– A Delaware judge has tossed out Elon Musk’s record-breaking $56 billion Tesla pay package, calling the compensation granted by the EV maker’s board “an unfathomable sum” that was unfair to shareholders.
Following are details about Musk’s pay package.
HOW WAS MUSK’S COMPENSATION STRUCTURED?
Musk’s 2018 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 was eligible to 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, and the options are now worth $51 billion, accounting for the cost to Musk to exercise them. He still owns the options.
HOW CLOSE WAS THE SHAREHOLDER VOTE?
While the potential size of the pay package was unprecedented, Tesla shareholders in 2018 approved it with 73% of votes cast, excluding votes by Musk and his brother Kimbal. At that time, Tesla was struggling to manufacture its Model 3 sedan and critics believed Tesla would be unable to survive brewing competition from larger competitors planning to launch their own electric cars.
HOW DID TESLA STOCK PERFORM?
Tesla’s stock market value was $53 billion when Musk’s package was approved, and it surged by more than 2,000% to exceed $1.2 trillion in 2021 before retreating more recently to $605 billion. An investor who bought and held shares when Musk’s package was approved would currently be up about 1,000%.
WHAT ARE THE NEXT STEPS?
In Tuesday’s ruling by Judge Kathaleen McCormick of Delaware’s Court of Chancery, Tesla shareholders who challenged the pay plan were directed to work with Musk’s legal team on an order implementing the decision. It can be appealed to the Delaware Supreme Court once the parties agree on a final order and on fees for the shareholder’s attorneys.
