Tesla chair says Elon Musk needs $46 billion pay plan to stay motivated

Tesla Board Chairperson Robyn Denholm urged shareholders to re-approve CEO Elon Musk’s $46 billion pay package this week, saying the vote is “not about the money” while suggesting that Musk could leave Tesla or devote less time to the company if he isn’t properly compensated. “This is obviously not about the money. We all know Elon is one of the wealthiest people on the planet, and he would remain so even if Tesla were to renege on the commitment we made in 2018,” Denholm wrote in a June 5 letter to shareholders. Musk’s pay plan was nullified by a Delaware Court of Chancery ruling in January 2024 after a lawsuit filed by a shareholder. The ruling said that Denholm had a “lackadaisical approach to her oversight obligations” and “derived the vast majority of her wealth from her compensation as a Tesla director.” It also said most board members “were beholden to Musk or had compromising conflicts,” and that the proxy information given to shareholders before the 2018 vote was “materially deficient.” Musk’s pay plan “is the largest potential compensation opportunity ever observed in public markets by multiple orders of magnitude—250 times larger than the contemporaneous median peer compensation plan and over 33 times larger than the plan’s closest comparison, which was Musk’s prior compensation plan,” the court ruling noted. Tesla’s board subsequently asked shareholders to approve a transfer of Tesla’s state of incorporation from Delaware to Texas and to reinstate the pay plan, which was previously estimated to be worth $56 billion but was more recently valued at $46 billion. Votes can be submitted before Tesla’s annual meeting on June 13. A survey found that more than 80 percent of early votes were in favor of Musk’s pay package, despite some shareholders’ vocal opposition.

Lawsuit slams Musk’s “strong-arm, coercive tactics”

The pay plan and Texas move are also being challenged by a new shareholder lawsuit filed in the same Delaware court that nullified the 2018 pay package. Donald Ball, who owns 28,245 shares of Tesla stock, yesterday filed a lawsuit against Tesla, Musk, Denholm, and other board members. The Ball lawsuit points to Musk’s January 2024 statement that he “would prefer to build products outside of Tesla” if he isn’t given 25 percent voting control. It also points to reports that “Musk has directed Nvidia to ship thousands of AI chips reserved for Tesla to X and xAI, delaying Tesla’s ability to build up its data center and AI infrastructure by several months.” “Musk has engaged in strong-arm, coercive tactics to obtain stockholder approval for both the Redomestication Vote and the Ratification Vote,” the lawsuit said. The lawsuit also alleges that the Tesla board has not “disclosed a complete or fair picture” to shareholders on the impact of re-approving Musk’s pay plan. The lawsuit said “there could be radical tax implications for Tesla that will potentially wipe out Tesla’s pre-tax profits for the last two years.”

Chair: Big pay needed to motivate Musk

Denholm’s letter to shareholders said Musk needs the pay package to stay motivated:

Elon is not a typical executive, and Tesla is not a typical company. So, the typical way in which companies compensate key executives is not going to drive results for Tesla. Motivating someone like Elon requires something different. This is one of the key reasons the Award also requires Elon to hold any shares he receives upon exercise of stock options for five years after he exercises the options—which can only serve to incentivize him to continue delivering value to Tesla and our stockholders.

She then pointed out that Musk could devote his time to other companies instead of Tesla. Musk is already running several companies, such as X (formerly Twitter) and SpaceX, but Denholm says the pay package could ensure that he stays with the carmaker:

What we recognized in 2018 and continue to recognize today is that one thing Elon most certainly does not have is unlimited time. Nor does he face any shortage of ideas and other places he can make an incredible difference in the world. We want those ideas, that energy and that time to be at Tesla, for the benefit of you, our owners. But that requires reciprocal respect.

The pay package required Musk “to hit milestones that directly and substantially benefited the Company and our stockholders,” and he delivered, Denholm 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,” she wrote.

Musk’s “brother and his besties”

While Denholm points to Tesla hitting the milestones in Musk’s 2018 deal, Tesla sales have fallen in 2024. New York City Comptroller Brad Lander, who is part of a group of investors urging shareholders to reject the pay plan, spoke out during a meeting of investors on Tuesday. Lander called Musk “a visionary” but said the pay package isn’t reasonable. “When billionaires are allowed to flout the rules, normal people suffer,” Lander said, according to Fortune. “A billionaire can’t just have his brother and his besties be the ones to decide what rules they’ll follow, what courts they’ll listen to, and what rules they’ll abide by.” Lander reportedly said during the meeting that because of Musk’s other commitments and his propensity to “chas[e] shiny new objects,” Tesla does not have a full-time CEO. In a May 20 letter urging shareholders to reject the pay plan, Lander and other Tesla investors, including Amalgamated Bank, AkademikerPension, Nordea Asset Management, SOC Investment Group, and United Church Funds, said the Tesla board is dysfunctional and “overly beholden to CEO Musk.” The letter urged shareholders to vote against the reelection of board members Kimbal Musk (Elon’s brother) and James Murdoch. Lander’s office manages five New York City retirement funds that collectively hold 3.4 million Tesla shares, Fortune wrote. Tesla’s stock price was about $177 today.