In 2018, when Tesla was worth just $50 billion, shareholders approved a plan to tie CEO Elon Musk’s salary to the value of the company. By January 2024, when a court ruled the package illegal, Tesla’s value had surpassed $600 billion, and Musk’s stock options were worth more than $50 billion.
The judge said Tesla’s board of directors had been less than transparent in determining Musk’s salary. That summer, Tesla shareholders voted to move the company’s headquarters to Texas and reauthorize the compensation package, but the court rejected it again that winter.
On August 3, Tesla’s board gave Musk an “insurance policy”: If his old pay package wasn’t restored, he could redeem new stock options worth $24 billion. While far less than his original award, it was still the largest payout in history—even more than Tesla’s total net income over the past two years. “It’s not about the money,” Musk said. Nor was it exactly a way to “fight back” against Delaware judges (though since Tesla left the state, many other companies have followed suit). It was about control.
The new deal would increase Musk’s stake in Tesla from 13% to 15%. His 2018 compensation package had allowed him to own as much as 20%. Musk has said he wants to own 25% if he wants to continue to push Tesla’s AI and robotics capabilities. That’s enough, he says, to prevent an activist investor from driving him out. In other words, Musk fears someone will do to Tesla what he did to Twitter — now called X — when he bought it in 2022.
It’s not uncommon for shareholders to accept that a founder will continue to control a company, as Warren Buffett did with Berkshire Hathaway or Mark Zuckerberg did with Meta (both of which have dual-class share structures). But voluntarily handing over more power is another matter entirely. So what makes Elon Musk so appealing to investors?
Economists are still debating whether America’s massive pay packages reflect a competitive market for scarce talent or a pattern of leaders abusing their power thanks to weak boards. Elon Musk is indeed a rare talent. But his latest pay package supports the second—and more pessimistic—view of corporate executive compensation.
Unlike many CEOs who can threaten to move to a rival company to negotiate a raise, Elon Musk simply switches tabs on his computer screen. His investment in Tesla accounts for less than half of his massive paper fortune.
Musk also owns majority stakes in SpaceX (a rocket company), xAI (an AI startup he recently merged with X), and several others. The lines between these companies are increasingly blurred. In June, SpaceX invested $2 billion in xAI. Tesla investors will vote on a similar deal later this year. Not only is Musk’s time competing with each other, but so are physical resources: Nvidia chips Tesla recently ordered were diverted to xAI.
If shareholders believe Musk will prioritize the company that will benefit him the most, they may find it reasonable to give in to demands for more control. And the stakes are particularly high at Tesla because the company is underperforming: Tesla is losing market share to low-cost Chinese competitors and has suffered serious reputational damage from Musk’s political statements.
Tesla’s stock price is no longer based on fundamentals, but rather on Musk’s “future vision”—like his promise of self-driving taxis and humanoid robots. By undermining Tesla’s performance, Musk has made the company more dependent on his “miracles” than ever before. The worse the company does, the more its erratic boss gets paid.
No other CEO has benefited from such a bizarre incentive system. But Musk is certainly not the last to argue that AI is too important a technology to risk losing control over because of conventional corporate governance rules. After all, every general going into a war wants to limit the power of Congress.
