A proposed compensation package that could make Tesla CEO Elon Musk the world’s first trillionaire has drawn critics ranging from the electric vehicle maker’s own investors to Pope Leo, who decried wealth disparities in a recent sermon.
If this story sounds familiar, it’s because the Tesla board has already tried once to push through a massive pay package, valued at $56 billion, that was ultimately invalidated by a Delaware court. Tesla is appealing that decision, but in the meantime, the board plans to put to a vote an even bigger awards package at the company’s annual shareholder meeting in November. This comes amid declining sales at the EV maker, whose US market share dropped to the lowest level in nearly eight years in August.
The proposed package is not likely to look familiar to HR professionals who have worked on executive compensation, as the board thwarted traditional benchmarking standards in designing it.
What Tesla’s board proposed. In a proxy filing published on Sept. 5, Tesla outlined a “2025 CEO Performance Award” that would grant Musk additional shares provided his company meets certain benchmarks, including:
- Growing Tesla’s market capitalization to at least $8.5 trillion, up from $1.1 trillion today
- Delivering 20 million Tesla vehicles
- Getting 10 million subscribers to sign up for Tesla’s full self-driving technology
- Delivering 1 million robots
- Having 1 million robotaxis in commercial operation
Musk must also participate in CEO succession planning to receive part of the award, which spans over 10 years. The additional shares in the proposed plan would give him a 25% stake in the company, and if Musk meets all the targets, his pay could grow to $1 trillion.
Why Musk’s pay package bucks traditional executive compensation practices. Compensation committees typically design CEO pay packages through a process called benchmarking. If Tesla took this approach, it might have looked at what CEOs earn at peer group companies and other public firms with a similar market capitalization, and then set Musk’s pay as a percentile of that.
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The committee overseeing Musk’s 2025 compensation plan decided against this approach, though, after determining “that chief executive officers at other comparably large companies are not being presented with performance goals comparable in scope, degree, or complexity to those being asked of Mr. Musk,” according to the proxy filing. Traditional benchmarking would be “irrelevant,” the committee argued, as no other company has similar goals to Musk’s, which include transforming Tesla and bettering “society as a whole.”
Regardless of how Tesla’s board landed on the design of this proposal, it seems likely he’ll continue to out-earn the median worker at his company by a long shot—a quality he’ll share with other CEOs in his peer group.
“His own median worker is making $57,000 while he is awarded a pay package that could add up to $1 trillion by being a part-time CEO,” Natalia Renta, associate director of the progressive group Americans for Financial Reform, told the New York Times, characterizing the proposal as “outrageous.”
Heightened scrutiny around the growing gap between what CEOs earn compared to their employees is just one of the factors HR leaders have to take into account when navigating executive pay, HR Brew previously reported. CHROs and their colleagues may also need to consider whether the justification for granting their CEO a generous compensation package is strong, as well as whether their board is sufficiently independent, when defending such proposals before shareholders and workers.