Tesla Approves $29 Billion Compensation Package for Elon Musk Amid AI Talent War

Reviewed byNidhi Govil

11 Sources

Tesla's board has approved a new $29 billion compensation package for CEO Elon Musk, citing the need to retain top talent in the intensifying AI industry competition. This move comes as Tesla positions itself as an AI and robotics company, shifting focus from its traditional electric vehicle business.

Tesla's Bold Move in the AI Talent War

Tesla has made a significant move in the ongoing artificial intelligence (AI) talent war by approving a new compensation package for CEO Elon Musk, worth approximately $29 billion in shares 1. This decision comes as the company positions itself at a "critical inflection point," shifting its focus from being primarily an electric vehicle manufacturer to an AI and robotics firm 2.

Source: Economic Times

Source: Economic Times

The Compensation Package Details

The new award involves granting Musk 96 million shares that will vest over two years, provided he "serve continuously in a senior leadership role at Tesla" during that period and holds the stock for five years 1. Unlike Musk's previous compensation plan, this package is not tied to specific performance goals such as increasing the company's stock price 2. Musk will be required to pay a $23.34-per-share purchase price, bringing the total current value of the award to approximately $26.7 billion 3.

Legal Context and Previous Compensation Challenges

This new package comes in the wake of a Delaware court's decision in January 2024 to void Musk's 2018 compensation package, which was valued at over $50 billion 3. The court cited flaws in the board's approval process and unfairness to shareholders as reasons for striking down the previous deal 4. Musk has appealed this decision, and the new package will be forfeited if the Delaware Supreme Court overturns the lower court's ruling 1.

Tesla's Strategic Shift and AI Focus

Tesla's board emphasized the importance of retaining Musk's leadership as the company pivots towards AI and robotics. "It is imperative to retain and motivate our extraordinary talent, beginning with Elon," the board stated 5. This shift in focus includes the development of robotaxis and humanoid robots, positioning Tesla more as an AI and robotics firm than a traditional automaker 3.

Source: CNBC

Source: CNBC

The AI Talent War Context

The tech industry is experiencing an intense competition for AI talent, with companies offering substantial compensation packages to attract and retain top developers. For instance, Facebook founder Mark Zuckerberg reportedly attempted to lure developers from OpenAI with million-dollar pay deals 5. Similarly, Microsoft's AI division, led by former Google DeepMind co-founder Mustafa Suleyman, has recently recruited several employees from Google 5.

Implications for Tesla's Future

This new compensation package is designed to gradually boost Musk's voting power, which both Musk and shareholders have indicated is crucial for maintaining his focus on Tesla's mission 3. The company views Musk's leadership as essential for navigating the transition from a traditional electric vehicle manufacturer to a leader in AI and robotics 2.

Source: Wccftech

Source: Wccftech

Shareholder and Regulatory Considerations

While the new package has been approved by Tesla's board, it remains subject to potential scrutiny. The company plans to put "a longer-term CEO compensation strategy" to a vote at the annual shareholder meeting scheduled for November 2. Additionally, Tesla has re-incorporated from Delaware to Texas, a state with fewer established shareholder protections, following the legal challenges to Musk's previous compensation package 1.

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