Elon Musk's $46B Tesla pay package: Explained

Tesla CEO Elon Musk (TSLA) faces a vote from shareholders for a proposed pay package that is currently valued at around $46 billion. A Delaware judge voided a previous pay deal shareholders voted to approve in 2018.

Yahoo Finance Alexis Keenan joins Morning Brief to break down the situation with Elon Musk's potential pay package.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Nicholas Jacobino

Video transcript

It's a big week for Tesla and Ceo Elon Musk Musk facing a vote from his own shareholders to see just how much money they think he deserves here with more.

Is Yahoo Finance's Alexis Keenan Alexis.

Take it away.

What are we hearing as of recent on this?

Yeah, so there's just one day left basically for Tesla shareholders to cast their votes that will decide if Musk should get a second chance at one of what is the largest CEO pay deal in history.

The value of this compensation.

It does shift with Tesla's share price, but it's now worth approximately $45 billion if it is given that green light.

Now, voters are due by the time of Tesla's shareholder meeting tomorrow afternoon.

That's Thursday afternoon.

Uh those votes have to be in by then shareholders first approved this deal though in 2018 and at the time, 73% of Tesla's independent shareholders gave it a green light.

But earlier this year, a Delaware judge voided that pay altogether.

The judge said Tesla's board members that recommended the pay deal failed to disclose close ties with Elon Musk's now analysts and major shareholders.

They're mixed on support for this renewed deal if it were renewed.

Some argued that the pay is necessary to keep Elon Musk.

Elon Musk's attention on Tesla.

Others say they're worried that the payout will dilute shareholder value, give too much control of Tesla to Musk and other concerns.

Now, Musk is also, of course the CEO of spacex, he's founder of neuralink, founder of the infrastructure development from the boring company Plus Musk now owns X, formerly known as Twitter.

Still having trouble getting that name out there.

I want to call it Twitter.

He's also founder of the start up Xa I rival to open A I which he also helped fund in its early stage.

And Musk is also president of his charitable organization, the Musk Foundation.

So it's safe to say he has a lot on his plate.

And Musk acknowledged as such on X saying that he would feel uncomfortable growing Tesla as A in A I and robotics without owning about 25% of Tesla.

That's the number he's been pushing for.

And then he went on to say that unless that's the case that 25% he preferred to build products outside of Tesla.

Now, Musk currently owns about 13% of the company.

So let's try to break down here how this multi billion dollar pay package is put together and that was back in 18.

Now, Musk gets no compensation under this deal at all.

It's entirely performance based if it were to be ratified again, it's all performance based so no guaranteed base salary like we would see with most CEO S. Now instead his pays, his pay is based on the potential to unlock various stock options.

In addition to the options that he already owns.

Now to unlock these options, Musk had to hit a combination of three different kinds of milestones.

There were market cap milestones, revenue, and profit milestones.

You have to put them all together to figure out how this works.

Now on the market cap front, Musk was first tasked with hitting 12 levels and those ranged all the way up to $650 billion.

Musk, as we know, satisfied all 12 of those Tesla's highest market came in at $1.24 trillion.

That was back in November of 21 but market cap achievements alone are not enough to seal the deal.

Here, there are eight revenue based milestones that range from 20 billion up to 100 and 75 billion.

Musk has set aside four of those eight targets.

Then you have Tesla's annual revenue hitting a high of $97 billion in 2020 three.

So that's the satisfaction in those buckets.

Now, as for the profit milestones or adjusted, I do the pay deal sets out eight milestones, all of which Musk has also satisfied Tesla's profit in 2022 hitting those benchmarks around $18 billion.

So when you put it all together, you have Musk achieving all 12 of these additional vesting requirements that are on top of those market cap requirements and uh that is revenue plus profit, uh plus market cap.

So under the deal as slated in 2018, Musk would have been entitled to roughly $46 billion at today's stock price.

But now the question remains whether shareholders want to give him that second chance.

So a lot to anticipate in the next 24 hours or so here.