The Billionaire's Billion-Dollar Payout: A Controversial Proposal
In the lead-up to Tesla's annual general meeting (AGM), the electric car giant has been on a mission to convince shareholders that their CEO, Elon Musk, is worth a staggering $1 trillion. But here's where it gets controversial: this isn't just about a big pay packet; it's about the future of Tesla and the potential impact on civilization, according to Musk himself.
Tesla has been pulling out all the stops, with digital ads and a video featuring board members singing Musk's praises, set to triumphant music. However, not everyone is in harmony with this tune. The AGM, taking place in Austin, Texas, is shaping up to be a referendum on Musk, especially given his recent rightward political shift, which has made him a highly divisive figure.
Musk, ever the showman, has amped up the drama on his own platform, X (formerly Twitter), stating that Tesla's fate could determine the future of civilization. He's also used his social media platform to amplify support from high-profile backers, including Michael Dell and Cathie Wood. Even his brother, Kimbal, a Tesla board member, has extolled Elon's leadership qualities, declaring, "There is no one remotely close to my brother."
But not everyone is convinced. Critics like Ross Gerber, CEO of Gerber Kawasaki Wealth and Investment Management, argue that Tesla, struggling with declining sales, has lost its way under Musk's leadership. Gerber believes Tesla needs to refocus on its core business of selling electric vehicles.
So, what's this trillion-dollar deal all about? Well, it's not a straightforward salary. Tesla wants Musk to raise the company's market value to a whopping $8.5 trillion, a significant jump from its current value. Additionally, Musk would need to oversee a massive expansion of Tesla's self-driving "Robotaxi" fleet, getting a million of these vehicles into commercial operation. If he achieves these milestones and meets other benchmarks, Musk stands to receive 423.7 million new shares, which, at the target valuation, would be worth nearly $1 trillion.
This isn't the first time Musk and Tesla have faced pay controversies. Previously, Tesla's shareholders ratified pay packages worth billions if Musk increased Tesla's market value tenfold. He achieved that milestone, but a Delaware judge rejected the deal in 2024, citing the board's personal and financial entanglement with Musk. The Delaware Supreme Court is currently reviewing that decision.
Dorothy Lund, a professor at Columbia Law School, describes Tesla's strategy as "not normal," adding, "They're not a poster child for good corporate governance."
Professor Lund suggests that such get-out-the-vote campaigns are sometimes employed when a company is worried about activist shareholders forcing significant changes. However, she emphasizes, "Never in my life have I seen something like that happen in the context of a compensation decision."
And here's an interesting twist: Elon and Kimbal Musk, both shareholders, will be voting to reach the majority threshold required to seal the deal. Musk, already the world's richest man, is pushing for this massive pay package.
Tesla's argument for the pay package rests on the idea that Musk might leave if shareholders don't approve it. They claim they can't afford to lose him, citing his unique leadership characteristics necessary to achieve their long-term mission.
However, critics argue that the board's role is to act in the best interests of shareholders, not to advocate for a CEO. Matthew Kotchen, an economics professor at Yale School of the Environment, co-authored a study quantifying the recent damage Musk has done to Tesla. He questions whether Musk, with his focus on autonomous cars and humanoid robots, is setting the right course for the company.
Proxy advisers Glass Lewis and Institutional Shareholder Services (ISS) have recommended investors reject the pay package, deeming it excessive and a potential dilution of shareholder value. Even Norway's sovereign wealth fund and the largest US public pension fund, CalPERS, have followed suit. New York State Comptroller Thomas DiNapoli has urged investors to reject directors up for re-election, citing a lack of independent oversight and accountability.
As some institutional investors balk, Musk may rely more heavily on Tesla's large volume of retail investors, who tend to support him. Morgan Stanley analyst Adam Jonas describes Thursday's vote as one of the "most important events" in Tesla's history, with a "distinct possibility" that the pay package won't pass.
Musk's cause isn't helped by ongoing protests against Tesla, months after his ill-fated stint as US President Donald Trump's government efficiency tsar. Matthew Kotchen believes the damage Musk has done to the brand may be difficult to shake off in the near term.
On the other hand, supporters argue that Musk's extraordinary entrepreneurial track record makes it unwise to bet against him, even with such a high-stakes proposal. Jessica Caldwell, head of insights at Edmunds, notes that Musk's larger-than-life personality has driven immense interest and awareness for his organization.
So, the trillion-dollar question remains: Will Tesla shareholders agree to this controversial pay package? The outcome of Thursday's vote could shape the future of Tesla and, perhaps, the future of civilization, as Musk himself suggests.
