Tesla board explores new pay deal for Elon Musk

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Tesla’s board has formed a special committee to explore Elon Musk’s pay which could lead to the electric-vehicle maker’s chief being offered a fresh package of stock options as it seeks to resolve uncertainty over his future.

The committee comprises just the chair Robyn Denholm and Kathleen Wilson-Thompson, according to several people familiar with the matter. As well as Musk’s pay package it will also explore alternative ways to compensate him for past work should Tesla fail to reinstate his record 2018 pay deal via an appeal at the Delaware Supreme Court this year.

After the existence of the special committee was disclosed with a single sentence in a filing last month, major investors have reached out to the board and have been sounded out about their views on Musk’s pay and his continued leadership of the company, the people added.

Tesla and Musk have been embroiled in a legal battle in Delaware for seven years over the largest pay award in US history. It was struck down by Chancellor Kathaleen McCormick, a Delaware judge, in January 2024. She ruled that the amount was excessive and board members had acted in thrall to Musk. They were behaving, she concluded, “like supine servants of an overweening master”.

Musk, already the world’s richest man, has threatened to leave the electric-car maker he co-founded unless he is awarded greater control over the company.

The Texas-based automaker also said in another filing that its proxy statement would be submitted late, indicating that its annual meeting could be delayed. This would allow the committee time to formulate new pay proposals on which shareholders could vote, the people added. Tesla usually holds the event in May or June.

The committee is still in the early stages of deliberation and neither a new package nor any decision on how Musk’s new pay would be structured is guaranteed, the people said. Any stock options would be contingent on Tesla hitting financial, operational and share price targets.

Tesla did not respond to a request for comment.

Musk’s 2018 package included 304mn stock options, worth a potential $56bn at the time of the initial 2024 ruling, $146bn at their peak in December, and $98bn at the current share price. He gained the right to exercise all the options in 2023 after hitting ambitious valuation and financial targets.

Wilson-Thompson, a former head of HR at pharmacy group Walgreens Boots Alliance, was the sole member of a prior special committee that reviewed the 2018 package after it was voided. She concluded that the size and criteria had been appropriate. However, McCormick rejected an attempt to reinstate Musk’s pay in December even after Tesla had won a shareholder vote reapproving the award at its last annual meeting in June.

If reinstated on appeal by Delaware’s Supreme Court, the package would increase Musk’s ownership of Tesla from just under 13 per cent to more than 20 per cent.

In early 2024, Musk said he would leave the carmaker unless his control was increased, arguing that, without a quarter of the shares, he could not fend off activists or ensure that Tesla deployed artificial intelligence responsibly.

Musk had already founded a separate AI start-up called xAI in 2023 and merged it with X, formerly Twitter, earlier this year.

The billionaire’s alliance with President Donald Trump and actions as head of the so-called Department of Government Efficiency have become a liability for Tesla. EV sales have plunged in the US and Europe, and slowed in China amid fierce domestic competition and Trump’s trade war.

To pacify restless investors after a stock market slide since mid-December, last month he pledged to devote “far more of my time to Tesla”. He has since been seen more often at Tesla’s HQ in Austin, Texas, according to people familiar with the matter. The company denied a report earlier this month that it was seeking to replace him as chief executive.

Telsa shares have rallied since, but are still are down 32 per cent from their December peak.

Any new package for Musk would be subject to Texas rules because Tesla moved its incorporation last year in protest at Delaware’s decision. The special committee has hired a new law firm that specialises in Texan law, McDermott Will & Emery, the people said. It previously used Sidley Austin in Delaware.

Tesla’s board faces a dilemma over how to deliver more shares to its CEO if his 2018 package is not restored on appeal, the Financial Times has previously reported.

Reissuing the options would trigger a $50bn-plus accounting charge for Tesla and a punitive 57 per cent tax rate for Musk, since the options would be awarded “in the money”, with the financial targets already exceeded.

The board itself has also attracted controversy over the amount its members have earned and their close ties to CEO Musk. In January, several directors agreed to return more than $900mn in cash and stock to settle a lawsuit that had argued their pay was excessive.

Denholm has sold $538mn in Tesla stock since she joined the board in 2014, including $198mn in the past six months, according to data provider Insider Score.

Wilson-Thompson was the sole member of the previous pay committee because all the other directors had either formulated the original package, or had to recuse themselves for being too personally close to Tesla’s CEO.