Tesla Investors Are Said to Approve $2.6 Billion Award for Musk

(Bloomberg) -- Tesla Inc. shareholders approved the board’s proposal to grant Chief Executive Officer Elon Musk stock options valued at $2.6 billion, paving the way for him to reap a big windfall if the electric-car maker maintains its growth trajectory over the next decade.

Investors holding a majority of the shares that were voted at Wednesday’s special meeting in Fremont, California, supported the performance award, a person with knowledge of the results said. The board needed majority approval to make the grant, which likely is the largest one-time compensation deal ever awarded. Tesla had said Musk and his brother Kimbal, who’s a company director, wouldn’t vote their shares.

The award, which won’t vest unless a set of ambitious financial goals are met, has been cheered by some large Tesla investors who said it would help the CEO drive the business forward. Critics, including the two largest proxy advisers, said it was too costly and questioned why Musk, a billionaire who has about half his wealth tied up in company stock, needed more equity to stay motivated.

Stock Spike

Tesla’s shares were up 3.6 percent to $321.86 as of 12:48 p.m. in New York, erasing losses for the year.

Under the new plan, Musk will earn one-12th of the options every time Tesla hits a pair of goals: one tied to its market value and the other linked to either revenue or earnings excluding certain charges. For Musk to get all the options, Tesla would have to become worth $650 billion -- more than Facebook Inc. -- and produce more revenue than Procter & Gamble Co.

A Tesla spokesman didn’t immediately respond to a request for comment.

Tesla has said in regulatory filings that Musk’s award could yield him more than $50 billion if all goals are achieved. Some large investors have said the package aligns with their interests, signaling they don’t mind if Musk gets wealthier, as long as they also see big returns.

Large shareholders Baillie Gifford & Co. and T. Rowe Price Group Inc. signaled ahead of the vote that they would probably support the package. Spokesmen for both companies didn’t immediately reply to requests for comment. Fidelity, which holds almost 10 percent of Tesla stock, declined to comment. A spokesman for Chinese internet giant Tencent Holdings Ltd., which holds about 5 percent of Tesla, was not immediately available to comment.

Potential Dilution

California State Teachers’ Retirement System, the second-largest pension fund in the U.S., said it did not support the plan, citing concerns about potential dilution and an absence of profitability goals. Large stock awards can be costly for investors in two ways: They can increase a company’s expenses and they dilute the stakes of existing shareholders.

Still, the fund is appreciative of Musk’s “visionary leadership,” Anne Sheehan, director of corporate governance at Calstrs, said in an emailed statement.

Musk is also the CEO of Space Exploration Technologies Corp. and has embarked on several other projects of late, including tunnel digger Boring Co. and a brain-computer interface startup called Neuralink. That’s led to concerns he’s looking to lessen his involvement with Tesla. The new award binds him to the company for a decade, requiring him to remain either CEO or executive chairman and chief product officer.

“You can’t be a Tesla shareholder if you don’t believe in the company and Elon Musk,” said Ross Gerber, chief executive officer of Gerber Kawasaki Wealth & Investment Management in Santa Monica, California, which holds Tesla shares.

To contact the reporters on this story: Anders Melin in New York at amelin3@bloomberg.net, Dana Hull in San Francisco at dhull12@bloomberg.net.

To contact the editors responsible for this story: Pierre Paulden at ppaulden@bloomberg.net, Kevin Miller, Anne Riley Moffat

©2018 Bloomberg L.P.