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A Delaware judge rejected Elon Musk record-breaking $56 billion pay package from Tesla, calling it an “unfathomable sum” unfair to shareholders.
The judge found that the compensation, nullifying corporate America’s largest pay package, was negotiated by directors seemingly beholden to Musk. The decision will prompt Tesla to reassess its governance, and some investors hope for an overhaul.
Tesla Stock Drops, Future Compensation Negotiations in Question:
Following the ruling, Tesla’s stock dropped about 3% in extended trading. The judge’s decision raises questions about Musk’s future compensation negotiations, as he had expressed discomfort leading Tesla unless he had 25% of the voting control.
The ruling deemed Musk’s recent demand for 25% approval as unlikely. The judge suggested needing more independent board members in future compensation discussions.
Musk’s Ambitious Pay Package and Goals:
The judge deemed Elon Musk’s $56 billion pay agreement with Tesla, reached in 2018, “an unfathomable sum” by the judge.
Musk testified that the money would be used for interplanetary travel and achieving a “good future for humanity.”
The compensation was based on Musk earning 12 stock option awards for escalating financial and operational goals. The judge noted that many directors lacked independence due to close personal ties with Musk.
Implications for Tesla’s Board and Governance:
The ruling challenges Tesla’s board oversight and corporate structure, suggesting the need for at least three new independent board members.
Critics argue that the board’s close ties with Musk compromise independence. The decision highlights broader governance concerns at major technology companies.
Musk’s pay package, which required holding shares for five years post-exercise, is deemed excessive compared to executive pay in 2021.
