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In the history of U.S. corporate pay packages, there have been plenty of massive payouts worth almost $1 billion in today’s dollars. But none comes close to the $46 billion pay deal Tesla shareholders on Thursday handed to CEO Elon Musk. 

The results of the shareholder vote, which concluded today, were announced during Tesla’s annual meeting, prompting a standing ovation from shareholders attending the Thursday event at Tesla’s headquarters in Austin, Texas. Musk had already declared victory, writing late Wednesday on his social media platform X that shareholders were voting to approve the pay package by “wide margins.”

“Hot damn, I love you guys,” an exultant Musk said at the shareholder meeting after the vote results were announced. He also capitalized on the occasion to tout Tesla’s success in selling electric vehicles and what that means for the fight against climate change. 

“It’s incredible. I think we’re not just opening a new chapter for Tesla, we’re starting a new book,” he said, adding, “We’re starting to make a real noticeable dent in carbon emissions.”

The pay package has become a lightning rod over executive pay, with some critics calling the package “excessive.” Supporters argue that such a deal is necessary to tether Musk to Tesla and ensure he doesn’t decamp to start another business. Along with Tesla, the billionaire currently owns five additional businesses including X (formerly Twitter), Neuralink and SpaceX, the latter of which he is also CEO. 

With Musk trumpeting his apparent win ahead of the final tally, shareholders sent the stock up 3% in Thursday trading, indicating that many view the pay package as essential to ensuring Musk’s future at the company. 

“It is a pop-the-champagne moment for Musk and Tesla shareholders,” noted Wedbush Securities analyst Dan Ives in a Thursday research note about the preliminary vote results. “[L]arge shareholders at the end of the day knew that voting no would risk Musk potentially eventually leaving as CEO.” 

Ives said he believes Musk is now likely to pledge to remain CEO of Tesla for another three to five years, given the apparent approval of his pay package. 

Still, questions remain about whether Tesla will be able to actually deliver the pay package to Musk, given a Delaware court ruling earlier this year that struck down the plan’s earlier 2018 shareholder approval. Meanwhile, Tesla shareholders on Thursday also approved a proposal to move the company’s legal jurisdiction from Delaware to Texas, which could play a part in whether Musk’s payout materializes.

For instance, with Tesla shareholders approving the move to Texas, reapproval of the pay package could now be handled as a Texas corporation, which means the issue could fall under the purview of Texas courts.

Why does the pay package need to be voted on?

The vote on Musk’s payout stems from a court ruling in January that struck down his previous pay deal, worth almost $56 billion earlier this year. The value has since declined due to a slide in Tesla’s share price. 

That package, approved in 2018 by Tesla shareholders, sparked a shareholder lawsuit that accused Musk and Tesla’s board of directors of breaching their duties and unjustly enriching the billionaire. A Delaware judge ruled that Musk and his his company failed to prove that the massive payout was fair.

Because that initial pay deal was struck down, Tesla said in April that it would once again take the issue to its shareholders, asking them to re-ratify the package. 

How much does Musk earn from Tesla? 

Tesla hasn’t paid Musk a base salary since 2019, according to the company’s regulatory filings. Instead, his compensation has been paid through “performance awards” of stock options that are based on Tesla hitting certain milestones, such as vehicle production or increasing the company’s market value. 

After the pay package was struck down by the Delaware court, Tesla Chairwoman Robyn Denholm wrote to shareholders that they should re-ratify the package as “Elon has not been paid for any of his work for Tesla for the past six years that has helped to generate significant growth and stockholder value.”

Denholm described the situation as “fundamentally unfair, and inconsistent with the will of the stockholders who voted for it.”

However, Musk is hardly without financial resources: He owns almost 13% of Tesla shares, worth $73 billion. He also has stakes in SpaceX, worth $71 billion, and multiple other businesses, giving him a total net worth of $203 billion, according to the Bloomberg Billionaires Index. That makes him the world’s third richest person.

Why are some shareholders supporting the pay package? 

According to Ives, some shareholders are concerned that Musk might decamp for another business or start a rival company if he isn’t richly rewarded for working at Tesla. That’s a threat that Musk himself has issued, stating in a post on X in January that he wanted 25% voting control of Tesla or he might leave. 

Tesla chairwoman Denholm echoed those sentiments, writing in a June shareholder letter, “If Tesla is to retain Elon’s attention and motivate him to continue to devote his time, energy, ambition and vision to deliver comparable results in the future, we must stand by our deal.”

Are some shareholders voting against the pay deal?

Yes, some shareholders had spoken publicly against the package, most notably the California’s State Teachers Retirement System. 

The large pension fund said Tuesday that it would vote against Musk’s pay “based on its sheer magnitude, and because the award would be extremely dilutive to shareholders. We also have concerns with the lack of focus on profitability for the company.”

Tesla’s top five institutional shareholders — Vanguard, BlackRock, State Street, Geode Capital and Capital Research — either said they wouldn’t announce their votes or wouldn’t comment. They control about 17% of the votes.

How is Elon Musk’s pay package structured?

The pay deal is structured to deliver several rounds of stock options that will allow Musk to buy about 304 million shares of Tesla stock. Musk is able to receive each round of options after the company hits certain milestones — such as when Tesla reached a market value of $100 billion, and then at every $50 billion mark beyond that. (Currently, Tesla’s market cap is about $580 billion.)

Based on today’s stock price, the value of the pay package stands at about $46 billion. 

The package also includes a requirement that Musk hold onto the shares for five years after he exercises the options, according to regulatory filings.

Do large payouts ensure better CEO performance? 

The underlying question of the debate over Musk’s payout is whether such grandiose packages actually make a difference in CEO performance. In other words, do CEOs actually outperform when they are given larger-than-normal packages? And if they don’t receive such jaw-dropping deals, do they underperform? 

Generous CEO pay packages don’t actually guarantee better results, according to a 2017 study from investment research firm MSCI. In fact, the analysis found that the companies with the smallest equity incentive awards outperformed those with the heftiest packages by almost 39% on average over a 10-year period. 

— The Associated Press contributed to this report.

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