Elon Musk now has a viable but extremely difficult path towards becoming the first trillionaire in history in around a decade, courtesy of Tesla's latest CEO compensation package proposal.
The proposal, which still has to be approved by Tesla shareholders, would see Elon Musk gain around $1 trillion worth of shares, provided he adds $7.5 trillion in value for Tesla via a series of performance targets, mandating specific market capitalization thresholds, and paired with either a sales or an earnings KPI.
On a more granular level, each market cap threshold would be deemed to have been met based on the convergence between a 30-day and a 6-month trailing average. This ensures that each market cap milestone would be based on a sustained stock price trajectory for Tesla, and not a brief period of upward volatility.
What's more, Musk will have to pair each market cap milestone with a concurrent achievement of either a sales or an earnings target to unlock additional shares, with the earnings-related targets becoming progressively more ambitious.
Elon Musk will have to ensure that Tesla cumulatively delivers 20 million EVs (vs. around 7 million to date), grows FSD subscriptions to 10 million, increases its robotaxi network to 1 million units (vs. just a few dozen right now), and delivers 1 million units of the Optimus humanoid robot (vs. zero right now).
As of the end of 2024, Tesla's annual EBITDA stood at $12.444 billion. The new proposal would require the CEO of Tesla to increase this metric to a whopping $400 billion, replete with stringent conditions:
"For purposes of clarity, meeting each of the last three Adjusted EBITDA Milestones requires achieving Adjusted EBITDA of $400,000,000,000 over four consecutive fiscal quarters. As such, Mr. Musk achieves all of the Operational Milestones prior to a change in control only if Tesla earns $400,000,000,000 of Adjusted EBITDA over three non-overlapping periods, each made up of four consecutive quarters."
Finally, given the staggered vesting schedule of these shares, Elon Musk will have to remain at the helm of Tesla for at least the next 7.5 years. Specifically, shares earned during the first 5 years vest at the 7.5-year anniversary of the plan, while the rest vest on the 10th anniversary.
Moreover, at the end of the proposed 10-year period, Musk will have to participate in a discussion with the Tesla board to devise the framework for "long-term CEO succession" in order to receive the last two equity tranches.
Elsewhere, the plan also paves the way for the CEO of Tesla to wind down his political activities, and seeks authorization for Tesla to invest in xAI.
Bear in mind that Elon Musk was recently awarded an interim $29 billion compensation plan, consisting of 96 million restricted shares with an exercise price of $23.34 per share.
For the benefit of those who might not be aware, in January 2024, a Delaware judge voided Elon Musk's $56 billion compensation package from 2018, citing a flawed approval process and excessive influence by Musk over Tesla's board. The ruling also voided Elon Musk's 304 million unexercised stock options, which would have entitled him to around 9 percent of Tesla's then 3.2 billion outstanding common shares. Bear in mind the CEO of Tesla currently retains a 13 percent stake in his company.
In June 2024, Tesla shareholders voted to reapprove the 2018 compensation package for Elon Musk, with 77 percent of the total votes polled in favor, aiming to bolster Musk's leadership amid the company's expansion into AI and robotics. The CEO of Tesla had openly demanded a 25 percent voting control over Tesla after the Delaware court ruling, to prevent being "overturned" on occassion.
Do note that the new proposal bestows enough Tesla shares (423 million) on Elon Musk to raise his stake in the company to around 25 percent.
As part of its relocation of state of incorporation to Texas, Tesla had agreed to retain legal jurisdiction over the issue of Elon Musk's compensation within Delaware and the court of its Chancery Chief Judge, Kathaleen St. J. McCormick.
However, in December 2024, the judge again upheld her initial ruling, stating that the shareholder vote did not rectify the procedural issues. Specifically, the court argued that Tesla and Elon Musk had opted for a re-ratification of the 2018 compensation plan under the section 204 of the Delaware General Corporation Law, which allowed for rectifying corporate acts that were defective due to a "failure of authorization." Critically, the code did not provide for curing breaches of fiduciary duty, which was the entire raison d'être cited by the court for nullifying Musk's 2018 pay package.
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