Tesla Chair Warns: Rejecting Elon Musk’s $56 Billion Pay Risks His Departure

The Ultimatum: Tesla Chair Frames Pay Vote as Choice Between CEO and Risk

Robyn Denholm, the Chair of Tesla’s board of directors, has issued a stark warning to shareholders ahead of an upcoming vote on CEO Elon Musk’s massive 2018 compensation package. In a recent letter to investors, Denholm framed the decision not merely as a matter of executive pay, but as a fundamental question about the company’s future leadership and strategic direction.

Denholm’s message, delivered via a public letter, makes the stakes clear: shareholders must decide whether they want to retain Musk as CEO, or risk his potential departure and the subsequent loss of his focus on Tesla’s critical AI and robotics initiatives.

“Do you want to retain Elon as Tesla’s CEO, and continue to benefit from his focus on the Company’s success, or do you risk him leaving Tesla to dedicate his time and energy elsewhere?” Denholm wrote.

This forceful defense of the compensation package underscores the board’s view that Musk’s unique contributions—particularly in areas like artificial intelligence, Optimus robotics, and future product vision—are inextricably linked to the approval of the controversial grant.

The Core Conflict: Retaining the Visionary

The shareholder vote centers on the ratification of the 2018 compensation package, which was originally valued at up to $56 billion when fully vested, making it the largest executive pay deal in corporate history. The package was structured around highly ambitious operational and market capitalization milestones, all of which Musk successfully achieved.

The $56 Billion Question: Details of the 2018 Grant

The compensation package, which grants Musk stock options, vests in 12 tranches based on two sets of goals:

• Market Capitalization Milestones: Tesla had to reach $650 billion in market capitalization, a target that seemed impossible in 2018 but was surpassed years later.
• Operational Milestones: Specific revenue and adjusted EBITDA targets had to be met.

Denholm argued that the package was not a gift, but a performance incentive that delivered unprecedented returns for shareholders.

The Legal Precedent: Why the Re-Vote is Necessary

The need for a re-vote stems from a January 2024 ruling by the Delaware Court of Chancery. Chancellor Kathaleen McCormick invalidated the original 2018 grant, finding that the board was not sufficiently independent of Musk and failed to fully inform shareholders about the process and key details of the negotiation.

To remedy this corporate governance failure, the board is seeking shareholder ratification. Denholm emphasized that the board has since taken steps to address the court’s concerns, including adding new, independent directors and restructuring internal processes.

The Risk of Departure and Shifting Focus

Denholm’s letter explicitly leans into the concept of “key-man risk,” highlighting that Musk’s commitment to Tesla is conditional on his compensation and ownership stake.

Musk has publicly stated his desire for a 25% voting stake in Tesla. He argues that this level of control is necessary to ensure that Tesla remains the primary beneficiary of his work in advanced technologies, specifically AI and robotics, rather than shifting those resources to his other ventures, such as xAI or SpaceX.

Denholm’s argument suggests that rejecting the pay package would signal a lack of commitment from shareholders, potentially leading Musk to:

• Reduce his time commitment to Tesla, focusing instead on companies where he holds greater control.
• Divert critical AI and robotics talent and resources away from Tesla’s internal development, slowing down projects like the Optimus humanoid robot and autonomous driving advancements.

This perspective places the burden of ensuring Tesla’s technological leadership directly onto the shoulders of the investors through their vote on the compensation.

Corporate Governance and Shareholder Reaction

The push for ratification faces significant opposition from institutional investors and proxy advisory firms, who often criticize the sheer size of the package and the initial lack of board independence.

Key arguments against the package include:

1. Excessive Compensation: The dollar value is seen as disproportionate, even given Tesla’s growth.
2. Lack of Independence: Critics argue the board remains too closely aligned with Musk, despite recent changes.
3. Governance Concerns: The Delaware ruling highlighted fundamental flaws in the 2018 approval process.

However, many retail investors, who hold a substantial portion of Tesla stock, remain fiercely loyal to Musk and are expected to vote in favor of the package, prioritizing his continued leadership over governance concerns.

Key Takeaways for Investors

Denholm’s communication forces shareholders to weigh immediate financial concerns against the long-term strategic value of Musk’s involvement. The key points are:

• The Vote is Existential: The board views the ratification of the 2018 pay package as essential to securing Musk’s long-term commitment to Tesla.
• AI and Robotics Risk: Rejecting the pay could lead Musk to shift his focus, potentially moving critical AI and robotics development outside of Tesla.
• Governance vs. Performance: Investors must balance concerns about corporate governance (the reason the package was invalidated) against the historical performance driven by Musk’s leadership.
• The 25% Stake: While the pay package increases Musk’s stake, it does not immediately grant him the 25% voting control he has publicly demanded.

What’s Next

The shareholder vote is scheduled to take place at the upcoming annual meeting. Beyond the compensation package, shareholders will also vote on moving Tesla’s state of incorporation from Delaware to Texas, a move seen by many as a direct response to the unfavorable Delaware court ruling. The outcome of both votes will significantly shape Tesla’s corporate structure and leadership stability for the remainder of 2025 and beyond.