An in-depth review highlights the substantial financial gains secured by the board of directors at Tesla, primarily through stock-based compensation, drawing comparisons with leading technology enterprises. This examination delves into the structure of these awards, their value appreciation, and the broader implications for corporate oversight and accountability.Unprecedented Riches: Tesla Directors' Compensation Under Scrutiny
Tesla Board Members Amass Billions from Stock Incentives
An extensive analysis, conducted by compensation and governance firm Equilar for Reuters, reveals that the directors on Tesla's board have collectively accumulated more than $3 billion from stock incentives. This figure vastly exceeds the remuneration packages provided to their counterparts on the boards of the largest U.S. technology companies at the time of their issuance. Notably, CEO Elon Musk's sibling, Kimbal, has accrued nearly $1 billion since 2004, while director Ira Ehrenpreis and board chair Robyn Denholm have garnered $869 million and $650 million, respectively, through the appreciation of stock options held or sold.
Compensation Pause and Skyrocketing Valuations
Despite these substantial earnings, the directors have not received new stock grants since 2020. This hiatus was a result of a shareholder lawsuit alleging excessive board member compensation, leading the board to suspend director pay from 2021 onwards. However, between 2018 and 2020, the average Tesla director received approximately $12 million in combined cash and stock, a sum roughly eight times higher than the average director at Alphabet, the next highest-paid among the "Magnificent Seven" tech giants during the same period. The original awards' value saw an exponential increase as Tesla's stock price surged in subsequent years, a trend also observed across other Magnificent Seven companies.
Tesla's Unique Compensation Model in the Tech Elite
The Equilar analysis underscores that Tesla stands out among the Magnificent Seven for the disproportionate influence of initial stock award sizes on the immense wealth earned by its directors from their part-time roles. Even with a four-year suspension of pay, the average Tesla director's compensation between 2018 and 2024 remained two and a half times that of Meta directors, who were the next highest-paid over this seven-year span. A Tesla representative defended this compensation, asserting it's not excessive but directly linked to stock performance and shareholder value, citing the board's significant commitment, including attending 58 meetings in 2024, well above industry averages.
The Controversial Practice of Stock Options
Tesla's board has predominantly compensated itself with stock options rather than direct share grants, a method that corporate governance experts frequently criticize. This approach amplifies directors' potential upside without exposing them to the downside risks associated with direct stock ownership. While Tesla directors have exercised options worth tens or hundreds of millions, they also retain substantial holdings. Stock options grant the right to purchase company stock at a predetermined price after a specified period, meaning holders incur no loss if the stock declines but can profit significantly if it appreciates by buying at a discount and immediately selling.
Aligning Interests: Shares vs. Options
Many governance specialists advocate for compensating directors with actual shares to better align their interests with those of shareholders. Direct share ownership means a director's holdings diminish in value if the company's stock price falls, unlike options. According to the National Association of Corporate Directors, only about 5% of the largest S&P 500 companies by revenue issue options to their directors. Tesla, however, argues that options provide a more "at-risk" incentive, as directors are only rewarded if the stock price increases, contrasting with share recipients who retain some value even if prices drop.
Oversight Concerns and Director Independence
Four corporate governance experts, after reviewing Equilar's findings, expressed concerns that the extraordinary compensation of Tesla's board undermines their independence in overseeing the company and its CEO, Elon Musk. Douglas Chia of Soundboard Governance LLC labeled Tesla directors as "ridiculously overpaid," questioning if such high pay genuinely incentivizes superior performance. Charles Elson, from the University of Delaware's corporate-governance institute, suggested restricted stock with a vesting period as a better alternative to options, as it more closely aligns directors' interests with shareholders who face both gains and losses.
Musk's Compensation and Board Accountability
Beyond the shareholder lawsuit concerning director pay, the Tesla board faced scrutiny last year from a Delaware court, which invalidated Musk's 2018 pay package (valued at $132 billion at current stock prices). The court cited excessive compensation and personal ties among board members as compromising CEO-pay negotiations. The board has appealed this decision and promised Musk a replacement package worth at least $42 billion if the appeal fails. In September, the board proposed a new compensation plan for Musk that could award him up to $1 trillion in Tesla stock over the next decade, solidifying his position as the highest-paid CEO in history.
Magnificent Seven Directors' Financial Landscape
Equilar's analysis of cash and stock compensation for Magnificent Seven directors from 2018 to 2024 revealed that Tesla directors averaged $1.7 million annually, despite their pay being suspended for most of this period. Meta followed with nearly $685,000, while Amazon was the lowest at about $307,000. Equilar also assessed the lifetime compensation of all current Magnificent Seven directors, including the appreciated value of all shares or options held or sold. Tesla's total of over $3 billion was distributed among five of its eight current non-executive members, with the remaining three joining after the pay suspension. Shareholder approval for director compensation after 2023 is still pending, as mandated by the lawsuit settlement.
Cashing Out: Directors' Realized Gains
All five long-serving Tesla directors have converted options into cash. James Murdoch has liquidated the lowest amount, approximately $81 million, while board chair Denholm has cashed out the most, around $595 million, representing 91% of her total compensation. Similar substantial gains were observed among board members of other Magnificent Seven firms as their company values soared. However, comparing lifetime compensation across companies is complex due to varying lengths of service and the challenge of distinguishing personal stock purchases from compensation-related awards, especially for transactions predating 2003 regulatory requirements.
Transparency and Personal Investments
While Equilar couldn't trace personal stock purchases by directors before 2003, all such transactions by Tesla board members are publicly disclosed, as none joined before these regulations. The examination revealed that two Tesla board members, Denholm and Kathleen Wilson-Thompson, made relatively minor personal stock purchases, worth approximately $6.8 million and $2.5 million, respectively, if still held. These amounts constitute about 1% of their estimated lifetime compensation. Alphabet, Meta, and Apple confirmed some directors' purchases but declined further comment on compensation, while Nvidia, Microsoft, and Amazon withheld comments.
The 'Special' Case of Tesla Directors
Unlike Tesla, no other Magnificent Seven firm has faced legal challenges concerning excessive compensation. Governance experts interviewed by Reuters confirmed that stock awards at the other six tech giants were consistent with industry standards at the time of their grants. The experts suggest that Tesla's unusually generous stock-option grants could compromise directors' oversight by discouraging them from raising concerns to avoid jeopardizing their board positions. They contrasted this with cases like Nvidia, where initial compensation was within norms, and the substantial value appreciation occurred over long tenures marked by transformative company growth.
Key Figures in Tesla's Compensation Debates
Denholm and Wilson-Thompson, who served on the committee that drafted Musk's latest pay package, have both stated that their Tesla compensation forms the vast majority of their wealth. Denholm, a former accounting executive advising Musk from Australia, described her Tesla earnings as "life-changing," using them to seed her family investment firm. She has actively campaigned for Musk's compensation packages, often implying his potential departure could negatively impact the stock. Wilson-Thompson, a former human resources executive, has accumulated $234 million in seven years, according to Equilar. Both declined interview requests. Governance experts emphasize that director independence is severely compromised when a board seat offers significantly above-average compensation or becomes a director's primary source of wealth, conditions that apply to Denholm and Wilson-Thompson. Chia questions why Tesla directors merit such exceptionally high pay, asserting that their role is fundamentally similar to that in any other public company.
