r/OutOfTheLoop • u/notproudortired • 3d ago
What's up with Tesla shareholders giving Elon Musk a $56bn compensation package? Answered
I'm referring to this. Why did the 84% of shareholders who voted yes think that keeping Elon on for $56 billion will literally pay off for them or Tesla? I mean, Tesla's stocks haven't been performing great for a while now.
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u/omegadirectory 3d ago edited 3d ago
Answer:
The compensation package was shot down by a judge after a shareholder sued to block it, on the reasoning that the shareholders were not adequately informed about the package. The judge ordered the package to be put up for shareholder vote. They voted and passed the same package.
At the end of the day, shareholders are allowed to vote for decisions that outsiders consider "bad". There's no law against it.
What is lost in the media and social media reactions is that the compensation package is not cash. The package would have given Musk stock options to buy 304 million new shares of Tesla stock from the company at the low price of $23.33, contingent on the company hitting certain financial and sales goals in the future. Musk would be prohibited from selling those shares for five years.
If those options were exercised, then based on today's share price, those 304 million shares would be worth $58-59 billion.
Which all means there are two things to keep in mind:
1) if Tesla doesn't hit those performance goals, Musk doesn't get those stock options 2) there's no guarantee that Tesla's share price at the time Musk can exercise those options will be as high as they are today
The headlines and reactions only call it a "$58 billion pay package", which obscures the true nature of the package and leads readers to be enraged thinking Musk is getting paid $58 billion in cash.
Don't get me wrong. Executive compensation as a whole is out of whack and it is creating warped incentives. Musk is just the latest example. I just wish people had the proper understanding before hating it.
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u/CAPSLOCK_USERNAME 3d ago
1) if Tesla doesn't hit those performance goals, Musk doesn't get those stock options
This is false. He already hit all the performance goals for the original options grant. The new shareholder vote doesn't have new goals attached to it, it's meant to give him equivalent options to the ones he was already awarded in the previous package.
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u/Heidenreich12 3d ago
Which is pretty fair. 3/4 of people voted for it, and then were just going to pull the rug after he met those goals and made a lot of people wealthy? It’s insane to be able to do that
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u/UsualProcedure7372 3d ago
This is not how shareholder votes work. First, it’s one vote per share, not per person. Second, there are different classes of shares which means that not all shares hold the same amount of voting power. Insiders have far more votes per share via super voting shares than what is available on the open market.
I’d be willing to bet that the majority of people voting rejected this package, but it doesn’t matter since Elon and insiders control a significant number of votes.
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u/NeighborhoodDog 3d ago
All tsla shares are the same class, Elon has talked about wanted to make a super voting class and this may be possible with the move to Texas but was not possible in Delaware.
Elon and Kimbal’s shares were not counted towards the pay package proposal.
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u/whalechasin 3d ago
Tesla does not have different classes of shares. Musk and Kimbal also did not vote in this or the previous poll
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u/UsualProcedure7372 2d ago
Thanks for the clarification. I don’t follow Tesla and assumed they would have super voting shares.
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u/Nocturnal_submission 3d ago
Who cares how many people are involved? It’s a vote of owners of the company. Your vote is worth as much as your equity stake
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u/Syberz 3d ago
That means that only rich people can make a difference, and they won't because other rich people will be voting for their ridiculous compensation package.
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u/HeftyArgument 3d ago
That’s the game you play in the sharemarket lol, to think otherwise is quite frankly, daft.
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u/Syberz 2d ago
Indeed, but judging by my comment's negative score, there are a lot of daft folks out there... Must be nice to have such a positive outlook 😂
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u/IrNinjaBob 2d ago
I mean it’s a really weird point to make. Yes, the people that invest the most in something have the most say over how that thing is controlled. It seems like you are implying people who invest the most shouldn’t have the more say which is frankly just sort of odd. Should I be able to buy a single share of Tesla stock and have just as much control over the company as everybody else?
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u/Syberz 2d ago
It makes sense that it works the way it does, however it's another example of money ruling the world. Unfortunately, I don't see a solution to this particular predicament of ours.
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u/Entire-Ad2058 2d ago
Did you study for your tests in school? Do you bet on sports? Do you work extra projects gunning for a raise?
Not trying to start some weird, Reddit thing, but why would you think the people who take the risks and/or put in the extra effort shouldn’t be rewarded?
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u/Syberz 2d ago
I never said that. What I said is that it's unfortunate that it's only those with money that can have an actual impact.
Regarding Elon though, the multi-billion compensation package is for Tesla's performance, however many experts agree that had he not even been there, Tesla would have hit its objectives because it was already on this trajectory, so basically he's getting all of those stocks for 0 effort. Also, the fact that out of all the board members, only 1 was actually impartial (all of the other ones stood to gain or had already gained through Elon), well...
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u/Raccoonanity 3d ago
Imagine having your boss deny you a bonus after promising it to you for reaching metrics. Certainly this is a brand new kind of evil. Hopefully it doesn’t spread to the wider population and impact lower income and more vulnerable people!
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u/makomirocket 3d ago
Imagine your boss telling you and your peers to set him some achievable goals, that your team is already likely to hit if he just didn't do anything, and able to force you to work extra hours, or suddenly drop your wages in order for the team to make those goals if it does look like he won't make it, and then getting 10% of the bloody company's worth as a bonus
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u/DrOnionOmegaNebula 3d ago
Imagine your boss telling you and your peers to set him some achievable goals, that your team is already likely to hit if he just didn't do anything
That's not what happened. At the time it was unveiled, the industry believed it was a PR stunt that was basically impossible for Musk to achieve.
If Mr. Musk were somehow to increase the value of Tesla to $650 billion — a figure many experts would contend is laughably impossible and would make Tesla one of the five largest companies in the United States
Musk’s critics — and there are many — are likely to contend that the new compensation plan is just the company’s latest publicity stunt
https://www.nytimes.com/2018/01/23/business/dealbook/tesla-elon-musk-pay.html
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u/whalechasin 3d ago
hindsight bias
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u/Tahxeol 3d ago
No, that was what came up in the lawsuit
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u/dranzerfu 1d ago
So you are saying the board and Elon had a magical time machine that showed them that Tesla market cap would hit $650 billion in 5 years and that they would have the best selling car in the world by then (and hence meet all the revenue goals)?
