Tesla board awards Elon Musk $26 billion pay package, bypassing shareholders

Tesla's board of directors has approved a new compensation plan for CEO Elon Musk valued at approximately $26 billion. Described as an "interim award," the new pay deal replaces a previous, larger package that was voided by a Delaware court and does not require approval from the company's shareholders.

This new pay arrangement is a direct consequence of the legal battle over Musk's 2018 compensation plan. That original deal, potentially worth up to $56 billion, was struck down by a judge last year. The court ruled that Musk, due to his significant influence over the board, had essentially negotiated the terms with himself. In a letter to shareholders, Tesla's board framed the new award as an effort to "make it right by Musk" for the value he created under the now-disputed 2018 plan.

A Letter to Our Shareholders on the 2025 CEO Interim Award

Dear Fellow Tesla Shareholders,

Today we announce an important first step in compensating Elon Musk for his extraordinary work at Tesla. As you know, Elon has not received meaningful compensation for eight years since…

— Tesla (@Tesla) August 4, 2025

Under the terms of the new deal, Musk will receive 96 million restricted shares of Tesla stock. These are not free, however. He must pay a purchase price of $23.34 per share, the same exercise price as the options in the voided 2018 agreement. Based on Tesla's recent stock value, the gross worth of these shares is around $29 billion, making the net value, after the purchase price, approximately $26.7 billion. The award is contingent on Musk remaining in a senior leadership role at the electric car company for two years. Once granted, he must hold the shares for at least five years.

The structure of this 2025 interim award is a big departure from the 2018 deal. The original plan was entirely performance-based, a high-risk, high-reward proposition. It consisted of stock options that vested only after Tesla hit a series of ambitious milestones related to its market capitalization and financial performance.

Musk met all targets by early 2023, propelling the company's valuation from around $50 billion to over $650 billion. He received no salary during this period, betting everything on the growth of the EV manufacturer. In contrast, the new package is designed for retention, vesting based on time served rather than company performance.

The board's decision is raising a lot of questions, partly because it circumvents a shareholder vote. While the 2018 plan was approved by investors, this interim replacement was passed solely by the board's special committee, with Musk recusing himself. The company included a safeguard to prevent a "double dip"; if the Delaware courts ultimately reinstate the original 2018 award, this new interim plan will be forfeited.

This $26 billion package may only be the beginning. The board has already announced it is developing a new "longer-term" compensation plan for Musk, which will be presented to shareholders for a vote in November. This follows Musk's public statements expressing a desire to increase his ownership stake in Tesla to around 25%. He argues that such a stake is necessary to guide the company's future in AI and robotics and to defend against activist investors, while not giving him so much control that he "can't be thrown out if he goes crazy."

The new pay will only increase his stake to about 15%, suggesting the upcoming November proposal will be designed to get him closer to his 25% target. All this is happening at a time when Tesla is losing its grip on its market share around the world as it is having probably the worst 6 months in its history. Sales in Europe are down, China recorded nearly an 8.5% drop in sales last month alone, and the only answer the company has is its Robotaxi service operated by actual flesh-and-bone drivers.

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