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Institutional Shareholder Services (ISS) Urges Rejection of Elon Musk’s $1 Trillion Pay Package

The Elon Musk $1T pay package has triggered significant investor backlash, as advisory firm ISS recommends shareholders vote against the proposal ahead of Tesla’s upcoming annual meeting. The move marks a major challenge for Tesla’s board and raises questions about governance, dilution and the alignment of incentives.


What Happened?

  • On 17 October 2025, ISS advised shareholders of Tesla, Inc. to oppose the proposed compensation package for CEO Elon Musk, valued at up to $1 trillion under the most optimistic scenario.
  • The compensation plan was initially proposed in September 2025 and links Musk’s rewards to ambitious performance targets, including a market-cap goal of ~$8.5 trillion, massive vehicle delivery numbers, robotaxi production and adjusted earnings milestones.
  • ISS flagged several concerns: the “astronomical” size of the award, the possibility of very large payouts even for partial performance, dilution of existing shareholders, and governance risks given Musk’s many other businesses
  • Some pension funds and shareholder groups (such as SOC Investment Group) have also called for shareholders to vote against the pay plan and against the election of certain board members.

Why This Matters

1. Governance & Board Independence

ISS argues that the board’s structure and compensation design reduce its ability to meaningfully adjust future pay levels and control over Musk’s incentives is weak. The board’s independence is under scrutiny when the CEO holds substantial influence.

2. Shareholder Value & Dilution Risk

The reward structure could lead to significant dilution of current shareholders if many of the targets are met. ISS has expressed concern that the size of the potential payout is disproportionate to the risks and may not correspond to commensurate value creation.

3. Alignment of Incentives

While the board claims the package is fully performance-based, ISS notes that some structure features allow large payouts even if only parts of the targets are met — which may reduce the alignment between Musk’s rewards and genuine long-term value creation for shareholders.

4. Musk’s Attention & Outside Interests

One angle raised is Musk’s multiple other ventures (SpaceX, xAI, Neuralink, etc.) which may compete for his time and focus. ISS warns that the compensation plan may not sufficiently ensure his commitment to Tesla alone.

5. Signaling & Market Impacts

A “no” vote—or strong opposition—even if not successful, sends a message to corporate boards and investors about the limits of CEO compensation. For Tesla specifically, if investors push back, it could affect perceptions of board governance, future strategy and Musk’s role.


Background: Tesla, Musk & Executive Compensation

Tesla, Inc. has previously granted large compensation packages to Musk — for example, a 2018 award valued at around $56 billion was later struck down by a Delaware court due to governance issues. The latest proposal in 2025 leaps far ahead in scale, reflecting Tesla’s transformation ambitions from an automaker into a broader “tech/robotics/AI” company.

The new structure attempts to tie Musk’s compensation to radical growth metrics: reaching near-tech-giant market caps, delivering tens of millions of vehicles annually, producing robotaxis and humanoid robots, and generating hundreds of billions in adjusted earnings. But critics argue that the targets are overly ambitious, potentially unrealistic, and the oversight weak.


What to Watch Next

  • Shareholder Vote Outcome: The annual meeting is scheduled for 6 November 2025. How many votes will go against the proposal is key. Reuters
  • Institutional Investor Reactions: The stance of large funds (e.g., pension funds, index funds) will matter for the final vote result and future governance norms.
  • Board Response & Revision: If the package fails or meets strong opposition, Tesla’s board may need to revise the structure or scale.
  • Legal & Regulatory Implications: Given the prior Delaware court decision, regulatory scrutiny may arise again if governance standards are questioned.
  • Implications for CEO Compensation Norms: The size of this package could set precedent (positive or negative) for extreme CEO pay awards, influencing board decisions across industries.

Conclusion

The ISS recommendation against the Elon Musk $1T pay package at Tesla marks a critical moment in corporate governance and executive compensation. While the board argues the package is necessary to retain a visionary leader, investor advisers are pushing back on its scale, structure and potential value dilution. The outcome of the upcoming shareholder vote will not only decide this single package but may ripple across how boards balance innovation-led growth with shareholder protections and governance discipline.

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