Tesla shareholders re-approve Elon Musk's $56 billion pay package
Tesla shareholders have once again approved CEO Elon Musk's controversial $56 billion compensation package. This comes after a Delaware judge in January voided the initial 2018 approval (which garnered over 70% support) due to concerns about insufficient disclosure. Tesla's board addressed these concerns by presenting the same package, granting Musk 300 million stock options, with more detailed disclosures for shareholders to consider. Shareholders have also voted on other proposals, including the relocation of Tesla's legal headquarters from Delaware to Texas.
Why does this story matter?
The vote on Musk's pay package is seen as a test of confidence in his leadership. While he is undoubtedly Tesla's driving force and is credited with much of its success, the company has recently seen slowing sales and profits. The board said the world's richest person deserves the package because he hit all the ambitious targets on market value, revenue, and profitability. The pay package is also needed to keep Musk devoted to Tesla, the board said.
Demystifying Musk's $56 billion compensation package
Musk's compensation package, worth $56 billion at current stock prices, is tied to achieving specific goals for Tesla over a 10-year period. He was granted 303 million stock options (adjusted for stock splits) contingent on hitting 28 performance targets, including Tesla hitting $650 billion m-cap. Tesla has already surpassed the $650 billion m-cap goal and achieved other milestones. Only a few targets remain unachieved. Consequently, Musk has earned nearly all of the available options—just 25 million remain outstanding.
Each option has a strike price of around $23/share
Tesla's stock option has a strike price of around $23 per share (adjusted for splits). Strike price refers to the predetermined price at which the holder of the option has the right to buy or sell a stock. With Tesla's current stock price hovering around $200, the difference represents a potential gain of roughly $180 per option for Musk upon exercising his options. This, multiplied by the total number of options (303 million), translates to the estimated $56 billion payout.
Tesla stock rallies as shareholders approve Musk's pay package
Following the news of Tesla shareholders approving Musk's pay package, the shares of the EV maker were up nearly by 3%. While the stock has seen upward movement in the past couple of sessions, it is still down 53% from its all-time closing high of $409.97 on November 4, 2021.
Musk will now focus on AI for Tesla's self-driving system
Tesla shareholders' green light for Musk's pay package strengthens his position at the helm of the world's leading electric vehicle company. Now, he can turn his attention to Tesla's future endeavors in artificial intelligence (AI), robotics, and autonomous vehicles. Last November, Musk had also testified that the money from his Tesla compensation would be used to fund Mars missions. At the time he said, "It's a way to get humanity to Mars... So Tesla can assist in potentially achieving that."
