Tesla's 'Super Ambitious' $1 trillion deal for Musk could still pass shareholder muster

NEW YORK (Reuters) - Tesla's $1 trillion, 10-year pay package to retain CEO Elon Musk is likely to be approved by shareholders at the company's annual meeting in November even though the amount is staggering.

That is because it was crafted with an eye on keeping Musk in place, addressing concerns about the company's technical outlook and giving big company owners just enough reason to back the massive amount, investors and executive pay analysts said.

Earlier on Friday, the automaker's board approved what it called "A Super Ambitious Incentive Package for a Pioneering, Ambitious and Unique CEO" that sets out lofty earnings and valuation targets – awarding Musk millions of shares over the next decade if he hits them. It immediately gives Musk 96 million shares of restricted stock worth more than $31 billion as of intraday trading on Friday that vests over the next two years, as well as more control over the company. His total 2025 compensation package is worth north of $113 billion, executive compensation research firm Equilar has estimated.

“The pay package, which makes a big bet on the future of robots, may see shareholder support," said Taufiq Rahim, a SpaceX investor and principal at 2040 Advisory. "But it raises larger social questions about the outsized gains going to relatively few capital holders, which is likely not sustainable and will face public pressures.”

The package is designed to keep Musk from leaving and is squarely focused on transforming Tesla into an artificial-intelligence and robotics powerhouse, the board said in a securities filing. It said Musk is the only person on the planet who can unlock Tesla's full potential.

The compensation committee started negotiating Musk's pay package in February, it said, meeting with lawyers 37 times and directly with Musk 10 times over seven months. Certain items were non-negotiable for the idiosyncratic CEO: he wanted 25% of the company, to control Tesla's future direction and to be fully compensated for a 2018 pay package that was hung up in litigation.

THREATS TO LEAVE

Musk threatened to leave more than once, and the board worried the company's AI talent would follow him out the door, it said in the filing.

The $31 billion in restricted shares, which he cannot sell for at least five years, is partial payback for a $56 billion 2018 pay plan that a Delaware court voided last year. If Musk wins in court within a certain time frame, he will not receive the one-time payment "so there can be no 'double dip,'" the board said.

"Musk also raised the possibility that he may pursue his other interests and leave Tesla if he did not receive such assurance," the board said.

SHAREHOLDER APPROVAL

The pay plan is by far the largest ever for any CEO, Equilar said. And while it is likely to face legal challenges, compensation experts see it winning shareholder approval.

"Time and time again, Tesla's shareholders have approved these grants over the years," Equilar Research Director Courtney Yu told Reuters. "While it may seem outlandish now, shareholders will get tremendous value out of it if Elon Musk is successful."