DEF 14A of Tesla, Inc.

Filed Apr 29, 2024 · FY20230001104659-24-053333

Open on EDGAR

Nominees for Class II Directors
Nominees for Class II Directors Two candidates have been nominated for election as Class II directors at the 2024 Annual Meeting for a three-year term expiring in 2027. Upon recommendation of the Nominating and Corporate Governance Committee, the Board has nominated James Murdoch and Kimbal Musk for election as Class II directors. Biographical information about each of the nominees is contained in the following section. A discussion of the qualifications, attributes and skills of each nominee that led the Board and the Nominating and Corporate Governance Committee to the conclusion that he should be elected or continue to serve as a director follows each of the director and nominee biographies. If you are a stockholder of record and you sign your proxy card or vote by telephone or over the Internet but do not give instructions with respect to the voting of directors, your shares will be voted “FOR” the election of Messrs. Murdoch and Musk. Each of Messrs. Murdoch and Musk has accepted such nomination; however, in the event that a nominee is unable or declines to serve as a director at the time of the 2024 Annual Meeting, the proxies will be voted for any nominee who shall be designated by the Board to fill such vacancy. If you wish to give specific instructions with respect to the voting of directors, you may do so by indicating your instructions on your proxy card or when you vote by telephone or over the Internet. If you are a beneficial owner holding your shares in street name and you do not give voting instructions to your broker, bank or other intermediary, that organization will leave your shares unvoted on this matter.
Nominees for Class II Directors
| | The Board recommends a vote FOR the Tesla proposal for the election of Kimbal Musk and James Murdoch. |
Nominees for Class II Directors
Information Regarding the Board and Director Nominees The names of the members of the Board and Tesla’s director nominees, their respective ages, their positions with Tesla and other biographical information as of April 29, 2024, are set forth below. Except for Messrs. Elon Musk (“Mr. Musk”), our Chief Executive Officer and a director, and Kimbal Musk, a director, who are brothers, there are no other family relationships among any of our directors or executive officers.
Nominees for Class II Directors
| Name | | Chair of the Board | Audit Committee | Compensation Committee | Nominating and Corporate Governance Committee | Disclosure Controls Committee | | | Elon Musk | | | | | | | | Robyn Denholm | | | | | | | | Ira Ehrenpreis | | | | | | | | Joe Gebbia | | | | | | | | James Murdoch | | | | | | | | Kimbal Musk | | | | | | | | JB Straubel | | | | | | | | Kathleen Wilson-Thompson | | | | | |
Director Bios
Director Bios
Director Bios
| ELON MUSK Age: 52 Director Since: 2004 |
Director Bios
| Career Highlights Elon Musk has served as our Chief Executive Officer since October 2008. Mr. Musk has also served as Chief Executive Officer, Chief Technology Officer and Chairman of Space Exploration Technologies Corporation, a company which develops and launches advanced rockets and spacecraft (“SpaceX”), since May 2002, served as Chairman of the Board of SolarCity Corporation, a solar installation company, from July 2006 until its acquisition by us in November 2016, served as Chief Technology Officer of X Corp, a social media company (“X”), since October 2022 and served as the Chief Executive Officer of x.AI Corp, an artificial intelligence company, since March 2023. Mr. Musk is also a founder of The Boring Company (“TBC”), an infrastructure company, and Neuralink Corporation, a company focused on developing brain-machine interfaces. Prior to SpaceX, Mr. Musk co-founded PayPal, an electronic payment system, which was acquired by eBay in October 2002, and Zip2 Corporation, a provider of Internet enterprise software and services, which was acquired by Compaq in March 1999. Mr. Musk also served on the board of directors of Endeavor Group Holdings, Inc. from April 2021 to June 2022. Mr. Musk holds a B.A. in physics from the University of Pennsylvania and a B.S. in business from the Wharton School of the University of Pennsylvania. Impact As our Chief Executive Officer, one of our founders and our largest stockholder, Mr. Musk brings historical knowledge, operational and technical expertise and continuity to the Board. Mr. Musk guided Tesla from an early-stage startup, through its IPO in 2010, to transformative growth into one of the most valuable companies in the world. Mr. Musk’s leadership and unique vision has played a key role in our mission to accelerate the world’s transition to sustainable energy. |
Director Bios
| ROBYN DENHOLM Age: 60 Director Since: 2014 Committee Membership • Audit (Chair) • Compensation • Nominating and Corporate Governance • Disclosure Controls (Chair) |
Director Bios
| Career Highlights Ms. Denholm has been Chair of the Board since November 2018. Since January 2021, Ms. Denholm has been an operating partner of Blackbird Ventures, a venture capital firm. She is also the Inaugural Chair of the Technology Council of Australia. From January 2017 through June 2019, Ms. Denholm was with Telstra Corporation Limited, a telecommunications company (“Telstra”), where she served as Chief Financial Officer and Head of Strategy from October 2018 through June 2019, and Chief Operations Officer from January 2017 to October 2018. Prior to Telstra, from August 2007 to July 2016, Ms. Denholm was with Juniper Networks, Inc., a manufacturer of networking equipment, serving in executive roles including Executive Vice President, Chief Financial Officer and Chief Operations Officer. Prior to joining Juniper Networks, Ms. Denholm served in various executive roles at Sun Microsystems, Inc. from January 1996 to August 2007. Ms. Denholm also served at Toyota Motor Corporation Australia for seven years and at Arthur Andersen & Company for five years in various finance assignments. Ms. Denholm previously served as a director of ABB Ltd. from 2016 to 2017. Ms. Denholm is a Fellow of the Institute of Chartered Accountants of Australia/New Zealand, a member of the Australian Institute of Company Directors, and holds a Bachelor’s degree in Economics from the University of Sydney, and a Master’s degree in Commerce and a Doctor of Business Administration (honoris causa) from the University of New South Wales. Impact Ms. Denholm brings nearly 30 years of executive leadership experience at both NYSE and Nasdaq listed companies, including significant risk management, financial and accounting expertise, as well as technology leadership experience. Ms. Denholm has extensive knowledge of both the automotive and technology industries, including serving as the Chief Financial Officer and Chief Operations Officer of two technology companies. |
Director Bios
| IRA EHRENPREIS Age: 55 Director Since: 2007 Committee Membership • Compensation (Chair) • Nominating and Corporate Governance (Chair) |
Director Bios
| Career Highlights Mr. Ehrenpreis has been a venture capitalist since 1996. He is a founder and managing member of DBL Partners, a leading impact investing venture capital firm formed in 2015. Previously, he led the Energy Innovation practice at Technology Partners. Mr. Ehrenpreis has served on the board and Executive Committee, including as Annual Meeting Chairman of the National Venture Capital Association (NVCA). Mr. Ehrenpreis currently serves as the Chairman of the VCNetwork, the largest and most active California venture capital organization, and as the President of the Western Association of Venture Capitalists (WAVC), the oldest venture capital organization in California. Mr. Ehrenpreis is also deeply involved in the energy technology sector. He currently serves on the National Renewable Energy Laboratory (NREL) Advisory Council, the University of Texas at Austin Energy Institute Advisory Board, and the Stanford Precourt Institute for Energy Advisory Council, and has served on the advisory boards of many industry groups, including the American Council on Renewable Energy, the Cleantech Venture Network (Past Chairman of Advisory Board) and the Stanford Global Climate and Energy Project (GCEP). He was also Chairman of the Clean-Tech Investor Summit for nine years. Mr. Ehrenpreis served for years as the Chairman of the Silicon Valley Innovation & Entrepreneurship Forum (SVIEF) and on the Advisory Board of the Forum for Women Entrepreneurs (FWE). Mr. Ehrenpreis is an inductee of the International Green Industry Hall of Fame. In 2018, the National Venture Capital Association awarded Mr. Ehrenpreis with the industry’s “Outstanding Service Award” for career contributions to the venture capital industry. In 2023, the Japan Society of Northern California honored Mr. Ehrenpreis with its 2023 Visionary Award for his “Pioneering Leadership in Impact Investing and the Global Sustainability Community.” Mr. Ehrenpreis was awarded the 2018 NACD Directorship 100 for his influential leadership in the boardroom and corporate governance community. Mr. Ehrenpreis holds a B.A. from the University of California, Los Angeles and a J.D. and M.B.A. from Stanford University. Impact Mr. Ehrenpreis is an acknowledged leader in the energy, technology, impact and venture capital industries, where he serves on several industry boards, and brings valuable insights in corporate governance, strategic growth and stockholder values. Mr. Ehrenpreis’ long tenure on Tesla’s Board also provides the Company with stability and experience as it navigates through different challenges. |
Director Bios
| JOE GEBBIA Age: 42 Director Since: 2022 Committee Membership • Audit |
Director Bios
| Career Highlights Mr. Gebbia co-founded Airbnb, Inc. in 2008 and has served on Airbnb’s board of directors since 2009. In 2022, Mr. Gebbia launched Samara, which produces fully customized, factory-made homes designed to create rental income, house family, support work from home, or bundled together, to form new types of housing communities. Mr. Gebbia received dual degrees in Graphic Design and Industrial Design from the Rhode Island School of Design, where he currently serves on the institution’s Board of Trustees. Mr. Gebbia is the Chairman of Airbnb.org, and also serves on the Olympic Refuge Foundation and leadership councils for UNHCR, Tent.org and Malala Fund. Mr. Gebbia is a sought-after speaker on design and entrepreneurship, and has been named in BusinessWeek’s Top 20 Best Young Tech Entrepreneurs, Inc. Magazine’s Thirty-under-Thirty, Fortune’s Forty-under-Forty, and one of Fast Company’s Most Creative People. Impact Mr. Gebbia has valuable experience derived from founding and leading a global public company. The Board benefits from his entrepreneurial background, as well as his experience in design, innovation, brand development and management of complex regulatory environments. |
Director Bios
| JAMES MURDOCH Age: 51 Director Since: 2017 Committee Membership • Audit • Nominating and Corporate Governance • Disclosure Controls |
Director Bios
| Career Highlights Mr. Murdoch has been the Chief Executive Officer of Lupa Systems, a private holding company that he founded, since March 2019. Previously, Mr. Murdoch held a number of leadership roles at Twenty-First Century Fox, Inc., a media company (“21CF”), over two decades, including its Chief Executive Officer from 2015 to March 2019, its Co-Chief Operating Officer from 2014 to 2015, its Deputy Chief Operating Officer and Chairman and Chief Executive Officer, International from 2011 to 2014 and its Chairman and Chief Executive, Europe and Asia from 2007 to 2011. Previously, he served as the Chief Executive Officer of Sky plc from 2003 to 2007, and as the Chairman and Chief Executive Officer of STAR Group Limited, a subsidiary of 21CF, from 2000 to 2003. Mr. Murdoch formerly served on the boards of News Corporation from 2013 to 2020, of 21CF from 2007 to 2019, and of Sky plc from 2003 to 2018. In addition, he has served on the boards of GlaxoSmithKline plc and of Sotheby’s. Impact Mr. Murdoch brings to the Board his decades of executive and board experience across numerous companies. Tesla’s Board benefits from his extensive knowledge of international markets and strategies and experience with the adoption of new technologies. |
Director Bios
| KIMBAL MUSK Age: 51 Director Since: 2004 |
Director Bios
| Career Highlights Mr. Musk is co-founder and Executive Chairman of The Kitchen Restaurant Group, a growing family of businesses with the goal of providing all Americans with access to real food that was founded in 2004. In 2010, Mr. Musk became the Executive Director of Big Green (formerly The Kitchen Community), a non-profit organization that creates learning gardens in schools across the United States. Mr. Musk also co-founded Square Roots, an urban farming company growing fresh, local greens in climate-controlled, AI equipped shipping containers, in 2016, and serves as its Chairman. In 2022, Mr. Musk founded Nova Sky Stories, with a mission to empower producers and artists to bring art to the skies with drone light shows, and serves as its Chief Executive Officer. Previously, Mr. Musk was a co-founder of Zip2 Corporation, a provider of Internet enterprise software and services, which was acquired by Compaq in March 1999. In 2006, Mr. Musk became CEO of OneRiot, a realtime search engine that was acquired by Walmart in 2011. Mr. Musk was a director of SpaceX since its founding in 2002 until January 2022, and was a director of Chipotle Mexican Grill, Inc. from 2013 to 2019. Mr. Musk holds a B. Comm. in business from Queen’s University and is a graduate of The French Culinary Institute in New York City. Impact Mr. Musk has extensive senior leadership business experience in the technology, retail and consumer markets, and a robust understanding of mission-driven ventures. Mr. Musk also provides valuable expertise based on his experience on the Tesla Board and is able to apply his unique understanding of the business to the strategy and execution of the Company. |
Director Bios
| JB STRAUBEL Age: 48 Director Since: 2023 |
Director Bios
| Career Highlights Mr. Straubel is the Founder and Chief Executive Officer of Redwood Materials Inc., a Nevada-based company (“Redwood”) working to drive down the costs and environmental footprint of lithium-ion batteries by offering large-scale sources of domestic anode and cathode materials produced from recycled batteries. Mr. Straubel also co-founded and served as the Chief Technology Officer of Tesla from May 2005 to July 2019. Mr. Straubel previously served on the board of SolarCity and as a member of its Nominating and Corporate Governance Committee from August 2006 until its acquisition by Tesla in November 2016. Mr. Straubel has served on the board of directors of QuantumScape since November 2020. Mr. Straubel holds a B.S. in Energy Systems Engineering and a M.S. in Engineering, with an emphasis on energy conversion, from Stanford University. Impact As a co-founder and one of the key members of Tesla’s leadership team for over a decade, Mr. Straubel brings extensive operational experience and in-house knowledge of Tesla’s technology, research and development and business management. Mr. Straubel also provides valuable expertise in the areas of cleantech and batteries. |
Director Bios
| KATHLEEN WILSON-THOMPSON Age: 66 Director Since: 2018 Committee Membership • Compensation Committee • Nominating and Corporate Governance • Disclosure Controls |
Director Bios
| Career Highlights Ms. Wilson-Thompson served as Executive Vice President and Global Chief Human Resources Officer of Walgreens Boots Alliance, Inc., a global pharmacy and wellbeing company, from December 2014 until her retirement in January 2021, and previously served as Senior Vice President and Chief Human Resources Officer from January 2010 to December 2014. Prior to Walgreens, Ms. Wilson-Thompson held various legal and operational roles at The Kellogg Company, a food manufacturing company, from January 1991 to December 2009, including most recently as its Senior Vice President, Global Human Resources. Ms. Wilson-Thompson has served on the board of directors of Wolverine World Wide, Inc. since May 2021 and McKesson Corporation since January 2022. She previously served on the board of directors of Ashland Global Holdings Inc. from 2017-2020 and on the board of directors of Vulcan Materials Company from 2009-2018. Impact Ms. Wilson-Thompson brings extensive executive and board experience at both consumer-focused and industrial companies. In addition, her expertise in managing human resources, employment law and other operations at mature companies with large workforces provides the Board with valuable insight and advice for workforce management and relations as Tesla continues to expand. |
Summary of the 2023 Executive Compensation Program
Summary of the 2023 Executive Compensation Program The following is a summary of some of the key points of our 2023 executive compensation program: • Tesla continues to emphasize structuring compensation incentives to reward our named executive officers based on performance. • Equity awards weigh heavily in our named executive officers’ total compensation, including awards that vest upon the achievement of clear and measurable milestones. Since these awards increase in value as our stock price increases (and in the case of stock option awards, have no value unless our stock price increases following their grant), our named executive officers’ incentives are closely aligned with the long-term interests of our stockholders. Since 2020, the last year any of our named executive officers received equity awards, except for Xiaotong (Tom) Zhu, our Senior Vice President, Automotive, who received stock option awards upon his promotion to such role, all awards that were granted to our named executive officers have been in the form of stock options. As a result, a significant portion of our named executive officers’ total compensation is entirely at risk, depending on long-term stock price performance. • Tesla has no cash bonus program for any of our named executive officers and generally does not provide any perquisites or tax reimbursements to our named executive officers that are not available to other employees. No named executive officer currently has any severance or change of control arrangement. • Each named executive officer is employed at will and is expected to demonstrate exceptional personal performance in order to continue serving as a member of the executive team. Elon Musk, our Chief Executive Officer, historically earned a base salary that reflected the applicable minimum wage requirements under California law, and he was subject to income taxes based on such base salary. However, he has never accepted his salary. Commencing in May 2019 at Mr. Musk’s request, we eliminated altogether the earning and accrual of this base salary. Consequently, 100% of Mr. Musk’s future compensation was at-risk in the form of the remaining unvested stock options under the 10-year performance-based stock option award granted to Mr. Musk in January 2018 (the “2018 CEO Performance Award”). In particular, the 2018 CEO Performance Award consisted of 12 equal tranches, each of which vested upon the achievement of a market capitalization milestone matched to one of eight revenue-based operational milestones or eight Adjusted EBITDA-based operational milestones, all of which were viewed as difficult hurdles at the time of grant. While our stockholders benefit from each incremental increase in Tesla’s performance and stock price, aligning their interests with Mr. Musk’s incentives, the tranches under the 2018 CEO Performance Award vested only upon the full achievement of specific milestones, making it even more challenging for Mr. Musk to realize value from such increases. As of the date of this proxy statement, all of the tranches have vested and become exercisable, subject to Mr. Musk’s payment of the exercise price of $23.34 per share, as adjusted to give effect to the three-for-one stock split effected in the form of a stock dividend in August 2022 (the “2022 Stock Split”) and the five-for-one stock split effected in the form of a stock dividend in August 2020 (the “2020 Stock Split”), and the minimum five-year holding period generally applicable to any shares he acquires upon exercise. See “Executive Compensation — Compensation Discussion and Analysis — Chief Executive Officer Compensation” below for more details. For detailed information about Tesla’s executive compensation program, see the “Executive Compensation” section beginning on page 123 below. Tesla believes that the information provided above and within the “Executive Compensation” section of this proxy statement demonstrates that Tesla’s executive compensation program was designed appropriately and is working to ensure management’s interests are aligned with our stockholders’ interests to support long-term value creation.
