A Delaware judge has this week voided Elon Musk’s $55 billion pay package from Tesla, a year after a trial began in which a shareholder argued that the CEO’s pay plan was extravagant.
The recording-setting executive compensation plan is one of Musk’s highest value assets, and without it could cause his net worth – estimated to be around $205 billion – to take a considerable hit.
We’re only just at the end of January but it’s already been a year of highs and lows for the CEO. On one hand his biotech startup Neuralink has just launched its first-ever human trial, but on the other he’s had to deal with Tesla being overtaken by China-based BYD for electric car sales.
What's The Deal With Musk's Pay Package?
Musk doesn’t receive a salary from Tesla. Instead, his pay package revolves around 304 million stock options all tied to a series of goals and markers based on financial growth. A controversial sky-high compensation plan was also put into place back in 2018, which was argued to allow him to focus on Tesla.
This $51.1 billion compensation plan is one of the largest contributors to his net worth, and is why he spent the majority of 2023 as the richest person in the world. Without it however, his net worth could drop to $154 billion meaning he’ll fall down the rich-list ranks behind the likes of Amazon’s Jeff Bezos, who’s net worth sits at $186 billion, and LVMH CEO Bernard Arnault who’s estimated to be worth $183 billion.
As of Wednesday, Bloomberg’s Billionaires Index still included the stock options within Musk’s estimated net worth.
Pay Was “Beyond Reasonable Judgement”
Soon after the pay plan was put into place, Tesla shareholder Richard Tornetta sued Tesla and Musk stating the figure was “beyond the bounds of reasonable judgement”. He also accused Musk of having undue influence over the decision.
Following a year-long trial, a Delaware judge has this week voided the shares although it remains unclear how exactly the ruling will be implemented.
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Tesla and Musk can appeal the ruling but no word on his next step has been confirmed just yet. He has referenced the decision in a post on X/Twitter with his typical acerbic style however, stating “Never incorporate your company in the state of Delaware.”
Where Can Musk Go From Here?
There are a couple of options on where Musk can go from here. One is to negotiate a new payment plan with the board that satisfies everyone.
Former financial economist for the U.S. Securities and Exchange Commission Joshua Tyler White suggested that a new pay package was perhaps the most straightforward route to take, particularly because Musk could soon lose interest in the company:
“They need to come up with a new package soon… They've already seen his interest turn to other ventures, and they can't risk losing any more of his focus, especially when Tesla is at a crossroads in terms of competition with China.”
A second option is to appeal the decision, but dragging this out in court again could be bad for Tesla’s stock price.
Employment attorney and mediator Angela Reddock-Wright agrees that the former would be most preferable:
“If they're [Musk and his legal team] thinking about the greater good of the company, they'll want to resolve this outside of court action and further litigation. He, out of principle, may pursue this just to try to establish, perhaps from his perspective, that the compensation proposal was fair. He's someone who likes to prove a point.”