Tesla’s $55 Billion Pay Package for Elon Musk Under Scrutiny
In a significant legal proceeding on Friday, a Delaware judge raised pertinent questions regarding Tesla’s recent actions concerning a compensation package for its CEO, Elon Musk. Chancellor Kathaleen St. J. McCormick, presiding over the Delaware Court of Chancery, expressed her concerns during a hearing in Wilmington about why Tesla opted to present the $55 billion pay package to its shareholders for a vote, particularly after she had previously invalidated it in January.
During the hearing, Chancellor McCormick pointed out the unprecedented nature of the situation, noting, “This has never been done before,” as she engaged in a dialogue with David E. Ross, the attorney representing both Mr. Musk and Tesla’s board of directors. She further queried, “There is no Delaware law on this, correct?” to which Ross conceded that there was indeed no established legal precedent for shareholders to overturn a judicial ruling in similar circumstances.
Despite the lack of precedent, Ross contended that the overwhelming support from Tesla’s shareholders during the June vote indicated a strong desire to reward Mr. Musk with the pay package, even after they were provided with extensive information regarding its formulation. “This was stockholder democracy working,” he asserted, emphasizing the shareholders’ agency in the matter.
The exchange about legal precedents is crucial, as it may influence the fate of Mr. Musk’s stock options, which are valued at tens of billions of dollars. Both Tesla and Mr. Musk have argued that the June shareholder vote effectively addressed the concerns highlighted by Chancellor McCormick in her earlier ruling and that this should serve as sufficient grounds for her to reconsider and potentially reverse her decision.
Originally approved by Tesla’s shareholders in 2018, Musk’s pay package was hailed as the largest compensation plan ever devised by a public company at that time. The structure of the package was designed to grant Mr. Musk substantial stock options contingent upon significant increases in Tesla’s profitability, sales figures, and overall market valuation.