Principal Terms of the Texas Redomestication
Principal Terms of the Texas Redomestication The Texas Redomestication, if approved by our stockholders, will be effected through a conversion pursuant to Section 266 of the Delaware General Corporation Law (“DGCL”) and Title 1, Chapter 10, Subchapter C of the Texas Business Organizations Code (“TBOC”), as set forth in the plan of conversion (the “Plan of Conversion”), included as Annex A to this Proxy Statement. Approval of this Proposal Three (the “Texas Redomestication Proposal”) will constitute approval of the Plan of Conversion. Through the adoption of the Plan of Conversion, upon the Texas Redomestication: • The Company will continue in existence as a Texas corporation and will continue to operate our business under the current name, “Tesla, Inc.” • The affairs of the Company will cease to be governed by Delaware law at the time the Plan of Conversion is effective and will be subject to Texas law. See “Comparison of Stockholder Rights under Delaware and Texas Law” below. • The Company will cease to be governed by our existing charter and bylaws and will be instead subject to the provisions of the proposed Texas Certificate of Formation (the “Texas Charter”) and the proposed Texas Bylaws (the “Texas Bylaws”), forms of which are included as Annex B and Annex C, respectively, to this Proxy Statement. See “Certain Differences Between Delaware Charter and Bylaws and Texas Charter and Bylaws” below. • The Texas Redomestication will not result in any change in headquarters, business, jobs, management, properties, location of any of our offices or facilities, number of employees, obligations, assets, liabilities or net worth (other than as a result of the costs related to the Texas Redomestication). • Each outstanding share of our common stock, par value $0.001 per share (“Delaware Corporation Common Stock”), will automatically become one outstanding share of common stock, par value $0.001 per share, of the Texas Corporation (“Texas Corporation Common Stock”) pursuant to the Plan of Conversion. • Stockholders will not need to exchange their existing stock certificates for new stock certificates. • Each outstanding restricted stock unit, option or right to acquire shares of Delaware Corporation Common Stock will continue in existence and automatically become a restricted stock unit, option or right to acquire an equal number of shares of the Texas Corporation Common Stock under the same terms and conditions. Our common stock will continue to be traded on The Nasdaq Global Select Market under the symbol “TSLA.” We do not expect any interruption in the trading of our common stock as a result of the Texas Redomestication. If our stockholders approve the Texas Redomestication, we anticipate that the Texas Redomestication will become effective as soon as practicable following the 2024 Annual Meeting (the “Effective Time”). In connection with the Texas Redomestication, the Company intends to make filings with the Secretary of State of Texas and the Secretary of State of Delaware, and does not anticipate making any other filings to effect the Texas Redomestication. Nonetheless, we may face legal challenges to the Texas Redomestication, including, among others, stockholder challenges under Delaware law, seeking to prevent the Texas Redomestication. The Texas Redomestication may be delayed by the Board or the Plan of Conversion may be terminated and abandoned by action of the Board at any time prior to the Effective Time of the Texas Redomestication, whether before or after the approval by our stockholders, if the Board determines for any reason that such delay or abandonment would be in the best interests of the Company and all of its stockholders, as the case may be.
Certain Differences Between Delaware Charter and Bylaws and Texas Charter and Bylaws
| Issue | Delaware Charter | Texas Charter | | Shareholder Voting Threshold | Under the DGCL, certain matters subject to a stockholder vote, including certain business transactions including, without limitation, mergers, conversions, sales of substantially all assets, require a default vote of the holders of a majority of the outstanding shares entitled to vote thereon, unless the charter specifies a higher voting threshold. The current Delaware Charter does not include a higher voting threshold so the default voting standard for such business transactions applies. | Under the TBOC, certain matters subject to a shareholder vote, including “fundamental business transactions” such as mergers, sales of substantially all assets, and other transactions, require a default vote of 2/3 of the shareholders of each class, unless the charter specifies a lower voting threshold. Accordingly, the proposed Texas Charter contains language setting the default voting thresholds at a majority standard unless a different standard is specified elsewhere. | | Board of Directors Vacancies | The current Delaware Charter provides that vacancies on the Board can only be filled by vote of a majority of the remaining members of the Board or by a sole remaining director, and not by the stockholders. | The TBOC provides that director vacancies may be filled (1) by a vote of a majority of the remaining members of the board of directors, (2) by a sole remaining director, or (3) by a vote of holders of a majority of the outstanding shares of stock. Additionally, the TBOC prevents a board of directors from filling more than two vacancies caused by an increase in the size of the board of directors between any two annual meetings of shareholders, and any directors appointed or elected by the board of directors or shareholders to fill a vacancy can only serve until the next annual meeting of the shareholders (or special meeting called to elect directors). The proposed Texas Charter provides that director vacancies may be filled in any manner permitted by the TBOC, in each case to the extent permitted by the TBOC. | | Action by Written Consent | The current Delaware Charter prohibits stockholder action by written consent. | Under the TBOC, shareholders are required to have the option to act by written consent in lieu of a meeting, and so the proposed Texas Charter provides that shareholders may act by unanimous written consent in lieu of a meeting. This option most closely aligns with the terms of the current Delaware Charter, which prohibits shareholder action by |
Comparison of Stockholder Rights under Delaware and Texas Law
| ISSUE | DELAWARE | TEXAS | | | | remaining director elected in that manner; or (3) by the affirmative vote of the holders of the outstanding shares of the class, series, or group. | | Removal of Directors | Under the DGCL, subject to the exceptions discussed below, holders of a majority of shares then entitled to vote at an election of directors may remove a director or the entire board of directors with or without cause. Unless the certificate of incorporation provides otherwise, if the board of directors of a Delaware corporation is classified (i.e., elected for staggered terms), a director may only be removed by stockholders for cause. If a Delaware corporation uses cumulative voting and less than the entire board is to be removed, a director may not be removed without cause if the votes cast against his or her removal would be sufficient to elect him or her if then cumulatively voted at an election of the entire board of directors or, if the board of directors is classified, at an election of the class of directors of which such director is a part. Where the certificate of incorporation provides that separate classes or series of stockholders are entitled, as such a class or series, to elect separate directors, in calculating the sufficiency of votes for removal without cause of such a director, only the votes of the holders of such a class or series are considered. | Under the TBOC, subject to the exceptions discussed below or as otherwise provided by the certificate of formation or bylaws of a corporation, the holders of a majority of shares then entitled to vote at an election of directors may remove a director or the entire board of directors with or without cause. Unless the certificate of formation provides otherwise, if a Texas corporation’s directors serve staggered terms, a director may only be removed for cause. If the certificate of formation permits cumulative voting and less than the entire board is to be removed, a director may not be removed if the votes cast against the removal would be sufficient to elect him or her if cumulatively voted at an election of the entire board of directors, or if there are classes of directors, at an election of the class of directors of which the director is a part. Where the certificate of formation provides that separate classes or series of shareholders are entitled, as such a class or series, to elect separate directors, in calculating the sufficiency of votes for removal of such a director, only the votes of the holders of such a class or series are considered. | | Action by Written Consent of Directors | Under the DGCL, unless otherwise restricted by the certificate of incorporation or bylaws, the board of directors of a Delaware corporation may act without a meeting if all of the directors consent in writing. | Under the TBOC, unless otherwise provided by the certificate of formation or bylaws, a written consent stating the action taken and signed by all members of the board of directors of a Texas corporation is also an act of the board of directors. | | Action by Written Consent of Stockholders | Under the DGCL, unless otherwise provided in the certificate of incorporation, stockholders may act without a meeting, without prior notice and without a vote, with the written consent of the stockholders having not less than the minimum | Under the TBOC, shareholders may act without a meeting, without prior notice and without a vote, with the written consent of (1) all shareholders or (2) if authorized by the certificate of formation, the shareholders having at least the minimum number of votes |
Comparison of Stockholder Rights under Delaware and Texas Law
| ISSUE | DELAWARE | TEXAS | | | | quorum is present; or (4) the affirmative vote of the holders of a specified portion, but not less than the majority, of the shares entitled to vote on, and who voted for, against, or expressly abstained with respect to, the matter at a shareholders’ meeting at which a quorum is present. | | Stockholder Vote for Fundamental Business Transactions | Under the DGCL, a majority of the outstanding stock of the corporation entitled to vote thereon generally must approve fundamental changes, such as: (1) certain mergers or consolidations; (2) a sale, lease, or exchange of all or substantially all of the corporation’s assets (provided that no stockholder authorization or consent is required (A) to mortgage or pledge the corporation’s property and assets unless the certificate of incorporation so requires or (B) where the property or assets in the sale, lease or exchange is collateral that secures a mortgage or is pledged to a secured party and certain additional conditions are met); (3) dissolution; (4) conversion of a domestic corporation to other entities; and (5) transfer, domestication or continuance of a domestic corporation to a foreign jurisdiction. The certificate of incorporation may contain provisions requiring for any corporate action the vote of a larger portion of the stock or of any class or series thereof than is required by the DGCL. | Under the TBOC, unless otherwise provided for in the TBOC or the certificate of formation of a corporation, shareholders holding at least two-thirds of the outstanding shares of a class entitled to vote on the matter must typically approve fundamental business transactions such as: (1) a merger; (2) an interest exchange; (3) a conversion; or (4) a sale of all or substantially all of the corporation’s assets that is not made in the usual and regular course of the corporation’s business. The certificate of formation can provide for a different threshold of approval, but not less than a majority of the shares entitled to vote. | | Stockholder Vote for Sales, Leases, Exchanges or Other Dispositions | Under the DGCL, a Delaware corporation may sell, lease or exchange all or substantially all of its property and assets when and as authorized by a majority of the outstanding stock of the corporation entitled to vote thereon. No such approval is required, however, if the assets being sold, leased or exchanged are not all or substantially all of the corporation’s assets. There is no necessary quantifying percentage for determining whether assets constitute substantially all of a Delaware corporation’s assets. Only if | Under the TBOC, generally the sale, lease, exchange or other disposition of all, or substantially all, of the property and assets of a Texas corporation requires the approval of the holders of at least two-thirds of the outstanding shares of the corporation entitled to vote, unless the corporation’s certificate of formation sets a lower threshold (which may not be less than a majority of the voting shares). No such approval is required, however, if the transaction is made in the usual and regular course of a Texas corporation’s business. Under Texas |
Principal Terms of the 2018 CEO Performance Award To Be Ratified
Principal Terms of the 2018 CEO Performance Award To Be Ratified Under the 2018 CEO Performance Award, which is attached as Annex H, Mr. Musk was entitled to receive no salary, no cash bonuses, and no equity that would vest simply by the passage of time, all of which are standard methods for compensating executives of U.S. public companies. Instead, Mr. Musk’s only opportunity to be compensated for his effort, dedication and achievements on behalf of Tesla was a 100% at-risk performance award, consisting exclusively of stock options with tranches that would vest only if certain specified milestones were met, each of which required Tesla to achieve both a market capitalization milestone and an operational milestone, as described below. Additionally, Mr. Musk was required to hold shares that he acquired upon exercise of the 2018 CEO Performance Award for a period of five years after he exercised the underlying options — not just for a five year period after such options vested. • For the first tranche, Tesla’s market capitalization was required to increase to $100 billion and the Company needed to meet an additional operational milestone. Each subsequent tranche required not only that Tesla’s market capitalization increase by additional $50 billion increments — up to a total of $650 billion — (each, a “Market Capitalization Milestone”) but also that Tesla was required to achieve a series of previously unmet operational milestones (each, an “Operational Milestone”). The 2018 CEO Performance Award consisted of a 10-year grant of stock options with 12 potential vesting tranches, and was designed to help drive Tesla towards exceptional execution on both a top-line and bottom-line basis. For each tranche in which both milestones were achieved under the 2018 CEO Performance Award, Mr. Musk would vest in a number of stock options that corresponded to approximately 1% of Tesla’s total outstanding shares of common stock, based on the shares of Tesla’s common stock outstanding at the time of the approval of the 2018 CEO Performance Award. The 2018 CEO Performance Award was intended to further align Mr. Musk’s incentives with stockholder returns by requiring that Mr. Musk continue to hold any shares acquired through exercise of the stock options for a further five years after the option is exercised (not just for a five year period after the option vested), meaning that Mr. Musk was not only incentivized to achieve remarkable results to earn his incentive awards but he was also incentivized to continue to improve those results to ultimately realize value from these awards. The following table provides details regarding how the 2018 CEO Performance Award would vest over the 12 tranches and the milestone requirements for each tranche to vest.
Overview of the 2018 CEO Performance Award
| Award Terms | Details | | 2018 CEO Performance Award Value | Total size: 12% of total outstanding shares of our common stock as of January 19, 2018, the last trading day prior to the grant date of January 21, 2018 (approximately 20.3 million option shares equivalent to 303,960,630 shares of our common stock today after giving effect to stock splits). Number of Vesting Tranches: 12 tranches; 1% of total outstanding shares of our common stock as of January 19, 2018 per tranche. The present intrinsic value of the 2018 CEO Performance Award is $44.9 billion (based on the closing price of Tesla common stock on April 12, 2024). | | Equity Type | Nonqualified stock options. | | Exercise Price | Fair Market Value (FMV) of Tesla common stock on the grant date of January 21, 2018, which was $350.02 per share of our common stock (based on the closing price on January 19, 2018, the last trading day prior to the grant date). Equivalent to $23.34 per share of our common stock today after giving effect to stock splits. | | Award Vesting / Milestones | Market Capitalization Milestones a. 12 Market Capitalization Milestones. b. First tranche milestone was a market capitalization of $100 billion (representing an increase of approximately $40.9 billion over the Company’s market capitalization of approximately $59.1 billion on January 19, 2018); each tranche thereafter required an additional $50 billion in market capitalization for such tranche to vest, up to $650 billion market capitalization for the last tranche. c. Sustained market capitalization was required for each Market Capitalization Milestone to be met, other than in a change in control situation. Specifically, there were two prongs that needed to be met to achieve a given Market Capitalization Milestone: • Six-calendar-month trailing average (based on trading days); and • 30 calendar day trailing average (based on trading days). Operational Milestones a. 16 Operational Milestones, of which at least 12 of which may be paired with Market Capitalization Milestones for all tranches to vest. b. Two types of Operational Milestones: |
Overview of the 2018 CEO Performance Award
