A ruling today in a Delaware court rescinded Elon Musk's compensation package from 2018, and there is an uproar about it. This is what is preventing a new compensation plan from being made.
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Drama With Ruling On Elon Musk Compensation Package
There's some drama today as Elon Musk's compensation package from 2018 has been voided from a Delaware Court and judge Kathaleen McCormick.
The reason appears to be that a shareholder, with 9 Tesla stock shares, started this. There is a 201-page document that outlines everything, however, here is my best attempt to summarize what happened and what may happen in the future.
The filing explicitly says that having a stake in Tesla should be enough motivation for Elon Musk. Here are the exact words from the filing:
At a high level, the “6% for $600 billion” argument has a lot of appeal. But that appeal quickly fades when one remembers that Musk owned 21.9% of Tesla when the board approved his compensation plan. This ownership stake gave him every incentive to push Tesla to levels of transformative growth—Musk stood to gain over $10 billion for every $50 billion in market capitalization increase. Musk had no intention of leaving Tesla, and he made that clear at the outset of the process and throughout this litigation. Moreover, the compensation plan was not conditioned on Musk devoting any set amount of time to Tesla because the board never proposed such a term. Swept up by the rhetoric of “all upside,” or perhaps starry eyed by Musk’s superstar appeal, the board never asked the $55.8 billion question: Was the plan even necessary for Tesla to retain Musk and achieve its goals?
Many are questioning why this is fair if Elon Musk has now essentially worked for free for the last six years. Many have been proposing a new compensation package for Elon Musk. Just because someone earned a lot of money for many years, does that mean someone can rule that they can't get any more stock or increases in salary?
Alex, from X, has this to say about the drama unfolding:
The Tesla CEO Compensation Package Drama continuous.
What a joke, considering that it was a major factor in enabling the shareholders who approved the package to multiply their investment.
A judgment that shareholders have sought and that harms shareholders.
But no worries Elon will certainly appeal and it is more than questionable whether the judgment will then stand.
Many are wondering how someone with 9 Tesla shares can create such a mess and harm the remaining shareholders, who are currently seeing Tesla stock slide in after hours today due to this news.
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Further Drama With Delaware Court Ruling
The ruling stated that shareholders hadn't been fully informed that the Board members who approved the plan were friends or "beholden" to Musk.
The Delaware judge also opined that the plan wasn't "fair" in that if fully paid out, it would amount to a lot of money. However, the plan was fully described, so shareholders knew the plan could result in the huge payout that eventually occurred.
She also said, "Musk had no intention of leaving Tesla" and "Was the plan even necessary for Tesla to retain Musk and achieve its goals?"
According to Sawyer Merritt on X, what's ironic in all this is that this 2018 compensation package was approved by 73% of Tesla shareholders at the time. This package also couldn't be gamed by Elon because he had to hit extremely difficult market cap and revenue milestones.
If he did hit those tough targets, he couldn't sell the shares from the package for 5 years once exercised. Elon only did well if shareholders did well. The incentives were well aligned. Tesla stock is up 10x since the 2018 compensation package was announced, and revenue up 9x.
According to AJ on X, the compensation plan is rescinded and not void, and what this means is that a rescission means Elon or Tesla can draw up a new 2018 compensation package and start over on what it will be.
Elon Musk could still end up with the exact same compensation package as long as Tesla and Elon Musk address the judge's points.
Knowing Elon Musk, he will find a way to rise above this, and he has the option to appeal this to the Delaware Supreme Court.
Still, this is a black eye for Tesla and shares are likely to suffer during this time as this delays Elon Musk getting a new compensation package setup.
Until this is resolved in some way, Elon Musk has essentially been working for free for six years, now 2024, since 2018.
Elon Musk is even running a poll on X, asking if Tesla should move the state it is incorporated in to Texas:
Warren Redlich, a semi-retired lawyer in the Tesla community, had this to say about the ruling:
My best guess is the judge is going to overturn the compensation package.
The delay is because the judge has to figure out a remedy which requires a lot of work.
If you say the compensation was improper, how should Musk be compensated? Not easy to answer that.
Upholding the compensation is straightforward. Wouldn’t take this much time to explain that ruling.
Lastly, Gary Black on X sees this as the ultimate solution:
Judge McCormick overcomes the law by presuming the shareholders in approving the plan didn’t know the board was controlled by Musk. $TSLA Board merely needs to re-approve the comp plan, disclose the desired language about control from the judge, and shareholders will overwhelmingly approve the plan again. Going forward, Elon needs to allow the comp committee and Board to formulate his CEO comp plan independently.
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What do you think about this drama unfolding with Elon Musk and the Delaware court?
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Hi! I'm Jeremy Noel Johnson, and I am a Tesla investor and supporter and own a 2022 Model 3 RWD EV and I don't have range anxiety :). I enjoy bringing you breaking Tesla news as well as anything about Tesla or other EV companies I can find, like Aptera. Other interests of mine are AI, Tesla Energy and the Tesla Bot! You can follow me on X.COM or LinkedIn or watch my short Tesla videos on TikTok to stay in touch and follow my Tesla and EV news coverage.
Image Credit: New Republic | Reuters
Article Reference: Alex on X | AJ on X | Sawyer Merritt on X | Gary Black on X | Warren Redlich on X
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