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The compensation saga of Tesla’s Elon Musk is under the spotlight once again. On Friday, Tesla announced in an SEC filing that the Company is proposing to grant its CEO Elon Musk an equity award that could make him a trillionaire. This new grant, subject to shareholder approval, comes off the heels of Tesla granting Musk an “interim” award in August while his 2018 equity grant goes through the courts.
In light of the news, Equilar examined the key elements from Musk’s 2018 pay package and the latest award from Tesla, highlighting the differences in plan details and target performance goals.
The 2018 options granted to Elon Musk were ordered to be rescinded by the Delaware Chancery Court. The court ruled that Tesla’s shareholders were not fully informed about the 2018 options at the time they were granted. The award, consisting of 303 million options, was considered unprecedented at the time. Not just because of its large grant date fair value (making it the largest equity grant at the time) but because of its vesting structure. The options would only vest if lofty performance goals were met. The award was split into 12 different tranches. Each tranche would only vest if (1) a market capitalization goal was reached, and (2) a corresponding revenue or adjusted EBITDA goal was reached. The full award was earned in early 2023.
The latest award for Musk mirrors the 2018 award, asking for ambitious goals to be achieved in order for him to realize any value. Similar to the 2018 package, this new award is split into 12 different tranches that will vest if the combination of a market cap goal and a corresponding goal is met. While the 2018 award asked Musk to raise Tesla’s market cap from $54 billion to $650 billion, the 2025 award will only vest in full if the Company’s market cap jumps from roughly $1 trillion to $8.5 trillion.
Market Cap Goals (2018 vs. 2025)
| 2018 Award | 2025 Award | |
|---|---|---|
| Market Cap at Time of Award | ~$54B | ~$1T |
| Goal #1 | $100B | $2T |
| Goal #2 | $150B | $2.5T |
| Goal #3 | $200B | $3T |
| Goal #4 | $250B | $3.5T |
| Goal #5 | $300B | $4T |
| Goal #6 | $350B | $4.5T |
| Goal #7 | $400B | $5T |
| Goal #8 | $450B | $5.5T |
| Goal #9 | $500B | $6T |
| Goal #10 | $550B | $6.5T |
| Goal #11 | $600B | $7.5T |
| Goal #12 | $650B | $8.5T |
The 2018 award set out to grow Tesla by $600 billion in market cap, while the 2025 award aims to grow the Company by $7.5 trillion. That would impart considerable value to shareholders of Tesla as the stock price would need to grow by about 6x, if share counts remain constant. If fully vested, Musk’s combined holdings in Tesla would make him a trillionaire.
In order for Musk to vest in any tranche, a corresponding operational milestone needs to be met. In 2018, that consisted of revenue and adjusted EBITDA. Now, the adjusted EBITDA goals are still there but product goals are being introduced in place of revenue goals. These are aimed to be strategic, ensuring Tesla continues to innovate and deliver products its consumers and the market desire. The last two tranches of the 2025 award are also only earned if Musk develops a CEO succession plan.
Other Performance Goals (2018 vs. 2025)
| 2018 Award * | 2025 Award ** |
|---|---|
| $1.5B Adjusted EBITDA | $50B Adjusted EBITDA |
| $3B Adjusted EBITDA | $80B Adjusted EBITDA |
| $4.5B Adjusted EBITDA | $130B Adjusted EBITDA |
| $6B Adjusted EBITDA | $210B Adjusted EBITDA |
| $8B Adjusted EBITDA | $300B Adjusted EBITDA |
| $10B Adjusted EBITDA | $400B Adjusted EBITDA *** |
| $12B Adjusted EBITDA | $400B Adjusted EBITDA *** |
| $14B Adjusted EBITDA | $400B Adjusted EBITDA *** |
| $20B Revenue | 20M Tesla Vehicles Delivered |
| $35B Revenue | 10M Active FSD Subscriptions |
| $55B Revenue | 1M Bots Delivered |
| $75B Revenue | 1M Robotaxies in Commercial Operation |
| $100B Revenue | |
| $125B Revenue | |
| $150B Revenue | |
| $175B Revenue |
*Only 12 of the 16 milestones needed to be achieved
**The 11th and 12th tranches only become earned if Elon Musk also develops a framework for CEO succession
***$400 billion in adjusted EBITDA needs to be met in three non-overlapping periods for these milestones to be achieved
While the latest proposed award is similar to the 2018 award in many ways, there are also considerable differences between the two. Having reviewed the 2018 options, Tesla’s board added additional shareholder protections to the 2025 award. While the old award vested upon achievement of milestones, the new award will only vest after 7.5 years and 10 years, if milestones are met and Musk is still employed by the Company at the time. This guarantees Musk will remain with the Company in the long run and discourage him from leaving once shares are earned. The latest award will also be granted in the form of restricted stock as opposed to options, as the 2018 award was. However, the value Musk ultimately receives will also be reduced by the product of $334.09 (Tesla’s stock price on September 3, 2025) and the number of vested shares, mirroring the effects of an exercise price.
Key Award Differences
| Award Component | 2018 Award | 2025 Award |
|---|---|---|
| Award Vehicle | Options | Restricted Stock |
| Vesting of Tranches | Upon achievement of milestones |
Any tranches earned before the fifth anniversary of the grant date will vest after 7.5 years of the grant date
Any tranches earned thereafter will vest on the 10th anniversary of the grant date |
| Reduction of Value Upon Vesting | Pay an exercise price of $23.33 per each option exercised | Reduced by the product of $334.09 multiplied by the number of shares being vested |
| Voting Power | Upon options being exercised | Upon shares being earned |
| Holding Period | Five years after vesting | Five years after being earned |
The biggest difference between the two awards is voting power. The 2018 options didn’t allow Musk any additional voting rights until the options were exercised. However, with the 2025 award, Tesla and Musk entered into a voting agreement by which Musk will be able to vote with earned shares once milestones are achieved, regardless of whether the shares have vested or not. Usually shares only receive voting power upon vesting, but this new structure will allow Musk to reach his desired 25% ownership of Tesla quicker.
This latest equity award is bound to be controversial and possibly challenged in the courts, similar to the 2018 award. However, as the 2018 award was ratified for a second time by Tesla’s shareholders last year, the recent grant stands a good chance of receiving approval. With an estimated fair value of $87.8 billion, combined with the estimated fair value of $26.1 billion for the equity award granted to Musk in August, his 2025 pay package would be the largest for a CEO in U.S. history. If successful, Elon Musk will deliver tremendous value to both the Company and its shareholders.
Director of Research
Courtney Yu, Director of Research at Equilar, authored this post. Please contact Amit Batish, Sr. Director of Content & Communications, at abatish@equilar.com for more information on Equilar research and data analysis.
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