| | * As used in this proposal, “Revenue” means total Tesla revenues as reported in our financial statements on Forms 10-Q or 10-K filed with the SEC for the previous four consecutive fiscal quarters. ** As used in this proposal, “Adjusted EBITDA” means net (loss) income attributable to common stockholders before (i) interest expense, (ii) (benefit) provision for income taxes, (iii) depreciation and amortization, and (iv) stock-based compensation, as each such item is reported in our financial statements on Forms 10-Q or 10-K filed with the SEC for the previous four consecutive fiscal quarters. Vesting Each of the 12 tranches vested only when both a Market Capitalization Milestone and an Operational Milestone were certified by the Board as having been met. Any one of the 16 Operational Milestones could be matched with any one of the 12 Market Capitalization Milestones, but any single Operational Milestone could only satisfy the vesting requirement for one tranche. A Market Capitalization Milestone and an Operational Milestone that were matched together could be achieved at different points in time and vesting would occur at the later of the achievement certification dates for such Market Capitalization Milestone and Operational Milestone. Subject to any applicable clawback provisions, policies or other forfeiture terms, once a milestone was achieved, it was forever deemed achieved for determining the vesting of a tranche. | | Term of 2018 CEO Performance Award | Ten years. | | Post-Termination of Employment Exercise Period | One year. | | Post-Exercise Holding Period | Five years following the exercise (not vesting) of the stock options, to further align Mr. Musk’s interests with Tesla stockholders’ interests following option exercise. |
Overview of the 2018 CEO Performance Award
Material Terms of the 2018 CEO Performance Award 2018 CEO Performance Award Value. The total number of shares of Tesla common stock underlying the 2018 CEO Performance Award was 20,264,042 (equivalent to 303,960,630 shares of our common stock today after giving effect to stock splits), divided equally among 12 separate tranches of options to purchase approximately 1.69 million shares of our common stock per tranche (equivalent to 25.33 million shares of our common stock today after giving effect to stock splits). The number of shares of our common stock underlying the 2018 CEO Performance Award in each tranche was equivalent to 1% of the 168,867,016 shares of Tesla’s common stock outstanding as of January 19, 2018 (equivalent to 25.33 million shares of our common stock today after giving effect to stock splits) and, therefore, the total number of shares underlying the 2018 CEO Performance Award was equivalent to 12% of the total number of shares of our common stock outstanding as of such date (equivalent to approximately 9.5% of the 3,188,965,775 shares of Tesla’s common stock outstanding at March 31, 2024). Equity Type. The 2018 CEO Performance Award was comprised of performance-based nonqualified stock options. Mr. Musk was entitled to receive compensation from the 2018 CEO Performance Award only to the extent that Tesla achieved the applicable performance milestones. Exercise Price. The exercise price of the 2018 CEO Performance Award was initially set at $350.02 per share, which was the closing market price of Tesla’s common stock on the Nasdaq Global Select Market on January 19, 2018, the last trading day prior to the grant date of January 21, 2018 (which was not a trading day). After giving effect to stock splits since the date of the initial grant, the exercise price of each of the options issuable under the 2018 CEO Performance Award is now $23.34. Award Vesting / Milestones. Each of the 12 vesting tranches of the 2018 CEO Performance Award would vest upon certification by the Board that each of (a) the Market Capitalization Milestone for such tranche and (b) an Operational Milestone had been met. Any single Operational Milestone could only satisfy the vesting requirement for one tranche of the 2018 CEO Performance Award, together with the corresponding Market Capitalization milestone. • There were 12 Market Capitalization Milestones, each of which required an incremental increase in Tesla’s market capitalization, initially to $100 billion and then by increments of $50 billion thereafter, with each incremental increase being approximately equivalent to Tesla’s approximate market capitalization of $50 billion in late 2017. • To meet all 12 Market Capitalization Milestones, Tesla was required to add approximately $600 billion to its market capitalization. In setting the details of the award in 2018, the Board at the time considered the Market Capitalization Milestones to be challenging hurdles, which Mr. Musk met. • There were also 16 operational milestones, half of which were focused on top-line performance and half of which were focused on bottom-line performance. Any one of the Operational Milestones, including one of the eight Revenue milestones or one of the eight Adjusted EBITDA milestones, could have been paired with any of the 12 Market Capitalization Milestones to successfully achieve the vesting of one of the 12 tranches. Any single Operational Milestone could have only satisfied the vesting requirement of one tranche, together with the corresponding Market Capitalization Milestone. Subject to any applicable clawback provisions, policies or other forfeiture terms, once a milestone was achieved, it was forever deemed achieved for determining the vesting of a tranche. Meeting more than 12 of the 16 Operational Milestones would have not resulted in any additional vesting or other compensation to Mr. Musk under the 2018 CEO Performance Award. In 2018, the Board considered the Revenue milestones to be challenging hurdles as they significantly exceeded Tesla’s historic annual revenue, which was approximately $7.0 billion for 2016 and approximately $11.8 billion for 2017. To achieve the first or second of the Revenue milestones, Tesla would have needed to increase its revenue by 3x and 5x, respectively, from its 2016 revenue levels. To satisfy all eight Revenue milestones, Tesla would have needed to increase revenue by almost $168 billion. The significance of these hurdles was noted in contemporary news reports, with The New York Times for example running a story under the headline “Tesla’s Elon Musk May Have Boldest Pay Plan in Corporate History” on January 23, 2018, stating that the final Market Capitalization Milestone represented “a figure many experts would contend is laughably impossible” and that critics would be “likely to contend that the new compensation plan is just the company’s latest publicity stunt.” Sorkin, Andrew Ross. New York Times. “Tesla’s Elon Musk May Have Boldest Pay Plan in Corporate History.” In addition to the Revenue milestones and to promote Tesla’s continued focus on a balanced approach to both growth and profitability, the 2018 CEO Performance Award included eight profitability milestones. In 2018, the Compensation Committee and the Board selected Adjusted EBITDA, which is defined as EBITDA minus only non-cash charges for stock-based compensation, as the appropriate profitability measure because the Board believed at the time that it was a metric that was commonly used for companies at Tesla’s stage of development and because many of Tesla’s stockholders used it to evaluate Tesla’s performance. Adjusted EBITDA is a measure of cash generation from operations that does not disincentivize Tesla from making additional investments to grow further. Like the Revenue milestones described above, the Adjusted EBITDA milestones were designed to be challenging and to reflect Tesla’s objective to have strong bottom-line performance on a consistent basis. In establishing the Revenue and Adjusted EBITDA milestones in 2018, the Board believed it carefully considered a variety of factors, including Tesla’s growth trajectory and internal growth plans at the time and the historical performance of other high-growth and high-multiples companies in the technology space that had invested in new businesses and tangible assets. These benchmarks provided revenue/EBITDA to market capitalization multiples, which were then used to inform the specific operational targets that aligned with Tesla’s plans for future growth. Except in a change in control situation, measurement of the Market Capitalization Milestones was based on both (i) a six-calendar-month trailing average of Tesla’s stock price as well as (ii) a 30-calendar-day trailing average of Tesla’s stock price, in each case based on trading days only, and thus required sustained market capitalization appreciation, not simply a spike in market capitalization over a short period. Measurement of the Operational Milestones was based on the previous four consecutive fiscal quarters for each of Revenue and Adjusted EBITDA, each determined on an aggregate basis, based on publicly disclosed Tesla financial statements. Term of 2018 CEO Performance Award / Post-Termination of Employment Exercise Period. The term of the 2018 CEO Performance Award was set as 10 years from the date of the grant, unless Mr. Musk’s employment with Tesla was terminated prior to such date. Accordingly, Mr. Musk was entitled to exercise any portion of the 2018 CEO Performance Award until January 20, 2028 that had vested on or prior to such date, provided that he remains employed at Tesla. For additional information regarding the vesting dates, see “Compensation Discussion & Analysis” elsewhere in this Proxy Statement.
Overview of the 2018 CEO Performance Award
Administration. The 2018 CEO Performance Award was administered by the Board, the Compensation Committee, or any committee of Board members or other individuals (excluding Mr. Musk) appointed by the Board and satisfying applicable laws (the “Administrator”), provided that Mr. Musk recused himself from any approvals relating to the administration of the 2018 CEO Performance Award. References to the Board in the executive summary of the material terms of the 2018 CEO Performance Award under the section titled “Material Terms of the Proposed 2018 CEO Performance Award” above generally are references to the Administrator, as applicable. The Administrator has the power and authority, in good faith, to interpret the 2018 CEO Performance Award and adopt rules for its administration, interpretation and application of the terms of the 2018 CEO Performance Award. All actions taken, and interpretations and determinations made, by the Administrator in good faith with respect to the 2018 CEO Performance Award will be final and binding on Mr. Musk and any other interested persons. Certain Other Market Capitalization Provisions. For purposes of achieving the Market Capitalization Milestones, the Company’s market capitalization was based on an average of the Company’s market capitalization for all trading days in the applicable trailing six-calendar-month period or 30-calendar-day period. As of any date of determination, the applicable six month or 30-day period ended with (and was inclusive of) such determination date. The Company’s market capitalization on any particular trading day is equal to the product of the closing price of a share of Tesla’s common stock on the trading day, multiplied by the outstanding shares of Tesla common stock at the closing of the trading day. Certain Other Termination Provisions. In all cases, the award agreement provided that in the event that Tesla stockholders did not approve the 2018 CEO Performance Award within 12 months after its grant date or, at any meeting of Tesla’s stockholders, did not approve the 2018 CEO Performance Award by the requisite vote, the 2018 CEO Performance Award would have been automatically forfeited and Mr. Musk would have had no rights to the 2018 CEO Performance Award or the shares underlying it. Upon a change in control of Tesla, any vested portion of the 2018 CEO Performance Award would have been assumed or substituted by the successor and any unvested portion of the 2018 CEO Performance Award automatically would have been terminated at the effective time of the change in control event. The Administrator could not accelerate the vesting of any portion of the 2018 CEO Performance Award in connection with a change in control if the Market Capitalization Milestone (as determined at the time of a change in control) was not met. The vested and unexercised portion of the 2018 CEO Performance Award would have remained exercisable through its expiration date. If Mr. Musk’s role either as Chief Executive Officer or as Executive Chairman and Chief Product Officer terminated while the 2018 CEO Performance Award was outstanding, the Administrator would have promptly made a final determination as to whether any additional tranches had vested through the date of such termination and whether any portion of the 2018 CEO Performance Award that had failed to vest based on performance through such date of termination will be forfeited. Certain Other Adjustments Upon Certain Transactions. In the event of any dividend or other distribution (whether in the form of cash, shares of Tesla common stock, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Tesla’s securities, or other change in the corporate structure of Tesla affecting Tesla’s common stock, then the Administrator, in order to prevent the diminution or enlargement of the benefits or potential benefits intended to be made available under the 2018 CEO Performance Award (and in a manner that would not provide any greater benefit or potential benefits than intended to be made available, other than solely to reflect changes resulting from any such triggering event), would have adjusted the number, class and price of the shares of our common stock underlying the 2018 CEO Performance Award. In the event of a proposed dissolution or liquidation of Tesla, the Administrator would have notified Mr. Musk as soon as practicable before the effective date of the proposed transaction. To the extent the 2018 CEO Performance Award had not been previously exercised, it would have terminated immediately before the completion of such proposed transaction. Mr. Musk was entitled to no rights or privileges of a stockholder of Tesla with respect to the shares of our common stock underlying the 2018 CEO Performance Award unless and until the shares of our common stock were issued, recorded on the records of Tesla or its transfer agents or registrars, and delivered to Mr. Musk (which may occur through electronic delivery to a brokerage account). In addition, unless and until Tesla’s stockholders approve the 2018 CEO Performance Award, no portion of the 2018 CEO Performance Award may be exercised. Certain Other Securities Information. Shares issuable under the 2018 CEO Performance Award were authorized, but unissued, or reacquired, Tesla common stock. As of April 12, 2024, the closing price of Tesla’s common stock was $171.05 per share. Tax Withholdings. The Administrator was to determine the methods by which tax withholding obligations with respect to the 2018 CEO Performance Award were to be satisfied by Mr. Musk. For example, to the extent permissible by applicable law, the Administrator could have permitted Mr. Musk to satisfy tax withholding obligations relating to the 2018 CEO Performance Award by (i) paying cash, or (ii) having a sufficient number of shares otherwise deliverable under the 2018 CEO Performance Award sold through means determined by Tesla (whether through a broker or otherwise) equal to the minimum required amount to be withheld (or such greater amount that Mr. Musk elects, if permitted by the Administrator and if withholding a greater amount would not result in adverse financial accounting consequences for Tesla). Non-transferability. The 2018 CEO Performance Award could not be transferred in any manner other than by will or the laws of descent or distribution and may be exercised during Mr. Musk’s lifetime only by him. Shares of our common stock issued to Mr. Musk upon exercise of the 2018 CEO Performance Award were subject to the holding period described further above, except that Mr. Musk could have transferred shares to change the form in which he held the shares of our common stock, such as through certain family or estate planning trusts, or as permitted by the Administrator consistent with the Company’s internal policies.
The 2018 Approval Process
The 2018 Approval Process As you consider the Ratification of the 2018 CEO Performance Award, the Company has summarized the process followed in 2018 relating to the approval of the 2018 CEO Performance Award. Because the Tornetta Opinion found our definitive proxy statement filed with the SEC on February 8, 2018 (the “2018 Proxy Statement”) did not include a full and accurate description of the process behind the 2018 CEO Performance Award, we are providing you with the below disclosure. You should read this disclosure, together with the summary of the Tornetta Opinion contained below, as well as the copy of the Tornetta Opinion attached to this Proxy Statement as Annex I for a description of the approval process. The Tornetta Opinion attached to this Proxy Statement and the summary of the Tornetta Opinion contained below describe the Court’s criticisms of this process. While the Company believes the discussion under this caption “The 2018 Approval Process” is a true and correct statement of the facts leading up to the approval of the 2018 CEO Performance Award and illustrates the effectiveness of the governance process followed at the time, stockholders are cautioned that the Tornetta Opinion made negative findings about the approval process in 2018. The Company believes that its stockholders should take into account the relevant analysis and reasons expressed in the section entitled “Overview of 2018 Approval Process”, as well as the critiques set forth in the Tornetta Opinion in the section entitled “Tornetta v. Musk Decision and Deficiencies Found by The Court”, as they consider Ratification. Overview of 2018 Approval Process In 2012, the Board approved a compensation program for Mr. Musk that consisted entirely of performance stock options that would vest only upon the achievement of certain market capitalization and operational milestones (the “2012 CEO Performance Award”). At the time, Tesla had begun to execute Mr. Musk’s Master Plan that laid out the objectives for Tesla during the first phase of its development. Tesla had yet to begin volume production of Model S and had a market capitalization of under $4 billion. The vesting milestones for the 2012 CEO Performance Award included 10 tranches, with each tranche requiring Tesla both to: (i) grow market capitalization by an additional $4 billion, and (ii) achieve an additional specified operational milestone. Following the grant of the 2012 CEO Performance Award, Tesla received strong stockholder support in its triennial advisory “Say on Pay” votes in 2014 and 2017 (94.4% and 98.9%, respectively, of the shares present or represented by proxy and entitled to vote). Between 2012 and 2018, Tesla, with Mr. Musk at the helm, among other things, launched and ramped up production of Model S; designed, launched and ramped up production of Model X and Model 3; and added important new business lines, including solar energy generation and energy storage. With the 2012 CEO Performance Award nearing completion, the Board and the Compensation Committee engaged in more than six months of active and ongoing discussions regarding a new compensation program for Mr. Musk, ultimately deciding to approve the grant in the 2018 CEO Performance Award. These discussions first took place among the then-members of the Compensation Committee, all of whom were independent directors, and then with the Board’s other independent directors. For each of the relevant meetings, both Mr. Musk and Kimbal Musk recused themselves. In deciding to approve the grant in the 2018 CEO Performance Award, the Board and the Compensation Committee considered among other things: (i) The reasons for an award; (ii) The desire to incentivize and motivate Mr. Musk to continue to lead Tesla over the long term and to create significant stockholder value in doing so; (iii) How to structure an award in a way that would further align the interests of Mr. Musk and Tesla’s other stockholders; (iv) Whether to model an award based on elements of the 2012 CEO