Judge Voids Elon Musk's Record-Setting Tesla Pay Package
In 2018, Tesla extended an unprecedented compensation deal to its CEO Elon Musk. He would work without drawing a salary for the next 10 years, help achieve a dozen targets, and scale the company's market valuation past the $650 billion mark. If he meets all the goals, he will go home with a paycheck close to $55 billion. Today, a court in Delaware has ruled that Musk can't be awarded the obscenely generous multi-billion dollar compensation after a shareholder brought a legal case against the whole idea.
Musk's team argued that the compensation was "fair because its milestones were ambitious and difficult to achieve." However, they also admitted that at least three of the targets were in line with the company's own internal growth projections (some of them as high as 70%). At the same time, the company routinely missed internal projections. However, the main argument was that either the compensation grant was solely Musk's proposal or he failed to disclose his close relations with multiple board members over whom the Tesla chief exercised maximum personal influence.
Notably, the court order also takes a shot at Musk juggling multiple brands and not being at Tesla full-time. "Defendants failed to prove that Musk's less-than-full time efforts for Tesla were solely or directly responsible for Tesla's recent growth, or that the Grant was solely or directly responsible for Musk's efforts," says the court order.
A tricky road ahead for Musk's enterprises
A compensation worth $55 billion was a historic one, and it could have made Musk even richer despite already leading the world's richest person list for a healthy portion of time in the past couple of years. But now that the grant has been voided by the court because it was deemed unfair, Musk has one last opportunity left in the form of an appeal. If that fails, the board will have to come up with a new plan to pay him for the past five years of his service.
I recommend incorporating in Nevada or Texas if you prefer shareholders to decide matters
— Elon Musk (@elonmusk) January 31, 2024
"Never incorporate your company in the state of Delaware," Musk shared on X, formerly known as Twitter, soon after the verdict was announced. "Was the plan even necessary for Tesla to retain Musk and achieve its goals?" Delaware Chancery Court Chief Judge Kathaleen St. J. McCormick asked. Without the compensation factored into his cumulative wealth, Bloomberg estimates that Musk's net worth would drop down to approximately $154.3 billion, putting him third on the list of the world's richest individuals.
It's also worth noting that a majority of Musk's wealth is tied to Tesla, where he owns close to a 13% share. Musk, on the other hand, has lately been eyeing up to a 25% stake in Tesla in hopes of landing more meaningful voting rights on the board. During a previous trial over the compensation plan in 2022, Musk told the court that it would help fund his plans for putting mankind on Mars and achieving interplanetary travel.