Tesla's (TSLA) board approved a near $30 billion alternative compensation plan for its billionaire CEO, Elon Musk, as the company and Musk continue a court battle to reinstate his $56 billion pay award, which a Delaware judge struck down.
The company announced the new plan in a Securities and Exchange Commission filing on Monday, emphasizing its goal to incentivize Musk to focus on Tesla. The new accord, valued at $29.1 billion as of Friday's market close, must be approved by Tesla’s shareholders. It would act as an alternative method to pay Musk in the event that his original pay deal, first reached in 2018, is ultimately struck down in court.
Musk has not been paid under his original deal.
“Today we announce an important first step in compensating Elon Musk for his extraordinary work at Tesla,” the company’s directors Robyn Denholm and Kathleen Wilson-Thompson, who approved the plan, wrote in a letter to shareholders.
“As you know, Elon has not received meaningful compensation for eight years since the 2012 CEO Performance Award was last earned in 2017,” the board members added. “To recognize what Elon has accomplished and the extraordinary value he delivered to Tesla and our shareholders, we believe we must take action to honor the bargain that was struck in 2018.”
Musk's 2018 compensation plan granted him the option to purchase a total of 304 million Tesla shares at $23.34 per share, only on the condition that Tesla met the plan's market capitalization, revenue and profit milestones. In December 2021, Musk reached the last of 12 milestones. At the time, the shares were worth roughly $95 billion but would have cost Musk approximately $7 billion.
Tesla's stock came under pressure on July 24 after the company posted an earnings and revenue miss in the second quarter. Musk hinted at a “few rough quarters” amid sagging sales. For the second quarter, Tesla reported revenue of $22.50 billion versus $22.64 billion expected, per Bloomberg consensus. The revenue decrease was 12% lower than Tesla's second quarter last year, when it brought in $25.05 billion.
The new compensation plan grants Musk 96 million Tesla shares of common stock at $23.34 per share so long as he remains in continuous service until Aug. 3, 2027, as CEO or as an executive officer of Tesla responsible for product development or operations. The share grant, which matches the exercise price of his 2018 CEO award, is also subject to a mandatory holding period of five years from the grant date, except to cover tax payments or the purchase price of the shares.
