{"id":413523,"date":"2025-11-29T19:56:24","date_gmt":"2025-11-29T19:56:24","guid":{"rendered":"https:\/\/www.europesays.com\/us\/413523\/"},"modified":"2025-11-29T19:56:24","modified_gmt":"2025-11-29T19:56:24","slug":"elon-musk-has-started-work-toward-his-1-trillion-tesla-pay-package-but-2-loopholes-foreshadow-how-it-could-be-a-bust-for-shareholders","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/us\/413523\/","title":{"rendered":"Elon Musk has started work toward his $1 trillion Tesla pay package. But 2 loopholes foreshadow how it could be a bust for shareholders"},"content":{"rendered":"

The $1 trillion pay package for CEO Elon Musk that Tesla<\/a>shareholders approved<\/a> on Nov. 6\u2014the world\u2019s first\u2014was labeled by the board as an exemplar of pay for performance. And at first glance, the program appears to fit that description in a big way: The hurdles it establishes for Musk to receive any compensation at all, let alone achieve the maximum 13-digit payout, appear the ultimate in stretch goals. Skeptical observers might wonder: \u201cHow could anyone be motivated by targets this seemingly unachievable?\u201d<\/p>\n

On the other hand, Tesla loyalists and the three-quarters of Wall Street analysts issuing either a \u201cbuy\u201d or \u201chold\u201d on the EV maker praise the arrangement\u2019s similarity to one from 2018 that spurred Musk to work wonders\u2014at least in boosting the share price. Now, they\u2019re positing: \u201cElon\u2019s already done it once. Now he\u2019ll be super-motivated to stay in the job and conjure a second miracle. And if that happens, stockholders will pocket another king\u2019s ransom.\u201d Musk concurs.<\/p>\n

A close examination of the new plan, however, reveals that it harbors a \u201cbetwixt and between\u201d problem. The lower-hanging fruit are too easy to harvest, and the harder goals that would mark substantial and genuine progress in profitability too difficult to attain. Probable outcome: Musk gets nothing resembling the $1 trillion, but still pockets one of the biggest payoffs in corporate America\u2014as shareholders suffer along the way.<\/p>\n

The reason the epic scheme risks backfiring: It contains two loopholes that enable Musk to fare handsomely by doing something he\u2019s great at, hyping the stock via making big promises, then delivering just enough on the basic business end to clinch a rich reward. <\/p>\n

How Musk\u2019s new pay package is structured<\/strong><\/p>\n

The package consists of 12 tiered grants of restricted stock. Unlocking each \u201cperformance milestone\u201d requires reaching both a valuation and an operational goal. It\u2019s the safety deposit model: You need two keys to open the box. The market cap triggers start at $2 trillion and ascend by increments of $500 billion to the summit of $8.5 trillion, a number that\u2019s 70% bigger than the $5 trillion that Nvidia<\/a> recently notched to reign as the world\u2019s most valuable company. The second group of keys are the \u201coperational milestones.\u201d Four cover sales for key products: separate, cumulative targets for deliveries of vehicles and \u201cbots,\u201d chiefly humanoid robots, as well as for robotaxis in commercial operation and subscriptions for full self-driving software. The other eight are Ebitda tiers that start at $50 billion, and max at $400 billion.<\/p>\n

Put simply, anytime Musk hits a new valuation goal, and also captures any one of the dozen operational targets in any order, he receives 35.312 million shares in Tesla restricted stock, adding roughly 1% to his current stake of almost 16%.<\/p>\n

The stunner that grabbed headlines, of course, is the $1 trillion in stock\u2014424 million shares\u2014Musk would receive for taking the market cap to $8.5 trillion, and also clinching all 12 of the operational objectives. Musk\u2019s got 10 years to make the numbers that trigger the grants. The \u201cearned share\u201d tranches have two vesting periods: early 2033 for those achieved in the first five years, and late 2035, or at the end of the decade-long program, for the ones reached in years 6 through 10. On the Q3 earnings call, Musk repeatedly insisted that he needs to reach an ownership percentage in \u201cthe mid-20s\u201d to ensure \u201cenough voting controls to give a strong influence.\u201d He effectively praised the board for handing him the opportunity to get there, and apparently thinks he stands a great chance at sweeping the board. That coup would get Musk where he wants to go by raising his stake to about 28%.<\/p>\n