Performance Award; (v) What performance milestones should be used in an award; (vi) What the total size of an award should be and how that size would translate into increased ownership and value for Mr. Musk; and (vii) How to balance the risks and rewards of a new award. Throughout this process in 2018, the Board used the services of Compensia, Inc. which served as its independent compensation consultant (“Compensia”), and Wilson Sonsini Goodrich & Rosati, P.C., which served as its special outside counsel. At various points during the process in 2018, the independent members of the Board met with Mr. Musk to share their thoughts on the award and to solicit his perspective, including as to each of the issues identified above, and ultimately to negotiate the terms of the 2018 CEO Performance Award with Mr. Musk. Additionally, early in the Board’s 2018 process, at the request of the Compensation Committee, Ira Ehrenpreis and Tesla’s then-General Counsel, Todd Maron, had calls with 15 of Tesla’s largest institutional stockholders to discuss and solicit their views regarding the 2012 CEO Performance Award and considerations for a new compensation award for Mr. Musk, in light of the fact that nearly all of the milestones in the 2012 CEO Performance Award had been or would be achieved in the near future. Many of these stockholders indicated that they favored the approach used in the 2012 CEO Performance Award, especially when coupled with Mr. Musk’s lack of traditional non-performance-based types of compensation (i.e., no salary, no cash bonuses, no time-based equity awards), and indicated that they favored a new equity award to Mr. Musk broadly based on the model of the 2012 CEO Performance Award that would motivate and incentivize his continued service and dedication to Tesla. Stockholders suggested various operational milestones to pair with market capitalization milestones, but in general expressed preferences for financial-based operational milestones that would ensure both top-line and bottom-line Tesla growth as a condition for awards of compensation to Mr. Musk. As the Board thereafter deliberated on a new performance award for Mr. Musk, it gave great weight to the feedback that its stockholders provided during these calls, and it incorporated much of that feedback into the ultimate design of the award. After engaging in this extended process and arriving at terms for a performance award that both the independent members of the Board and Mr. Musk concluded would motivate and incentivize Mr. Musk to continue to lead the management of Tesla over the long term, the Board, with Mr. Musk and Kimbal Musk recusing themselves, approved the 2018 CEO Performance Award. Reasons for the Board’s 2018 Recommendation In advance of the Company’s 2018 Special Meeting, which was called for the purposes of obtaining a stockholder vote on the 2018 CEO Performance Award, the Board recommended that its stockholders vote their shares “FOR” the 2018 CEO Performance Award. Prior to the 2018 Special Meeting, the independent members of the Board at the time, led by the members of the Compensation Committee, designed a compensation award over the course of six months that they believed would incentivize Mr. Musk while maximizing value for Tesla stockholders. As part of this process in 2018, the Compensation Committee and the Board sought to balance a variety of important objectives, including: • Aligning Mr. Musk’s interests with those of Tesla and its other stockholders; • Incentivizing Mr. Musk to continue to lead Tesla over the long term; • Motivating Mr. Musk to help Tesla achieve market capitalization and operational milestones that would generate significant stockholder value; and • Ensuring that Mr. Musk’s compensation will be linked entirely to performance so that he does not receive any compensation unless all of Tesla’s stockholders benefit from significant value creation.
The 2018 Approval Process
The Board sought and obtained feedback from a broad set of institutional stockholders and incorporated that feedback into its decision-making process. As part of its consideration in 2018, the Board drew from the success of the 2012 CEO Performance Award. Such award helped Tesla grow its market capitalization from less than $4 billion to over $55 billion in just over five years, and formed the biggest part of the executive compensation program that Tesla stockholders strongly supported in advisory “Say on Pay” votes in 2014 and 2017. Additionally, with the 2012 CEO Performance Award milestones largely achieved, and with Tesla entering the next phase of its development, the Board sought to develop a compensation award for Mr. Musk that reflected Tesla’s then-current long-term goals and strategy and helped incentivize their achievement. During the initial phase of its development, Tesla executed on its original Master Plan, which primarily called for Tesla to develop electric vehicles in increasingly affordable and higher volume segments. Even though most believed that Tesla would not be able to accomplish this, Tesla managed to do so, and it created significant stockholder value in the process. With Tesla becoming the world’s first vertically integrated sustainable energy company, from generation to storage to consumption, its ambitions in 2018 were even greater. Tesla in its original Master Plan intended to: • Expand solar energy generation through Solar Roof and other solar products, and seamlessly integrate them with battery storage; • Build out Tesla’s vehicle product line to cover all major forms of terrestrial transport; • Advance autonomous technology to create a fully-self driving future; and • Through sharing, enable its customers’ cars to make money for them when they are not being used. With these goals, in 2018 the Board believed that Tesla had the potential to become one of the most valuable companies in the world. The 2018 CEO Performance Award was based on a vision of making Tesla a $650 billion company — more than ten times more valuable than it was at the beginning of 2018 — and accomplishing Tesla’s mission of accelerating the world’s transition to sustainable energy. The Board recommended that its stockholders approve the 2018 CEO Performance Award in 2018 for the following reasons: 1. Strengthening Incentives and Further Aligning of Stockholder, Company and CEO Interests The Board believed in rewarding Mr. Musk in a fair way that provided compensation to him if, and only if, all of Tesla’s stockholders realized significant value. Under the 2018 CEO Performance Award, Mr. Musk would not receive any of the kinds of guaranteed forms of compensation that are common for chief executive officers at other companies. Mr. Musk would receive no cash salary, no cash bonuses and no time-based equity awards that vest solely through the passage of time (that is, simply by continuing to show up for work). To the contrary, Mr. Musk’s only opportunity to earn compensation from Tesla would be dependent on him leading Tesla’s achievement of challenging milestones, which, among other things, required Tesla’s market capitalization to increase to $100 billion, and to then continue increasing in additional $50 billion increments thereafter, up to $650 billion. Additionally, Mr. Musk’s compensation would also be dependent on him leading Tesla’s achievement of challenging operational milestones, which were designed to ensure that it is executing well on both a top-line and bottom-line basis. Under the 2018 CEO Performance Award, if these ambitious milestones were met, the Board determined in 2018, all Tesla stockholders would benefit, with the value of Tesla’s equity growing by tens of billions of dollars per milestone. Moreover, under the 2018 CEO Performance Award, in contrast to Mr. Musk’s rights, which required a pair of milestone targets to be fully met in order for him to receive any vesting of the corresponding tranche, the Tesla stockholders would realize the real-time benefit of any increases to its stock price, even those that result from falling short of the specific milestone targets required by the 2018 CEO Performance Award. Finally, the 2018 CEO Performance Award would create even more stockholder alignment by incorporating features such as a five-year holding period that ensures Mr. Musk’s continuing alignment with company interests for many years even after he exercises his options. As such, the Board in 2018 determined that the 2018 CEO Performance Award was a true “pay-for-performance” compensation program that tightly aligned Mr. Musk’s interests with the interests of Tesla and its stockholders. 2. Ensuring Mr. Musk’s Continued Services The Board in 2018 believed that having the active and engaged services of Mr. Musk was important to the continued growth and long-term interests of Tesla. While the Board recognized that Tesla had many valuable employees who have been a critical part of Tesla’s success, the Board in 2018 believed that many of Tesla’s prior successes were driven significantly by Mr. Musk’s leadership. Those successes included making Model S the top-selling car in its segment in many key markets around the world and ramping up the production of it, designing and ramping up the production of Model X, which continued to gain substantial market share around the world, and designing and beginning to ramp up the production of Model 3, the mass-market vehicle that the success of Model S and Model X enabled. These accomplishments had led to significant value creation for Tesla’s stockholders. Since going public, Tesla’s market capitalization had grown almost 35x when the Board approved the plan in 2018. The Board designed the 2018 CEO Performance Award to incentivize and motivate Mr. Musk to continue to not only lead Tesla over the long term, but particularly in light of his other business interests, to devote his time and energy in doing so. In the Board’s discussions with Mr. Musk in 2018, he indicated that the 2018 CEO Performance Award would accomplish that. Mr. Musk was required to remain as Tesla’s Chief Executive Officer or serve as both Executive Chairman and Chief Product Officer, in each case with all leadership ultimately reporting to him, at the time each milestone was met in order for the corresponding tranche to vest. This was intended to ensure that Mr. Musk would continue to lead the management of Tesla over the long term while also providing the flexibility to bring in another chief executive officer who would report to Mr. Musk at some point in the future. Although there was no intention to bring in another chief executive officer, the Board in 2018 believed that having such flexibility as Tesla continued to grow to potentially allow Mr. Musk to focus more of his attention on the kinds of key product and strategic matters that most impacted Tesla’s long-term growth and profitability would benefit our stockholders. 3. Spurring the Achievement of Tesla’s Strategic and Financial Objectives
Tornetta v. Musk Decision and Deficiencies Found by the Court
The Delaware Court also stated that negotiations between Mr. Musk and the Board were compromised because they were not adversarial and were too cooperative and collaborative. To the contrary, the Delaware Court noted that several of the participants in the process testified that the negotiations between Mr. Musk and the Board regarding his compensation were not adversarial or “acrimonious.” Combined, these and certain other factors led the Delaware Court to conclude that the negotiation process was not at arm’s length, and was not fair. The Delaware Court also found that the Board largely accepted terms Mr. Musk proposed for his own compensation plan, without considering other alternatives, and omitted certain terms that would have been in the best interests of our stockholders. For example, the Delaware Court stressed that a key goal of the Board was “it[s] wish[] to retain Musk as the ‘fully engaged CEO,’ yet” the terms of the 2018 CEO Performance Award did not require him to devote a certain percentage of his time to Tesla relative to his other companies, and also “allowed Musk to step down to the role of ‘Chief Product Officer.’” The Delaware Court also stated that “there was no actual discussion concerning alternatives” to the compensation plan proposals that Mr. Musk was setting forth, and that “[t]here [w]as [n]o [n]egotiation [o]ver [t]he [s]ize [o]f [t]he [g]rant.” The Delaware Court also criticized the Board for not reviewing benchmarking compensation studies that would compare the proposed 2018 CEO Performance Award “to plans at comparable firms.” According to the Delaware Court, the defendants’ “proffered reasons for not performing a traditional benchmarking study [(that they had sufficient information to know what a benchmarking study would show and that they didn’t believe such a study was apt because there were no true comparables)]. . . rang hollow”, and that “[b]enchmarking would have informed the decision makers of the magnitude of difference between the [g]rant and market comparables.” The Delaware Court also concluded that the defendants failed to prove that the 2018 CEO Performance Award’s milestones were “ambitious and difficult to achieve,” such that they would require compensation of the 2018 CEO Performance Award’s magnitude to incentivize Mr. Musk to attain them. Instead, the Delaware Court noted that: Tesla determined that three operational milestones were ‘considered probable of achievement,’ which meant that they were greater than 70% probable of achievement within approximately one year of the Grant date. Finally, the Delaware Court rejected the defendants’ argument that certain other terms that were included in the 2018 CEO Performance Award for the Company’s benefit, the Clawback Provision, the Leadership Requirement, the Five-Year Hold Period and the M&A Adjustment (each as described above and defined in the Tornetta Opinion), were evidence of arm’s-length bargaining, since Mr. Musk accepted them without negotiation. With respect to these provisions, the Delaware Court found that: The other key terms of the Grant were: the Clawback Provision, the Leadership Requirement, the Five-Year Hold Period, and the M&A Adjustment. As to these terms, the only back-and-forth in the record concerned the M&A Adjustment, but Musk himself conceded that this was at most a minor feature of his compensation plan that he did not care about. He stated, at the end of negotiations on this point, “I don’t think we will be making big acquisitions[]” and “[t]here is no chance I will game the economics here, so I’m fine with limits that prevent that. The Delaware Court Found the Stockholder Vote Upon Which the 2018 CEO Performance Award Was Conditioned Was Deficient In addition to finding the Board process related to the 2018 CEO Performance Award to have been deficient, the Delaware Court also found that the stockholder vote at the 2018 Special Meeting on which the 2018 CEO Performance Award’s approval was conditioned was not fully informed. The Delaware Court’s finding that the stockholder vote at the 2018 Special Meeting was not fully informed was based on the failure of the 2018 Proxy Statement to disclose the shortcomings that the Delaware Court had found in the Board’s decision-making process. The Delaware Court’s Analysis: the 2018 Proxy Statement Contained No Conflict Disclosures First, the Delaware Court stated that in presenting the 2018 CEO Performance Award to our stockholders, we had failed to disclose any actual or potential conflicts between the 2018 CEO Performance Award’s decision-makers and Mr. Musk, instead describing “all of [them] [as] independent directors” and “independent members of the Board.” In particular, the 2018 proxy statement did not disclose the financial or personal connections between the members of the Compensation Committee and Mr. Musk. These included a 15-year relationship between Mr. Musk and the chair of the Compensation Committee, Ira Ehrenpreis, and business relationships between Mr. Musk and the other Compensation Committee member, Antonio Gracias, “dating back over 20 years, as well as the sort of personal relationship that had [Mr. Gracias] vacationing with Mr. Musk’s family on a regular basis.” The Delaware Court’s Analysis: the 2018 Proxy Statement did not Include a Full and Accurate Description of the Process Second, the Delaware Court determined that we did not provide our stockholders with a “full and accurate description of the material steps in the Board or the Compensation Committee process that resulted in the transaction.” The Delaware Court noted that the 2018 proxy statement “does not disclose the level of control that Musk exercised over the process — e.g., his control over the timing, the fact that he made the initial offer, the fact that his initial offer set the terms until he changed them six months later, the lack of negotiations, and the failure to benchmark, among other things.” Above all, the Delaware Court stated that we should have disclosed that Mr. Musk proposed key terms for his compensation plan in an initial call on April 9, 2017, prior to discussions “among the members of the Compensation Committee.” The Delaware Court’s Decision As a result of the foregoing, the defendants bore the burden of proving that the 2018 CEO Performance Award was “entirely fair” to our stockholders. Due to the factors discussed above, the Delaware Court ruled that the compensation considered in the 2018 CEO Performance Award was more than Tesla needed to “give” in proportion to what it would “get” and thus the defendants failed to prove that the 2018 CEO Performance Award was “entirely fair” to our stockholders, and ordered rescission of the 2018 CEO Performance Award as a remedy. The Delaware Court found rescission equitable under the circumstances because Mr. Musk had profited from his work through his ownership of Company stock, observing that other billionaires such as Mark Zuckerberg, Jeff Bezos, Bill Gates and Warren Buffett had been willing to work for nominal amounts in light of their ownership of their respective company’s stock.
Performance of the Company Assessed Against Performance Metrics
