Elon Musk $56 Billion Tesla Payout

Tesla investors are poised to vote on CEO Elon Musk's $56-billion compensation package and the company's proposed relocation from Delaware to Texas at an important shareholder meeting this week. Analysts warn of the risk that Musk could leave Tesla to focus on other ventures, such as the AI startup xAI and social media platform X, if the pay package is rejected.

The voting on Musk’s controversial pay package is set to conclude Thursday, with major consequences for both Musk and Tesla. Over recent weeks, Musk has actively campaigned to persuade shareholders to reinstate his nearly $50 billion pay package, which the Delaware judge who voided it described as the largest “ever observed in public markets.”

Tesla released a video featuring Optimus, Musk’s humanoid robot, instructing shareholders on how to cast their ballots. Voters were offered a chance to win a Musk-escorted tour of Tesla’s “Gigafactory” in Austin. Musk has been vocal on X, his social media platform, about the vote, predicting a win and claiming, “The public sentiment is unequivocally supportive.”

As the vote approaches, the outcome remains uncertain. Major shareholders are divided on whether Musk, often seen as a distracted leader, deserves such a substantial reward. The final decision may rest on individual investors, many of whom are drawn to Musk's public persona as a genius.

The vote has broad implications for Tesla, which has faced challenges such as weak sales, global competition, and mass layoffs. Musk has indicated he might leave Tesla if the pay package is denied, potentially pursuing advanced technology projects elsewhere. If approved, Musk would gain more control over Tesla’s board through stock options.

Tesla chairperson Robyn Denholm has urged investors to support Musk, emphasizing his unique contributions to the company. In a letter, Denholm wrote, “Elon’s unique contributions have built Tesla from a company that was, in 2018, a loss-making, ambitious company with significant hurdles and challenges to overcome into what it is today — a company that is literally changing the world.”

However, critics like New York City Comptroller Brad Lander argue that the package is unreasonable given Tesla’s struggles and Musk’s divided focus among various ventures. “We need a full-time CEO who is focused on growing the company and producing great shareholder returns, not allowing for a distraction or chasing shiny new objects,” Lander said.

In 2018, a majority of Tesla shareholders approved Musk’s compensation package, worth $56 billion in stock options instead of salary. This propelled Musk to become the world’s richest person, funding his ventures into space, brain digitization, and acquiring Twitter’s “de facto town square.” However, some shareholders sued, claiming the process was improper.

Earlier this year, a Delaware judge invalidated the pay package, calling it an “unfathomable sum” and noting that it was approved by a board filled with Musk’s friends and former divorce lawyer. The board now asks shareholders to restore the package, which would increase Musk’s voting power to nearly 25 percent and authorize Tesla’s corporate move to Texas.

The vote’s outcome is uncertain, with some key investors opposing the package and others remaining silent. Major institutional investors like Vanguard Group, BlackRock, and State Street Corp., holding about 17 percent of Tesla stock collectively, have not publicly declared their positions. None responded to requests for comment.

About 40 percent of Tesla’s stock is held by non-institutional investors, including individual retail investors. Many are Musk supporters, such as billionaire Ron Baron, who called Musk indispensable to Tesla and asserted that his compensation should reflect that fact. “Our answer is clear, loud and unequivocal: Tesla is better with Elon. Tesla is Elon,” Baron said.

Yet, some investors have become disillusioned with Musk amid Tesla’s performance struggles. Leo Koguan, one of Tesla’s largest individual shareholders, stated he would vote against the proposal, saying, “Enough is enough.” A coalition of seven large institutional investors, including the NYC Comptroller and Amalgamated Bank, has urged shareholders to reject the package, citing a “material governance failure.”

Proxy advisory firm ISS criticized the package as excessive despite Tesla’s success, doubting it would “increase Musk’s focus on Tesla.” Marcie Frost, CEO of the California Public Employees’ Retirement System, representing 2.2 million public workers, also plans to vote against the package, as it did in 2018. Frost emphasized that the decision wasn’t personal but about ensuring returns for shareholders.

“It’s really important that as a shareholder that we get the return on the capital that we’re allocating to these public companies,” Frost said. James Park, a UCLA School of Law professor, indicated a vote for the proposal would signal shareholders' desire for Musk’s continued involvement, while a no vote would reflect dissatisfaction with his leadership.

Denholm’s letter highlighted Musk’s role in Tesla’s growth over the past six years and stressed the importance of the pay package for retaining his attention and motivation. She wrote, “If Tesla is to retain Elon’s attention and motivate him to continue to devote his time, energy, ambition, and vision to deliver comparable results in the future, we must stand by our deal.”

In January, Musk tweeted about his need for more control over Tesla. “I am uncomfortable growing Tesla to be a leader in AI & robotics without having ~25% voting control,” he wrote. “Enough to be influential, but not so much that I can’t be overturned.” Both Musk and Tesla declined to comment on the matter.

The vote occurs as Tesla grapples with a significant drop in stock value, having lost more than 30 percent since the year’s start. The company reported a 55 percent plunge in first-quarter profits in April due to slowing sales. To ease investors’ worries, Musk promised the launch of a fully autonomous “robotaxi” by August, a timeline met with skepticism.

Park noted that the current economic backdrop would influence voters' decisions. He suggested that some retail investors, dedicated to Musk, might overlook recent events and vote in favor of the package, while others might be disillusioned by Tesla’s recent performance. Analyst Adam Jonas warned that rejecting Musk’s pay package could slow down Tesla’s AI efforts.

Some investors are willing to take that risk. Nell Minow, vice chair of ValueEdge Advisors, donated most of her Tesla stock to charity after voting against the pay package. She criticized Tesla’s corporate governance, saying, “There’s no way you can consider this board independent. If he doesn’t have enough of an incentive from his current holdings then I don’t know if this gigantic amount of money would make a difference.”

Kevin Smith, a software engineer with a few Tesla shares, expressed frustration over the excessive campaigning by Musk and Tesla, perceiving it as a symbolic gesture against the court ruling rather than a straightforward assessment of Musk’s pay. “It seems to be a symbolic gesture against the court,” Smith said. “So my symbolic vote is no.”

The vote will determine Musk’s future role at Tesla and could influence the company’s direction amid ongoing challenges. Investors must weigh Musk’s potential departure against his leadership contributions and Tesla’s needs. The decision will shape Tesla’s path forward in the competitive electric vehicle market and its broader technology ambitions.