Tesla’s board of directors has taken a controversial and potentially explosive step in the ongoing saga surrounding CEO Elon Musk’s compensation.

According to sources familiar with internal deliberations, the board is considering a drastically scaled-down pay package for Musk — one that could represent less than 1% of his original $56 billion compensation deal.

Insiders claim the new proposal under consideration could be worth as little as $250 million in total stock options and performance incentives, a staggering comedown for the billionaire who helped turn Tesla into one of the world’s most valuable companies.

The report, initially uncovered by the Financial Times, reveals that Tesla has formed a special two-member compensation committee composed of board chair Robyn Denholm and independent board member Kathleen Wilson-Thompson. Their mission: to re-evaluate Musk’s compensation structure in light of the Delaware court ruling earlier this year that voided his historic 2018 stock-based pay package.

The new proposal, although still under wraps, is said to reflect mounting pressure on the board to align executive compensation with shareholder returns and to address growing concerns over Musk’s shifting focus and leadership stability.

Tesla declined to comment publicly on the report, and both Denholm and Wilson-Thompson have not responded to inquiries through LinkedIn or media outlets. Nevertheless, the message is clear: Tesla’s board is preparing for a post-litigation world in which the company must offer Musk a compensation plan that withstands both legal scrutiny and investor skepticism.

This dramatic reevaluation of Musk’s pay comes at a time when Tesla is at a strategic crossroads. With Musk steering the company away from a long-promised affordable electric vehicle platform toward ambitious efforts in AI, robotics, and autonomous mobility, the automaker is increasingly being rebranded as a technology powerhouse rather than a traditional car company.

Critics argue that this pivot may come at the expense of Tesla’s mass-market appeal and its early mission to accelerate the world’s transition to sustainable energy through accessible electric vehicles.

Investors, meanwhile, are left to grapple with profound uncertainties. The ongoing appeal of Musk’s voided $56 billion pay package looms large over boardroom decisions.

Musk’s legal team has argued that the original package was valid and approved by shareholders who were fully informed, but the Delaware court disagreed, calling the process deeply flawed and tainted by conflicts of interest.

While the appeal winds through the courts, Tesla’s board appears to be hedging its bets. Sources indicate the committee is exploring “alternative forms of compensation” should the appeal fail, including scaled-down stock options tied to aggressive performance benchmarks.

The $250 million figure, though a fraction of the original amount, is reportedly designed to balance Musk’s enormous impact on the company with concerns over corporate governance and long-term accountability.

To contextualize this shift, it’s important to remember the scope of Musk’s prior compensation. The 2018 plan granted him the potential to unlock billions in stock options if Tesla achieved a series of daunting milestones in market cap, revenue, and earnings.

He did just that — at least until 2022, when Tesla stock began to slide and broader questions emerged about Musk’s time commitments following his acquisition of Twitter (now X), his increasing political activity, and his controversial comments online.

With Musk now owning just 13% of Tesla, the board is acutely aware that any further loss of his attention could impact investor confidence. At the same time, some directors are reportedly concerned about the optics of restoring or replacing a $56 billion pay package at a time when Tesla’s profit margins are thinning, competition in the EV sector is intensifying, and the company’s share price is under pressure.

In recent months, speculation has also surfaced that Tesla’s board may be considering succession planning. Earlier this month, Denholm denied reports that board members were reaching out to executive search firms to identify a potential replacement for Musk. However, the fact that such rumors are gaining traction speaks to a deepening unease within Tesla’s leadership ranks and among major shareholders.

The proposed $250 million figure, while not officially confirmed, appears to be an attempt at a compromise. It would offer Musk a significant reward for his past achievements, while avoiding another compensation scandal that could trigger lawsuits or regulatory scrutiny. Still, for a CEO who is used to defying limits and collecting record-setting pay, the number might seem symbolic — or even insulting.

Industry analysts are split on how Musk will respond. Some believe he may reject any offer that doesn’t match the scale of his original package, viewing it as a referendum on his value. Others suggest that Musk could see the offer as a tactical win: a chance to accept a smaller deal, reframe his leadership narrative, and move past the court battle without further distraction.

There is also the question of shareholder sentiment. While retail investors tend to support Musk with almost cult-like devotion, institutional investors have grown more vocal about their concerns. Proxy advisors such as ISS and Glass Lewis previously flagged the 2018 pay package as excessive, and may urge restraint if a new plan is put to a vote.

From a governance standpoint, Tesla is navigating a minefield. Any new compensation plan will need to reflect evolving best practices, demonstrate independence from Musk’s influence, and prove that the board is acting in the company’s long-term interest. With the SEC watching closely, and activist shareholders already circling, Tesla cannot afford another misstep.

If the $250 million package does move forward, it could set a precedent for how Silicon Valley recalibrates its treatment of star CEOs in an era of heightened scrutiny. The age of blank-check paydays may be waning, replaced by more grounded, transparent, and performance-tied agreements.

Still, this wouldn’t be the first time Musk rewrote the playbook. Whether he accepts a smaller deal, fights tooth and nail to reclaim his $56 billion prize, or uses the situation to pivot Tesla into an even more radical future, one thing is certain: Elon Musk doesn’t follow the rules — he makes new ones.

And for Tesla’s board, navigating this moment may be the most delicate balancing act of their corporate lives. The stakes aren’t just about dollars. They’re about control, identity, and the very future of one of the world’s most influential companies.