Performance of the Company Assessed Against Performance Metrics Tesla’s Leadership Has Revolutionized the World Tesla sets extraordinary goals and needs extraordinary leadership to achieve them. Our mission is to accelerate the world’s transition to sustainable energy. To enact radical change requires radical innovation. Mr. Musk has led our most remarkable projects. Mr. Musk’s leadership and unique vision have played critical roles in our mission and success. He has guided Tesla from an early-stage startup through multiple critical events and crises into one of the world’s leading automakers and one of the most valuable companies in the world. His innovation and vision have driven us to become the world’s first vertically integrated sustainable energy company, with a wide variety of products, from generation to storage to consumption. Under Mr. Musk’s leadership, we popularized electric vehicles by making them high-performance, accessible and fun to drive. Now, electric vehicles are abundant on the streets, and in the last decade, we produced over 5.5 million of our vehicles. We currently manufacture five different consumer vehicles — the Model 3, Y, S, X and Cybertruck, and, as of January 24, 2024, Model Y was the best-selling vehicle in the world. Importantly, our fully electric cars often replace traditional gasoline-powered cars on the road — tackling one of the largest global sources of carbon dioxide and other greenhouse gas emissions. Mr. Musk also leads our efforts in designing, developing and manufacturing a range of cutting-edge sustainable energy generation and storage products. We offer two lithium-ion battery energy storage products — Powerwall and Megapack. Powerwall, which we sell directly to customers, as well as through channel partners, is designed to store energy at a home or small commercial facility. Megapack is an energy storage solution for commercial, industrial, utility and energy generation customers, multiples of which may be grouped together to form larger installations of gigawatt hours or greater capacity. Megapack has the potential to eliminate the need for gas peaker plants and avoid power outages. Each unit can store over 3.9 MWh of energy — enough energy to power an average of 3,600 homes for one hour. Through Mr. Musk’s leadership, we have also developed sophisticated control software, which is utilized in the performance and safety of our vehicles and their battery packs. Our technology uses neural networks in our vehicles, and we currently offer certain advanced driver assist systems under our Autopilot and Full Self Driving (Supervised) options. We develop almost all of this software, including most of the user interfaces, internally and update our vehicles’ software regularly through innovative over-the-air updates. Even with all this prior innovation, we continue to look ahead to new horizons — Mr. Musk spearheads our efforts on products in development that we believe have the potential to be our most significant contributions. We have made incredible progress on our mission, and Mr. Musk has driven our conception, design, development, production and commercialization of these revolutionary products. Achieving such progress requires thoughtful, innovative leaders. The role of a chief executive officer is multi-faceted and demanding. A chief executive officer is not only responsible for managing the day-to-day operations of an entire company, but also developing the company’s vision and strategy, fostering innovation, representing the company and creating a culture of excellence. For a large, sophisticated company such as Tesla, our chief executive officer must be able to execute at an incredibly high level, which requires deep experience and a myriad of specialized abilities. Finding an individual who possesses such a diverse skill set and can excel in these various aspects is not easy, but Mr. Musk’s demonstrated track record of success has proven that he can do so. The Delaware Court in the Tornetta Opinion referred to Mr. Musk as a “Superstar CEO”. The Board and management believe that it is in Tesla’s interest to secure Mr. Musk’s “Superstar CEO” talent and experience by means of appropriate compensation. With Mr. Musk leading the Company, the Board and management believe that we have fundamentally changed the world. We are proud of what the Company has achieved, but there is much more to be done, and we believe that we are best positioned to accomplish our goals with Mr. Musk at the helm and provided with ambitious targets and appropriate incentives to meet those targets.
ROBYN DENHOLM
| Primary Responsibilities Compensation • Overseeing Tesla’s global compensation philosophy and policies, plans and benefit programs and making related recommendations to the Board, including by considering “say-on-pay” votes of Tesla’s stockholders • Reviewing and approving for Tesla’s executive officers: the annual base salary, equity compensation, employment agreements, severance arrangements and change in control arrangements, if applicable, and any other compensation, benefits or arrangements • Administering the compensation of members of the Board and Tesla’s equity compensation plans Human Capital • Reviewing human capital management practices related to Tesla’s talent generally (including how Tesla recruits, develops and retains diverse talent) Reporting • Preparing the compensation committee report included in Tesla’s annual proxy statement Independence Each member of the Compensation Committee qualifies as an independent director under the listing standards of Nasdaq and applicable laws. Meetings Met ten times in 2023 Charter The Compensation Committee has adopted a written charter approved by the Board, which is available on Tesla’s website at: http://ir.tesla.com/corporate. Report The Compensation Committee Report is included in this proxy statement on page 134. |
Stock Transactions
Stock Transactions Hedging, Short Sales and Rule 10b5-1 Trading Plans Tesla has an insider trading policy that prohibits all of our directors, officers and employees from, among other things, engaging in short sales, hedging or similar transactions designed to decrease the risks associated with holding Tesla securities. This prohibition encompasses transactions in publicly-traded options, such as puts and calls, and other derivative securities with respect to Tesla securities, but not transactions designed to facilitate portfolio diversification, such as broad-based index options, futures or baskets. Stock Ownership by Board and Management To align the interests at the highest level of our management with those of our stockholders, the Board has instituted the following requirements relating to stock ownership under our Corporate Governance Guidelines. Each member of the Board and all of our named executive officers are subject to the following minimum stock ownership requirements: (i) each director is required to own shares of Tesla stock equal in value to at least five times the annual cash retainer for directors (regardless of whether or not the retainer has been waived, and exclusive of retainer amounts for service as a member or chair of a Board committee), and (ii) our named executive officers are required to own shares of Tesla stock equal in value to at least six times his/her base salary. Each individual shall have five years from the date such person assumed his or her relevant role at Tesla to come into compliance with these requirements. Each person’s compliance with the minimum stock ownership level will be determined on the date when this compliance grace period expires, and then annually on each December 31, by multiplying the number of shares held by such person and the average closing price of those shares during the preceding month. Our named executive officers and each of our directors is currently either in compliance with these requirements or is in the applicable period to come into compliance therewith. Our Corporate Governance Guidelines also provide that no equity award as to which vesting or the lapse of a period of restriction occurs based solely on the passage of time that is granted to a named executive officer may vest, or have a period of restriction that lapses, earlier than six months from the date on which such vesting or lapse commences. Furthermore, our Corporate Governance Guidelines provide that no named executive officer may sell, transfer, pledge, assign or otherwise dispose of any shares of Tesla stock acquired pursuant to any stock option, restricted stock unit or other equity award granted by Tesla earlier than the date that is six months after the date on which such award vests or the period of restriction with respect to such award lapses, as applicable. Prohibition of Equity Award Repricing Tesla views equity-based compensation to be a key factor in incentivizing the future performance of our personnel. Consequently, the Tesla, Inc. 2019 Equity Incentive Plan (the “2019 Plan”) provides, and Tesla’s previous 2010 Equity Incentive Plan provided, that stock options and other equity awards issued under these plans that derive their value from the appreciation of the value of Tesla’s stock may not be exchanged for other awards, repurchased for cash or otherwise be made the subject of transactions that have the purpose or effect of repricing such awards. In addition, applicable Nasdaq rules prohibit any repricing with respect to the performance-based stock option award granted to Elon Musk in January 2018.
Compensation Philosophy
Compensation Philosophy Our mission is to accelerate the world’s transition to sustainable energy. This is a long-term mission, and our compensation programs reflect this — and our startup origins — in that they consist primarily of salary or wages and equity awards. Whereas salary or wages are intended to meet our employees’ near-term liquidity needs, we believe that equity awards are an effective tool for retaining employees long-term, as they vest incrementally over a period of time or upon the achievement of specified performance milestones intended to be achieved over the medium- and long-term. During periods in which our stock price and the underlying value of equity awards increase, their retention impact is even greater. We believe that the potential for such increases also creates an ownership culture that promotes holding equity, which in turn aligns the interests of our employees with the long-term interests of our stockholders. Additionally, this compensation philosophy further allows our employees to grow their skill sets and contributions consistent with our long-term mission. For these reasons, our goal is to provide each employee with the opportunity to participate in our equity programs, with certain cash-based bonus programs serving generally to accommodate specific incentive structures or liquidity needs. By combining salary or wages and our equity award program, we strive to offer a total level of compensation that is competitive within specific roles and geographical markets. In particular, we believe that compensation for the individuals who are responsible for Tesla’s strategic direction and operations should motivate them to achieve sustainable stockholder value and/or tangible milestones rather than to simply remain at Tesla or maintain the status quo. Therefore, while we offer to our general employee population restricted stock units that will retain some value even if the market value of our stock decreases, we are increasingly emphasizing for our executive officers the grant of stock option awards, which have zero initial value and accumulate value, if at all, only to the extent that our stock price increases following their grant, through the applicable vesting dates and until such stock options are ultimately exercised and the underlying shares are sold. In addition, because equity awards comprise a greater proportion of our executive officers’ total level of compensation compared to comparable roles at peer companies, a sustained decrease in our stock price or failure to achieve the applicable operational milestones may result in a level of total compensation that is significantly less than that of such peer roles. Likewise, our outside director compensation program has consisted primarily of equity awards that are entirely in the form of stock option awards, as well as relatively modest cash retainer payments that may be waived at the election of each director. We evaluate our compensation philosophy and programs regularly and evolve them as circumstances merit with oversight by the Compensation Committee, particularly with respect to executive and director compensation. For example, if our stock price experiences significant movement over a short period of time that results in a persistent change to equity compensation, certain adjustments may be considered to align our compensation programs to their intended purposes.
Key Factors in Determining Executive Compensation
Key Factors in Determining Executive Compensation ROLE OF COMPENSATION COMMITTEE IN EXECUTIVE COMPENSATION The Compensation Committee has the overall responsibility of recommending to the Board the compensation of our Chief Executive Officer and reviewing and determining the compensation of our other executive officers. Members of the Compensation Committee are appointed by the Board. Currently, the Compensation Committee consists of three members of the Board: Ira Ehrenpreis (Chair), Robyn Denholm and Kathleen Wilson-Thompson, none of whom is an executive officer of Tesla, and each of whom qualifies as (i) an “independent director” under the Nasdaq rules and (ii) an “outside director” under Section 162(m) of the Tax Code. See “Corporate Governance — Board Meetings and Committees — Compensation Committee” above. ROLE OF COMPENSATION CONSULTANTS The Compensation Committee has the authority to engage, and has from time to time engaged, the services of outside consultants to assist in making decisions regarding the establishment of Tesla’s compensation philosophy and programs, including for executives and directors. No compensation consultant was engaged to provide such services to us in 2023. ROLE OF EXECUTIVE OFFICERS IN COMPENSATION DECISIONS Historically, for executive officers other than our Chief Executive Officer, the Compensation Committee has sought and considered input from our Chief Executive Officer regarding such executive officers’ responsibilities, performance and compensation. Specifically, our Chief Executive Officer recommends base salary increases and equity award levels for our senior personnel, and advises the Compensation Committee regarding the compensation program’s ability to attract, retain and motivate executive talent. These recommendations reflect compensation levels that our Chief Executive Officer believes are qualitatively commensurate with an executive officer’s individual qualifications, experience, responsibility level, functional role, knowledge, skills and individual performance, as well as Tesla’s performance. The Compensation Committee considers our Chief Executive Officer’s recommendations, but ultimately determines compensation in its judgment, and approves the specific compensation for all of our executive officers (other than for our Chief Executive Officer, which is approved by the Board). All such compensation determinations by our Compensation Committee are largely discretionary. The Compensation Committee meets regularly in executive session. Our Chief Executive Officer is not present during Compensation Committee deliberations or votes on his compensation and also recuses himself from sessions of the Board where the Board acts on the Compensation Committee’s recommendations regarding his compensation. In addition, the Board has established a management committee under the 2019 Plan (the “Equity Award Committee”) to grant and administer equity awards, subject to certain limitations, such as, among other things, maximum limits on the seniority of personnel to whom the Equity Award Committee may grant awards and the value of any individual award. For example, the Equity Award Committee is not authorized to grant awards to employees at or above the level of vice president. Moreover, pursuant to applicable law, the Equity Award Committee may not grant awards to its members, and the number of shares of our common stock underlying awards granted by it may not exceed amounts determined by the Board from time to time. The Board has delegated to the Compensation Committee oversight authority over the Equity Award Committee. ROLE OF STOCKHOLDER SAY-ON-PAY VOTES At the 2011 annual meeting of our stockholders and at each annual meeting held every three years since, including most recently in 2023, we held triennial stockholder advisory “say-on-pay” votes on the compensation of our named executive officers for the immediately preceding fiscal years. At our 2023 annual meeting, our stockholders overwhelmingly approved the compensation of our named executive officers, with approximately 71% of our stockholders present and entitled to vote at the meeting voting in favor of our compensation policies for our named executive officers. Given these results, the Compensation Committee has decided to retain our overall approach to executive compensation while continuing to evaluate our practices frequently. Moreover, we are required to hold a vote at least every six years regarding how often to hold a stockholder advisory vote on the compensation of our named executive officers. We held our most recent such vote at the 2023 annual meeting of stockholders, at which our stockholders indicated a preference for an annual vote. Consistent with the stockholder vote, we intend to hold a stockholder advisory vote on executive compensation every year until the next vote on the frequency of stockholder advisory votes on executive compensation. See “Proposal Two — Tesla Proposal for Non-Binding Advisory Vote on Executive Compensation.” We expect the next advisory “say-on-pay” vote will occur at the 2025 annual meeting of stockholders. CLAWBACK POLICY Our Corporate Governance Guidelines sets forth a compensation recovery (“clawback”) policy with respect to our executive officers. Additionally, we adopted a clawback policy for compliance with the NASDAQ listing standards and Section 10D of the Exchange Act, effective November 15, 2023. This additional clawback policy applies to current and former executive officers as defined under the Exchange Act and only in the event that the Company is required to prepare an accounting restatement due to the material noncompliance of the Company with any financial reporting requirement under securities laws; misconduct on the part of the executive is not required. Under this additional clawback policy, we are required to recoup incentive-based compensation (as that term is defined in Section 10D of the Exchange Act) erroneously received within the three completed fiscal years immediately preceding the date on which we are required to prepare a restatement as defined under the clawback policy. Moreover, the terms of the 2018 CEO Performance Award include a clawback provision in the event of a restatement of our financial statements previously filed with the SEC. See “Executive Compensation — Compensation Discussion and Analysis — Chief Executive Officer Compensation — 2018 CEO Performance Award” below.
EQUITY-BASED INCENTIVES
EQUITY-BASED INCENTIVES Our equity award program is the primary vehicle for offering long-term incentives to our named executive officers. The equity awards we have historically granted and currently grant are options to purchase shares of our common stock and restricted stock unit awards that are settled in shares of our common stock upon vesting. We have granted to our named executive officers both awards that vest over a long-term period and awards that vest only upon the achievement of specified Tesla performance milestones, in each case subject to continued service. We are increasingly emphasizing the grant of stock option awards for our named executive officers, which have value only to the extent, if any, that our stock price increases following their grant. Accordingly, all equity awards granted to our named executive officers in 2020 (the last year awards were granted to any of our named executive officers except for Tom Zhu, our Senior Vice President, Automotive, who received stock option awards upon his promotion to such role) were in the form of stock option awards. As a result, a significant portion of our named executive officers’ total compensation is entirely at risk, depending on long-term stock price performance. While we strive to offer a total level of compensation that is competitive within specific roles and geographical markets, we do not have a rigid set of criteria for granting equity awards; instead, the Compensation Committee exercises its judgment and discretion, in consultation with our Chief Executive Officer and from time to time, a compensation consultant. The Compensation Committee considers, among other things, the role and responsibility of the named executive officer, competitive market factors, the amount of stock-based equity compensation already held by the named executive officer, the impact of any dramatic changes in our stock price over a short period of time and the cash-based compensation received by the named executive officer, to determine the level and types of equity awards that it approves. We generally grant one-time new hire equity awards to our employees, including executives, upon their commencement of employment with us, or upon their promotion to a new position. Additionally, as part of our ongoing executive compensation review and alignment process, we periodically grant additional equity awards to our executives. See “Executive Compensation — Grants of Plan-Based Awards in 2023” below. The Compensation Committee meets periodically, including to approve equity award grants to our executives from time to time. We do not have, nor do we plan to establish, any program, plan or practice to time equity award grants in coordination with releasing material non-public information. SEVERANCE AND CHANGE IN CONTROL BENEFITS No named executive officer has a severance or change in control arrangement with Tesla. BONUS We do not currently have or have planned, and historically we have rarely entered into, any specific arrangements with our named executive officers providing for cash-based bonus awards. NON-EQUITY INCENTIVE PLAN COMPENSATION We did not provide any non-equity incentive plan compensation to any of our named executive officers in 2023, and we do not currently have or have planned any specific arrangements with our named executive officers providing for non-equity incentive plan compensation. PERQUISITES Generally, we do not provide any perquisites or other personal benefits to our named executive officers which are not offered on a non-discriminatory basis to all employees as well. HEALTH AND WELFARE BENEFITS We provide the following benefits to our named executive officers on the same basis provided to all of our employees: • medical insurance including comprehensive transgender and fertility coverage, mental health, dental and vision; • adoption and surrogacy benefits; • confidential Employee Assistance Program counseling; • life insurance and accidental death and dismemberment insurance; • a Section 401(k) plan where Tesla provides a company match equal to 50% of the employee’s contribution, up to a maximum of 3% of the employee’s eligible compensation with a $3,000 annual cap; • an employee stock purchase plan; • short-and long-term disability insurance; • medical and dependent care flexible spending account; and • a health savings account.