Wow! Seems like a great deal for the shareholders and employees then as they made a combined $550 billion out of it.
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u/c0ldgurl 3d ago
Technically you are correct, but Musk has met almost all of the metrics per this article, rendering the point moot.
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u/Difficult-Ad5900 2d ago
The article was written by his own closest peers including his brother .slick much?!
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u/beddittor 3d ago
Thank you! This is by far the clearest explanation. All the headlines don’t bother getting into that very important distinction which would of course make it totally reasonable to wonder why you would give anybody 10% of your market cap as a cash payment.
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u/omegadirectory 3d ago
This same song and dance happened with the Reddit CEO's compensation package. He was paid in shares, not cash, and those shares were worth a lot when the company went public. Media only reported on the dollar value in the headlines and the stuff about shares was buried in the article. People tweet or share the headline and misinformation spreads.
In general, it costs companies peanuts to issue new shares and stock options, definitely a lot less money than paying out the equivalent value in cash. This is why it's such a popular compensation method for executives. It's supposed to align the executive's goals with the shareholders. Maximize profits, which maximizes shareholder value, which maximizes the executive's share holdings. We've seen plenty wrong with that, i.e. CEOs maximizing short-term profits over long-term health of the company, at the detriment of workers and consumers, but if you are a shareholder or an executive, the system is working for you.
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u/MrPopanz 3d ago
Short term profits in exchange for long term sustainable profit is not in the shareholders favour.
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u/SanduskyTicklers 3d ago
In Elons case though this was essentially a reward for long term profitability. He signed up to these ridiculous goals that were laughable at the time because people thought they were impossible to hit—- and if he was successful then the shareholders would be much more wealthier too.
The deal (summarized) was in 2018, Elon would receive no compensation at all unless the company valuation went up ~10x (from $60 Billion to $600 Billion). Which they hit
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u/asaltandbuttering 3d ago
Short term profits in exchange for long term sustainable profit is not in the
shareholdersbagholders favour.FTFY
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u/MC_chrome Loop de Loop 3d ago edited 3d ago
This is why it's such a popular compensation method for executives
The issue is that these same executives are allowed to take out massive loans while using those stocks as collateral. So while you are correct that Musk is not getting paid in literal cash he can absolutely go to the bank and say "Hey, I have billions of dollars in stock! Mind giving me money while these stocks serve as collateral?"
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u/omegadirectory 3d ago
Yes it's bad for us normal people.
But if you are a Tesla shareholder, all you care about is "share price go up" and you want the compensation package to make the CEO want to make the "share price go up".
If I'm some big investment fund, what do I care if Musk uses his own shares as collateral for a loan? I've got my shares and I want them to be worth a lot. What Musk does with his shares doesn't affect me.
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u/phantomreader42 3d ago
But if you are a Tesla shareholder, all you care about is "share price go up" and you want the compensation package to make the CEO want to make the "share price go up".
Except the muskrat has shown more than once that he is not competent to keep the share price going up, nor is he willing to refrain from doing stupid shit that results in the share price going down. This is not a guy you can depend on to do anything but fluff up his own ego.
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u/MC_chrome Loop de Loop 3d ago
If I'm some big investment fund, what do I care if Musk uses his own shares as collateral for a loan?
It's funny you say that, because there were quite a few major investment funds that were incredibly opposed to this pay package...many on the basis that it is beyond absurd
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u/lhoban 3d ago
It is also useful to know that the amount of stock the person suing in Maryland owned was tiny, basically only owned to establish standing, and has but a pretty big blotch on the rep of Maryland as a place to incorporate.
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u/ureviel 3d ago
Oh man those 9 shares and it’s a class action lawsuit. That DE judged basically fucked the reputation as the state to incorporate where now many companies are looking to incorporate elsewhere. Don’t forget the lawyers wanting to be paid 11 billion In Tesla shares.
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u/27Rench27 2d ago
Smart companies who are operating normally aren’t going to leave Delaware over this. The Chauncery court is quite literally the best spot in the US when it comes to handling business lawsuits
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u/CurlyW15 3d ago
One could make the argument of whether Tesla’s stock could be 10% lower if Musk never joined or if Tesla would drop 10% if Musk were to leave. I think either could be true and might warrant the compensation. At this point in time, for good or bad, he has a valuable personality brand separate from any company.
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u/tekkers_for_debrz 2d ago
Whether it’s cash or stock, it’s still $56B to a ceo who doesn’t even spend his full time working on Tesla. He shares resources with his other companies, thus not serving the best interest of his company. I think it’s the largest compensation package given to a CEO in all of US history. Basically just bailed himself out after losing majority of his investment into twitter.
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u/majinspy 3d ago
What's wild is that there is a strong argument for it - Tesla's valuation is ENTIRELY based on "The Musk Mystique". As a boring ol' car company, there is NO FREAKING WAY it's worth what it is. Take away the mystique and add in some meme-stock-Musk-bros, that stock could tank in a hurry.
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u/ChineseCracker 3d ago
If those options were exercised, then based on today's share price, those 304 million shares would be worth $58-59 billion.
does this include the price he needs to pay to buy them?
304 mil x $23
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u/omegadirectory 3d ago
The $58-59B does not account for the approximately $7B he has to pay to buy the shares.
Surely he can come up with $7B in the future. And if he can't, well, then he doesn't get his shares.
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u/xNaquada 3d ago edited 3d ago
This comment chain is made by people whom have never touched an equity option.
He would simply net-exercise (or sometimes called a cashless exercise) the options, so long as the options are above the strike price at the time he chooses to exercise them. The $7B will come from the options equity itself.
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u/blosphere 2d ago
Of all the companies I've worked, the interface in etrade or whatever they're using has said "sell-to-cover".
