Tesla CEO Elon Musk has again faced a setback as a Delaware judge denied $56 billion pay package reinstatement. Chancellor Kathleen McCormick of the Court of Chancery has upheld her previous decision to block Elon Musk’s controversial $56 billion Tesla compensation package despite Tesla shareholders voting in June to reinstate it. The chancellor cited the package as excessive and criticized the ratification vote, stating it came too late and involved conflicts of interest, particularly with Musk overseeing pay negotiations.
It’s worth noting that Musk’s compensation package, initially valued at $56 billion, has significantly increased due to Tesla’s stock surge. Shares of the company jumped 42% after November 5, when Donald Trump, supported by Musk, won the U.S. presidential election. As a result, the pay package is now estimated to be worth around $101 billion, reflecting Tesla’s robust performance in the stock market.
Elon Musk reacts to pay package denial.
In a statement on X (formerly Twitter), Elon Musk responded, saying, “Shareholders should control company votes, not judges.”
Tesla also announced plans to appeal the ruling, calling it flawed and undermining the will of shareholders. After McCormick finalizes the order, the company will approach the Delaware Supreme Court.
What is Elon Musk’s compensation structure?
Elon Musk’s 2018 pay package was based on the idea that he would get all the options only if Tesla’s stock price soared and its sales and earnings grew strongly. His compensation package created 12 tranches of options – each equivalent at the time to 1% of Tesla’s outstanding shares – potentially giving him a 12% stake in the automaker. Musk would receive no salary. Under the 10-year deal, Musk could win an options tranche every time Tesla hit a series of up to 12 targets. Those targets were tied to increases in Tesla’s market capitalization in $50 billion increments and to aggressive hurdles for revenue and EBITDA growth. Musk went on to hit all 12 targets when few had expected him to, given the various struggles of Tesla at that time. He still owns the options.
