The Journal. - Tesla’s Multibillion-Dollar Pay Package for Elon Musk

Episode Date: June 14, 2024

Tesla shareholders voted to reapprove Elon Musk’s multibillion-dollar pay package, signaling support for the EV maker’s CEO and giving the board ammunition in its fight to preserve the court-rejected compensation plan. WSJ’s David Benoit explores the fight to get Musk billions and why the Tesla board is so invested in making the huge pay package happen. Further Listening:  - Elon Musk’s Unusual Relationships With Women at SpaceX  - Why is Tesla Pulling Back on EV Charging?  - Money, Drugs, Elon Musk and Tesla’s Board  Further Reading:  - Tesla Shareholders Vote to Uphold Elon Musk’s $48 Billion Pay Package  - Elon Musk’s $55.8 Billion Tesla Pay Package Struck Down by Judge  - Tesla Hits the Road to Persuade Shareholders to Pay Elon Musk $46 Billion  Learn more about your ad choices. Visit megaphone.fm/adchoices

On stage at Tesla's annual shareholder meeting yesterday, Elon Musk jumped up and down and danced from side to side. He was celebrating a big win. I just want to start off by saying, hot damn, I love you guys. Yeah. We have the most awesome shareholder base. Tesla's shareholders agreed to give Musk the world's biggest ever pay package. Our colleague David Benoit was watching.

I've covered a lot of proxy fights in shareholder votes over the years, and I've never seen a vote over $46 billion in compensation to one of the world's richest men. I'm sorry, this is $46 billion? Correct. Like, we talk about high CEO compensation, but that's usually in the millions, right? Yes, yes, correct. This is like magnitudes bigger than we've ever seen. I think it's incredible. I think we're not just opening a new chapter for Tesla, we're starting a new book. This win was highly contentious and hard-fought. Earlier this year, a Delaware court threw the pay package out, saying Musk had too much influence over the process.

But in this vote, his shareholders stood by him. 72% of them voted to give him the money. They worried that without it, Musk wouldn't be fully engaged at Tesla. Concerns that he wouldn't get this money, concerns that this vote wouldn't pass, have led people to worry like, hey, maybe Elon will go off and do one of his other companies and stop caring about Tesla,

and therefore maybe Tesla won't be the future we want it to be, and maybe its stock is not worth anywhere near what we think it is. Winning the vote, will that guarantee Musk's attention to all affairs Tesla? I don't know that anything guarantees Elon Musk's total attention, but I believe it is fair to think that he will be quite attuned to what goes on at Tesla, and we'll want that stock to continue rising. Welcome to The Journal, our show about money, business, and power.

I'm Kate Linebaugh. It's Friday, June 14th. Coming up on the show, Tesla's fight to get Elon Musk the biggest pay package ever. Attention all soccer fans. From Orlando to Los Angeles, take to the fields of the USA for your next vacation. Ready to kick off? Discover exciting games and events.

Plus, find amazing hidden gems in cities full of adventures, delicious food, and diverse cultures. You'll love it so much you'll want to extend your stay beyond the matches. Get the ball rolling on your soccer getaway. Head to visittheusa.com. Okay, so take me back to the beginning. Where did this like massive pay package for Elon Musk come from? Sure. So go back to like the year 2017 is when this all starts. He had had a big pay package in 2012. He had hit the targets on that and they were like, okay, how are we going to pay him next? So Elon and the board start talking about how do we keep Elon interested?

How do we keep him engaged at Tesla? And how do we keep him driving this company because we think we need him. And at the time, Tesla was losing money, it was burning cash, it was struggling to create the volume of cars they needed. He's talked about it as like production hell. The time at Tesla where things were tenuous, it needed money, it needed success. And it needed Elon Musk, they thought. So he and the board and some directors start talking about, let's make like a supersized package. The proposed package was made up of stock options. Musk would be able to buy about 300 million Tesla shares at a big discount. The value of the package fluctuates with the stock price.

But for Musk to get the package, Tesla had to achieve some goals. If we hit these really big targets that I'm going to create, you'll pay me, Elon Musk, a lot of money. If we don't get anywhere near them, if we just kind of do okay as a company, I will take no money. And that's like the setup. We have to do really well for me to get any money. Right. But basically, like, it's a gamble. Yes. The board took this package to Tesla's shareholders for a vote in 2018. took this package to Tesla's shareholders for a vote in 2018.

And this first shareholder vote gets a little bit noisy. People are like, hey, we can see that if this were to happen, it'd be worth a lot of money. At the time, it did draw some ire from people who frankly just said like, we just think that's too much money. We aren't down with that. Including like the big proxy advisory firms that tell people how to vote on these things. They said, we don't like this.

