Hajra Naz
Tesla’s board of directors has unveiled a massive new compensation plan for CEO Elon Musk, valued at approximately $29 billion in stock options. The company attributes this substantial payout to the “ever-intensifying AI talent war” and Tesla’s strategic position at a pivotal moment in its evolution.
This new package will be granted under the already-approved 2019 Equity Incentive Plan, meaning it will not require another shareholder vote, as confirmed by a recent regulatory filing and Ann Lipton, a professor at the University of Colorado Law School. However, Tesla has stated it plans to present a longer-term CEO compensation strategy for a shareholder vote during its annual meeting in November.
Legal Hurdles and the 2018 Compensation Controversy
There’s a significant caveat to the new arrangement. The entire award will be voided if the Delaware Supreme Court overturns a January 2024 decision by a judge who struck down Musk’s earlier 2018 pay package, which was worth around $56 billion. The court ruled the original plan invalid due to how it was negotiated—with Musk allegedly exerting behind-the-scenes influence over Tesla’s board.
The 2018 package had already triggered a high-profile lawsuit, resulting in Delaware Chancery Court Judge Kathaleen McCormick declaring the process “deeply flawed.” McCormick noted Musk’s close relationships with board members and criticized the plan for not binding Musk to Tesla for any defined length of time.
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AI and Power Dynamics: Musk’s Leverage
Adding pressure to the situation, Musk has threatened to halt development in AI and robotics at Tesla unless he receives greater control over the company. These statements come amid a fierce AI hiring war and an accelerating wave of mergers and acquisitions in the sector.
Meanwhile, Musk is investing heavily in his independent AI venture, xAI, which now owns his social media platform, X (formerly Twitter). These outside interests have emerged just as Tesla’s sales growth has slowed, and the brand has taken reputational hits—partly due to Musk’s political affiliations and support of the Trump administration.
Terms of the New Pay Package
In early 2025, Tesla’s board formed a special committee, chaired by Robyn Denholm and board member Kathleen Wilson-Thompson, to develop the new compensation structure. The committee ultimately recommended an award of 96 million stock options for Musk.
These shares will vest over two years, contingent on Musk remaining in a senior leadership role during that period. He is also required to hold the shares for five years after they vest. Notably, unlike the 2018 package, this latest plan is not linked to performance benchmarks, such as Tesla’s stock price hitting certain targets.
At current premarket trading levels, the stock is valued at about $29 billion, with Musk needing to pay $23.34 per share to exercise the options. This brings the current net value of the award to around $26.7 billion.
Potential Forfeiture and “No Double Dipping”
Tesla emphasized that if the Delaware Supreme Court ultimately upholds the 2018 plan, Musk cannot benefit from both awards. In its statement, the company clarified:
“Elon will not be able to keep this new award in addition to the options he will be awarded under the 2018 CEO Performance Award should the courts rule in our favor.”
To avoid potential conflicts of interest, Musk and his brother Kimbal, who also sits on Tesla’s board, recused themselves from any involvement in structuring the new plan. Their exclusion is an explicit effort to sidestep the transparency and governance issues that plagued the 2018 plan.
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Corporate Relocation and Shareholder Fallout
In response to the court ruling, Tesla has reincorporated from Delaware to Texas, a state known for more lenient shareholder protection laws. Tesla even held a shareholder vote to reaffirm support for Musk’s pay package, though McCormick stood by her earlier decision. In her December 2024 ruling, she dismissed Tesla’s legal arguments and the vote itself as “unprecedented theories [that] go against multiple strains of settled law.”
Final Thoughts: What’s at Stake
Tesla’s move underscores a pivotal corporate dilemma: retain top executive talent in a rapidly evolving AI arms race, or risk governance scrutiny and shareholder rebellion. Whether the Delaware Supreme Court upholds or nullifies Musk’s earlier package, the company is betting on his leadership for the next stage of its evolution—one that will be defined as much by autonomous innovation as by financial and legal maneuvering.