HISTORICAL EQUITY COMPENSATION
HISTORICAL EQUITY COMPENSATION Prior to stock option awards made in December 2009, Mr. Musk did not receive any equity compensation for his services for a period of five years. In 2010 and 2011, Mr. Musk did not receive any equity grants, because the Compensation Committee believed his grants made in December 2009 already provided sufficient motivation for Mr. Musk to perform his duties as Chief Executive Officer. In August 2012, to create incentives for continued long-term success from the then-recently launched Model S program as well as from Tesla’s then-planned Model X and Model 3 programs, and to further align executive compensation with increases in stockholder value, the Board granted to Mr. Musk the 2012 CEO Performance Award, comprised of a stock option award to purchase 79,123,515 shares (as adjusted for the 2020 Stock Split and 2022 Stock Split) of Tesla’s common stock, representing 5% of Tesla’s total issued and outstanding shares at the time of grant. The 2012 CEO Performance Award consisted of 10 equal vesting tranches, each requiring that Tesla meet a combination of (i) the achievement of a specified operational milestone relating to development of Model X or Model 3, aggregate vehicle production or a gross margin target, and (ii) a sustained incremental $4 billion increase in Tesla’s market capitalization from $3.2 billion, Tesla’s market capitalization at the time of grant. Prior to its expiration in 2022, the market capitalization conditions for all of the 10 vesting tranches and nine of the 10 operational milestones had been achieved, and nine of 10 tranches under the 2012 CEO Performance Award vested. Prior to 2018, the only additional equity awards received by Mr. Musk related to certain immaterial awards granted during 2013 pursuant to a patent incentive program that was available to our employees generally.
2018 CEO PERFORMANCE AWARD
* “Revenue” means total revenues as reported in Tesla’s financial statements on Forms 10-Q or 10-K filed with the SEC for the previous four consecutive fiscal quarters. ** “Adjusted EBITDA” means (i) net income (loss) attributable to common stockholders before (ii) interest expense, (iii) (benefit) provision for income taxes, (iv) depreciation and amortization and (v) stock-based compensation, as each such item is reported in Tesla’s financial statements on Forms 10-Q or 10-K filed with the SEC for the previous four consecutive fiscal quarters. Any single operational milestone could only satisfy the vesting requirement of one tranche, together with the corresponding market capitalization milestone. Subject to any applicable clawback provisions, policies or other forfeiture terms, once a milestone was achieved, it was forever deemed achieved for purposes of determining the vesting of a tranche. Meeting more than 12 of the 16 operational milestones does not result in any additional vesting or other compensation to Mr. Musk under the 2018 CEO Performance Award. Except in a change in control situation, measurement of the market capitalization milestones was based on both (i) a six calendar month trailing average of Tesla’s stock price as well as (ii) a 30 calendar day trailing average of Tesla’s stock price, in each case based on trading days only. Upon the consummation of certain acquisitions or split-up, spin-off or divestiture transactions, each then-unachieved market capitalization milestone and/or operational milestone would have been adjusted to offset the impact of such transactions to the extent they had been considered material to the achievement of those milestones. In establishing the Revenue and Adjusted EBITDA milestones, the Board carefully considered a variety of factors, including Tesla’s growth trajectory and internal growth plans and the historical performance of other high-growth and high-multiples companies in the technology space that have invested in new businesses and tangible assets. These benchmarks provided revenue/EBITDA to market capitalization multiples, which were then used to inform the specific operational targets that aligned with Tesla’s plans for future growth. Nevertheless, the Board considered each of the market capitalization and operational milestones to be challenging hurdles. For example, in order to meet all 12 market capitalization milestones, Tesla was required to add approximately $600 billion to its market capitalization at the time of the grant of the 2018 CEO Performance Award on a sustained basis, and in order to satisfy all eight revenue-based operational milestones, Tesla would have to increase revenue by more than $163 billion from its annual revenue of approximately $11.8 billion in 2017, the last fiscal year completed prior to the grant of the 2018 CEO Performance Award. In addition, Mr. Musk was required to continue leading Tesla as our Chief Executive Officer or, alternatively, as our Chief Product Officer and Executive Chairman (with any other Chief Executive Officer reporting directly to him), at the time each milestone was met in order for the corresponding tranche to vest. With limited exceptions, Mr. Musk must hold any shares that he acquires upon exercise of the 2018 CEO Performance Award for at least five years post-exercise. There would have been no acceleration of vesting of the 2018 CEO Performance award upon Mr. Musk’s termination, death or disability or a change in control of Tesla. However, in a change in control situation, the achievement of the milestones would have been based solely on the market capitalization milestones, with the measurement of Tesla’s market capitalization determined by the product of the total number of outstanding shares of Tesla common stock immediately before the change in control multiplied by the greater of the last closing price of a share of Tesla common stock before the effective time of the change in control or the per share price (plus the per share value of any other consideration) received by Tesla’s stockholders in the change in control. In the event of a restatement of Tesla’s financial statements previously filed with the SEC, if a lesser portion of the 2018 CEO Performance Award would have vested based on the restated financial results, then Tesla will require forfeiture (or repayment, as applicable) of the portion of the 2018 CEO Performance Award that would not have vested based on the restated financial results (less any amounts Mr. Musk may have paid to Tesla in exercising any forfeited awards). The 2018 CEO Performance Award is subject, if more stringent than the foregoing, to any current or future Tesla clawback policy applicable to equity awards, provided that the policy does not discriminate solely against Mr. Musk except as required by applicable law. As of the date of this filing, all of the milestones have been achieved and certified by our Board. Consequently, all 12 of the 12 tranches under the 2018 CEO Performance Award, corresponding to options to purchase an aggregate 303,960,630 shares of Tesla’s common stock, have vested and become exercisable, subject to Mr. Musk’s payment of the exercise price of $23.34 per share and the minimum five-year holding period generally applicable to any shares he acquires upon exercise. Realized Compensation For purposes of the table in “Executive Compensation — Summary Compensation Table” below, we are required to report pursuant to applicable SEC rules any stock option grants to Mr. Musk at values determined as of their respective grant dates and which are driven by certain assumptions prescribed by ASC Topic 718. Moreover, we are required to report in “Executive Compensation — Pay Ratio Disclosure” below (i) Mr. Musk’s annual total compensation, (ii) the median of the annual total compensation of all Tesla employees qualifying for this analysis, other than Mr. Musk, in each case calculated pursuant to the methodology used for the table in “Executive Compensation — Summary Compensation Table,” and (iii) the ratio of the former to the latter. In addition, we are required to report in “Executive Compensation — 2023 Option Exercises and Stock Vested” below an amount for the “value realized” upon: (i) any exercise by Mr. Musk of a stock option, which is based on the difference between the market price of the underlying shares at the time of exercise and the exercise price of the stock option and (ii) any vesting of a restricted stock unit award, based on the market price of the award at the time of vesting. Such amount is required to be reported even if Mr. Musk does not actually receive any cash from such exercise or vesting, either because he does not also sell any shares or because he sells only a number of shares sufficient to cover the related tax liabilities resulting from the exercise or vesting. As a result, there may be a significant disconnect between what is reported as compensation for Mr. Musk in a given year in such sections and the value actually realized as compensation in that year or over a period of time. Moreover, the vast majority of compensation in respect of past stock option grants to Mr. Musk, including the 2012 CEO Performance Award and the 2018 CEO Performance Award, were structured to be incentives for future performance with their value realizable only if Tesla’s stock price appreciated compared to the dates of the grants, and if the Company achieved applicable vesting requirements. To supplement the disclosures in “Executive Compensation — Summary Compensation Table,” “Executive Compensation — Pay Ratio Disclosure” and “Executive Compensation — 2023 Option Exercises and Stock Vested” below, we have included the following table, which shows the total realized compensation of Mr. Musk for the last three fiscal years, as well as the ratio of Mr. Musk’s realized compensation to the median of the annual total compensation of all other Tesla employees
2018 CEO PERFORMANCE AWARD
qualifying for this analysis as reported in “Executive Compensation — Pay Ratio Disclosure.” Realized compensation is not a substitute for reported compensation in evaluating our compensation structure, but we believe that realized compensation is an important factor in understanding that the value of compensation that Mr. Musk ultimately realizes is dependent on a number of additional factors, including: (i) the vesting of certain of his option awards only upon the successful achievement of a number of market capitalization increases and operational milestone targets; (ii) the fact that Mr. Musk does not receive any cash if he does not actually sell shares and thereby reduce his investment in us, and he does not receive any cash to the extent that he sells only shares sufficient to cover income taxes with respect to his awards (including stock options exercised solely to avoid their expiration in accordance with their terms); and (iii) the then-current market value of our common stock at the times at which Mr. Musk may elect to actually sell his shares.
2018 CEO PERFORMANCE AWARD
(1) “Total CEO realized compensation” for a given year is defined as (i) the amounts reported for Mr. Musk in “Executive Compensation — Summary Compensation Table” below under the columns “Salary,” “Bonus,” “Non-Equity Incentive Plan Compensation” and “All Other Compensation,” plus (ii) with respect to any stock option exercised by Mr. Musk in such year in connection with which shares of stock were also sold other than to satisfy any resulting tax liability, the difference between the market price of such shares at the time of exercise and the applicable exercise price of the option, plus (iii) with respect to any restricted stock unit vested by Mr. Musk in such year in connection with which shares of stock were also sold other than automatic sales to satisfy any withholding obligations related to such vesting, the market price of such shares at the time of vesting, plus (iv) any cash actually received by Mr. Musk in respect of any shares sold to cover tax liabilities as described in (ii) and (iii) above, following the payment of such tax liabilities. (2) Reflects the exercise of vested stock options granted as part of a company-wide patent incentive program, and which were scheduled to expire in 2023. Mr. Musk paid the exercise price and applicable taxes in cash, and did not sell any of the resulting shares. (3) Reflects the exercise of vested stock options scheduled to expire in 2022 as to which Mr. Musk paid the exercise price in cash. Of the shares received upon exercise, 42.0% were immediately sold in order to pay federal and state tax withholding from the option exercise and none of the proceeds from such sales were retained by Mr. Musk. Of the remaining shares, 94.6% were retained by Mr. Musk. The other 5.4% automatically were sold as a result of a Rule 10b5-1 trading plan put in place in September 2021.
Other Information
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($)(1) | Non-Equity Incentive Plan Compensation ($) | All Other Compensation ($) | Total ($) | | Elon Musk Technoking of Tesla and Chief Executive Officer | 2023 | — | — | — | — | — | — | — | | | 2022 | — | — | — | — | — | — | — | | | 2021 | — | — | — | — | — | — | — | | Vaibhav Taneja Chief Financial Officer | 2023 | 275,000 | — | — | — | — | 3,000(2) | 278,000 | | Tom Zhu SVP, Automotive | 2023 | 381,009 | — | — | 31,641,961 | — | 545,868(3) | 32,568,838 | | Zachary Kirkhorn(4) Former Chief Financial Officer | 2023 | 280,385 | — | — | — | — | 3,000(2) | 283,385 | | | 2022 | 300,000 | — | — | — | — | 3,000(2) | 303,000 | | | 2021 | 301,154 | — | — | — | — | — | 301,154 | | Andrew Baglino(5) Former SVP, Powertrain and Energy Engineering | 2023 | 300,000 | — | — | — | — | 3,000(2) | 303,000 | | | 2022 | 300,000 | — | — | — | — | 3,000(2) | 303,000 | | | 2021 | 301,154 | — | — | — | — | — | 301,154 |
Pay Versus Performance
Pay Versus Performance In accordance with Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(v) of Regulation S-K, we are required to disclose certain information about the relationship between the compensation actually paid to our named executive officers and certain measures of company performance. For information on our compensation philosophy, please see “Compensation Discussion and Analysis.”
Pay Versus Performance
| Year | Summary Compensation Table Total for CEO ($)(1) | Compensation Actually Paid to CEO (in millions) ($)(2) | Average Summary Compensation Table Total for Non-CEO Named Executive Officers (in millions) ($)(3) | Average Compensation Actually Paid to Non-CEO Named Executive Officers (in millions) ($)(4) | Value of Initial Fixed $100 Investment Based on: | | | | | | | | | | Tesla Total Shareholder Return ($)(5) | Peer Group Total Shareholder Return ($)(6) | Net Income (in millions) ($)(7) | Revenue (in millions) ($)(8) | | 2023 | — | 1,403 | 8.4 | 45.8 | 890.97 | 209.21 | 14,974 | 96,773 | | 2022 | — | (9,703) | 0.3 | (165.3) | 441.68 | 151.29 | 12,587 | 81,462 | | 2021 | — | 15,016 | 0.3 | (74.3)(9) | 1,263.09 | 235.13 | 5,644 | 53,823 | | 2020 | — | 43,019 | 46.6 | 393.0 | 843.44 | 162.40 | 862 | 31,536 |
Pay Versus Performance
(1) Represents the total compensation reported for Elon Musk (our Chief Executive Officer) for each corresponding year in the “Total” column of the Summary Compensation Table. The dollar amounts reported in this column represent the amount of “compensation actually paid” to Mr. Musk, computed in accordance with Item 402(v) of Regulation S-K. The dollar amounts do not reflect the actual amount of compensation earned by or paid to Mr. Musk during the applicable year. In accordance with the requirements of Item 402(v) of Regulation S-K, the following adjustments were made to Mr. Musk’s total compensation, as reported in the Summary Compensation Table for each year, to determine the compensation actually paid.
Pay Versus Performance
| Year | Reported Summary Compensation Table Total for CEO ($) | Reported Value of Equity Awards ($)(a) | Equity Award Adjustments (in millions) ($)(b) | Reported Change in the Actuarial Present Value of Pension Benefits ($) | Pension Benefit Adjustments ($) | Compensation Actually Paid to CEO (in millions) ($) | | 2023 | — | — | 1,403 | — | — | 1,403 | | 2022 | — | — | (9,703) | — | — | (9,703) | | 2021 | — | — | 15,016 | — | — | 15,016 | | 2020 | — | — | 43,019 | — | — | 43,019 |
Description of Relationships Between Compensation Actually Paid and Performance
Description of Relationships Between Compensation Actually Paid and Performance
2023 Director Compensation Table
2023 Director Compensation Table The following table provides information concerning the compensation paid by us to each of our non-employee directors who served during any part of fiscal year 2023. Elon Musk, who is a named executive officer, does not receive additional compensation for his services as a director. The awards with respect to which values are provided under the column “Option Awards” below are exclusively stock options, which have realizable value only if they vest over time and to the extent, if any, that our stock price exceeds the applicable exercise prices. The values provided below for these awards are based on applicable accounting standards, and do not necessarily reflect the actual amounts realized or realizable pursuant to the underlying stock options.
2023 Director Compensation Table
| Name | Fees Earned or Paid in Cash ($)(1) | Option Awards ($)(2)(3) | All Other Compensation | Total ($) | | Robyn Denholm | — | — | — | — | | Ira Ehrenpreis | — | — | — | — | | Joe Gebbia | — | — | — | — | | Hiromichi Mizuno(4) | 10,350 | — | — | 10,350 | | James Murdoch | — | — | — | — | | Kimbal Musk | — | — | — | — | | JB Straubel | — | — | — | — | | Kathleen Wilson-Thompson | — | — | — | — |
2023 Director Compensation Table