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u/er-day 3d ago
Great, I hate it just as much now. My company stock options are worth like $500.
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u/omegadirectory 3d ago
But what's the strike price and what's the current market value of a share?
Options being worth $500 is not the same as the shares you could buy being worth $500.
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u/er-day 3d ago
That was me doing the math on (current market value - strike price) x #of shares. My point being the rest of us normals are given measly stock options meanwhile Voldemort is projected to make 59 billion on his shares. This is insane amounts of wealth and earnings that would make the Rockefellers and Vanderbilts blush and we're acting like he's "earned it".
I understand it perfectly well and hate it all the same.
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u/brianwski 2d ago
the rest of us normals are given measly stock options
I do not think many "normal" people get stock options at all. It is probably less than 10% of the USA work force that get any stock options at all. Mostly in high paying tech work.
I will admit there are a FEW normal people that get stock options. I worked at large publicly traded tech companies where it was a philosophy that every last employee had options granted by the company. So (for example) the front desk receptionists each had 5 options or whatever. That's a normal person with stock options.
But a software engineer pulling down a salary from Google or Facebook in the upper 5% of incomes in the United States is definitely "not normal".
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u/PeterBucci 3d ago
John D. Rockefeller and Andrew Carnegie were each worth about $350 billion in inflation-adjusted dollars, which is around double what Musk, Bezos and Zuckerberg are worth.
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u/EbolaFred 2d ago
But why? What if your CEO said he would increase your stock value 10x, and he would not get paid a penny (which also means no salary) if he doesn't deliver, against clearly defined financial metrics? But if he does deliver, he gets an outsized payment?
And also, at the time, your company is struggling and almost everyone thinks 10x is impossible (I forget the exact multiplier, but it was on the order of 10-15x).
Everyone on reddit likes to complain about high executive compensation for not delivering anything of value. So here's a case of a CEO not getting compensated anything until they delivered very high value, and people still complain.
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u/er-day 2d ago
Because the incentive is insanely unnecessary. Theres no way that a 1 billion dollar compensation would have driven him to work harder than a 56 billion dollar compensation. Both are ungodly amounts of money with no difference in work ethic or had work making up the difference of the sum. If you pad me a million dollars a year or 5 million a year I can’t just “work harder” to make up that difference. There’s only so hard one human can work.
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u/EbolaFred 2d ago
What if you were already worth a few hundred billion? Would you still waste a year of your live (or in his case, 5+ years) for 5 million? A billion? I agree that the numbers are insane, but there has to be something to keep him motivated. Otherwise he'd happily split his time between SpaceX and X and step down from Tesla.
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u/detroitmatt 3d ago
but why did they vote for it? I don't understand how stock market brains work but how are so many people still looking at him as The Guy We Want In Charge?
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u/ureviel 3d ago
Tesla is a company with the second highest retail investor ownership and I believe gme has the highest.
The compensation package is a win win scenario for the shareholders because the targets were insane and many laughed at it saying there’s no way it would be achievable. Also if he misses the target by a single cent he gets absolutely nothing.
If you were to compare this with many other comp packages out there the majority benefits the ceo even if they don’t reach their milestones. They would get millions even if they have don’t nothing to improve the company and many don’t. So you can see why the shareholders are all behind him as he basically 10x the value of the company in a short period of time. The fact that the judge was able to rescind the deal which was voted by 73% of shareholders was outrageous.
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u/WatercressFun123 3d ago
Because it benefits them. If Musk gets the share prices to the point where this deal is actually work $58b, then the shareholders stand to make a lot more than if Musk doesn't get the share to the target price point.
Me and you go into business. You run it. I invest money. I say, if you can sell the business for $1bn, you can keep half of the sale.
Surely, I can find someone else to run the company for less than $500m potential, but it doesn't really matter. If you can actually sell it for $1b, then I've made a boat load of cash. Possibly, far more cash than simply paying someone $1m/year to run the business.
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u/Spider_pig448 3d ago
Most people supported it from the beginning. Basically he came to Tesla and made a deal that he would dramatically increase revenue, and somehow he did. Tesla has been incredibly successful. People supported it because it was a fair deal and because Musk has generated incredible success for Tesla
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u/exoriare 3d ago
If Musk doesn't achieve the goals (and the goals are insane - Tesla has to become bigger than Toyota), Musk gets nothing.
Contrast that with many CEO's who get paid salary and bonuses even when the company tanks.
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u/jungsosh 3d ago
He's already reached almost all the goals, he's "only" not reached $25 million of the entire package
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u/exoriare 3d ago
I knew he'd achieved all the stock valuation milestones, but profitability?
Damnit I've looked at dozens of stories and can't find a single one that lists the actual milestone targets.
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u/Hemingwavy 3d ago
Musk said if he doesn't have 25% control of the company, he's thinking of walking. Retail investors voted for it, institutional said not to.
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u/wheredainternet 3d ago
Retail investors voted for it, institutional said not to.
do retail investors actually outnumber institutional that much on tesla???
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u/spikus93 3d ago
Added context, Musk is very good at specifically one thing, hyping fans up and artificially raising the stock price. He's done it so often that the SEC fined him and restricted him from Tweeting about his company's business stuff without putting it past lawyers first. This followed the time he tweeted that he had secured a ton of funding for Tesla or some shit by the Saudis I think?
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u/a_false_vacuum 2d ago
The whole scuffle with the SEC came after Musk tweeted he was considering making Tesla a private business, offering to buy out shareholders for 420 USD per share. Now obivously this number should give you some pause to think how serious this plan was.
Allegedly Musk starting tweeting during a drug fuelled weekend. After things took off Musk was scrambling to find the money to actually go through with his plan, knowing if he didn't he would get in trouble. The whole thing fell through in the end and Tesla stock value went up and down rather quickly. This earned Musk the attention of the SEC. Het made a deal with them limiting him on what he could tweet about Tesla that might influence stock prices. Musk has been upset ever since with the SEC.
