On January 21, 2018 the board of Tesla, Inc. (Tesla), an electric car and clean energy company, approved an unusual executive compensation plan for CEO Elon Musk. Most compensation packages for US executives include a mix of a base salary and short - and long-term incentives, but Tesla's plan market capitalization, revenue, and EBITDA milestones. He would receive the option to purchase 1.99 million Tesla shares-equivalent to about 1% of total outstanding common stock-if the company's value (at the time, $59billion) increased to $100billion and he achieved an operational target. For each additional $50 Billion in value that Tesla realized plus attainment of operational markets), Musk Would receive the option the purchase an additional 1.69 million company shares. If he meets all targets, he stood to gain option to purchase nearly 17million Tesla shares. Under the proposed plan, the exercise price for all options was $350, The price at which tesla shares traded on January 19, 2018. Once Musk exercised the options, the plan required him to hold the shares for a total of 5years before they could be sold. If Tesla achieved all the targets set in the plan and Tesla's stock price continued to raise in subsequent five-year holding period after each of the award milestones was achieved, Musk stood to gain a substantial amount of money. But if he failed he would not be compensated at all.

The news followed reports that Tesla was struggling to meet production targets for its newest, most affordable electric car, the Model 3, priced at $35,000. in Q3 of 2017, the company reportedly delivered 220 Model 3s to customers well below its target of 16,000. This was the latest in a long history production issues at Tesla. The company's financial position was also volatile. Revenues had increased steadily over time, but profitability had remained elusive. Tesla had posted just two profitable quarters in its 14 year history, and by 2017 was spending a rate of $1 billion per quarter. Many people pointed out that the pay plan did not depend on rapid vehicle production or a healthy cash flow plan. As long as revenues continued to rise and the market continued to value Tesla, both Musk and the company's shareholders could expect to benefit from the atypical pay plan.

Musk's compensation package was contingent upon share holder approval, with a vote scheduled for March 21, 2018. While many shareholders signaled support for the plan, proxy advisor firms Institutional Shareholder Services Inc. and Glass Lewis Co. advised against it. Wrote ISS, "Many may question the reasonableness of billions of dollars in pay opportunity, no matter how demanding the performance requirements. Even when annualized, Musk's pay opportunity would dwarf that nearly every CEO at the largest and most profitable companies."

If the targets were not achieved, Musk would receive nothing. Proxy advisors (ISS and Glass Lewis) expressed serious reservations about the plan and urged shareholders to vote against it. Should shareholders approve or reject the plan?

Using the information provided in the case study, explain, in a 3 to 5 page paper, the problems addressed in the paper, and if you believe shareholders should approve or reject the plan.