In a significant development, Tesla shareholders have approved a compensation plan for CEO Elon Musk, which was subsequently voided by a Delaware judge. The proposed pay package could potentially amount to a staggering $56 billion for Musk. However, it is worth noting that Tesla shareholders have also reaped the benefits of the company’s strong share performance over the past five-plus years.
During the 2024 annual shareholders meeting, Tesla shareholders overwhelmingly supported the compensation plan for Musk. Despite criticism regarding the high compensation and potential dilution of shares, the original plan, announced by the company on January 23, 2018, received approval from 81% of votes. It is important to highlight that Musk played a pivotal role in helping Tesla achieve numerous milestones during this period.
Since the approval of the 2018 compensation plan, Tesla shares have witnessed a remarkable surge of 727.7%. Considering a split-adjusted price of $21.50 per share at the time, a $1,000 investment could have purchased 46.51 Tesla shares. Today, that investment would be valued at $8,277.38. In comparison, investing the same amount in the SPDR S&P 500 ETF Trust, which tracks the S&P 500, would have yielded a return of 98.2%, with the investment now worth $1,982.48.
The 2018 compensation plan was designed as a “long-term performance award” for Musk, with compensation tied to market capitalization and operational milestones. To receive the billions in compensation, Musk needed to achieve milestones based on market capitalization, revenue, and profits. Tesla hitting a market capitalization of $650 billion would unlock all the tranches of the plan. It is worth noting that had Tesla not reached these milestones, Musk would have received no compensation.
Analysts and financial experts initially deemed many of the milestones as nearly impossible to attain. However, Tesla managed to surpass expectations. The 2018 plan aimed to ensure that Musk would only be compensated if Tesla and its shareholders performed well. Based on the remarkable growth mentioned earlier, Tesla shareholders have indeed fared exceptionally well.