Tesla Faces Scrutiny Over $3 Billion Worth of Stock Awards to Board Members
In Focus
- Tesla directors received more stock awards than their peers in tech firms
- The EV maker justified compensation as equal to directors’ effort
- Experts say stock options give directors more reward with minimal risk
Tesla’s stock awards to board members have come under scrutiny after analysis showed that directors earned over $3 billion in stock awards. According to Reuters, the stock awards surpassed the value of those issued by other tech firms at the time of payment. The analysis was conducted by compensation and governance firm, Equilar.
How Much Have Tesla Directors Received Since 2020?
The analysis revealed that individual Tesla directors received hundreds of millions even after the company suspended issuance of stock awards in 2020. According to the Tesla board compensation update, chairperson Robyn Denholm received $650 million since 2014.
Kimbal Musk, who is CEO Elon Musk’s brother, has received close to a billion dollars since 2004.
The Tesla board put director compensation on hold to enable it to focus on a shareholder lawsuit challenging excessive board members’ pay.
Prior to the suspension, Tesla directors had received a total of $12 million in the form of cash and stock options. This was about eight times more than their counterparts in Alphabet, which was the next-highest paying firm among the top seven tech companies at the time.
News about Tesla’s $3 billion stock compensation comes more than a month after shareholders in the company approved Musk’s $1 trillion compensation plan. The pay package features 12 tranches of shares to be issued to Musk only if Tesla achieves specific milestones over the next 10 years.
Tesla’s Take on Director Compensation
Tesla does not consider its directors’ compensation to be excessive. In a statement sent to Reuters, the spokesperson of the EV firm said the compensation was tied directly to “stock performance and shareholder value creation”.
The company added that its directors offer extraordinary service as they devote significant effort and time to the company. The Tesla spokesperson highlighted a 2024 case where directors attended 58 full-board and committee meetings. He added that the frequency of these meetings was well above industry practices.
Tesla’s corporate governance comes under scrutiny as the company rethinks its supply chain strategy and begins to exclude Chinese-made components in the production of U.S. The EV maker plans to switch to components manufactured outside China within the next one or two years.
Governance Specialists Question Tesla’s Stock Options
The Tesla board compensated itself in stock options, rather than shares. Stock options give directors the right to purchase company shares after a specific period at a predetermined price. Often, stock option holders carry minimal to zero risk because they don’t have to buy shares if their value drops below the predetermined price.
However, they can purchase the shares at a discount when prices appreciate and immediately sell them at a profit. According to corporate governance experts, this practice gives the directors more reward with minimal risk. Tesla directors have already made tens or hundreds of millions from options and are still holding a lot more.
