Asger Risom
Elon Musk has officially begun working toward the enormous $1 trillion compensation package Tesla shareholders approved earlier this month — the first deal of its kind anywhere in corporate America.
Elon Musk has officially begun working toward the enormous $1 trillion compensation package Tesla shareholders approved earlier this month — the first deal of its kind anywhere in corporate America. The plan is structured to reward Musk only when Tesla hits a series of steep financial and operational milestones, and at a glance it looks like an almost impossible ladder to climb.
But a closer look at how the package actually works shows something different: the hardest goals may be out of reach, while a pair of built-in loopholes could let Musk earn a major payout even if Tesla’s long-promised breakthroughs never materialize. The end result could leave investors celebrating a record-setting pay plan that ultimately delivers very little value back to them.
How the massive pay plan works
Tesla’s new program is built around 12 performance tranches. Each one unlocks when two things happen: Tesla hits a specific market valuation target and meets one of a dozen operational milestones. Every time Musk clears both requirements, he receives about 35 million Tesla shares — roughly 1% of the company — helping move him toward his stated goal of owning more than a quarter of the business.
The valuation targets begin at $2 trillion and rise in $500 billion steps to a peak of $8.5 trillion. The operational goals range from cumulative vehicle deliveries to profitability levels to ambitious targets for robotaxis, humanoid robots, and software subscriptions.
To reach the full $1 trillion headline figure, Musk would need to hit every valuation level and all 12 operational milestones — a scenario that would push Tesla past today’s most valuable tech giants and require multiple business lines that barely exist today to suddenly become world-leading.
The highest goals are so ambitious they may be unreachable
Several of Tesla’s required operational milestones would demand massive breakthroughs in areas where the company is still struggling to get out of the prototype phase. One target calls for an active fleet of one million robotaxis, even though only a small pilot exists in Austin and the broader industry has only a few thousand vehicles deployed. Another bundle of milestones requires Tesla to hit dramatic gains in profitability at a time when its earnings have been shrinking, not increasing.
The valuation side is equally daunting. Tesla already trades at earnings multiples far above other automakers and most tech firms. Even reaching the second-lowest target — $2.5 trillion — would require the stock to rise by roughly 85% on top of already optimistic expectations.
Put together, the upper half of the pay plan is so extreme that many analysts see little chance Tesla will ever come close.
But the easy milestones look surprisingly achievable
The real twist in the plan lies at the bottom of the ladder. Two specific details could allow Musk to unlock a major payout even if Tesla never comes near the toughest targets.
The first loophole is tied to the cumulative vehicle deliveries milestone. The plan doesn’t require Tesla to sell 20 million cars from scratch. Instead, it counts every Tesla ever sold toward the goal. With about eight million already delivered, Musk needs only 12 million more — a number Tesla could reach within six years by growing deliveries modestly to about two million vehicles annually.
The second loophole is the “once achieved, always achieved” rule. If Tesla ever reaches a $2 trillion market valuation for the required six-month period, that milestone is permanently locked in — even if the stock later falls below that level. The same applies to any operational milestone.
This means Musk could receive a large award even if Tesla’s long-term performance stagnates or reverses after briefly touching the valuation threshold.
How the numbers could play out
If Musk steers Tesla’s valuation past $2 trillion at any point, and the company reaches the 20 million cumulative vehicle milestone, he would earn the first tranche of the grant. Even if Tesla’s stock later drifted back to around $585 by the end of the program, Musk would still pocket roughly $8.9 billion based on the appreciation from the plan’s effective strike price.
For comparison, that payout — covering one tranche of a plan unlikely to ever hit the upper tiers — would eclipse or rival the total annual compensation of nearly every major tech CEO.
Shareholders, however, would see only modest long-run returns. A rise from $334 to $585 over a decade amounts to roughly 6% annual growth — barely better than inflation, and far below what long-term investors expect from a company built on promises of revolutionary new businesses.
A skewed outcome that could leave investors frustrated
The contrast is stark: Musk could earn billions even if Tesla’s share price barely moves over the coming decade, while the stock-based compensation would dilute the ownership of existing shareholders. Meanwhile, failing to unlock the higher tiers of the plan could leave Musk with less control than he clearly wants — creating the risk of a CEO who feels shortchanged by the very pay package meant to keep him focused.
For Tesla investors, the plan now enters a long waiting period to see which path the company follows — the moonshots Tesla has been promising for years, or a far more modest outcome where the only clear winner is the CEO.
Sources: Fortune
