Yesterday, Tesla, Inc. (Nasdaq: TSLA) shareholders overwhelmingly approved the controversial and historic pay package deal for the electric vehicle maker’s CEO, Elon Musk. That package is worth up to nearly $1 trillion in compensation for Musk—provided the company reaches certain milestones.
But if those milestones are met, it would make Musk, already the world’s richest man, the world’s first trillionaire. Here’s what you need to know about the historic pay package and how investors and Tesla’s shares are reacting to the news.
What’s in Musk’s historic Tesla pay deal?
At Tesla’s investor meeting yesterday, over three-quarters of shareholders voted to approve Musk’s nearly $1 trillion compensation package. However, the package isn’t a blank check filled with 13 digits before the decimal place.
Instead, it is an agreement that includes a series of milestones Tesla needs to reach under Musk’s leadership. With each milestone reached, Musk receives some of the pay package’s agreed-upon sum, mostly in the form of Tesla shares.
As Fast Company previously reported, those milestones won’t be easy. They include the following:
- 20 million Tesla vehicles delivered
- 10 million active Full Self-Driving subscriptions
- 1 million robots delivered
- 1 million Robotaxis in commercial operation
- A series of adjusted EBITDA benchmarks
- A market cap for Tesla of at least $8.5 trillion
All of these are a tall order, particularly the last one. No company in history has ever come close to an $8.5 trillion market capitalization. Last month, NVIDIA Corporation (Nasdaq: NVDA) briefly became the world’s first $5 trillion company. Today, it retains its number one spot, with a market cap of around $4.4 trillion.
Apple Inc. (Nasdaq: AAPL) and Microsoft Corporation (Nasdaq: MSFT) currently come in at numbers two and three, with market caps of $4 trillion and $3.6 trillion, respectively. As for Tesla, the company currently ranks as having the 10th largest market cap in the world, at $1.4 trillion.
That means Tesla’s stock price would have to increase by more than six times today’s valuation if Musk is to get the full compensation deal payout. And that’s not even to mention the other lofty milestones Tesla needs to achieve under Musk, including delivery of one million robots into the wild.
Still, the majority of voting shareholders seem to believe that the historic pay deal is not only appropriate to retain Musk as the company’s leader, but that he, of all people, could take Tesla to a place it—and no other company—has ever been before.
How has Wall Street reacted?
As you would expect from such a controversial pay package, opinions on Tesla shareholders approving the $1 trillion compensation are mixed.
Reuters spoke to a number of Wall Street insiders. Among them was Mike O’Rourke, chief market strategist at Jones Trading, who said that given Musk could easily abandon the struggling Tesla to run his other private companies, it was worth it for shareholders to lock his leadership in.
“Nonetheless,” O’Rourke added, “it is highly unlikely this works out well when a $1.5 trillion company needs to award a $1 trillion pay package to the richest man in the world.”
Russ Mould, investment director at AJ Bell, told the outlet that given the demanding milestones required by the compensation package, Tesla investors had little to lose: “If Musk does get the $1 trillion, shareholders will have done very nicely indeed.”
As could be expected, many everyday retail investors on social media who are Musk fans and Tesla bulls cheered the passage of the compensation package.
How have TSLA shares reacted?
While Tesla shareholders have now approved the historic package, nothing much actually changes for Tesla today.
Still, shares in Tesla have fallen since the markets opened this morning, their first day of trading after shareholders approved the pay package.
As of the time of this writing, TSLA shares are currently down about 2.5% to $434.40. They had fallen by over 4.5% at one point right after the markets opened.
Yet it’s hard to take any meaning from TSLA’s price drop this morning. A low single-digit drop could just be due to everyday profit taking, and not a signal that investors think the approval of the compensation package was bad news for the company (indeed, the majority of voting investors clearly thought the deal was a good thing).
Year to date, TSLA shares are now up around 6% as of the time of this writing. Over the past 12 months, TSLA shares have risen more than 44%.
