When Tesla shareholders gathered for their annual meeting in late 2020, they made a decision that would shake up the business world. They approved a mind-blowing $1 trillion pay package for CEO Elon Musk with an overwhelming 97% of votes in favor. This wasn’t just any ordinary executive compensation deal – it became one of the largest CEO pay packages in history.
The package works differently than typical CEO salaries. Musk gets no regular paycheck or cash bonuses. Instead, his entire compensation depends on Tesla’s performance. Think of it like a video game where you access rewards by completing increasingly difficult levels. Musk’s package contains 12 different tranches, each activating when Tesla hits specific goals.
These goals are pretty ambitious. Tesla needed to grow its market value from $100 billion all the way up to $650 billion by 2028. The company also had to boost annual revenue from $20 billion to over $175 billion and increase adjusted EBITDA from $1.5 billion to more than $14 billion. If Musk achieves all these milestones, he could earn roughly 20.3 million Tesla shares.
Tesla’s performance has been remarkable under Musk’s leadership. The company’s market cap actually surged past $1 trillion in 2021, faster than many expected. Tesla expanded its production with Gigafactories worldwide and became consistently profitable starting in late 2019. The electric vehicle maker transformed from a startup into a market leader.
Not everyone loved this massive pay package though. Critics worried it was too large and might hurt other shareholders through dilution. Some questioned whether rewarding stock price growth was fair when markets can be unpredictable. Proxy advisory firms had mixed feelings but generally supported the plan.
Institutional investors largely backed the package, showing confidence in Musk’s ability to deliver results. They recognized that extraordinary performance might deserve extraordinary rewards. The pay package effectively replaced all previous compensation arrangements for Musk, tying his financial success directly to Tesla’s growth and shareholder value creation.