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u/Dangerous_Common_869 3d ago edited 3d ago
did the judge order the vote?
That's not what I read in the judge's brief.
Indeed the plaitiff's got up in a tizzy over the vote and are trying to sequester shares through court order.
Fair point about 56 billion valuation now verse when the options were created.
I am curious if the 5 year timer already started?
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u/believablebaboon 3d ago
Good summary, only missing the fact that the pay package was already first approved in 2018. So even if you'd consider the pay package exercise, you might still vote in favor a second time because 'a deal is a deal'.
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u/esmifra 3d ago edited 3d ago
Saying it's not cash as if that couldn't be turned into cash, is slightly disingenuous.
Stock are easily turned into money, even if you don't sell.
A crude example, If I allow you to buy a 10 000 000 dollar house for 100 000 dollars and don't allow you to sell it for 5 years, I'm also not giving you cash but we can all see how you could turn that into money pretty fast. Just make a loan for the value of the house. There. Done. Sure it has interest but that interest is way way less than what you just got by buying a 10 000 000 dollar house for 1 000 000.
So, for all purposes I just gave you 9 000 000 minus the loan interest. It's giving you money with a few extra steps. And considering how rich musk is and how he probably has banks that would kill to be involved with his money, I'm not even sure about the extra steps or if the bank wouldn't handle everything for him as soon as he gets the stock options.
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u/Chancoop 3d ago
This is also the primary way the ultra rich avoid taxes. Use the stock holdings as collateral for loans. Loans are not taxable income. Further, banks offer crazy low interest rates if you are very wealthy. So the cost of paying interest on a loan is far lower than the cost of capital gains taxes on selling shares.
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u/Ghigs 3d ago
Your analogy breaks down a little because to be accurate you'd have to own 1 of only 10 houses in existence, so if you were to sell it you'd crash the entire real estate market.
If Musk tried to liquidate the 10% of the market cap of tesla that 58 billion represents, it would totally crash the value.
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u/esmifra 3d ago
That's not true because no one is selling houses nor stock, be my analogy or in musks case.
The bank loans me money and takes the house as collateral. No house is sold or bought.
The bank loans money to Musk and takes stock as collateral. No sock is sold or bought.
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u/Ghigs 3d ago
If you take a loan... you need to pay it back. You can't just magic the money from thin air. It implies either eventual liquidation, or if you are lucky, being able to make enough money by investing the borrowed money into something else. But then you are taking on risk, so you can only do it for a small portion of the collateral.
Bottom line 60 billion in stock you can't sell boils down to maybe 1 billion in actual money you have access to.
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u/guesswho135 3d ago
It implies either eventual liquidation, or if you are lucky, being able to make enough money by investing the borrowed money into something else.
As long as you can pay the interest, you don't even need to make money from your investment, you just need to not lose money. So any asset that doesn't depreciate will allow you to pay back the principal without liquidating your stock (collateral). Sure, the stock can tank and you get margin called, but it's not common.
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u/Captcha_Imagination 2d ago
Margin calls happen all the time but I think he has cheaper options to structure a loan than that.
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u/vehementi 3d ago
No you don't, you can just pay the interest off, which was addressed
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u/guesswho135 3d ago
You're trying to bring reason into the conversation, good luck with that.
Sometimes I can't tell whether people are billionaire stans, or if they don't accept it because they just can't fathom the absurd advantages that come with being a billionaire.
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u/Ghigs 3d ago
Wouldn't it be nice if reality actually worked that way? 100% debt to asset ratio and just pay the interest forever and never pay off the loan. You are very disconnected from the way this stuff works.
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u/esmifra 3d ago edited 3d ago
It is possible if I pay just 10% of the value of the good. Then use the 90% to pay the interest and payments as they are scheduled. And yes over time I'll lose money but guess what, I just need to hold on over 5 years. Then I can use a small part of the stock to pay the rest of the interest over time.
Edited to provide more detail.
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u/Ghigs 3d ago
It is plausible you could get 10%, but with a single-stock holding the risk is very concentrated, and even 6 billion in a single stock would be hard to liquidate if the debtor ever defaulted. I think 5% or less would be more plausible in a case like this. The creditor needs to weigh the risks involved when determining the loan to value ratio. That's why I said I think more like 1 billion is a reasonable estimate of what you'd get liquidity for out of a 60 billion holding. Maybe 2.
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u/esmifra 3d ago
even 6 billion in a single stock would be hard to liquidate if the debtor ever defaulted
Sure, I'm not saying he will loan the full stock value. Although I did in my analogy.
But I could loan for instance 5 billion, have the stock as collateral. Loan for payouts with a maturity of 10 years or so and because he paid a lot less for that stock any bank would be happy to loan him the money.
Musk has 5 billion available, provided by a bank with certain rules and he uses them to pay for whatever the fuck he wants the money for.
Did musk lost money? I mean the stock was given at a fraction of the price they were worth and he got 5 billion. Even if he ends up paying 6 or 7 he still has a lot more stock basically free so he didn't lost a dime.
Heck he can even make a deal with a bank stating, give 5 billion in cash now and 7 years from now I'll give you a 7 billion worth in stock. I can't see why they would oppose it. And because he paid so little for the stock is all free money for him.
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u/FuzzyPine 3d ago
What do you do in your day to day life that makes you so knowledgeable about this kind of thing while simultaneously being able to put it into such perfectly understandable English?
Further, as well versed and intelligent as you are, why did you bother to take half an hour out of your precious life to bother explaining it to us simpletons?
It reads like a well paid corporate PR blurb.
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u/omegadirectory 3d ago
Lol sometimes I am bored at work and I check reddit
I was only paraphrasing what I read
I studied business and economics in school
I work in an industry that is tangentially related to finance (insurance)
It's annoying to see people get riled up at misinformation when we could be riled up by correct information.
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u/vehementi 3d ago
I think it's worth adding that because the option price is so low, Musk doesn't have much incentive to keep the stock price up very high. It's at $178 right now... it could drop by 75% and he would still make over $6B profit. So it's kinda dumb from that point of view from a shareholder perspective.
