Delaware Court Voids Musk's $56B Tesla Pay Package
On Tuesday, a Delaware judge annulled the $56B pay package Tesla awarded to Chief Executive Officer Elon Musk in 2018, ruling that the company's board had failed to justify the 'unfathomable' sum....
Facts
- On Tuesday, a Delaware judge annulled the $56B pay package Tesla awarded to Chief Executive Officer Elon Musk in 2018, ruling that the company's board had failed to justify the 'unfathomable' sum.1
- In striking down his 'excessive' compensation, Judge Kathaleen St J McCormick questioned whether Tesla could establish that the money was 'necessary to retain Musk and achieve its goals.'2
- As per Tesla's stock value on Tuesday, the 10-year pay deal would reportedly be worth around $51B — approximately 25% of Musk's $210.6B estimated worth.3
- Tesla had agreed to pay Musk 20.3M stock options in 12 tranches, tied to multiple milestones, including taking the electric vehicle maker's market value to $650B.4
- According to an estimate, Musk's package — which he justified by saying 'it's a way to get humanity to Mars' — was about six times larger than the combined pay of 200 highest-paid executives based on 2021 figures.2
- This comes after Tesla shareholder Richard Tornetta challenged the largest pay deal in US corporate history in 2018.5
Sources: 1Bloomberg (a), 2Guardian, 3Yahoo Finance, 4Bloomberg (b) and 5BBC News.
Narratives
- Narrative A, as provided by New York Post. Elon Musk joined Tesla at a time when the company was in deep crisis. He worked almost around the clock to fix the problems at the now-iconic electric vehicle manufacturer. Even when he testified in court in November 2022, the company had achieved 11 of the 12 benchmarks set before Musk to fulfill his pay package deal. The pay, though it may seem gigantic, is fully justified.
- Narrative B, as provided by MarketScreener. Tesla's company board needs a few independent directors who could apply fair standards to initiate the restructuring of Musk's exorbitant pay package. Musk may argue that the firm hasn't lost anything since he hasn't exercised his stock option, but his salary is a disservice to shareholders and the firm must address the governance issues that led to this situation.
