Elon Musk, the CEO and founder of Tesla, has lost his record-breaking $56 billion pay deal as a Delaware court ruled that it was unfair and voided it on Tuesday. The pay deal, which was approved by Tesla’s board and shareholders in 2018, was the largest potential compensation opportunity ever observed in public markets.
The pay deal was challenged by a Tesla shareholder, who filed a lawsuit claiming that it was an overpayment and a conflicted transaction, as Musk was both the CEO and the majority shareholder of Tesla.
The shareholder also argued that the proxy statement, which was used to inform and solicit votes from other shareholders, was misleading and omitted important details about the pay deal.
The Delaware Chancery Court agreed with the shareholder and found that the pay deal was not fair and that the shareholder vote was not fully informed. The court said that the pay deal was an “unfathomable sum” that was not justified by Tesla’s performance or the market conditions. The court also said that the proxy statement was inaccurate and incomplete, and that the Tesla board’s approval of the pay deal was “deeply flawed.
The pay deal was based on a series of performance milestones that Tesla had to achieve in order for Musk to receive stock options worth billions of dollars. The milestones included increasing Tesla’s market capitalization, revenue, and profitability over a 10-year period. The pay deal was designed to align Musk’s interests with those of Tesla’s shareholders and to incentivize him to stay with the company and lead it to success.
Elon Musk’s Tesla Executive Compensation Packages
| Element | Target/Goal | Achievement Status | Estimated Value (Years Prior) |
|---|---|---|---|
| Salary | $56,500 per year | Guaranteed every year | $56,500 (yearly) |
| Bonuses | Up to $678,000 per year, based on company performance | N/A (2024 package voided) | Up to $678,000 (yearly) |
| Stock Options | 20.3 million options, worth **$55 billion** if all milestones achieved | Voided by court ruling | Potentially billions of dollars (achievement-based) |
| Milestones |
|
Mostly achieved by Tesla, but package ruled unfair | Varied (achievement-based) |
Musk, who is also the founder and CEO of SpaceX and Neuralink, reacted to the court’s decision by posting a message on X, the social media platform he owns. He wrote, “Never incorporate your company in the state of Delaware”.
The court’s decision is a major setback for Musk and Tesla, as it could affect their future plans and strategies. Tesla, which is the world’s leading electric vehicle maker, has been expanding its production and sales across the globe, as well as developing new technologies and products, such as the Cybertruck, the Semi, and aiming to start production of the second generation vehicle. Tesla also aims to achieve full self-driving as it started releasing its V12 of the software to its employees and a handful of customers including Whole Omars Catarlog who has been testing the system and posting on his X account.
The court’s decision could also have implications for other companies and executives, as it could set a precedent for challenging and regulating executive compensation packages, especially in the technology sector, where they are often very high and complex.
We will keep you updated on the latest developments and reactions to this news story.