Tesla’s board of directors’ decision to give CEO Elon Musk a $29 billion equity package has sparked a heated discussion over corporate governance. The SOC Investment Group has already reacted negatively to the prize, known as the “2025 CEO Interim Award,” and has publicly asked Nasdaq to look into any listing rule violations.
The controversy highlights a long-standing dilemma surrounding Tesla: does Musk’s pay reflect his special contribution to the company’s success, or does it draw attention to structural issues with board independence and shareholder oversight?
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The 2025 CEO Interim Award Explained
The board of Tesla authorised a “first step, good faith payment” to Musk earlier this month. In order to act as a stopgap measure, the package is set up as a stock grant that will vest in 2027.
However, the reward ought to have been presented to shareholders, according to SOC. According to Nasdaq regulations, a shareholder vote is necessary for significant adjustments to CEO compensation plans, particularly when the award is for billions of dollars.
“When shareholders voted on the 2019 Plan, they did not believe they were voting on an equity plan that would cover compensation to Mr. Musk,” the SOC cautioned Nasdaq in a letter dated August 19 about Tesla’s violations of transparency regulations.
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The Legacy of the 2018 Performance Award
The interim grant is not being given out in a vacuum; it has a direct connection to Musk’s 2018 CEO Performance Award, which was originally estimated to be worth $56 billion and was considered by many to be the biggest executive compensation package in history.
With that award, Musk was offered stock options in tranches provided Tesla met aggressive growth targets. The plan would be Musk’s sole source of remuneration, according to the statement sent to shareholders.
However, the award was entangled in legal issues in the years that followed. Tesla’s board was criticised for lacking independence, and the Delaware Chancery Court twice declared the scheme unconstitutional. The Supreme Court of Delaware is now considering the matter.
Tesla’s new $29 billion package won’t go into effect unless the court maintains the ruling that invalidated the 2018 plan. It is, in effect, a contingency award.
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Terms and Conditions of the Interim Package
Tesla has made it clear that the 2018 plan is more expansive than the interim package. Important prerequisites consist of:
- Vesting Period: In the event that Musk remains in a leadership role, shares will vest in August 2027.
- Eligible Roles: Musk is eligible to continue serving as CEO if he is also chief of operations or chief of product development.
- Sale Restrictions: Until August 2030, Musk is unable to sell vested shares.
- No Performance Metrics: The interim grant does not link incentives to stock price goals or corporate performance, in contrast to the 2018 award.
The lack of quantifiable objectives has stoked criticism. The term “fog-the-mirror grants” is occasionally used by experts to describe such packages—awards given merely for remaining in place.
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SOC’s Objections: Transparency and Shareholder Rights
The proposed package is being strongly opposed by the SOC Investment Group, which represents union pension funds with more than two million members. Process, not structure, is the main point of contention for them.
SOC contends that by neglecting to call for a vote, Tesla’s board circumvented shareholders and violated Nasdaq’s rules. During the initial approval of the 2019 equity plan, the group also expressed concerns regarding deceptive disclosures.
“The original plan was clear in its disclosures that Musk was not included,” said Tejal Patel, executive director of SOC. We currently witness an incompetent board making decisions behind closed doors.
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Questions About Tesla’s Board Independence
Tesla’s board independence has come under renewed scrutiny as a result of the incident. Long-standing concerns about the board’s impartiality have been stoked by Musk’s close relationships with several of its members, such as media mogul James Murdoch and his brother Kimbal Musk.
According to SOC, Tesla’s directors wasted a chance to tie Musk’s compensation deal to a renewed dedication to the company, particularly in light of his expanding roles at other companies including SpaceX, Neuralink, and X (previously Twitter).
The part that lets Musk get the deal without being the CEO is even more controversial. This weakens accountability, according to critics, and makes it challenging to gauge Musk’s direct impact on Tesla’s success.
A History of Resistance from SOC
This is not the first time SOC and Tesla have clashed. The group, which was formerly known as CtW Investment Group, has frequently criticised Tesla’s governance procedures. Throughout time, it has:
- Campaigned against Musk’s 2018 pay package.
- Urged shareholders to oppose the re-election of directors including Kimbal Musk and James Murdoch.
- Pressured Tesla on labour rights, urging adoption of stronger union policies.
- Questioned Tesla’s proposals to reduce the size of its board, arguing such moves concentrate power.
In its most recent letter, the SOC cautions that Tesla may further circumvent shareholder rights by issuing more interim awards while the Delaware case is still pending.
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Broader Implications for CEO Compensation
The Musk pay controversy contributes to a broader discussion in America around CEO compensation.
Supporters contend that because of Tesla’s explosive growth under Musk’s direction, he should get special compensation. With a valuation of hundreds of billions of dollars, the firm has emerged as the world’s top producer of electric vehicles. According to this viewpoint, Musk’s compensation is directly related to the company’s extraordinary growth.
Opponents argue that pay ought to be based on performance rather than just tenure. They contend that giving Musk billions of dollars just for remaining on board compromises accountability and creates a risky precedent for corporate governance.
The complaint was summed up by Brian Dunn, head of Cornell’s Institute for Compensation Studies: “You get them if you’re around and have enough breath left in you to fog the mirror.”
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The Role of Nasdaq and Regulators
SOC’s peculiar petition to the Nasdaq underscores how serious its issues are. The Securities and Exchange Commission (SEC) is usually the venue for disputes involving executive compensation. But in this instance, SOC thinks Tesla’s actions are a clear violation of the Nasdaq listing criteria, which are guidelines designed to safeguard investors by guaranteeing shareholder participation on CEO compensation.
The decision by Nasdaq to step in could set a new norm for how stock exchanges enforce governance requirements among well-known corporations. A move like that would have an impact on corporate America.
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Tesla’s Silence Amid the Controversy
Tesla has not yet made a public statement regarding the SOC letter. Additionally, the corporation didn’t reply to questions from media sites like Fortune.
Investors are left to speculate about Tesla’s approach due to this quiet. Some anticipate that Tesla won’t discuss the latest award until after the Delaware Supreme Court rules on the 2018 plan. Others think Tesla would try to defend the temporary licence by arguing that it’s essential to keep Musk’s attention while the law is unclear.
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Conclusion
Elon Musk’s $29 billion equity package from Tesla has once again put the business at the centre of the controversy around shareholder rights, board independence, and executive compensation.
The reward acts as a buffer against Musk losing his initial 2018 compensation plan. It is a concerning example of a strong CEO being given preferential treatment by a board that is unable to exert appropriate monitoring, according to opponents.
As the Delaware Supreme Court considers its decision and the Nasdaq examines SOC’s lawsuit, Tesla is at a turning point. Musk’s personal wealth will be shaped by the outcome, which will also have long-term effects on corporate governance norms.