Why Tesla wants to give Elon Musk a $55 billion pay package

Tesla says Elon Musk's pay package is a "matter of fundamental fairness and respect to our CEO."

• Tesla is seeking shareholder approval for Elon Musk's pay package, which a judge previously struck down.
• The company argues the package is "critical to the future success of Tesla."
• The pay plan grants Musk stock options that vest when Tesla hits certain financial targets.

Why does Tesla's board think Elon Musk deserves a $55 billion pay package?

It's a matter of respect and fairness.

Tesla plans to ask shareholders to vote again on Musk's $55 billion pay package after it was struck down by a Delaware Judge earlier this year.

The chair of Tesla's board of directors, Robyn Denholm, highlighted several key reasons why the carmaker wants shareholders to vote in favor of the package in a proxy statement filed with the Securities and Exchange Commission on Wednesday.

Denholm calls the pay package, as well as a motion to move Tesla's state of incorporation from Delaware to Texas, "critical to the future success of Tesla."

The board chair said a vote in favor of Musk's pay package will "restore Tesla's stockholder democracy" and the issue is a "matter of fundamental fairness and respect to our CEO."

"Because the Delaware Court second-guessed your decision, Elon has not been paid for any of his work for Tesla for the past six years that has helped to generate significant growth and stockholder value," Denholm writes, adding that shareholders have "benefited from unprecedented growth under Elon's leadership."

Since the beginning of 2018, Tesla's shares have increased nearly six times in value.

The filing also argues that the pay package will further motivate the Tesla CEO to keep driving growth at the company as the plan requires Musk to hold onto his Tesla shares for five years after he exercises his options.

"He will continue to be driven to innovate and drive growth at Tesla because the value of his shares will depend on it!" according to the filing.

Tesla made similar arguments during the trial over the compensation plan last year.

Tesla shareholders will be able to vote on the issue during the company's annual meeting in June.

When Court of Chancery Judge Kathleen St. J. McCormick voided Musk's compensation package in January, she said that Musk had undue influence over the package due to his close ties to several board members and said Musk's influence resulted in an "unfair price."

Musk does not receive a salary from Tesla and his pay package centered on a series of goalposts around the carmaker's financial growth, initially set in place in 2018. Specifically, the plan involves a 10-year grant of 12 tranches of stock options vested when Tesla hits certain targets. According to the carmaker, Tesla has accomplished all of the 12 targets as of 2023. When each milestone is passed, Musk gets stock equal to 1% of outstanding shares at the time of the grant.

The package was valued at around $55 billion at the time it was struck down, but is now valued around $47 billion, according to The New York Times.

Tesla's proxy filing comes only a few days after Musk told staff the carmaker was laying off more than 10% of its workforce.

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