The higher goals in Musk\u2019s pay package look like a stretch too far <\/strong><\/p>\n

In reality, Musk faces low odds of garnering any of the higher targets. Let\u2019s start with the operational side. Hitting almost all but one of them would require moonshots. For example, the robotaxi target requires achieving an active fleet of 1 million. Today, Tesla offers only an extremely limited pilot plan in Austin, and Waymo, the industry\u2019s largest player, has only 2,000 of the vehicles on the road. And the easiest Ebitda level stands at a towering $50 billion. Ringing the bell would likely require multiplying its current Ebitda run rate around fivefold. Yet Tesla\u2019s now going in the wrong direction by booking puny and declining profits. Reversing that downward trend to reach even the minimum profitability mandated in the operational milestones can only happen if its unproven products prove wildly successful in highly competitive, and capital-intensive sectors.<\/p>\n

Now to the valuation milestones. Tesla\u2019s stock already appears vastly overpriced. Its current multiple, based on \u201ccore\u201d earnings from its auto and battery businesses of just $3.6 billion in the past four quarters, excluding such items as sales of regulatory credits, towers at 375. Hitting the second highest valuation mark of $2.5 trillion alone would require an 85% jump in its stock price. Huge progress that\u2019s not happening is already baked into the valuation, making the chances of huge, sustained gains from here remote, though a Musk-orchestrated, ephemeral surge can always happen.<\/p>\n

Musk\u2019s best shot: Ringing the bell on the two easiest goals<\/strong><\/p>\n

Though Musk probably can\u2019t scale the mountain, he may be able to mount the foothills.<\/p>\n

He stands a decent chance of scoring both the lowest valuation number of $2 trillion, and the least challenging operational tier\u2014selling a cumulative total of 20 million vehicles, starting from the time of the grant. On the first item, the surge in Tesla stock since the board unveiled the program in early September has already pushed the price from $334 to $408, lifting its valuation from $1.12 trillion to $1.35 trillion\u2014and the package gives Musk credit for that increase. So if Musk can boost the shares another 48% to $2 trillion, he\u2019ll check the initial box for market cap. The rules require that the shares average $2 trillion or above for six months, and separately for the last 30 days, to hit the target.<\/p>\n

It could easily happen. Musk has proved a master at sending the shares skyward by promising great things in robotaxis, full self-driving (FSD), and robots, even though he hasn\u2019t yet significantly commercialized any of them. More promises could breed more excitement that could breed another speculative frenzy in Tesla shares centered on great expectations.<\/p>\n

The operational part that\u2019s reachable, especially over a longer period, is the goal of selling 20 million vehicles. This provision invites close scrutiny. According to the plan\u2019s requirements contained in an SEC filing dated Sept. 5, this target doesn\u2019t start from zero at the time the package takes effect. It\u2019s a cumulative total over the entire history of Tesla. Here\u2019s the wording: \u201c20 Million Tesla Vehicles Delivered: Expanding Tesla\u2019s vehicle fleet from 8 million EVs, which it has currently, to 20 million will further grow its adjusted Ebitda, allowing Tesla to reinvest in its other up-and-coming product lines.\u201d Hence, since Tesla has already sold 8 million cars, it only has to deliver 12 million for Musk to capture that operational hurdle. \u00a0<\/p>\n

It\u2019s an incredibly weak requirement, and one of the two wrinkles that aids Musk and skewers shareholders. In the past four quarters, Tesla has delivered 1.9 million cars, and Musk is pledging to expand the lineup to encompass a new affordable EV, and sell self-driving cars to customers. If it averages 2 million cars a year, Tesla would achieve the 12 million figure by the end of year six. Hence, Musk would clinch an operational target by achieving only a minimal annual increase in Tesla\u2019s vehicle sales.<\/p>\n