We would not vote for this package. But people voted for it anyway, right? It passes the shareholder vote with 73% support. But if the package passed in 2018, why are we still talking about it? Well, because like most things that are novel in corporate America, as soon as it happened, a shareholder decided to sue and try to stop it. That shareholder, who's a heavy metal drummer, sued in Delaware, where Tesla was incorporated.

He alleged that Musk influenced the board as it negotiated his pay package and misled shareholders who signed off on it. Tesla fought back, saying the pay package was fair. And for years, the case made its way through the court until a ruling this January. A judge ruled that the board did not act with proper oversight and rescinded the package. So said, Elon, you cannot have those options, even though you've hit your targets.

This was not done with the proper oversight and governance, and I don't think the shareholder vote counted at all. So what did Tesla do? So Tesla kind of took a few minutes and said, all right, what are we going to do here? We don't have that many options. But in the end, the best decision for them, they decided, was let's put it up for a new vote. Basically, a redo.

Tesla would ask its shareholders again to vote on the pay package. And it would try to address the judge's concerns that the company hadn't disclosed relevant information to shareholders. So if the judge comes out and says, hey, you guys didn't tell the shareholders all the information. You didn't tell them about how close some of your directors are to Elon Musk. You just didn't ask the tough questions of Elon. Shareholders needed to know all that information before they voted. So Tesla said, well, okay, fine. Now they know all that.

Let's see what they say this time. Wow. Unconventional approach. Yep. As is everything around this company. Is this sort of like snubbing their nose at the judge? No, I think they would say like, look, you raised some concerns

about whether or not this was a full open process. It can't be any more open than it is now. There's been a trial over this. You've put out an opinion. If our shareholders still are okay with it, how could you be against it? So this spring, for a second time, Tesla asked its shareholders

to approve the biggest ever pay package for one of the world's richest men. And like all things Tesla, they did it unconventionally. That's next. Listen closely as a master painter carefully brushes Benjamin Moore Regal Select down the seam of the wall. It's like poetry in motion. Benjamin Moore, see the love. Tim's Maple Bacon is back.

more. See the love. Tim's Maple Bacon is back, featuring crispy, naturally smoked bacon with a sweet and savory maple glaze and a 100% Canadian fresh cracked egg, all on a new cheddar croissant. Try Tim's Maple Bacon Breakfast Sandwich today at participating restaurants in Canada for a limited time. It's time for Tim's. To get shareholders on board with this massive pay package for Musk, Tesla deployed two different strategies. One was for its small individual shareholders, who own about 30% of the company. And the other was for its big institutional investors, firms like BlackRock and Vanguard.

So the big ones is kind of like a pretty standard playbook. Let's send out our chairman. Let's send out our board directors. Let's go meet with them. Let's sit with them and explain to them what we think is important here, why we think this is the future. Now, in most companies, that meeting is like inherently going to always include the CEO. At Tesla, it usually does not.

Elon Musk does not usually go take the time to sit down with Vanguard and BlackRock and State Street. But this time he did. Really? So yeah, so as we've been reporting, Musk started joining these meetings and most of these people had never had a chance to see him. And so his role here was supposed to be

make this grand pitch about the future of Tesla. Let's talk about these robots we're building. Let's talk about autonomous cars. Let's talk about AI. Let's explain where Tesla's going to go in the future. I'm asking you to give me $46 billion where we've gone the last five years, but I'm going to make it seem cheap because me, Elon Musk, is going to be here, and we're going to lead this company to be even greater.

But I guess, like, it's important for him to be there because he's like, you're paying me all this money, so I will stay engaged with Tesla. Therefore, I am going to show you my vision. Right. Tesla had to walk this fine line of kind of scaring people and exciting them, right? They had to say, look, we got to keep Elon interested. We got to keep him around. We know he likes SpaceX. We know he's got this new X tool he's playing with. But they would not say like, oh, but if you don't pay him, he's leaving. But they did say that because of the court decision, Musk hasn't been paid for his work at Tesla.

