Is Elon Musk Overpaid? Judge Voids $55 Billion Tesla Pay Package
In a shocking turn of events, a Delaware judge has voided Elon Musk’s $55.8 billion pay package at Tesla, calling it an “unfathomable sum” that was unfair to shareholders. Chancellor Kathaleen St. J. McCormick of the Delaware Court of Chancery ruled that Tesla’s board of directors failed to prove the fairness of the largest potential compensation plan in the history of public markets.
The lawsuit was filed by a shareholder who claimed that Musk had close ties with the Tesla board and too much say in negotiations. Musk and Tesla argued that ensuring Musk’s continued leadership was crucial to the company’s future and that the deal made concessions to shareholders. However, the judge stated that Musk controlled Tesla, holding influential corporate positions and dominating the process that led to board approval of his compensation plan.
Now, Tesla board members are facing a “tornado situation,” according to Wedbush Securities analyst Daniel Ives. They must negotiate a new pay package that has the approval of both shareholders and Musk himself. Additionally, they have the option to appeal the judge’s decision or consider changing Tesla’s place of incorporation.
Elon Musk, never one to shy away from expressing his opinions, took to social media platform X to ask his followers to vote on whether Tesla should incorporate in Texas, a more business-friendly state where it has its corporate offices and a factory. This move suggests that Musk may be considering a change in Tesla’s incorporation location.
Legal experts have criticized Musk for ignoring the fundamentals of the fairness doctrine and failing to demonstrate that the pay package was inherently fair to shareholders. Anat Alon-Beck, a law professor at Case Western Reserve University, stated that Musk could have avoided this situation if he had followed Delaware corporate law and its procedures.
Even without the stock from the voided pay package, Musk still owns approximately 411 million Tesla shares, worth around $78 billion. This substantial ownership stake highlights Musk’s significant influence and control over the company.
The court’s decision comes at a time when the compensation of rank-and-file employees lags behind significant increases in executive pay. The judge described Musk’s pay package as “absurd” and noted that it was 250 times larger than the median compensation plans of his peers and more than 33 times larger than Musk’s prior pay package.
Critics argue that Musk’s 2018 pay package not only shattered previous CEO compensation records but also insulted the true value of a senior manager. Bart Naylor, financial policy advocate for Public Citizen, expressed his disapproval, stating that Musk’s pay package was an insult to any sense of what a senior manager is truly worth.
As Tesla and its board members navigate this challenging situation, they must find a way to address the concerns raised by the Delaware judge and ensure a fair compensation plan that aligns with the interests of shareholders. The outcome of this decision will undoubtedly have far-reaching implications for the future of Tesla and its CEO, Elon Musk.