Tesla approves share award worth $29 billion to CEO Elon Musk

Highlights:

• Tesla grants 96 million new shares to Musk
• Award vests only if Musk remains in a key executive role for two years
• New shares will be forfeited if court restores Musk's voided 2018 pay package
• Stock rises 2% as analysts say it removes uncertainty over future

Tesla has granted CEO Elon Musk shares worth about $29 billion in a new pay deal aimed at keeping the billionaire entrepreneur at the helm during a crucial pivot from its struggling core auto business to robotaxis and humanoid robots.

The company described the "interim award" of the 96 million new shares as a first step, "good faith" payment to honor Musk's more than $50 billion pay package from 2018 that was struck down by a Delaware court last year.

Musk can claim the new award if he remains in a top executive role for another two years and a court does not reinstate the 2018 package currently on appeal.

He has to hold the shares for five years and can buy them for $23.34 per share, the same as the exercise price of the 2018 award. Tesla will also put to vote a longer-term CEO compensation plan at its annual investor meeting on November 6.

The move is meant to keep Musk, the public face of Tesla and architect of its robotaxi strategy, focused on the electric-vehicle maker as it navigates a shift to cybercabs and robotics from its mainstay auto business.

It also seems to quell any speculation that the board's patience with Musk could be wearing thin because of the recent tumultuous months, including the CEO's foray into politics.

The move to give Musk greater control of the company suggests that directors still see him as best-suited to tackle Tesla's growing list of challenges in the years ahead.

Sales have been falling at the company due to its aging vehicle line-up, tough competition and Musk's right-wing political stances that have tarnished its brand.

S&P Global Mobility data shared exclusively with Reuters showed on Monday that Tesla's brand loyalty had plunged since Musk endorsed U.S. President Donald Trump last summer.

Musk's involvement in politics and his wider business empire, including AI startup xAI, have also sparked concerns about his devotion to Tesla, the main source of his wealth. Musk has threatened to leave unless he gets more control over Tesla.

The new stock award will take his Tesla stake, already the largest, to more than 15% from the 12.7% currently, according to Reuters calculations based on data compiled by LSEG.

Before Monday's grant, Musk had no active compensation plan and Tesla said he had not received meaningful pay since 2017. With the legal fight over his 2018 package expected to continue, the board said it moved to retain Musk's "extraordinary talent."

TALENT MAGNET

"While we recognize Elon's business ventures, interests and other potential demands on his time and attention are extensive and wide-ranging... we are confident this award will incentivize Elon to remain at Tesla," said a special committee Tesla formed this year to consider Musk's compensation. It consists of chair Robyn Denholm and independent director Kathleen Wilson-Thompson.

The company said it would not record compensation expense for the award as it does not currently expect the performance condition to be "probable of being met." It will re-evaluate and recognize the expense if it determines the award is likely to be met, including after the two-year vesting period.

Last year, the company said a new compensation package for Musk on par with the 2018 plan would result in an accounting charge of more than $25 billion. While the plan unveiled Monday is about one-third of the size of the 2018 plan, the share price has nearly doubled in the past year, increasing the potential cost.

"The compensation expense to Tesla here is going to be ferocious," said Lawrence Fossi, who publishes a newsletter critical of Tesla.

The new shares will also be forfeited or offset if the Delaware courts fully reinstate the 2018 stock award, ensuring there is no "double dip," the special committee said.

Investors and analysts welcomed the news, with Tesla shares rising nearly 2% in early trading. The stock has lost a quarter of its value this year, as of last close.

"Under normal circumstances, a compensation package in the billions would raise some eyebrows. (But) clearly investors have benefited from Musk's stewardship of Tesla," said Camelthorn Investments adviser Shawn Campbell, who owns Tesla shares. "This stock grant will bind Musk to Tesla for the next two years."

BATTLE FOR PAY

The Delaware ruling on Musk's 2018 pay package, the largest in Corporate America, had cited flaws in the board's approval process and unfairness to investors. Musk kicked off an appeal against the order in March, claiming a lower court judge made multiple legal errors in rescinding the record compensation.

He has argued that the package resulted in spectacular growth for Tesla and yet was determined by the lower Court of Chancery to be unfair to shareholders, who voted twice to approve the plan.

Tesla shares have risen nearly 2,000% over the past decade, far outperforming the around 200% rise in the benchmark S&P 500 index in the same period.

"This is simply a repackaged version of what was done years ago and was ruled improper by a judge. It renders the Delaware court decision effectively meaningless," said Charles Elson, founding director of the Weinberg Center for Corporate Governance at the University of Delaware.

"You don't have to incentivize him to stay. If he leaves, he throws away 13% of the company, which is still a huge part of his net worth, said Elson, who had filed amicus briefs supporting the court's decision to void Musk's 2018 award.