He's gotten no salary. He has not been compensated for these years when he grew Tesla from a $50 billion company to at one point a trillion dollar company. these years when he grew Tesla from a $50 billion company to at one point a trillion dollar company. About a third of Tesla's shareholders are smaller investors who had the potential to affect the outcome of the vote. And a lot of them are there because they are interested in Elon Musk. They believe in him. This is the way to play Elon Musk, right? Most of his companies are private. You can't buy a share of SpaceX to go to Mars, but you can buy a share of Tesla. Okay. And what was the approach for the smaller individual investors? So the smaller individual investor is an interesting one for all companies because

basically these people never vote, right? Normal people just don't show up for these votes. It's a cumbersome old technology that really hasn't been updated. You've got to like log in, you've got to register, you've got to know like your shareholder numbers. The wording of these ballots is like wonky and annoying. So what did the company do? Oh, well, Tesla made a very interesting move on how to incentivize people. And another thing we really have not seen before, they rolled out a contest. A contest? A raffle in which people who voted would be entered into a chance to win a tour of the Texas Gigafactory with Mr. Elon Musk,

which has got to be like, I don't know, a dream thing for many of these shareholders who are Elon Musk fans, like the chance to hang around with him and have him take you around his giant factory in Texas where they're building the Cybertruck and some other models. So they did that, which, as I said,

is not really a thing we've seen before. Companies don't really do that. There's a fun little example that I think pales in comparison in which Prudential, the insurance company, will offer you a free tote bag or the chance to plant a tree if you vote your share. Yeah, it doesn't seem quite at the same level. What about, like, lunch with Warren Buffett? No, does not exist. I think you can buy that at an auction. All right, going into the vote, how did it go down? So as is relatively typical of this, it was kind of a nail biter until the end. These big investors, the Vanguard, State Tree,

It was kind of a nail-biter until the end. These big investors, the Vanguard, State Tree, and BlackRock, really don't vote until the very last minute. They like to keep people on suspense, so the vote was Thursday. As of Wednesday afternoon, it still really was unclear of what was about to happen. What was the first sign that things were going to fall Elon Musk's way? There was no sign until Elon Musk himself tweeted out the result. So late on Wednesday night, in a highly unusual move,

Elon Musk tweeted out that we're going to win by wide margins. And he gave us some nice little charts, charts that we don't normally see, of how the shareholder vote was going, showing he had the votes. What was your reaction when you saw these? My reaction was, did he really just do that? I've never seen that.

And then I looked at the numbers and thought about it for a minute and said, wow, he really won that vote. Like, it's not even that close. He won. That wasn't all. Shareholders also approved a plan to move Tesla's corporate home from Delaware to Texas. But even with these victories, Tesla still has to deal with this shareholder lawsuit in Delaware. We have continued legal wrangling to come. Tesla basically plans to take this vote very quickly to Delaware and say, look, look, judge, come on. They approved it again. They know all your concerns. Before you finalize your ruling, before you

start the next stage, you can change your ruling and just say, all good, go ahead. Whether that works or not is unclear. Some legal experts think it won't. Obviously, the plaintiff lawyer is out there saying, no, that's not what has to happen. The whole package has been invalidated, and we don't think that this worked. So it'll be up to a judge at some point. Okay. So from this, Elon doesn't get $46 billion. It just brings us to another stage of litigation.

Correct. I see. They will appeal no matter what and take it through a long set of appeals that they have to. And there will probably be some appeals no matter what. But the hope was that this would speed things up. Do you think for Elon Musk, this is really about the money or is it about the win? I mean, it's pretty clear he never wants to lose, but it's also pretty clear he wants this money. Who doesn't want $46 billion?

Right. That'd be a tough loss to take. Yeah. And I think he really does want to do things like colonize Mars. So using that money, he says he wants to put it towards that. So using that money, he says he wants to put it towards that. The other thing we should note that he said is like why he thinks he needs this is his control of Tesla without this is about 13%. With it, it's about 21%. He has said publicly he feels he needs a bigger slice of Tesla. He needs to be able to control more of it because of things like AI and because of the future work that they are doing.

He wants to make sure that he, Elon, can be the protector of things like that and he feels better about doing that with 21% than he does with 13%. And will this have ramifications for the pay packages at other companies? Or is this a very Elon Musk-specific situation? As of right now, it remains pretty much an Elon Musk-specific situation.

But I've got to believe that if this thing passed twice, two times shareholders came out and said, yeah, we're okay with this. We're okay with this humongous pay package for humongous results. There are some other people out there that are going to try it, I'm sure. That's all for today, Friday, June 14th. The Journal is a co-production of Spotify and The Wall Street Journal. The show's made by Catherine Brewer, Maria Byrne, Victoria Dominguez, Pia Godkari, Rachel Humphries, Ryan Knudsen, Matt Kwong, Jessica Mendoza, Annie Minoff, Laura Morris, Enrique Perez de la Rosa, Laura Morris, Enrique Perez de la Rosa,

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