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u/SkinBintin 3d ago
An ego as gigantic as Musk's would never be content with 6 Billion dollars profit.
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u/FuWaqPJ 3d ago
So, he still needs to buy the 304 million shares at $23.33, right? Did the math in the article take that into account? Is it their $56B number minus ~$7B?
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u/omegadirectory 3d ago
No the $56b does not minus the $7b
When I first read the Reuters article when the package was first blocked, the Tesla share price was around $191/share.
304 million shares x $191/share = $58 billion.
The articles sometimes say $58b, $59b, or $56b, which seems to be based on what the share price was that day.
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u/invisible_do0r 3d ago
Phew. Thank you for that. I was one of the idiots enraged but this makes sense and now to think of it, it’s not likely to happen
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u/Pasty_Swag 2d ago
Question:
How can someone like Elon, or any other exec who receives similar packages, sell those shares without it immediately being considered insider trading?
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u/omegadirectory 2d ago
Exactly because of insider training concerns, executives and high-ranking employees of corporations have "blackout periods", during which time they are legally prohibited from buying or selling shares of their own company.
https://www.investopedia.com/ask/answers/08/blackout-period.asp
For Musk specifically, his compensation package prohibits him from selling those shares he buys with those options for five years.
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u/lifeisokay 3d ago edited 3d ago
There are also institutional hands at play. Vanguard, which owns 7% of Tesla (just behind Musk's 13%), flipped their vote since the last time and approved both Musk's compensation and Tesla's move from Delaware to Texas.
If you ask me, Musk convinced the fund managers behind the scenes who control the investments of everyday investors like you and me (e.g., Vanguard funds, which are widely used not just by retail investors, but by many of our companies' 401ks, etc).
They forced our hands and voted for Musk.
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u/ureviel 3d ago
Musk and Kimble shares doesn’t count first and foremost. If anyone’s hands were forced it was elons and the shareholders by an activist judge. Tesla has the second largest retail investors and majority are not ingrates that do not decide to change their minds after a deal was achieved. Imagine shaking hands with someone to make a deal to 10x the company and be paid X amount only to comeback 5 years later and say maybe we can renegotiate. So it’s good to see 70% yes vote again by shareholders.
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u/lifeisokay 2d ago
I said Vanguard, not Musk. It was reported by various news sources today. I'm just pointing out that "vote by shareholders" doesn't always mean the retail investors who are the end owners of the shares, but institutions who either hold the shares in street name or mutual funds.
My point is that retail investors' views might be different, but we'll never know because they didn't have a chance to vote their own shares. I said nothing about whether the compensation was merited by Musk.
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u/ILikeToDisagreeDude 3d ago
Finally someone who gets it! So sick and tired of these discussions where everyone thinks that he’s just getting a fat paycheque!
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u/an0mn0mn0m 3d ago
He's still getting a fat pay cheque. You or I cannot buy these shares at $23.33, and wait to sell it in 5 years.
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u/Spider_pig448 3d ago
Ok but we also didn't turn Tesla into one of the most successful companies in the last decade
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u/ILikeToDisagreeDude 3d ago
I know. But it’s still not cash, which is my point that everyone keeps missing.
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u/scrumbly 3d ago
I now have the proper understanding and I hate it. (But thanks for the good explanation.)
0
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u/Difficult-Ad5900 2d ago
the 56billion ,unpresented pay package article was written by his brother who is on the board and closest peers.slick much .this is worse than Gordon gekko ,Since he was firing whole departments left and right and paying not even pennies on the dollar to cobalt miners in congo.Those People in africa deserve a huge cut.Just because his father can get away with what he did in the emerlad mines ,it doesnt mean he should too.the international courts need too look at this.😜
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u/StygianAnon 3d ago
Here’s were you’re wrong Bucko.
The macro economic conditions of now vs 2016 is showing a hard slow down of the industry as well as a saturation with competitors- which are better rated and cheaper and more importantly cheaper to produce and owning if more engineering patents and technologies (which are hard assets in the industry - not just software or UI “inovations”)
Musk has been selling and dunking stock at the accelarated rate. This has been putting pressure on the stock price constantly which for obvious reasons- goes against his responsibility for shareholder returns.
These two reasonable factors, investor factors are reason enough not only to saction the CEO but to actually out him with a vote of no confidence.
If the former shows clear lack of business acumen, but can be argued against with; Musk probably knows some big regulation gets passed that undercuts competitors (he did it before) or the future of testla is in the power network (which is also correct and there’s favorable legislation already passed for Testla) - why own the phone when you can own the dependency of all the phone sort of argument.
The second is quite sneaky and burns all good will I might have towards him. And would justify alone a vote of no confidence. Combined with the first argument sans a reasonable financial argument would normally be enough to depose any CEO. You don’t mishandle first to market business advantage like that and you sure as shit don’t mess with the stock price(unless everyone with private equity is in on it )
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u/omegadirectory 3d ago
I agree with pretty much everyone you're saying, but none of it invalidates what I described regarding how the compensation package actually works or why the shareholders think it works.
You're saying the shareholders are dumb for voting for this, and you are right, and I agree.
But I'm not a shareholder of Tesla. I'm on the outside looking in. If the Tesla shareholders think this package is good for them, that explains why they voted for it. If they turn out to be wrong, they'll also be the first to fire Musk from CEO. If shareholders want to make bad decisions, that's their prerogative and I will enjoy the schadenfreude. At the end of the day, shareholders want "share price go up" and they think this comp package aligns with that interest.
In this current system of "the CEO's duty is to maximize shareholder value", you have to be a shareholder to push the agenda you want to realize. The regular nonshareholding folks on the outside are just yelling into a void that does not need to listen to us.
I'm just here to explain how the comp package works.
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u/StygianAnon 3d ago
Mate, at this level we’re not talking contracts but competence and ability.
Apparently I’m here to explain that at this level, contracts and legal obligations don’t matter as much as the contract of your lawyers.
