FILE PHOTO: Elon Musk attends the opening ceremony of the new Tesla Gigafactory for electric cars in Gruenheide, Germany, March 22, 2022. Patrick Pleul/Pool via REUTERS/File Photo
(Reuters) -Tesla's board has proposed an unprecedented $1 trillion compensation plan for CEO Elon Musk, putting the spotlight on Musk's hold on the electric-vehicle maker as it looks to pivot into robotaxis and humanoid robots.
The proposed plan requires boosting Tesla's valuation nearly eightfold, or about $7.5 trillion, over the next decade, and if fully earned, the award would materially increase Musk's voting power from his roughly 13% stake, intensifying debate over governance and succession.
It also highlights Tesla's reliance on Musk as it faces slowing EV demand, rising competition from Chinese carmakers and pressure to deliver on its AI ambitions.
COMMENTS:
JAY WOODS, CHIEF GLOBAL STRATEGIST AT FREEDOM CAPITAL MARKETS
"Hitting these numbers is a very tall task, but if I were a shareholder, this is exciting as it gives him (Musk) the incentive to perform. The question now is can he come close to reaching some of these lofty metrics. If he does, then shareholders will be rewarded as well."
GADJO SEVILLA, SENIOR ANALYST AT EMARKETER
"Tesla's proposed compensation package would be the highest pay deal ever put together for a corporate executive and, while it is a milestone-based structure, it will still draw criticism for being excessive. The targets, including an 8x increase in market cap are ambitious and may not be attainable, especially given the market conditions for EVs and robotaxis in the near future."
"However, I see these goals as an attempt to ensure Musk's long-term focus. Keeping the eye on the ball at Tesla, ostensibly for the next 10 years as the proposal states, would quiet detractors and appease shareholders."
MARK MALEK, CHIEF INVESTMENT OFFICER AT MURIEL SIEBERT & CO
"Tesla remains a big mystery stock for me in general, overall."
"$1 trillion almost seems fake... Maybe on second look, an aggressive pay package, if you just ignore the number, the overall number itself, is not such a bad thing. And so maybe ultimately shareholders would embrace it."
"I can see why people say that Musk is a force to be reckoned with. I can see where you would even apply a bit of a premium. But at the end of the day, as far as I can tell, Tesla is still an auto manufacturer subject to the same constraints that Ford or GM would be."
DAVID WAGNER, HEAD OF EQUITY & PORTFOLIO MANAGER AT APTUS CAPITAL ADVISORS
"Shareholders and market participants may not always love what Elon does, but these award packages continue to show that Tesla believes that he is the key man on innovation and the biggest threat to the company is Elon leaving. "
BRIAN MULBERRY, SENIOR CLIENT PORTFOLIO MANAGER AT ZACKS INVESTMENT MANAGEMENT
"The metrics are eye-popping to say the least! Growing the valuation of the company to over $8 trillion in market cap, that would be 8 times the current value, in order to do that there needs to be substantial growth and continued profit margin expansion. Also, manufacturing targets and time horizons are built in as well.
"Bottom line, if all 12 award tranches are met, the compensation would reflect roughly 10% of the growth targets - that seems reasonable. It's the fact that we have never seen any earn a $1 trillion before that is causing markets to pay attention."
ADAM SARHAN, CHIEF EXECUTIVE OF 50 PARK INVESTMENTS IN NEW YORK"While bold compensation tied to performance is nothing new, the sheer scale here sets a new bar for CEO incentives and will dominate boardroom debates everywhere. There is significant legal and governance precedent to consider, given past scrutiny of Musk's pay (including a court voiding his prior $56 billion package), so shareholder approval and future litigation risk remain factors.
"If Musk can deliver results in line with these targets, the package could spark a new era in executive compensation, but if not, it could invite criticism about governance and pay equity."
DAN COATSWORTH, INVESTMENT ANALYST AT AJ BELL
"One minute Tesla's board is wondering if Elon Musk is a liability to the company given his outspoken views and political distractions, the next they're effectively saying 'pick a number, any number' to lock him in for as long as possible."
"A $1 trillion pay package beggars belief. Is one person worth that much? Musk is a visionary, has endless energy, and the confidence to succeed – all qualities required in leadership. But he also presides over a company that has lost its edge, is being overtaken by rivals, and whose brand has been tarnished by Musk's actions outside of Tesla. Surely Musk should be fighting for his job, not Tesla's board fighting to keep him?
"The bigger question is whether this proposal sets a new precedent and boardrooms across America will think it's ok to add a zero or two onto the end of current remuneration packages. It all seems a tad excessive and a symptom of poor corporate governance."
XU JIANG, PROFESSOR OF BUSINESS ADMINISTRATION AT DUKE UNIVERSITY'S FUQUA SCHOOL OF BUSINESS
"While Tesla does require CEO to think big and take high-risk decisions that may not immediately bear fruit but would generate long-term value, Tesla is not the only company that requires this: pretty much every company in Magnificent Seven is of this nature, as well as some other famed startups such as OpenAI and Anthropic, so I am not sure Tesla needs to offer compensation packages that are that different from others (I get the logic that the package may be different for traditional industrial companies, though)."
PETER ANDERSEN, FOUNDER, ANDERSEN CAPITAL MANAGEMENT, BOSTON
"Investors were on the sidelines waiting for something like that to get resolved."
"Long-term compensation for a founder like that is extremely important ... that usually polarizes most people because some think that it is too much and is not rational while others think that it's formulaic and a founder for such a large company deserves that kind of compensation."
"Would this kind of compensation increase his focus on running a singular company like Tesla because that's usually what the compensation is designed to do? ... Mr. Musk has shown a troubling history of being easily distracted into other paths that don't necessarily directly benefit a company like Tesla."
ANN LIPTON, PROFESSOR AT UNIVERSITY OF COLORADO LAW SCHOOL, EXPERT IN CORPORATE GOVERNANCE AND CORPORATE LITIGATION
"Texas allowed Tesla to amend its bylaws to block shareholder lawsuits by anyone who holds less than 3% of the company. Therefore, there will be no shareholder lawsuit, and no scrutiny along those lines. "
"Notably, the Comptroller of the State of New York and the City of New York have included a shareholder proposal in the proxy materials to repeal that bylaw."
(Reporting by Harshita Mary Varghese, Arsheeya Singh Bajwa, Nikhil Sharma, Jaspreet Singh, Shashwat Chauhan, Johann M Cherian; compiled by Arpan Varghese in Bengaluru; Editing by Sriraj Kalluvila)
