Tesla Inc. is indeed aiming high with its proposed compensation package for CEO Elon Musk. This package together could be in the range of $29 billion. This comes on the heels of legal challenges to an earlier compensation scheme. On Feb. 11 Judge Kathaleen McCormick of the Delaware Chancery Court struck it down. The revised plan will go to a vote at Tesla’s annual shareholder meeting, now set for November.
In December 2024, Judge McCormick granted summary judgment against Musk’s 2018 compensation package, which was about $56 billion. She noted that the decision and Tesla’s theoretical arguments were based on novel theories. These theories are fundamentally incompatible with multiple established laws. The key question here is Musk’s role in crafting the original, terrible package. Judge McCormick found this to be sufficient to render the process “deeply flawed.” Musk’s tight control on the board members led to fears of self-dealing. This circumstance undermined public confidence in the integrity of the decision-making process.
The revised compensation plan entails granting Musk 96 million shares, contingent upon him serving “continuously in a senior leadership role at Tesla” for a two-year period. In addition, he needs to keep these shares for five years, with the purchase price established at $23.34 per share. If approved, the cumulative value of this award as of now would be about $26.7 billion.
Musk isn’t just hell bent on lording more control over Tesla. He’s gone so far as to say he’ll halt progress in AI and robotics if he doesn’t receive the powers he seeks and craves within the company. At the same time, Musk has started his own AI venture, xAI. Meanwhile, he has control of X, his social media platform.
Amid potential conflicts, Musk and his brother Kimbal have recused themselves from writing the new compensation package. All parties would like to see a transparent process, free of self-dealing. The controversial decision to relocate Tesla’s place of incorporation from Delaware to Texas has come under increasing criticism. Texas offers more limited or less well recognized shareholder protections in its law.
Tesla continues to double down on the meaning behind the new compensation scheme. A representative stated, “Elon will not be able to keep this new award in addition to the options he will be awarded under the 2018 CEO Performance Award should the courts rule in our favor.” This is particularly important because the result of current litigation could have a profound effect on Musk’s economic fortune tied to Tesla.
Shareholders are preparing to cast votes on the new pay package. At the same time, Musk’s power grab and the evolution of corporate governance at Tesla are sure to remain front and center in the months ahead.