Reflects cash compensation for service on the Board and/or its applicable committees pursuant to Tesla’s outside director compensation policy (the “Director Compensation Policy”) and/or for service as Chair of the Board as previously approved by the Board, as applicable. The earning and payment of cash retainer payments payable to outside directors may be waived in whole or part at the election of the director. Seven of the outside directors have requested that the Company eliminate the future payment of all of their cash retainer amounts for service on the Board unless the director notified otherwise. As of December 31, 2023, the aggregate number of shares underlying option awards outstanding for each of our non-employee directors was:
2023 Director Compensation Table
| Name | Aggregate Number of Shares Underlying Options Outstanding | | Robyn Denholm | 1,662,480 | | Ira Ehrenpreis | 1,110,000 | | Joe Gebbia | — | | Hiromichi Mizuno(4) | 351,690 | | James Murdoch | 1,270,020 | | Kimbal Musk | 341,750 | | JB Straubel | — | | Kathleen Wilson-Thompson | 765,855 |
2023 Director Compensation Table
(3) Reflects stock option grants for service on the Board or as members or chairs of Board committees that were automatically granted pursuant to the Director Compensation Policy. In June 2021, the Board unanimously adopted a resolution to forego any automatic grants of annual stock option awards under the Director Compensation Policy or otherwise previously approved by the Board (the “Board Stock Option Grants”) until July 2022 unless the Board earlier acts to amend the Director Compensation Policy or otherwise amends such resolution. In May 2022, the Board agreed to further forego the Board Stock Option Grants until the Board earlier acts to amend the Director Compensation Policy or otherwise amends such resolution. (4) Board term ended in May 2023 without standing for re-election at the 2023 annual meeting of stockholders.
Non-Employee Director Compensation Arrangements
Non-Employee Director Compensation Arrangements
Johnson Rice
Johnson Rice Johnson Rice joined the Board on Gracias’s recommendation.158 She and Gracias were friends and ran in the same social circle in Chicago.159 Johnson Rice’s sole employer before and during her time at Tesla was a family business, Johnson Publishing Company, which published the magazines Ebony and Jet.160 She has also served on a number of other boards.161 Johnson Rice declined to stand for re-election in 2019.162 Although she received Tesla options as compensation for her work as a director, they expired without being exercised.163 2. Musk Proposes Terms Of A Compensation Plan. The first mention in the record of what would become the 2018 Grant is a text from Ehrenpreis to Musk sent on April 8, 2017—one day after Tesla’s Compensation Committee certified vesting of the 2012 Grant’s sixth tranche.164 Ehrenpreis asked Musk to discuss “a few comp related issues.”165 They spoke by phone on April 9.166 Ehrenpreis testified that he had reached out to Musk to see if he was “ready to recommit”167 and “to figure out . . . was his head in a place that he wanted to recommit over a longer duration to Tesla[?]”168 Musk put forward terms of a new compensation plan during the April 9 call.169 He envisioned a purely performance-based compensation plan, structured like the 2012 Grant but with more challenging market capitalization milestones170 and proposed 15 milestones of $50 billion in market capitalization—a total possible award of 15% of Tesla’s outstanding shares.171 158 Gracias Dep. Tr. at 123:24–124:3. 159 Id. at 122:23–123:21. 160 Johnson Rice Dep. Tr. at 10:11–20. 161 Id. at 12:4–18. 162 Id. at 45:1–46:5. 163 Id. at 41:14–24. 164 JX-362 at 2; Trial Tr. at 99:3–101:7 (Ehrenpreis); JX-361 at 75. 165 JX-362 at 2. 166 See Trial Tr. at 98:11–105:24 (Ehrenpreis); see also JX-362 at 2 (4/8/17 text from Ehrenpreis to Musk asking to “pls chat for a few minutes this weekend re a few comp related issues”); JX-1598 (1/7/18 email from Maron containing draft proxy language describing April 9, 2017 call). 167 Trial Tr. at 24:5–19 (Ehrenpreis). 168 Id. 169 See JX-1700 at 12 (1/12/18 Draft Schedule 14A Proxy). 171 Id.; see also Trial Tr. at 269:17–270:8 (Maron) (testifying that “at the beginning of the process . . . the conception of the plan at a high level was to have $50 billion market cap increments”). To put Musk’s proposal in perspective, each market capitalization milestone increase of $50 billion required Tesla to grow in size roughly equal to the market capitalizations of each of Tesla, Ford, and GM as of early 2018.172 So, Tesla would have to grow an amount in market capitalization equal to that of the most significant domestic car manufacturers for Musk to earn a single tranche of compensation.173 Musk viewed this proposal as “really crazy.”174 Musk’s initial proposal is reflected in a draft of the proxy statement issued in connection with the 2018 Grant. The draft states: On April 9, 2017, . . . Ira Ehrenpreis, the Chairman of the Compensation Committee, and Mr. Musk discussed the possibility of a new performance award that would have an incentive structure similar to the 2012 Performance Award but with even more challenging performance hurdles. Mr. Musk expressed interest in such an arrangement and suggested a compensation structure that would incentivize management to grow Tesla into one of the most valuable companies in the world. During this meeting, Mr. Musk suggesting performance milestones that would trigger stock option awards of 1 % of the Company’s current total outstanding shares based on incremental $50 billion increases in market capitalization, such that if Tesla grew by $750 billion, a maximum possible award would amount to 15% of the Company’s current total outstanding shares. Mr. Musk indicated that such an award structure would align his incentives with those of stockholders and incentivize him to continue leading the management of the Company over the long-term. Mr. Ehrenpreis indicated that the Compensation Committee would consider Mr. Musk’s perspectives as part of its analysis.175 172 JX-1700 at 12; JX-1510 at 27 (cumulative market capitalization of Tesla was approximately $56 billion as of January 10, 2018); JX-757 at 2 (12/31/17 Ford Form 10-K) (aggregate market value of common stock was approximately $42.8 billion as of December 31, 2017); JX-1104 at 1 (2/6/19 GM Form 10-K) (aggregate market value of voting stock was approximately $55.5 billion as of June 30, 2018); see Trial Tr. at 1268:2–20 (Murphy) (“You know, with the 2012 plan everybody liked basically we started off by saying we got to double the market cap for you to get anything. Well, now the market cap had grown to 50 billion and it was up to 59 billion by the time they actually approved the plan. But this idea, 50 billion, that’s a nice round number. I think at the end of 2017, Ford was worth about 49 billion. I think that GM was worth about 58 billion. So this is: Every time we’ll get another Ford or a GM. I think that just kind of resonated.”); Trial Tr. at 231:11–16 (Ehrenpreis) (“Q. . . . So these options, by the way, are worth roughly the value, the market cap of Ford; right? A. That’s true.”); id. at 1397:1–5 (Buss) (“I mean, again, those market cap goals, you know, were totally insane. I mean, you literally had to create a Ford, GM, or FedEx every ten months. Every ten months. And maintain it, right? So, okay, wow, that’s pretty nuts.”). 173 JX-1700 at 12; JX-1510 at 27; JX-757 at 2; JX-1104 at 1; see Trial Tr. at 1268:2–20 (Murphy); id. at 231:11–16 (Ehrenpreis); id. at 1397:1–5 (Buss). Language like the above appears in other drafts but not in the final proxy statement.176 The draft proxy statement is the most reliable (indeed, the only) evidence of the substance of the April 9 discussion. Neither Musk nor Ehrenpreis took contemporaneous notes or otherwise memorialized their April 9 discussion. By the time of discovery and then trial in this action, Musk had only vague memories of the discussion, and Ehrenpreis had no memory of it at all.177 It is unclear who prepared the draft proxy statement, but Maron, Tesla’s General Counsel, was responsible for it. Maron testified he spoke to Ehrenpreis within hours of the April 9 call and reviewed the draft.178 176 See JX-1597 at 9 (1/8/17 Draft Schedule 14A Proxy); JX-1598 at 3 (1/7/18 draft language for Schedule 14A Proxy); JX-1599 at 14 (1/10/18 Draft Schedule 14A Proxy); see also JX-878 at 9–12 (2/8/18 Schedule 14A Proxy Statement) (background section of the final proxy omitting any mention of the April 9 conversation). There were minor changes in language between the proxy drafts. Compare, e.g., JX-1598 at 3 (“Mr. Musk indicated an interest in such a structure, and mentioned the possibility of setting 15 milestones in which each would require a market capitalization increase of $50 billion[.]” (emphasis added)), with, JX-1700 at 12 (“Mr. Musk expressed interest in such an arrangement and suggested a compensation structure that would incentivize management to grow Tesla into one of the most valuable companies in the world. During this meeting, Mr. Musk suggesting [sic] performance milestones that would trigger stock option awards of 1% of the Company’s current total outstanding shares based on incremental $50 billion increases in market capitalization[.]” (emphasis added)).
Johnson Rice
177 See Trial Tr. at 70:6–72:18, 79:13–20, 97:20–102:7 (Ehrenpreis); id. at 631:3–632:6, 633:24–635:7, 694:6–695:9 (Musk). Ehrenpreis did not remember the substance of their April 9, 2017 conversation prior to reviewing documents in preparation for his deposition. Id. at 70:13–71:13 (Ehrenpreis). Despite his vague recollection, Musk offered an alternative account of the April 9 discussion during his deposition and at trial. When asked about the April 9 call, Musk testified that he might have instead proposed a grant of “10 percent of the company, incrementally taking into account dilution of [his] own shares.” Musk Dep. Tr. at 144:13–150:3; see also Trial Tr. at 632:18–633:2 (Musk). Ultimately, when pressed, neither Musk nor Ehrenpreis disputed the draft proxy statement’s account. Trial Tr. at 633:15–635:7 (Musk) (not disputing the relevant language in JX-1597); id. at 91:2–97:24 (Ehrenpreis) (not disputing “Mr. Musk asked for a 15 percent plan” based in part on the proxy statement drafts). Musk stated in an interrogatory answer that he did not “specifically recall the dates or substance” of any discussions of a new stock option award before June 23, 2017. JX-1256 at 9–10 (8/3/2020 Musk’s Amended Responses and Objections to Plaintiff’s First Set of Interrogatories Directed to All Defendants and Nominal Defendant Tesla, Inc.). Musk reaffirmed his interrogatory answer at trial. Trial Tr. at 631:3–632:6 (Musk). When offering his alternative account, he was equivocal, stating that the proposal “might have happened[.]” Id. at 632:18–633:2 (Musk) (emphasis added). He also stated, “I think I proposed . . . 10 percent[.]” Musk Dep. Tr. at 144:13–146:6 (emphasis added). 178 See Trial Tr. at 100:22–102:7 (Ehrenpreis); id. at 239:12–15 (Maron); Maron Dep. Tr. at 127:13–128:12; JX-1700 at 2 (“Todd will review all of our comments on these sections of the proxy and press release and give WSGR the final draft. . . . Todd/Phil[ip Rothenberg] [w]ill work to provide an updated draft Background section”); Trial Tr. at 239:9–15 (Maron) (stating that he heard about the possibility of a new compensation plan for Musk from Ehrenpreis in April 2017); see also JX -369 at 2–3 (email thread between Maron and Ahuja dated April 9, 2017 discussing the new compensation plan for Musk); Trial Tr. at 105:18–24 (Ehrenpreis) (stating that Maron was cued into discussions of Musk’s new compensation plan on April 9 and 10). Maron was totally beholden to Musk, lending credibility to the accuracy of the draft proxy statement. But his relationship with Musk raises concerns as to other aspects of the process during which Maron advised the Board and Compensation Committee. Maron joined Tesla as Deputy General Counsel in September 2013, and was promoted to General Counsel in September 2014, reporting directly to Musk.179 Before joining Tesla, Maron was Musk’s divorce attorney.180 Maron neither socialized with Musk nor considered himself a friend of Musk when he worked at Tesla, but he owed his career to and had genuine affection for Musk.181 Both in his deposition and at trial, Maron held back tears when asked about his departure from Tesla in January 2019, describing it as “the most difficult decision[]” he had made to date.182 After speaking to Ehrenpreis on April 9, Maron enlisted other Tesla employees to help him model Musk’s proposal. All told, 13 in-house Tesla executives worked on the 2018 Grant.183 The key executive in addition to Maron was Ahuja, Tesla’s CFO.184 At the outset of his involvement, Ahuja recommended one substantive change to the structure—pairing the market capitalization milestones with operational milestones.185 He recommended this change for accounting purposes. Maron relayed the change to Ehrenpreis, who questioned whether operational milestones were necessary.186 Maron explained that “there’s an important account[ing] reason” for having operational milestones.187 Maron’s team began analyzing Musk’s initial proposal on April 10, roping in Tesla’s legal counsel at Wilson Sonsini Goodrich & Rosati (“Wilson Sonsini”)188 and lining up compensation consultants. Maron proposed retaining Compensia, Inc., a compensation consulting firm that Tesla had engaged in connection with the 2009 and 2012 Grants,189 but he also provided four other options for Ehrenpreis to consider.190 179 PTO ¶¶170–71; Maron Dep. Tr. at 23:21–24. 180 Maron Dep. Tr. at 19:23–20:8. 181 Id. at 20:9–18 (stating that he and Musk did not socialize and that he never met Musk’s family); id. at 199:7–200:5 (Maron) (stating that, although he and Musk were not “friends,” he “cared about [Musk] a tremendous amount . . . [he’s] always cared about him and wanted him to have . . . success in life. . . . [he] just want him to be happy as you would with anyone that you care about”). 182 Id. at 74:10–17 (becoming “emotional” about the decision to leave Tesla); id. at 200:9–15 (“Unfortunately I lost my cool earlier and cried because I love the company so much, and I loved my teammates and my colleagues and the people on the executive team.”); Trial Tr. at 275:10–24 (Maron) (confirming he “choked up” at his deposition about his “incredible experience[]” at Tesla and the “very emotional decision” to leave Tesla). 183 Trial Tr. at 110:8–112:14 (Ehrenpreis). 184 Ahuja was Tesla’s CFO from August 2008 to November 2015 and from March 2017 to March 2019. PTO ¶¶ 180–81. 185 JX-369 at 3 (Ahuja explaining that “[i]f the award only has a market condition, the SBC expense will start on the date of the grant,” but “[i]f the award has both a market and performance condition, the expense is first recorded when probability of achievement exceeds 70%[.]”). 186 JX-367 at 1 (Maron explaining to Ehrenpreis the need for operational milestones); Trial Tr. at 105:5–24 (Ehrenpreis) (confirming that Maron contacted him in response to Musk asking for market cap milestones and his request that Maron and Ahuja address the issue); JX-418 at 2 (“[O]ne thing Ira wanted to pressure test is whether we really do need the operational milestones[.]”). 187 JX-367 at 1. Despite this explanation, Ehrenpreis later advocated for removing the operational milestones, directing the Tesla team to “pressure test” the feasibility of that structure in mid-June 2017. Trial Tr. at 112:15 –113:17 (Ehrenpreis); id. at 285:18–286:20 (Maron). He was again informed that operational milestones were necessary for accounting purposes. JX-423 at 1 (Maron emailing Ehrenpreis that he “wanted to pressure test . . . whether we really do need operational milestones in addition to the market cap milestones. If we could only do the latter, that’s what he would prefer, but I remember you telling me that there were accounting reasons for why we needed both.”). 188 JX-371. 189 JX-368; PTO ¶¶ 153, 155–56. 190 JX-374 (proposing FW Cook, Pearl Meyer, Semler Brossy, and Radford as alternative compensation consultants). Musk States That He Is Committed To Tesla For Life. Little progress was made on Musk’s new compensation plan through May 2017. During a May 3 earnings call, an analyst asked about Musk’s “view of staying actively in place with Tesla longer into the future[.]”191 Musk responded that he should not be “CEO forever.”192 He further indicated that he was going to reevaluate his position after Tesla achieved volume production of the Model 3.193 The plaintiff argues that Musk’s statement about not being “CEO forever” was intended to pressure Tesla in negotiations over Musk’s compensation plan, but the record does not support that conclusion. Musk clarified his statement later in the May 3 earnings call, saying: Well, maybe I wasn’t clear. I intend to be actively involved with Tesla for the rest of my life. Hopefully, stopping before I get too old—or too crazy, I don’t know. But essentially for as long as I can positively contribute to Tesla, I intend to be—to have a significant involvement with Tesla.194
Johnson Rice
In other words, Musk had every intention of remaining “significant[ly] involved” in some leadership role at Tesla, even though he did not envision himself being “CEO forever.” Musk repeated this assertion at trial, stating unequivocally that he would have remained at Tesla even if stockholders had rejected a new compensation plan because he was “heavily invested in Tesla, both financially and emotionally, and viewed Tesla as part of his family.”195 Trial witnesses similarly testified that they never heard Musk say he had any plans to quit Tesla.196 And even though Musk did not intend to stay CEO forever, he had no immediate plans to resign from that position. Corroborating that fact is lack of any succession plans during the relevant period. That is, before 2021, neither Musk nor Tesla had identified a potential successor for the role of Tesla CEO.197 191 JX-390 at 20. 192 Id. at 20–21. 193 JX-185 at 12 (“I think I was — yes, certainly be CEO for like, say, 4 or 5 years and then it’s sort of TBD after that. Yes, but that’s the commitment I made to people at Tesla and also to investors is that I’m going to make sure that we execute through the high-volume, affordable car at a minimum and then we’ll evaluate it at that point.”); Trial Tr. at 574:14–18 (Musk) (testifying that the “high-volume, affordable car” Musk was referring to in JX-185 was the Model 3). 194 JX-390 at 20. 195 Trial Tr. at 643:24–644:15 (Musk); see also JX-912 at 75 (2/26/18 draft CEO performance award investor presentation) (“Elon is heavily invested in Tesla, both financially and emotionally, and views Tesla as part of his family.”). 196 Trial Tr. at 278:3–9 (Maron) (“Q. Now, during the 2017, 2018 time frame, Elon never really told you that he was planning to leave Tesla, right? A. He never said that to me. Q. Never expressed to you that he was no longer interested in an executive role at Tesla? A. No, never said that.”); id. at 526:14–19 (Ahuja) (“Q. And thinking about Elon, during your time as CFO, Elon never told you that he was planning to stop his involvement with Tesla? A. He did not, though I would not expect any CEO to tell that to the CFO or the management team.”); id. at 784:16–18 (Gracias) (“Q. And you never heard Elon Musk say he was going to quit Tesla; correct? A. I did not.”); id. at 785:8–11 (Gracias) (“Q. And Elon Musk certainly never said he would quit Tesla if he felt he was inadequately compensated; correct? A. Correct.”). 197 Id. at 1421:9–13 (Buss) (“Q. Shifting gears, during your board tenure, the Tesla board had no formal documented succession plan to replace Mr. Musk; correct? A. Formally documented, no. We had various discussions. But correct, nothing documented.”); id. at 857:9–858:10 (Murdoch) (confirming Musk had not identified a successor until the months after his 2021 deposition).

