Explainer: Inside Elon Musk’s $1 trillion equity pay package

How Tesla’s shareholders backed the world’s biggest CEO payout and what it says about equity-linked power

Last Updated: Nov 07, 2025, 16:24 IST7 min

Tesla CEO Elon Musk Image: Patrick Pleul/Pool via Re...

At the company’s annual meeting in Austin, Texas, shareholders of the electric vehicle manufacturer Tesla voted to approve a compensation plan for CEO Elon Musk that could be worth up to $1 trillion in company shares over the next decade.

The meeting, held on Thursday (local time), saw more than 75 percent of participating shareholders supporting the proposal.

What Is Equity-Based CEO Pay?

Unlike traditional salaries or bonuses, equity-based pay ties a CEO’s earnings to the company’s stock performance and operational goals. These packages typically include:

Restricted Stock Units (RSUs): Shares granted that vest over time or upon achieving performance goals.
Stock Options: The right to buy company stock at a fixed price in the future.
Performance Shares: Equity awarded only if specific financial or operational milestones are met.

Such pay structures are designed to align a CEO’s interests with those of shareholders, such as rewarding success and penalising underperformance.

Equity-based Pay vs Salary/Bonus Pay Packages

Salary is a fixed cash payment, paid regularly regardless of company performance.

Bonus is additional cash (or other perks) awarded typically based on short-term performance (such as annual or quarter targets).

Equity-based pay ties the executive’s reward to the value of the company’s stock or long-term performance. It is designed to align the CEO’s interests with those of shareholders. So, in theory, if the company’s value goes up, so does the CEO’s wealth.

Because it’s linked to long-term performance, equity pay is often seen as a retention tool that ensures the executive stays on board for the vesting period or to meet milestones.

Unlike salary or bonus, equity pay can magnify gains (or losses) for the executive depending on stock price movements, market sentiment, and fulfilment of performance conditions.

Who Else Has Done This

Adam Neumann (WeWork):

Adam Neumann’s exit from WeWork is an example of how equity structures can shape control and compensation outcomes. As co-founder and former CEO, Neumann held a multi-class share structure that gave him 10 times the voting rights of ordinary shareholders. This allowed him to retain significant control even as WeWork’s $47 billion valuation fell to about $8 billion.

After stepping down in 2019, Neumann reached a settlement with SoftBank, WeWork’s largest investor, under which he received about $480 million in stock and cash, the ability to refinance $432 million in debt, and permission to sell $578 million in WeWork shares, as reported by Reuters.

Tony Xu (DoorDash):

Tony Xu, founder and CEO of DoorDash, the US-based food delivery platform, was among the highest-paid executives in 2020, with total compensation of about $414 million, according to company filings. Of this, $413 million came from stock awards linked to DoorDash’s long-term share price targets. His pay structure includes a base salary of $300,000 with stock-based rewards that depend entirely on the company’s market performance.

Ritesh Agarwal (OYO Hotels & Homes):

In India, Ritesh Agarwal, founder and CEO of OYO Hotels & Homes, received Rs 5.6 crore in FY22 as the firm’s revenue rose 18 percent to Rs 4,905 crore and its net loss narrowed 45 percent to Rs 1,851 crore. This was up from Rs 1.6 crore in FY21 and Rs 21.5 lakh in FY20, according to the company’s filings with SEBI as part of its disclosures ahead of a planned IPO.

During the same period, OYO reported Rs 260 crore in share-based payment expenses linked to employee stock options. However, unlike the large individual equity packages seen among US founders, this was a company-wide ESOP expense rather than a personal grant to Agarwal.

Tim Cook (Apple) and Sundar Pichai (Alphabet):

At Apple and Alphabet, CEO compensation is determined and reviewed by independent boards. Tim Cook earned about $74.6 million in 2024, including a $3 million salary, $10.7 million in cash incentives, and around $60 million in stock awards, according to Apple’s proxy filing. Sundar Pichai’s pay dropped sharply to $10.72 million in 2024, down from $226 million in 2022, when he received a large stock award granted every three years. His base salary remained $2 million, with the rest coming from stock-related income and company benefits. Both packages are tied to long-term performance and shareholder oversight, contrasting with founder-led equity plans where pay and control are closely linked.

Elon Musk’s Share in Tesla

As of Tesla’s latest quarterly filing for September 2025, Elon Musk remains the company’s largest individual shareholder. He directly and indirectly owns about 411 million Tesla shares, representing roughly 12.9 percent of the company’s 3.33 billion outstanding shares.