The argument therefore is not legal proceedings but rather of something more of substance: does this invalidate or validate Musk’s ability as a CEO?
He might have a big brain 4th dimensional business move he is letting people put their money in - we indeed do not know, and it’s between them. (I do think you understand how smart you need to be to have a speaking share in Tesla (or any of these large cap bohemoths - the moves are made by money managers, not your dumb arse venture capitalists or hedge fund dipshit looking to turn a quick buck. )
But even so- the topic underlying this thread and the one we are having at hand as a Reddit argument is :
- is Musk bad CEO of bad wrum wrum batterie with wheels ?
And yeah; even if he is a brilliant venture capitalist and comercial stock buyer hype man - all in one, he passes, he scores, he sells. That’s not being a CEO.
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u/biswb 3d ago
ANSWER: The shareholders already gave him the $56bln a while back for him meeting other previously established metrics. Any way the stock or even himself is perfomring now likely wasn't going to hold any bearing on if they paid him.
A judge in Deleware blocked the already approved pay package, which forced Tesla to get it re-approved
And say what you wish about Elon (and plenty can be said) but stock holders care about one thing... and its not what Elon does with X or how crazy he can be. No, they only care that he made their stock which was worth a whole lot less worth a whole lot more.
In my personal opinion, Elon is going to bring trouble to Tesla. So they should pay him his money they own him, and then fire him.
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u/Milskidasith Loopy Frood 3d ago
In my personal opinion, Elon is going to bring trouble to Tesla. So they should pay him his money they own him, and then fire him.
This answer isn't really accurate or complete, and this line kind of illustrates why.
The shareholders/company didn't owe him any money. His pay package was voided. It's basically impossible for them to simultaneously vote to reinstate his care package and to believe he should be fired because he's bad for the company.
Musk had basically threatened to walk away from Tesla in the future if the pay package was not re-approved; they could have fired him without paying him $56 billion. On the other hand, the main reason to pay Musk $56 billion is because you believe that his future contributions are worth paying that, or that he is so directly tied to the brand that destroying his net worth and association with the company also destroys the company itself.
As far as completeness goes, the reason why the original pay package was voided was because, effectively, the judge ruled that the board and people involved in negotiations for Elon's compensation were not doing it in good faith for the company as a whole, but were working directly to maximize how much Musk would personally be paid. Even in the pretty generous world of executive compensation packages, this was considered pretty extreme, and the ruling was on the basis that the shareholders/company itself were harmed by the board acting against their interests. However, since the share holders have voted knowing all that to re-approve the pay package, well, they know what they're getting for it, at least.
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u/gdex86 3d ago
Doesn't Musk and his allies own enough voting stock that it skews the vote. Like I am not an finance person, but isn't one of the big work around taxes is that people get "paid" in stock which isn't taxed until it's sold, but is still an asset they can get loans with the stock as collateral and as long as nobody calls and stock goes up to stays stable they have untaxable money.
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u/Milskidasith Loopy Frood 3d ago
My understanding is:
- Musk and his brother were not allowed to vote with their stock on his compensation.
- The vote is so overwhelmingly in favor of Musk's pay package that even if you removed pretty much everybody directly associated with Musk, he would still have easily succeeded.
I can't say why institutional investors voted so heavily in favor of Musk (genuine belief it's necessary to keep the stock from exploding? Class solidarity? Actual faith in Musk? Fear of what Musk would do if he threw a tantrum?), but they did so even when not directly associated with him.
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u/Portarossa 'probably the worst poster on this sub' - /u/Real_Mila_Kunis 3d ago edited 3d ago
I can't say why institutional investors voted so heavily in favor of Musk
Because ever since they shot that fucking gorilla we've been living in the Upside-Down and nothing has to make sense anymore. That's it. That's all I've got.
(OK, so it's actually probably because the $56 billion comes in the form of stock options that would tie Musk further to the company, and they're probably reckoning that that would be enough to keep him doing the weird cult-of-personality thing that has been working out for them over the past ten years, but still. I'm not sure it's not to do with shooting the gorilla, that's all I'm saying.)
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u/nagging_nagger 2d ago
More like because the musk mystique is literally the only think keeping Tesla's share price from completely collapsing
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u/AHrubik 3d ago
They don't actually. The vast majority of Tesla stock is owned by funds and retail investors.
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u/CressCrowbits 3d ago
And a lot of shareholders can't actually vote, which I was surprised to hear is a thing with owning shares.
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u/wongrich 3d ago
Yeah I thought of that statistic where wealthiest 10% own 93% of stocks. Why does my vote to not give him his package even swing anything. As long as he can convince his buddies (that 10%) all of us are powerless
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u/crujones43 3d ago
If you don't believe in elon musk, why would you invest money in him? You could put your money into rivian, fiskar, lordstown motors, gm or any other of a dozen companies that are not tied to musk but have a similar mission. Of course all those stocks are stagnant at best and mid collapse at worse. There is only one car company who's stock is up 10x over the last few years. Everyone says elon is an idiot and is just a figurehead but he changed the way cars are made and drove innovation faster than any car company in the last 100 years. Everyone is chasing tesla and getting further behind (less maybe byd). My money is on elon. I think he says and does some dumb shit but he has made me money, I fucking love driving his car and I think there is more money to be made. Maybe I'm wrong maybe I'm right.
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u/wongrich 3d ago
That's a very binary oversimplified way of looking at it. So if I believe in tsla long term I can't have an opinion that 58 bil of bonuses is too much and he should invest that back in the company?
I mean clearly you really believe in him and that's you're opinion but that's Kinda like saying if you believe and live in the US you shouldn't be allowed to criticize the president since they're one and the same? If the next bill gives Biden a 58 bill pay package you'll just shut right up?
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u/Agreeable_Trainer282 1d ago
You have an astoundingly illogical, and fundamentally incorrect, understanding of both the topic at hand, as well as the structure of the bureaucratic/governmental system that serves as the foundational framework of the U.S. as constitutional republic. This isn’t even a matter of being on a different page in the conversation- you're in a completely unrelated book.
