Tesla Proposes $29B Stock Grant to Retain Elon Musk Amid Legal Fight

Tesla’s board has proposed a new restricted stock award of 96 million shares, valued at approximately $29 billion, as an incentive for Elon Musk to remain its Chief Executive Officer. This proposal emerges amid a prolonged legal dispute concerning his original compensation plan.

Last year, a Delaware court nullified Musk’s previous pay package, which was valued at over $50 billion. The court ruled that the deal was flawed, unfair to shareholders, and that Musk exerted undue influence over its formulation. Despite shareholders twice approving the substantial compensation, the judge upheld her decision to block it. Tesla has since appealed this ruling to the Delaware Supreme Court.

Now, Tesla is seeking shareholder approval for this new award, arguing that Musk’s continued leadership is crucial as the company stands on the brink of becoming a leader in artificial intelligence and robotics. The company asserts that Musk’s steady hand is essential for navigating this future.

However, Tesla’s current position appears more precarious than in previous years. Sales have seen a steep decline, and the company’s stock has shed over 20 percent of its value this year. This downturn coincides with increased competition from established automakers, particularly those in China, and questions surrounding Musk’s deepening involvement in politics. His support for former President Donald Trump and his work at the Department of Government Efficiency, which involved significant federal worker layoffs and the cancellation of humanitarian aid programs, have reportedly contributed to a nationwide protest movement and a drop in Tesla sales.

Despite these challenges, Tesla’s board maintains that Musk’s ongoing involvement is vital for the company’s future. Earlier this year, a special committee comprising board chair Robyn Denholm and board member Kathleen Wilson-Thompson was established to explore new ways to compensate Musk, who the board claims “has not received meaningful compensation for eight years.”

In a letter to shareholders, Denholm and Wilson-Thompson stated, “While we recognize that Elon’s business ventures, interests and other potential demands on his time and attention are extensive and wide-ranging … we are confident that this award will incentivize Elon to remain at Tesla and focus his unmatched leadership abilities on further creating shareholder value for Tesla shareholders and attracting and retaining talent at Tesla.”

The board clarified that if the Delaware courts reinstate Musk’s 2018 pay package, the new interim grant would be forfeited or offset to prevent “double dipping.” Should he accept the new stock, Musk would commit to serving as Tesla’s head until 2027. Shareholders are scheduled to vote on this new proposal at their annual meeting on November 6th.

After years of rapid expansion, the recent reversal in Tesla’s fortunes has surprised many. As Musk has become more politically engaged, investors have urged him to re-focus on Tesla and its ambitious, often questioned, projects in self-driving cars and humanoid robots. The company’s first robotaxi service, launched last month in Austin, Texas, reportedly fell short of Musk’s earlier predictions. Additionally, the Cybertruck, Tesla’s only new product since 2020, has been widely perceived as a commercial disappointment.

Musk currently holds a 13 percent stake in Tesla, making him the largest shareholder. However, he has expressed a desire for greater control over the company to ensure its mission aligns with his vision. In a recent earnings call, Musk stated, “I want to find that I’ve got so little control that I can easily be ousted by activist shareholders after having built this army of humanoid robots… I think my control of Tesla should be enough to ensure that it goes in a good direction, but not so much control that I can’t be thrown out if I go crazy.” The proposed stock grant aims to address this stated desire for increased influence.