused on Tesla as the company expands its focus to artificial intelligence (AI), robotics, and robotaxis.
This decision arrives at a crucial time for Tesla, which faces increasing competition, declining sales in key markets, and ongoing legal challenges surrounding Musk's previous compensation package. The board of directors has framed the new share award as a critical retention tool, emphasizing the need to retain and motivate "extraordinary talent, beginning with Elon".
The approval of this grant follows a Delaware court ruling that invalidated Musk's prior $56 billion pay package, deeming it unfair to shareholders and the result of a flawed approval process. Despite this setback, Tesla's board has moved forward with the new award, citing Musk's transformative contributions to the company's growth and market value since 2018.
Under the terms of the new agreement, Musk must remain in a senior leadership role at Tesla for at least two years, with the shares vesting on August 3, 2027. Furthermore, he is required to hold the shares for at least five years after vesting, preventing him from immediately cashing in on the award. Musk will also need to pay $23.34 per share, totaling approximately $2 billion. The award will be forfeited if the original 2018 compensation plan is reinstated.
The structure of this interim award represents a shift from the original 2018 agreement, which was entirely performance-based. While the full details of performance requirements attached to the new share award haven't been completely disclosed, Tesla's history suggests this package likely includes similar investment strategy trends.
The announcement of the $29 billion grant has elicited mixed reactions. Tesla's stock price initially saw a modest increase, reflecting investor relief that the leadership uncertainty might be resolved. Wedbush analyst Dan Ives noted that the package signals Musk's commitment to Tesla for at least the next five years. However, some shareholders remain wary, citing concerns about Musk's divided attention among multiple ventures, including xAI and SpaceX, and his occasional forays into politics. Some analysts also point to the decline in Tesla's brand loyalty after Musk's support for Donald Trump.
With the new shares, Musk's ownership stake in Tesla will increase from approximately 13% to nearly 16%, further solidifying his position as the company's largest individual shareholder. This increased ownership aligns with Musk's stated desire to have greater control over the company to guide its future in AI and robotics and defend against activist investors.
As Tesla navigates a period of intense competition and technological transition, the board is betting that this substantial compensation package will keep Musk engaged and focused on driving the company's continued success. However, the long-term implications of this decision will depend on Tesla's performance in the coming years and whether Musk's leadership delivers value that justifies the significant cost to shareholders. The company is also developing a longer-term compensation plan for Musk, which will be presented to shareholders for a vote in November.
