Tesla's Board of Directors received over $3 billion in stock awards

Tesla’s board of directors has earned over $3 billion in stock awards, significantly exceeding the value of awards granted to competitors of major US tech firms at the time they were paid, according to an analysis conducted for Reuters by compensation and governance specialist Equilar, UNN reports.

DetailsThe analysis showed that CEO Elon Musk’s brother, Kimball, has earned nearly $1 billion since 2004, based on the increased value of stock options held or liquidated. Director Ira Ehrenpreis has collected $869 million since 2007. Board Chair Robyn Denholm has earned $650 million since 2014.

Directors received such windfalls even though they have not granted themselves new stock awards since 2020. The board agreed to suspend director compensation starting in 2021 to settle a shareholder lawsuit alleging excessive pay for board members. However, between 2018 and 2020, the average Tesla (TSLA.O) director received a total of about $12 million in cash and stock compensation. This is approximately eight times more than the average earnings of an Alphabet director, the next highest-paid among the “Magnificent Seven” companies during the same period.

EU car market grew by 5.8% in October: electric cars popular despite falling Tesla sales25.11.25, 14:13 • 2217 views

The value of these initial awards soared along with Tesla’s stock price in subsequent years. This also applies to the six other firms in the “Magnificent Seven” – Nvidia (NVDA.O), Alphabet (GOOGL.O), Meta (META.O), Apple (AAPL.O), Microsoft (MSFT.O), and Amazon (AMZN.O) – so named because their soaring stock prices were a major driver of the prolonged bull market.

But Tesla is the only company among this cohort where the size of directors’ initial stock awards played such an outsized role in the immense wealth they earned from this part-time job, as the Equilar analysis shows. The average compensation for Tesla directors between 2018 and 2024, including four years of suspended payments, was still two and a half times higher than that of Meta directors, the next highest-paid over the seven-year period.

In a statement to Reuters, a Tesla spokesperson said that its directors’ compensation “is not excessive, but directly linked to stock performance and shareholder value creation.” The statement added that board members provide extraordinary service to Tesla and dedicate “a significant amount of time and effort,” for example, attending 58 full board or committee meetings in 2024. The spokesperson said that the frequency of meetings significantly exceeded industry norms.

Morgan Stanley downgrades Tesla: what was the reason?08.12.25, 19:18 • 4230 views

Tesla’s board also paid itself in stock options rather than shares, a rare practice criticized by some corporate governance experts because it increases directors’ upside potential without downside risk. Tesla directors have already exercised options worth tens or hundreds of millions of dollars, but also continue to hold similarly large amounts, as Equilar found.

Stock options are the right to buy company shares after a certain period at a predetermined price. Option holders face no risk, corporate governance experts say, because they are not obligated to buy shares if their value falls below the set price. If it rises, they can buy shares at a discount and immediately sell them for a profit.

Instead, many corporate governance experts advise boards to pay directors in shares to align their interests with shareholders. When directors directly own shares, rather than options to buy shares, the value of their holdings falls if their company’s stock price declines. According to the National Association of Corporate Directors, only 5% of the 200 largest S&P 500 companies by revenue issue director options.

A Tesla spokesperson said that options create a more “risky” incentive structure for directors, as they only receive compensation if the stock value increases. Directors of other firms who receive shares still receive some value, even if stock prices fall, “as long as the stock is worth more than $0,” the spokesperson said.

Tesla plummets in Europe: registrations down 36% in November04.12.25, 15:43 • 3105 views

Four corporate governance experts who reviewed the Equilar analysis for Reuters said that the extraordinary compensation of Tesla’s board undermines the directors’ independence in overseeing Tesla and its CEO, Elon Musk.

“Tesla directors are incredibly overpaid,” said Douglas Chia, an independent corporate governance consultant at Soundboard Governance LLC. “Are you really incentivized to do a better job by being paid so much? Probably not.”

Charles Elson, founding director of the University of Delaware’s corporate governance institute, acknowledged Tesla’s argument that directors only make money when the company’s stock rises. But Elson and others recommend paying directors in restricted stock, which includes a vesting period, to better align their interests with shareholders who can both make and lose money by owning shares. Additionally, he said, options are typically more lucrative for directors because they “tend to significantly leverage returns.”

In addition to the shareholder lawsuit, Tesla’s board compensation also came under fire last year due to a Delaware court ruling that invalidated a pay package granted by the board to Musk in 2018, which is worth $132 billion at the company’s current stock price. The judge found that the excessive compensation of board members and their personal ties to Musk compromised negotiations over the CEO’s pay. The board appealed and promised Musk a replacement package worth at least $42 billion if they lose.

In September, the board proposed a new compensation package for Musk that could provide him with up to $1 trillion in Tesla stock over the next decade, worth about $878 billion after deducting the amount Musk would have to pay for the shares. Each of these packages alone would make Musk the highest-paid CEO in history – a title he already holds based on his earnings at Tesla to date.

Every second imported used car under 5 years old in October was an electric car: Tesla is the bestseller24.11.25, 09:59 • 2582 views