Tesla shareholders approve Elon Musk's multibillion dollar compensation plan

Tesla shareholders have approved by a wide margin a proposal to award chairman and CEO Elon Musk a multi-billion-dollar stock option grant that supporters say will align him with shareholders and potentially greatly increase the company's value, a source at the meeting told CNBC.

The grant gives Musk $2.6 billion in stock options in 12 tranches that each vest as the company hits key performance milestones over 10 years.

Shares were recently trading up almost 4 percent.

"Investors aren't bothered by the fact that Tesla lost more money than people thought they would, or have had continued Model 3 misses," Loup Ventures managing partner Gene Munster told CNBC. "They see a bigger opportunity over the long-term, and that opportunity is figuring out the trifecta between energy capture, storage and use."

The board said the plan will likely result in increased value for shareholders even if Musk misses the targets, better ensures Musk remains at Tesla, and spurs the achievement of the Tesla Master Plan, which in turn would make Tesla one of the world's most valuable companies.

Musk could ultimately be awarded by up to $55.8 billion in stock and awards if the Tesla's market cap reaches $650 billion. It is currently around $52 billion.

Some large institutional shareholders supported the proposal, such as T. Rowe Price, which has a 6.4 percent stake in Tesla.

But proxy advisors Glass Lewis and Institutional Shareholder Services (ISS) recommended rejecting it, citing its high cost, potential to dilute shares, and other issues.

Musk and his brother Kimbal recused themselves from the vote. Both are Tesla board members. Musk already owns about 20 percent of Tesla shares, which ISS said was already enough of a stake to consider Musk's interests aligned with those of shareholders.

The vote comes at a time when Tesla shares are dropping from an all-time high set in September, over concerns about the Model 3 production ramp.

--CNBC's Lora Kolodny contributed to this article.

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