DEF 14A of Tesla, Inc.

Nominees for Class II Directors

Nominees for Class II Directors

Nominees for Class II Directors

Nominees for Class II Directors

Director Bios

Director Bios

Director Bios

Director Bios

Director Bios

Director Bios

Director Bios

Director Bios

Director Bios

Director Bios

Director Bios

Director Bios

Director Bios

Director Bios

Director Bios

Director Bios

Director Bios

Summary of the 2023 Executive Compensation Program

Principal Terms of the Texas Redomestication

Certain Differences Between Delaware Charter and Bylaws and Texas Charter and Bylaws

Comparison of Stockholder Rights under Delaware and Texas Law

Comparison of Stockholder Rights under Delaware and Texas Law

Principal Terms of the 2018 CEO Performance Award To Be Ratified

Overview of the 2018 CEO Performance Award

Overview of the 2018 CEO Performance Award

Overview of the 2018 CEO Performance Award

Overview of the 2018 CEO Performance Award

The 2018 Approval Process

The 2018 Approval Process

Tornetta v. Musk Decision and Deficiencies Found by the Court

Performance of the Company Assessed Against Performance Metrics

ROBYN DENHOLM

Stock Transactions

Compensation Philosophy

Key Factors in Determining Executive Compensation

EQUITY-BASED INCENTIVES

HISTORICAL EQUITY COMPENSATION

2018 CEO PERFORMANCE AWARD

2018 CEO PERFORMANCE AWARD

2018 CEO PERFORMANCE AWARD

Other Information

Pay Versus Performance

Pay Versus Performance

Pay Versus Performance

Pay Versus Performance

Description of Relationships Between Compensation Actually Paid and Performance

2023 Director Compensation Table

2023 Director Compensation Table

2023 Director Compensation Table

2023 Director Compensation Table

2023 Director Compensation Table

Non-Employee Director Compensation Arrangements

Johnson Rice

Johnson Rice

Johnson Rice