According to an analysis done for Reuters by compensation and governance specialist Equilar, the board of directors of Tesla (TSLA) has received more than $3 billion in stock awards that, at the time of payment, far exceeded the value of those given to peers at the largest U.S. technology companies.
Based on the increased value of stock options held or liquidated, the study revealed that Kimbal, the brother of CEO Elon Musk, had made close to $1 billion since 2004. Since 2007, director Ira Ehrenpreis has amassed $869 million. Since 2014, Robyn Denholm, the chair of the board, has earned $650 million.
Even if they haven't given themselves any stock awards since 2020, directors have benefited from such windfalls. In order to resolve a shareholder complaint alleging exorbitant board member compensation, the board decided to suspend director compensation beginning in 2021.
However, the average Tesla director earned almost $12 million in cash and equity remuneration between 2018 and 2020. During the same time period, the average director at Alphabet, the next highest-paid of the "Magnificent Seven" corporations, made roughly eight times as much.
In the years that followed, Tesla's share price and the value of those initial rewards both surged. This also applies to the other six companies in the Magnificent Seven: Nvidia (NVDA), Alphabet (GOOG), Meta (META), Apple (AAPL), Microsoft (MSFT), and Amazon (AMZN).
These companies earned the moniker due to their skyrocketing stock prices, which have been a major factor in the ongoing bull market.
However, the Equilar analysis reveals that Tesla is the only business in that cohort where the magnitude of directors initial stock awards significantly contributed to the enormous fortune they have amassed from their part-time occupations.
Even after accounting for the four years of suspended pay, the average salary for Tesla directors between 2018 and 2024 was still 2.5 times more than that of Meta (META) directors, who were the next best paid during the same period.
A Tesla representative told Reuters that the company's directors pay "is not excessive but directly tied to stock performance and shareholder value creation."
According to the statement, board members give Tesla exceptional service and invest "substantial time and effort," such as by attending 58 committee or full-board meetings in 2024. According to the representative, the frequency of meetings was far higher than industry standards.
Additionally, Tesla's board paid itself in stock options rather than shares, a unique method that several corporate governance experts have criticized because it increases directors upside potential without any downside risk.
Equilar discovered that although Tesla directors had already exercised tens or hundreds of millions of dollars in options, they still own comparable sums.
The right to purchase the company's stock at a predetermined price after a predetermined amount of time is known as a stock option.
Corporate-governance experts claim that because option holders are not obligated to purchase the shares if its value falls below the predetermined price, they are not at risk. They can purchase the shares at a discount and sell them right away at a profit if it increases.
In order to align directors interests with shareholders, several governance experts recommend that boards pay directors in shares.
The value of directors holdings decreases if their company's stock price declines since they possess shares directly rather than through options to purchase shares.
The National Association of Corporate Directors reports that only around 5% of the top 200 S&P 500 corporations by revenue offer directors' options.
According to the Tesla representative, options give directors a more "at-risk" incentive structure because they are only paid if the stock increases.
Even if share prices decline, directors at other companies who receive shares still earn some value "as long as the stock exceeds $0," according to the spokeswoman.
The unusual compensation of the Tesla board, according to four corporate-governance specialists who examined Equilar's study for Reuters, compromises the directors' independence in supervising Tesla and its CEO, Elon Musk.
"Tesla directors are ridiculously overpaid," stated Douglas Chia, a consultant with Soundboard Governance LLC who works independently in corporate governance. "Is this amount of money really motivating you to perform better? Most likely not.
Tesla's claim that directors only profit when the company's stock rises was accepted by Charles Elson, the founding director of the University of Delaware's corporate-governance institute.
However, Elson and others advise paying directors via restricted stock, which has a vesting period, in order to better match their interests with those of shareholders who have the potential to profit or lose money while holding shares. Additionally, he stated that options typically yield higher profits for directors due to their "tend to magnify returns dramatically."
A Delaware court decision last year nullified the 2018 remuneration package that the board awarded Musk, which is valued at $132 billion at the company's current stock price, in addition to the shareholder case.
The judge concluded that CEO-pay discussions were hampered by board members' disproportionate salaries and personal connections to Musk. In the event that it loses, the board has appealed and guaranteed Musk a substitute package worth at least $42 billion.
In September, the board suggested a new compensation package for Musk that could provide him up to $1 trillion in Tesla stock over the following ten years, or roughly $878 billion after deducting the share price.
With all of these deals, Musk would be the highest-paid CEO in history, a designation he already possesses based on his profits from Tesla thus far.
