Tesla Board Compensation Raises Eyebrows
Tesla’s board of directors has received substantial compensation through stock awards, totaling over $3 billion, which exceeds the compensation given to directors at other major technology companies.
An analysis reveals that Elon Musk’s brother, Kimbal, has made close to $1 billion since 2004. Director Ira Ehrenpreis has earned $869 million since 2007, and board chair Robyn Denholm has made $650 million since 2014.
These payments came even though the board suspended new stock grants starting in 2021 to settle a shareholder lawsuit alleging excessive pay. Still, between 2018 and 2020, Tesla directors made an average of $12 million each in cash and stock. That’s a lot more than the average director at Alphabet, who was the next highest-paid among similar tech companies during that time.
The value of these initial stock awards grew as Tesla’s stock price increased, similar to other big tech companies. However, Tesla stands out because the size of its directors’ original stock awards played a bigger role in their wealth compared to other companies. Even with the pay suspension, Tesla directors’ average compensation between 2018 and 2024 was higher than that of Meta directors, who were the next highest-paid.
A Tesla spokesperson stated that the directors’ compensation is linked to the company’s stock performance and the value it creates for shareholders. They also said that board members dedicate a lot of time and effort to Tesla, attending many meetings.
Tesla’s board has paid itself in stock options instead of shares, raising concerns among some corporate-governance specialists. Stock options give directors the right to buy the company’s stock at a fixed price after a period. If the stock price goes up, they can buy the shares at a discount and sell them for a profit. If the stock price goes down, they don’t have to buy the stock, so they face no risk.
Some experts believe that directors should be paid in shares instead of options. That way, their interests would align better with shareholders, because if the company’s stock price drops, the value of their holdings also drops.
The Tesla spokesperson said that options create a stronger incentive for directors because they only get paid if the stock rises.
Corporate-governance experts worry that the Tesla board’s high compensation could affect how well they oversee Tesla and its CEO, Elon Musk.
“Tesla directors are ridiculously overpaid,” said Douglas Chia, a corporate-governance consultant.
Charles Elson, the founding director of a corporate-governance institute, suggests paying directors in restricted stock, which becomes available after a certain time. This would better align their interests with shareholders. He also said that options tend to increase returns more dramatically.
In addition to the shareholder lawsuit, a court ruling last year challenged the pay package the board gave Musk in 2018, which is now worth $132 billion. The judge found that the board members’ high compensation and ties to Musk affected CEO-pay negotiations. The board is appealing the decision and has promised Musk a new package worth at least $42 billion if they lose.
The board has proposed a new compensation package for Musk that could give him up to $1 trillion in Tesla stock over the next decade, worth about $878 billion after subtracting what Musk must pay for the shares.
Despite having pay suspended for most of the time, Tesla directors averaged $1.7 million annually from 2018 through 2024. Meta was next highest at nearly $685,000, while Amazon was lowest at about $307,000.
The total compensation paid to Tesla’s directors was more than $3 billion.
All five well-compensated Tesla directors have cashed out options. James Murdoch has cashed out the lowest amount, nearly $81 million, while board chair Denholm has cashed out the highest, at about $595 million, or 91% of her total compensation.
Tesla’s generous stock-option grants could make it harder for directors to oversee the company and its CEO because they might be afraid to point out problems and lose their board seat, according to experts.
Robyn Denholm and Kathleen Wilson-Thompson, two Tesla board members on a committee to create Musk’s latest pay package, have both said that Tesla compensation makes up most of their wealth.
Denholm, who advises Musk from Australia, has called her Tesla compensation “life-changing.” She has used her earnings to invest in startups and basketball teams in Australia.
She has also led efforts to convince shareholders to approve Musk’s compensation packages, warning that Musk might leave the company if they didn’t.
Wilson-Thompson has made $234 million in seven years.
Experts say that directors’ independence is at risk when their board seat provides much higher compensation than normal or represents their largest source of wealth, as is the case for Denholm and Wilson-Thompson.
Chia said that there’s nothing about Tesla that suggests its directors deserve much higher pay than others.
