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Tesla CEO and owner of SpaceX, X and Neuralink Elon Musk at a conference organized by the European Jewish Association in Krakow, Poland. January 22, 2024
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In 2018, Tesla struck a deal with its CEO Elon Musk for an unprecedented $55.8 billion in compensation. However, the world’s richest man may not receive the full amount after a court in the US state of Delaware voided the contract in a lawsuit brought by a shareholder who claimed the remuneration was inflated.
Musk’s defense failed to convince the court that the unprecedented compensation plan was necessary, and the judge noted that Musk’s ambitious goals and his stake in Tesla were sufficient motivation to keep him focused on growth of the company.
The compensation package tied compensation to Musk, who does not receive a salary, to the achievement of specific goals such as Tesla’s stock price and profitability. The agreement was structured to allow Musk to receive Tesla shares in 12 tranches after certain performance criteria were met.
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Tesla shareholders approved the package in 2018, which impacted the company’s market valuation of $650 billion at the time — 10 times Tesla’s value at the time. The decision means Tesla’s board will have to come up with a new proposal. Among the board members is Elon Musk’s brother – Kimball.
In her 201-page ruling released Tuesday, Judge Kathleen McCormick found that Tesla executives who negotiated the pay package may have been “perhaps starry eyed” because of the “superstar” status of Musk and that they did not provide the shareholders with all the necessary information for determining its size. Among McCormick’s other important findings is that five of the six directors who voted on the size of the package “were beholden to Musk.”
If upheld after his appeal, the decision threatens Musk’s wealth, Bloomberg notes. Without the options in this package, Musk could only become the third richest person in the world. In November 2023, Bloomberg and Forbes estimated his net worth to be between $198 billion and $220 billion.
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Musk has spent years and much of his fortune pursuing his Mars ambitions. Musk’s defense argued that he needed additional incentives to stay at Tesla and not go elsewhere to pursue his Mars colonization ambitions. However, the judge questioned why specific conditions were not set on how much time or energy Musk must invest in Tesla.
“The defendants have proven that Musk was extremely motivated by ambitious goals and that Tesla desperately needed Musk to succeed in its next stage of development, but these facts do not justify the largest compensation plan in the history of the public markets ,” the judge’s ruling said. She points out that the testimony of the key witnesses made it clear that “they are on board to cooperate with Musk, not to negotiate against him.”
“Musk has exercised the greatest possible influence that a manager can have over a company,” McCormick also wrote, answering the question of how much of Tesla Musk controls not only through his shares.
Musk has made it clear that he wants even more control over Tesla. Earlier this month, he wrote on his social media platform X that he wanted at least 25 percent ownership of the company to continue his work in the field of artificial intelligence. That would roughly double its current share of around 13%, The Verge notes.