His ownership has declined steadily from around 22 percent in 2016 and 17 percent in 2020, largely because of share sales to fund other ventures, including his 2022 purchase of Twitter (now X), and due to dilution from new stock issuance. However, the newly approved 2025 CEO performance and interim stock awards could significantly increase his stake, potentially restoring it to over 25 percent. Major institutional investors such as Vanguard and BlackRock each hold smaller positions, generally between 5 and 7 percent.

The Musk Model: How the $1 Trillion Package Works

This new plan is similar to Musk’s 2018 pay deal, which was valued at $56 billion but never fully realised due to legal challenges. The updated package is divided into 12 tranches. Each tranche represents about 1 percent of the total shares and vests only when both a market cap and operational milestone are met. Here is what Elon Musk's pay package entails:

Market cap milestones: Musk’s new compensation plan is divided into 12 tranches. Each tranche unlocks only when Tesla meets a specific set of goals. Tesla’s current market value is about $1.5 trillion. Musk does not earn anything from this new pay package until Tesla’s market value reaches $2 trillion. After that, every time the company’s value increases by another $500 billion, another portion of his compensation becomes available. The final goal is for Tesla to reach a total value of $8.5 trillion by 2035.

Adjusted EBITDA goal: Tesla must generate $400 billion in adjusted core profit (EBITDA) over four consecutive quarters to unlock the final parts of Musk’s pay package.

Delivery of 20 Million Vehicles: By 2035, Tesla must cumulatively produce 20 million vehicles. The company has built just over 8 million to date, meaning Musk must oversee an additional 12 million units, roughly 150 per cent more than Tesla’s lifetime output so far. This translates to producing around 2 million vehicles annually.

One Million Robotaxis: Tesla must have 1 million self-driving robotaxis in commercial operation for at least three consecutive months. Currently, pilot fleets in Austin number only in the hundreds.

One Million Optimus Humanoid Robots: The company must deliver one million units of its humanoid robot, Optimus, priced at roughly $20,000 each. These machines are still in prototype stages.

10 Million Full Self-Driving (FSD) Subscriptions: Tesla must reach an average of 10 million FSD subscriptions over three consecutive months. As of early 2025, only about 12 percent of Tesla owners used the FSD service.

CEO Succession Plan: Two of the final stock tranches require Tesla’s board to establish and approve a CEO succession plan. While details remain undisclosed, the condition prevents Musk from retaining unvested shares indefinitely if he steps down.

Musk Must Remain CEO: Elon Musk must remain CEO or hold another executive position to receive each tranche. If he exits Tesla before the 10-year period ends, unvested shares are forfeited, except under specific circumstances like a change of control.

Tesla has publicly said Musk will receive no salary or bonus under the plan; the value is entirely via shares unlocked by performance.

Why Tesla Shareholders Want Musk’s Pay in Equity

In 2024 Tesla recorded its first annual decline in global vehicle deliveries in over a decade, with sales down about 1.1 percent, selling 1.79 million units compared to 1.81 million-plus sold the year prior. In the first quarter of 2025 the drop was sharper with Tesla’s deliveries falling around 13.5 percent year-on-year. This fall was attributed to a combination of weakened demand, intensified competition in the EV market, and of Musk’s political involvement. Musk faced criticism for diverting attention to X, the US Presidential elections, and later the Department of Government Efficiency (DOGE).

In April this year, Reuters reported that seven state treasurers warned Tesla’s board that Musk’s “external commitments raise serious questions about whether Tesla’s leadership is fully engaged in addressing the company’s core challenges”.

Amid this, Tesla’s board and key investors see Elon Musk’s equity-based package as a way to keep him focused on Tesla’s growth. Cathie Wood, CEO of ARK Invest, a major institutional backer of Tesla, defended the plan on X. “I do not understand why investors are voting against Elon’s pay package when they and their clients would benefit enormously if he and his incredible team meet such high goals,” Woods wrote.

What Happens If Tesla Falls Short?

If Tesla reaches, say, a $3.5 trillion valuation, delivers 15 million vehicles, and achieves 500,000 robotaxis, Musk would still be entitled to multiple tranches which will still be worth tens of billions of dollars.

First Published: Nov 07, 2025, 16:38

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Vasudha Mukherjee

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