This content is not intended as investment advice. The author holds no positions in any stocks mentioned.
A Significant Legal Setback for Elon Musk
Elon Musk has faced a major legal hurdle as the Delaware Court of Chancery has once again invalidated his substantial $56 billion pay package, putting his influential role at Tesla in jeopardy.
Judge McCormick decided to stick with her original finding in January that the company’s board was “too much under the influence”of Elon when it adopted the plan in 2018.
The stock options package, initially valued at $2.6 billion, is now worth over $101.5 billion based on Monday’s stock price… https://t.co/eYfRtMJ0AO
— Sawyer Merritt (@SawyerMerritt) December 2, 2024
Background on the Controversial Compensation Plan
In a ruling that resonates with earlier proceedings, Chancellor McCormick concluded that the compensation package approved by Tesla’s shareholders was not a product of genuine negotiation. Critics, including shareholder Richard Tornetta, argued that the arrangement was disproportionately influenced by Musk.
In a significant trial in late 2022, Tornetta petitioned the court to invalidate Musk’s 2018 compensation plan, citing coerced negotiations between a board heavily swayed by Musk and the CEO himself. This culminated in the chief judge’s ruling in early 2024, which annulled the package.
The Court’s Recent Ruling
Fast forward to current events, and it’s clear that Musk’s compensation woes are far from over. With the package now voided for a second time, Tesla is also obligated to compensate Tornetta’s legal team, amounting to $345 million.
Judge McCormick has ordered @Tesla to pay the attorneys who brought the case $345 million. https://t.co/eYfRtMJ0AO
— Sawyer Merritt (@SawyerMerritt) December 2, 2024
Potential Implications for Elon Musk and Tesla
This most recent court decision adds to the mounting pressure on Musk, who has previously indicated that he may opt to leave Tesla if he feels inadequately compensated. Notably, he has not received a base salary from the company since 2019.
Further complicating matters, Musk holds approximately 13 percent of Tesla’s shares—around 412 million in total. Additionally, his previously unexercised stock options, totaling about 304 million, have now been rendered void by the court.
As for the “$50 billion pay package”: The strike price for 304 million options was $23.33, amounting to a roughly “$101 billion pay package”at $357/share. Oh well, easy come, easy go! $TSLA
— Stanphyl Capital (@StanphylCap) December 2, 2024
Conclusion
This legal battle raises important questions about corporate governance and executive compensation practices in high-profile companies like Tesla. As the situation continues to evolve, stakeholders from shareholders to employees will be watching closely to understand the ramifications of these decisions on the company’s direction and Musk’s future with the brand.
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