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Tesla Inc.’s shareholders are betting that the largest pay deal in history will help propel the electric-car maker into the stratosphere.
A majority of investors who voted at Tesla’s March 21 special meeting supported the $2.6 billion performance award for Chief Executive Officer Elon Musk, which outlines ambitions to become one of the world’s biggest companies. If the grant fully vests within a decade, it will yield Musk and his shareholders a fortune. If he falls short, he won’t receive anything—no salary or bonuses.
“They’ve created a good amount of flexibility in the program’s design that allows the company to be an engine for market cap and revenue growth, but not necessarily profitability,” Aalap Shah, a managing director at compensation consultant Pearl Meyer, told Bloomberg Law. While shareholders will benefit, will it be “mainly because of hype, or because there is a sustainable business underneath?”
Musk, a billionaire, has about half of his net worth tied up in Tesla stock. While the award may significantly boost Musk’s wealth, most of the increase will come from his existing ownership stake rising in value, not from his compensation.
The size of the award, combined with Musk’s existing stake, calls into question whether the shares could have been used to hire or pay a large number of other employees, said Shah.