Here\u2019s the second softball pitched by the board. If Musk manages to get the market cap to $2 trillion or above, and keep it there for six months, he\u2019s turned that key definitively. No going back. No matter what happens to the share price after that, he\u2019s got that bogey in his pocket. As Tesla\u2019s SEC filing detailing the plan states, \u201cOnce a Market Capitalization Milestone or any particular Operational Milestone is achieved, it is forever deemed achieved for purposes of the eligibility of the Tranches to become Earned Shares.\u201d\u00a0<\/p>\n

So let\u2019s say Musk is able to notch the $2 trillion target in six years. Then the shares bounce around, going above and below that level, so that by the end of the 10-year grant period in late 2035\u2014by which time he\u2019s added the 20 million vehicles prize\u2014its cap is $1.95 trillion, or $585 a share. In other words, Musk could talk up the shares, then see them pretty much go sideways for years, and they could even head below the price that unlocked the award. <\/p>\n

Fortunately for shareholders, the stock grants come with a feature similar to equity options that somewhat reduces Musk\u2019s payday, especially in a case like the one above where the plan flops. Musk only gets the gain over the stock price at the time of the grant\u2014in other words, just the appreciation. He\u2019d receive the first tranche of shares at a \u201cnet\u201d of $251 per share, that\u2019s the $585 at the end of the 10-year vesting period minus the effective \u201cstrike\u201d price of $334 (the price when the program was conceived in September). Hence, he\u2019d pocket $8.86 billion in one stroke (the equivalent of 35.3 million shares x $251). <\/p>\n

That would be all of his compensation for 10 years of running Tesla. To be sure, he\u2019d wait a long time for the money, and it isn\u2019t anywhere near the trillion he apparently believes is feasible. But it\u2019s still big, averaging almost $90 million a year. By comparison, in their respective fiscal years, Sundar Pichai earned $10.7 million, Mark Zuckerberg $27.2 million, Jensen Huang $34 million, Jamie Dimon $39 million, Andy Jassy $40 million, Tim Cook $75 million, and Satya Nadella $79 million.<\/p>\n

What about the shareholders? Taking the shares from $334 to $585 in 10 years represents paltry gains of just 5.9% annually. That\u2019s a lousy deal for Tesla\u2019s shareholders. They\u2019re suffering at the same time Musk is en route to getting a windfall of nearly $900 million.<\/p>\n

Say Tesla\u2019s shares do even worse and end the 10-year grant period at a market cap of $1.8 trillion, $200 billion below the goal of $2 trillion that Musk achieved at one point but couldn\u2019t increase or even hold on to. Shareholders would get returns barely beating inflation, and Musk would still get a payout of $727 million.<\/p>\n

To complicate matters, it\u2019s likely that failing to collect on any of the other, extremely challenging tranches will prove a downer for Musk. In our scenario, he\u2019d only increase his stake in Tesla by 1% when his goal is a rise of over 10 points. Musk would have a strong incentive to stay the full 10 years for the haul waiting at the end. But an unhappy Musk might mean a less-than-fully-motivated Musk. This package could hammer shareholders while they witness the decline of the idol it\u2019s designed to empower.<\/p>\n","protected":false},"excerpt":{"rendered":"The $1 trillion pay package for CEO Elon Musk that Teslashareholders approved on Nov. 6\u2014the world\u2019s first\u2014was labeled…\n","protected":false},"author":3,"featured_media":413524,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[64,525,7829,67,132,68],"class_list":{"0":"post-413523","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business","8":"tag-business","9":"tag-finance","10":"tag-tesla","11":"tag-united-states","12":"tag-unitedstates","13":"tag-us"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@us\/115634751733238901","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/413523","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/comments?post=413523"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/413523\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media\/413524"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media?parent=413523"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/categories?post=413523"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/tags?post=413523"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}