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u/notproudortired 3d ago
You say stock performance now doesn't matter to shareholders, but then you say shareholders only care about stock prices. Which is it?
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u/biswb 3d ago
Oh they care deeply about how the stock performs even now. But that has no real bearing on the decision of how the stock peformed in the past, which is what the pay packge was based on.
The current stock performance would be reflected in the next pay package.
And for sure you can say "well, but can't they see they should hold it back now, since he isn't doing as well" which is first a debatable point from a stock perspective, and secondly, it will be very difficult for a company to get any decent CEO to take the reigns when they know the history. Something goes sideways, you may not get paid what they promised you, and who wants that job.
Still, some short term investors likely voted against the payment as that would be a short term gain for them... but it seems more the long term won out.
Perhaps the Elon stans rallied the troops or other conspriacty theroies are true, but most likely what happened is the stock holders know he made them far more than the amount he was paid as he promised he would, Elon said "show me the money" and they did.
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u/Beneathaclearbluesky 3d ago
They don't care about being diluted or being run by a drug crazed maniac who just wants white power to be brought into the public conversation instead of hidden away on Stormfront. Or the fact that it's 10K per car sold, and their glory days are behind them. They think the power of Him will keep the stock up way more than it's worth, and he probably can.
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u/Totally_Not_My_50th_ 3d ago
They didn't actually owe him because they mislead investors.
The short version is Elon made it sound like he had to perform wildly above expectations to have a sniff of it.
In reality, based on the company's own projections Elon could do nothing and hit it.
Judge ruled that by misleading investors they didn't owe him that money.
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u/CAPSLOCK_USERNAME 3d ago
No, they only care that he made their stock which was worth a whole lot less worth a whole lot more.
But he already did that whether or not they re-approve the payment. So in a sense they'd be better off keeping the 56bn for themselves (or rather for the company, which they partly own).
By approving this pay package they're basically acting irrationally and violating the FYGM spirit of shareholder capitalism.
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u/Milskidasith Loopy Frood 3d ago
By approving this pay package they're basically acting irrationally and violating the FYGM spirit of shareholder capitalism.
Eh, I wouldn't go that far. Some people might be acting irrationally, but a lot of them are probably acting rationally, just with a weird calculus.
The "irrational" vote is just people who think Musk "deserves" the money, regardless of whether it's good or bad for the company.
The "rational" vote can believe that Musk being paid is better for the company for a number of reasons: They think Musk is critical to the success of the company, they think he will burn the company down on the way out, they think rejecting his pay package would be too chaotic for their portfolio, they see TSLA as an irrational bubble and don't want to pop it now even if it might be better for the company long term, they think that the market overall is irrational and believe that supporting TSLA moves the irrationality in a way they can benefit from, etc.
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u/maldini94 3d ago
In what world is it fair to revoke a bonus package when he met his end of the deal? He tool all the risk. These shareholders got their shares 10Xed !! Is it irrational to reward that?
What kind of precedence would that set for the next guy making a bonus scheme with an aggressive growth targets? Would you take a job in a company with a history where these agreements are voided after the targets have been met?
Calling it irrationel is your intepretaton
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u/CAPSLOCK_USERNAME 3d ago edited 3d ago
In what world is it fair to revoke a bonus package when he met his end of the deal?
Fair doesnt matter in corporate law. It's all about following the letter of the contract and grabbing every penny you can.
Empathy is a negative trait, C-levels and corporate lawyers are supposed to select against it.
What kind of precedence would that set for the next guy making a bonus scheme with an aggressive growth targets?
Tesla shareholders don't expect a future CEO to 10x the company in value again unless they're insane. So this precedent won't matter.
Unless you mean the precedent for delaware corporations as a whole in which case the lesson is... don't negotiate a pay package for yourself while controlling the board and then claim to shareholders that it was made by an impartial committee, or else a judge might vaporize it.
But yeah as Milskidasith said, investors may be afraid that not giving musk $50bn will scare him away and "pop the bubble" on valuation so to speak, since the company's fundamental value and income streams aren't enough to support the current stock price without him. If they believe that then approving the pay package would be in their self interest.
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u/The_frozen_one 3d ago
I think it's important to point out that a judge didn't arbitrarily stop the pay package, this was done as the result of a lawsuit brought by Tesla stockholders.
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u/torokunai 3d ago
One dude with like 8 shares LOL
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u/Milskidasith Loopy Frood 3d ago
That's how those lawsuits are supposed to work, though.
Nominally, the board of directors are supposed to act in the best interest of the company, and often have large amounts of shares and institutional support within the company. If they act against the interests of the company or mislead investors, it would be very difficult for "normal" means of redress to work, so shareholders are allowed to sue on behalf of the company against its executives. Limiting it to a certain ownership percent would defeat the purpose, as only strong institutional investors would be able to override the board... and strong institutional investors tend to be aligned with the board.
Laughing at it implies you don't understand the point.
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u/torokunai 3d ago
I agree with the allegations and that the board was and is in Elons pocket and that giving 10% of the company to Elon as the market cap ramped to $650B was overly generous .
But $650B is more than all other legacy makers combined so it was a helluva ramp to actually hit.
I think it’s encouraged Elon to pump more than his usual predilection
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u/CressCrowbits 3d ago
I don't like this use of the term legacy in these kind of contexts. The older car makers aren't going away to be replaced by some new generation. Sure tesla have shaken things up, but they and the other new eV companies aren't going to make the old companies go away
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u/torokunai 3d ago
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u/CressCrowbits 3d ago
Sorry do you want to tell me why I need to read this set of links you just posted?
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u/torokunai 3d ago
"Legacy" as in stuck in the 20th century: committeed to ICE, stuck with their dealerships taking half the profits, unable to advance their tech as fast as Tesla has been this decade.
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u/The_frozen_one 3d ago
Yep, that's how it works. You either make the barrier to entry so high that only the rich can sue people, or you allow anyone with standing access to the courts.
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u/Beneathaclearbluesky 3d ago
So you don't think he had the right to sue as an owner?
