Court Rescinds Elon Musk’s $55 Billion Tesla Pay Package
The Delaware judge presiding over the legal dispute between Tesla and its shareholders regarding CEO Elon Musk’s $55 billion compensation package has ordered the company to void the stock options that made Musk the wealthiest person on Earth.
Tesla’s shareholders decided to take the company to court, alleging that Musk and the company’s board members misled them about the particulars of his historic pay package. Chancellor Kathaleen St. J. McCormick of the Delaware Court of Chancery ruled in favor of the shareholders on Tuesday. She has yet to issue the formal order to do so, according to a report from the New York Times.
Musk's Historic Compensation Package
According to a report from Motor Trend, Musk’s $55 billion compensation package is $20 billion more than fellow automaker GM’s entire Ultium electric vehicle (EV) program budget. When Musk was granted this package in 2018, there was a stipulation the company would have to meet specific milestones for the CEO to get his lucrative compensation package. However, the shareholders alleged in court that these “very difficult” goals were actually what the company expected to do, based on projections that Tesla disclosed to banks.
In her ruling, Chancellor McCormick sided with the shareholders, arguing that Musk had too much influence over the terms of his pay package. McCormick noted his “superstar” status “creates a ‘distortion field’ that interferes with board oversight,” which got in the way of the board fulfilling its legal obligation to serve its shareholders' best interests. Members of Tesla’s board include Musk’s brother, Kimbal, along with several long-time associates who share close business ties with the CEO. Chancellor McCormick also found Musk’s compensation package to be excessive beyond what should have motivated him to fulfill his duties to the company, according to the New York Times.
Musk's Reaction
Musk was none too pleased with Chancellor McCormick’s decision. He took to the social media platform he owns, X, to vent his frustration, writing, “Never incorporate your company in the state of Delaware.” The CEO then posted a poll on X, asking his followers if Tesla should reincorporate in Texas, the location of Tesla’s new headquarters. (It’s also where he plans to move production for the company’s next-generation EV platform in 2025.)
Unsurprisingly, 87 percent of Musk’s followers on X voted that Tesla should reincorporate in Texas. According to the New York Times, shareholders will likely meet Musk’s sudden plan to move Tesla to Texas with resistance if they view it as Musk trying to diminish their say in the company.
At the company’s fourth-quarter earnings call, Musk brought up Tesla using dual-class stocks, citing that he would like his control over Tesla to grow to 25 percent while his shares remain at 13 percent. Using the extra votes those dual-class stocks would grant him, Musk could ensure his influence over Tesla remains undiminished. During that call, he told Wall Street analysts and investors that he feared getting voted out as Tesla continued developing robotics and artificial intelligence technologies.
He even said, “I’m not interested in economics.” Given how Musk now wants to reincorporate Tesla in another state after Chancellor McCormick slashed his historic $55 billion pay deal, we think that’s a dubious claim.
