Tesla Shareholders Approve Elon Musk's Compensation Package by Nearly 3-1 Margin

Electric-car maker Tesla (NASDAQ: TSLA) held a special meeting of stockholders yesterday to vote on the company's proposed compensation package for CEO Elon Musk, which would potentially grant the eccentric billionaire an additional 12% stake in the company over 10 years if he hits all the necessary milestones. The package includes 12 tranches, each good for 1% of current shares outstanding. Tesla's market cap would need to reach a whopping $650 billion for Musk to earn the entire award.

The two largest proxy advisory firms, ISS and Glass Lewis, had both recommended their institutional investors vote against the package, believing that it was excessive and unnecessary given Musk's existing stake in Tesla should serve as sufficient motivation. It seems that recommendation fell on deaf ears, as Tesla shareholders have just approved it by a nearly 3-1 margin.

73% of disinterested votes were in favor

Given the inherent conflicts of interests, Musk and his brother Kimbal Musk recused themselves from the vote. Technically, there were three standards by which to measure the vote: the NASDAQ Standard, Bylaws Standard, and Disinterested Standard.

The NASDAQ Standard was based on the NASDAQ's Stock Market Rules, while the Bylaws Standard was based on Tesla's corporate bylaws. These two standards were effectively the same in practice, but the Disinterested Standard is the important one, as it excludes the Musk brothers due to their recusal.

Under the Disinterested Standard, approximately 73% of votes cast were in favor of the award.

The results of the vote aren't all that surprising, given early indications from prominent institutional investors like Baillie Gifford and T. Rowe Price, both of which publicly voiced support for the proposed package ahead of the meeting. Baillie Gifford and T. Rowe Price are Tesla's largest two institutional shareholders, holding 7.7% and 6.4% of shares outstanding, respectively, according to SEC filings.

Meanwhile, much of Tesla's retail investor base will follow Musk with seemingly limitless patience for the company's missteps and shortcomings, including Model 3 production delays.

About those milestones

With the vote now in the rearview mirror, Musk's task is to deliver on the market cap and operational milestones over the next decade. The market cap milestones come in $50 billion increments, starting at $100 billion with the final milestone at $650 billion. Musk will also need to hit 12 of these 16 operational milestones:

If he is able to deliver, investors will be handsomely rewarded over the next decade, as will Musk himself.

10 stocks we like better than TeslaWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Tesla wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of March 5, 2018

Evan Niu, CFA owns shares of Tesla. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.