Elon Musk's $1 trillion pay package approved by Tesla shareholders

Tesla shareholders have approved a $1 trillion compensation package for chief executive Elon Musk, the largest payout awarded to a corporate leader.

More than 75 per cent of the votes cast were in favour of the pay plan, the company said on Thursday at its annual meeting. The outcome caps a weeks-long campaign by the electric vehicle maker’s board, its chief executive and prominent retail investors to build support.

The pay agreement clears a path for Mr Musk, the world’s richest person, to become the first trillionaire and expand his stake in Tesla to 25 per cent or more over the next decade. To achieve the full payout, he would have to deliver on targets to significantly expand Tesla’s market value, revive its flagging car business and get the fledgling robotaxi and Optimus robotics efforts off the ground.

Musk’s $1 trillion bet

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“It’s not just a new chapter for Tesla, it’s a new book,” Mr Musk said at the shareholder meeting, wearing a black Tesla jacket as he strode on to the stage in front of a cheering crowd. “And that new book is massively increasing vehicle production and ramping up Optimus production faster than anything’s ever been ramped up before in human history.”

The compensation vote was pivotal for Tesla, after Mr Musk suggested he could step down or spend more time with his other companies if he was not given greater control over the car maker. He is now expected to remain at the helm as Tesla pursues an ambitious agenda built around driverless vehicles and artificial intelligence.

What can you do with $1 trillion?

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Tesla shares were up less than 1 per cent as of 7.16pm in postmarket trading on Thursday in New York, after an earlier gain of as much as 3.4 per cent. The stock was up 10 per cent this year through Thursday’s close, narrowly trailing the 14 per cent advance in the S&P 500 Index.

Mr Musk teased several lofty goals as the company looks to next year and beyond. The chief executive, who has led the EV maker since 2008, said Tesla could build a chip factory to get the volume it needs, even as the company works with established suppliers such as Samsung and TSMC.

“Even when we extrapolate the best-case scenario for chip production from our suppliers, it’s still not enough,” Mr Musk said. “So I think we may have to do a Tesla terafab. It’s like giga, but way bigger.”

He said that next year the company would focus on Optimus, the Semi truck and the Cybercab. Mr Musk expects production of the Cybercab will be roughly in line with regulatory approval. “I’d like to thank Waymo for paving the path here. It’s very helpful,” he added, referring to the autonomous vehicle company in California.

In pictures -Tesla's Cybercab

Mr Musk said Tesla has goals to boost vehicle production volume by about 50 per cent by the end of next year.

Aggressive effort

The pay package was widely expected to pass, even after several prominent investors voiced opposition, including Norway’s Norges Bank Investment Management, Tesla’s ninth-largest holder. Proxy advisers Institutional Shareholder Services and Glass Lewis recommended investors reject the compensation plan over concerns with its magnitude and its potential to dilute other shareholders’ ownership.

The board launched an aggressive effort to garner support, including meetings with large institutional shareholders and a series of media appearances by chairwoman Robyn Denholm. In interviews with Bloomberg News, Ms Denholm said the vote was crucial for the future of Tesla, which needs an engaged Mr Musk to achieve its goals.

Mr Musk also sought to rally support, using a portion of Tesla’s recent earnings call to lay out why he was not comfortable building a “robot army” unless he owns a quarter of the company.

Schwab Asset Management this week pledged to back the pay proposal after several prominent retail shareholders said on social media that they would move funds out of brokerages that voted in opposition. Several other institutional investors, including Florida’s State Board of Administration, said they would vote for the plan.

“Even with the new pay package, there are significant hurdles” to unlocking the payout, including profitably scaling Tesla’s operations and delivering many robots and robotaxis, said Wedbush Securities analyst Dan Ives, a long-time Tesla bull. “Now it’s about driving the most important chapter in Tesla’s history with an autonomous future ahead," he added.

The win gives Mr Musk a clear, albeit challenging, path to becoming the world’s first trillionaire. Should he hit all of the targets in the plan, including expanding Tesla’s market value to $8.5 trillion, his total stake in the car maker would be worth about $2.4 trillion.

That is more than five times his current net worth of about $460 billion, according to the Bloomberg Billionaires Index. His net worth would exceed the current gross domestic product of all but seven countries.

Roller-coaster

Mr Musk’s fortune has been on a roller-coaster ride this year. It stood at about $450 billion in January when he joined US President Donald Trump at his inauguration, but began a rapid decline as the SpaceX founder's politics – including a prominent role at the Department of Government Efficiency – alienated many potential Tesla buyers. A feud with Mr Trump sent Tesla shares plummeting, leaving Mr Musk with the second-worst single-day loss recorded by the Bloomberg Billionaires Index.

His wealth has since rebounded, helped by a recovery in Tesla shares, as well as booming valuations for his privately held businesses, including xAI and SpaceX.

The pay package was opposed by some of his long-time critics, including New York state comptroller Thomas DiNapoli, who said on Thursday that this was “pay for unchecked power, not pay for performance”.

Vermont senator Bernie Sanders called the plan “totally absurd". He added: “People can’t afford their rent, can’t afford health, can’t afford groceries, they can’t afford to retire with dignity. And we’re talking about one guy who already owns more wealth than the bottom 52 per cent of American households getting even richer.”

The package comes after Mr Musk’s previous multibillion-dollar compensation plan was struck down by a Delaware judge last year. The company is appealing the ruling and has moved its incorporation to Texas, partly in response to the decision. In August, Tesla’s board also granted Mr Musk an interim award valued at $30 billion, designed to partially replace the payment.

Tesla said on Thursday that it needed time to review the votes for a nonbinding shareholder proposal to invest in the xAI start-up. Of the votes submitted, more were cast in favour of the plan than against it, but the volume of abstentions was so high it merited further discussion, Tesla added.

The measure, calling for an investment “in an amount and form deemed appropriate by the board", is advisory, which means Tesla is not required to move ahead. Mr Musk has been publicly supportive of an investment and floated the idea of a $5 billion stake last year.