*

CEO Musk might quit if investors vote down $878 billion

pay

package this week, board says

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Many shareholders believe only Musk can deliver on

promises of

robotaxis, robots

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Some investors, experts warn of risks in staking Tesla's

future

on one leader

By Chris Kirkham

LOS ANGELES, Nov 5 (Reuters) - Tesla's board of

directors has pushed in all its chips on Elon Musk. Now

investors must decide whether to back the biggest bet in company

history.

Shareholders will vote Thursday on the stark choice

presented by the board: pay Musk up to $878 billion in company

stock or take the risk he will leave - potentially driving down

the company's stock. The decision, experts say, amounts to a

referendum on whether traditional corporate-governance rules

apply to the world's richest man.

The board and many investors argue that only Musk can

deliver on his promises to transform Tesla into an

artificial-intelligence juggernaut delivering millions of

self-driving robotaxis and humanoid robots. If Musk hits all the

board's performance goals within a decade, Tesla's market value

will have grown to $8.5 trillion - with Musk owning about a

quarter of the stock.

That is exponentially more compensation than any other CEO,

and Musk would still collect record payouts - tens of billions -

if he misses most performance goals. Many investors are not

blinking at the eye-watering sums.

"If the stock is going to go up sixfold - and that's a

requirement here - then I'm going to make a lot of money," said

Nancy Tengler, CEO and chief investment officer of Laffer

Tengler Investments, a Tesla investor. "Why do I care what kind

of money he makes if he's effecting the change and the vision?"

Other major shareholders and executive-pay experts warn that

the proposal represents an enormous risk to investors. The

package, experts said, flouts governance principles not only

because of its size but because the board is so explicitly

staking Tesla's future on one leader, with myriad conflicts of

interest, who stands to consolidate unchecked power over the

company. Responsible governance, they argue, requires boards to

remain open to a competitive market for the best available CEO

at any given time.

Musk did not respond to requests for comment. A spokesperson

for Tesla's board declined to comment.

Musk told board members during negotiations that he might

prioritize his many other ventures - including rocket firm

SpaceX, artificial-intelligence startup xAI and brain-implant

firm Neuralink - unless they came to terms. And board chair

Robyn Denholm has repeatedly emphasized the risk of losing Musk

in selling shareholders on his compensation.

Charles Elson, founding director of the Weinberg Center for

Corporate Governance at the University of Delaware, said Tesla's

board is being "held over the barrel by a 'superstar CEO.'"

"To me the appropriate answer is to say, 'Have a good day,'"

Elson said.

Major shareholders including the biggest U.S. public pension

fund, the California Public Employees' Retirement System

(CalPERS), and Norway's sovereign wealth fund echoed those

concerns in publicly opposing Musk's compensation. Norges Bank

Investment Management said on Tuesday the pay proposal could

dilute shareholder value and failed to mitigate the "key person

risk" in staking Tesla's future on Musk.

The board sought to ensure Musk's longevity in company

leadership with provisions including stock vesting periods.

Krishna Palepu, a professor at Harvard Business School

focusing on corporate governance, said the proposal aligns with

shareholders' interests by tying Musk's compensation to large

stock-value increases and requiring him to hold the shares he

earns for five years.

Musk, he said, has a track record of achieving extraordinary

stock-price growth and would receive the largest payouts only if

he does it again.

"The numbers are big because the goals are big," Palepu

said.

THE LEVERAGE OF BOLD PROMISES

Musk's leverage over the board and shareholders lies largely

in Tesla's current stock-market value, which far exceeds the

current financial fundamentals of its declining electric-car

business. Tesla's $1.5 trillion market capitalization, rather,

rests almost entirely on Musk's longstanding promises that Tesla

will dominate the future of self-driving vehicles and humanoid

robots.

The threat of Musk leaving now, causing a collapse in

Tesla's stock, gives him enormous power to make unprecedented

compensation demands, some corporate governance experts say.

Board chair Denholm suggested as much in an October 27 letter to

shareholders: "Without Elon, Tesla could lose significant value,

as our company may no longer be valued for what we aim to

become."

From a purely economic standpoint, the board's position on

retaining Musk is understandable, said David Larcker, director

of the Corporate Governance Research Initiative at Stanford

University's business school.

"If you think that Musk would potentially leave and the

Tesla stock would crater, that's not something you want to have

happen on your watch," he said.

Gautam Mukunda, a lecturer at Yale School of Management,

said Musk already owns enough Tesla stock to make him the

world's first trillionaire if he meets the board's performance

goals and hardly needs the incentive of a "second trillion" from

company investors. The board, he said, should not be cowed by

threats to leave from the person with the most to lose if

Tesla's stock falls - its biggest shareholder.

"This is a guy who's holding a gun to his own head,

saying: 'Give me a trillion dollars,'" Mukunda said. "It's not

the job of the board of directors to just nod like a bobblehead

doll when the CEO asks them for something."

VOTES IN HAND

Musk faces Thursday's vote with a potentially decisive

voting bloc in hand - his own 15% stake.

Musk did not vote his shares in previous pay packages, when

Tesla was incorporated in Delaware. But the board said in its

current pay proposal that the CEO could do so under the law in

Texas, where Tesla reincorporated after Musk's last pay package

was tossed by a judge in response to a shareholder lawsuit.

The Delaware judge called Musk's 2018 compensation package -

originally valued at $56 billion and worth $128 billion now - an

"unfathomable sum" resulting from negotiations with directors

conflicted by their close ties to Musk and their own excessive

compensation.

Tesla has appealed, and agreed to give Musk stock currently

worth $40 billion as a "first step" toward honoring the 2018

package. That award would be forfeited if Delaware courts

reinstate the pay plan.

Texas law makes it harder for shareholders to sue under a

provision passed in May that allows companies to require

investors suing directors or executives to have a collective 3%

stake, which Tesla has done.

The bigger threat to Tesla's board comes from Musk himself -

the threat to leave the company. Charles Whitehead, a Cornell

University business law professor, said Tesla's board faces a

"classic holdup." The burning question the board has not

addressed, he said, is "who is on the bench to backstop this CEO

if he walks away or, God forbid, if something happens to him."