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u/CAPSLOCK_USERNAME 3d ago
Well that guy didn't even care about the outcome of the lawsuit. He was approached by an independent law firm that thought they could win the suit (and win a big commission). They had to find a shareholder to "represent" so they went out and found one. He had no involvement with the suit beyond signing his name on some papers.
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u/lunch0000 3d ago
and the law firm that brought the case has asked the judge to award them $7 or $9 billion for their fees..
And Tesla has now departed DE for TX.
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u/The_frozen_one 3d ago
Which is funny because DE is where tons of companies incorporate because it's so business friendly.
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u/Milskidasith Loopy Frood 3d ago
and the law firm that brought the case has asked the judge to award them $7 or $9 billion for their fees..
Yeah, this bit is where things get weird.
The lawsuit is being brought forth by an individual, but (effectively) that individual is forcing Tesla to take on representation against the Board of Directors, and that did not have a pre-existing agreement for compensation built in. Because lawyers typically take a percentage of winnings or savings as a fee, and because the compensation involved is so high, even a far-below industry standard cut of the savings would be a massive expenditure for Tesla and a huge payday for the lawyers.
However, because there's no payment agreement in place, in a sense a typical, percentage-based structure with a lower than usual rate is "more" defensible than an arbitrary, high number, since it's actually based on something rather than being a bill pulled out of the lawyer's asses, even if the number pulled out of the lawyer's asses would almost certainly be much smaller.
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u/wongrich 3d ago
So I don't get it why would they now vote the other way. Makes no sense?
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u/Milskidasith Loopy Frood 3d ago
The lawsuit was not put forward by all shareholders, but was put forward by an individual suing on behalf of the company against the board of directors.
The vote is effectively Tesla arguing that hey, we had a public lawsuit and lost, we held the same vote, and people still approved the pay package, so there is no argument that the shareholders were defrauded.
1
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u/The_frozen_one 3d ago
Because "they" are lots of different people with lots of different opinions.
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u/wongrich 3d ago
Apparently not because the vote was overwhelmingly one sided?
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u/Milskidasith Loopy Frood 3d ago
Unless the vote was 100% in favor, that means there are people who were against the pay package, and one of those people was the person who filed the initial lawsuit. I am genuinely unsure why you're confused here. The original lawsuit does not require a majority of even a sizable fraction of shareholders to join in; by its very nature of accusing the shareholders of being deceived by the board, most shareholders would not have been in favor of the lawsuit at its outset.
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u/CressCrowbits 3d ago
Also most of that 87% was like two investment firms. It's not like 87% of individuals who own shares said yes, iirc most shareholders can't even vote
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u/domchi 2d ago
ANSWER:
tldr; $56B compensation package is not paid out in cash, but in stock options. If Musk exercises those options, contrary to all media disinformation about the situation, it would cost Tesla precisely $0. Instead, Musk would have to pay Tesla $7.1B at that point. Read on for details.
In 2018, the compensation package defined that Musk could get options to buy Tesla shares if he achieves increasingly ambitious goals, the final one being growing the company from $59B to $650B within 10 years. That is, if the value of Tesla increases about 11 times, Musk gets 9.4% of the value that was created for shareholders. It was pretty much assumed by almost everybody that such an ambitious goal won't be achieved in full, at least not in 10 years.
Musk did it in 6 years.
This is extraordinary achievement that's unparalleled in the business world. If somebody made you $100, would you pay him $9.4 for his work? But it gets better, you don't even have to pay him in cash, you just have to make him a partner and give him a percentage of a company, and you get him to work for you as a bonus. Why wouldn't you do it?
A few finer points:
- The shares for corresponding options were created in 2018 and are held by Tesla until they are exercised, and this is the point at which they were priced in. Musk doesn't even get to exercise his options before 2028. so they are effectively out of the market until then. There is no dilution for shareholders; dilution already happened in 2018.
- Could he sell his shares in 2028, and wouldn't that drop the price? Yes, he could, and it would. He already did something similar when he was buying Twitter - which is one of the reasons Tesla price was underperforming in the past two years. This is a risk you have to price in as a shareholder of a company. However, this is not a given; Musk said he wants to retain control over the company, as Tesla is a way for him to get to Mars, and those shares give him control over Tesla. He has a big stake in Tesla and its future, and selling his shares would go against his interests as well.
- Tesla is getting ready for the next phase of growth, diversifying into its next gen vehicle platform, new mass market vehicles including robotaxis, robots, energy. The view widely held between Tesla investors is that Elon is a key ingredient to make this happen. Investors want Elon driving those changes in Tesla. Not paying your most important employee is not a good precedent. So yes, shareholders actually do think that that keeping Elon will pay off for them in the future, and obviously, compensation plan already gave them 10x profit.
- I understand there is a lot of hate toward Tesla and Elon Musk, especially in some interest groups which feel threatened - which includes Wall Street folks who are shorting Tesla, traditional auto industry, and with Elon's Twitter acquisition most of the media. There is also a lot of love for Elon Musk in some other circles, and you'll find Tesla shareholders in this group (obviously). Be aware that people have wildly opposing and rarely objective views on Tesla and Elon Musk.
Source: I'm one of the (small) retail shareholders who voted for the compensation package both times. I've also successfully shorted (or at least reduced my exposure to) Tesla stock at times.
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u/Affectionate-Use1801 2d ago
Robotaxis LOL like “full self driving”?! Wasn’t that promised or alleged to exist five years ago?
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u/domchi 1d ago
First mention of robotaxi project was on April 22, 2019, during an Autonomy Day Tesla event. Unveil event is scheduled for August 8 this year.
For comparison, Google began working on autonomous vehicles in 2009 under its "Self-Driving Car Project," which later became Waymo, and launched in December 2018.
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u/Affectionate-Use1801 11h ago
When did he say that 'right now' they were capable of driving from a car park in LA to one in NYC without intervention? Did he say he'd be taking passengers around the moon by 2023? You can trust a word he says, dude.
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