Judge voids Elon Musk's $56 billion Tesla pay package, threatening his position as world's...

[midian182]

What just happened? Elon Musk faces losing his title of richest person in the world after a Delaware judge found in favor of investors who said his $56 billion Tesla compensation package was excessive. Assuming the decision isn't overturned in any potential appeal, Tesla will have to offer Musk a new deal and his $205 billion net worth could take a massive hit.

It was five years ago when Tesla shareholder Richard Tornetta filed a lawsuit after the EV giant granted Musk the largest executive compensation package in history. Tornetta accused Tesla of breaching its fiduciary duty by unjustly enriching its CEO, the board of acting without independence, and Musk of dictating negotiations.

Tesla's directors argued that the size of the compensation package was necessary to ensure Musk dedicated his attention to Tesla. Former director Antonio Gracias called the package "a great deal for shareholders" as it led to Tesla's success.

Judge Kathaleen St J McCormick said the defense was unable to prove that the plan was essential for Musk's dedicated attention to Tesla. "Swept up by the rhetoric of 'all upside,' or perhaps starry-eyed by Musk's superstar appeal, the board never asked the $55.8 billion question: Was the plan even necessary for Tesla to retain Musk and achieve its goals?" the Judge wrote in her decision.

Should Tesla change its state of incorporation to Texas, home of its physical headquarters?

– Elon Musk (@elonmusk) January 31, 2024

Tornetta's lawyers also argued that Tesla's board never told shareholders that Musk's targets in his compensation plan were easier to achieve than the company acknowledged, and that internal projections showed he was quickly going to quality for large portions of the pay package, writes The Guardian.

The Judge wrote that Musk wielded the maximum influence at Tesla a manager can have over a company. There was also the board of directors that consisted of several people who were close to Musk, including his brother, a friend who vacationed with him, and people who made a lot of money from investing in his companies. Musk himself was also on the board.

Why would one already rich person need so much money? Musk said in November that his Tesla compensation would be used to finance interplanetary travel. "It's a way to get humanity to Mars," he said. "So Tesla can assist in potentially achieving that."

I should note that the Tesla board is great. The reason for no new "compensation plan" is that we are still waiting for a decision in my Delaware compensation case. The trial for that was held in 2022, but a verdict has yet to be made.

I put "compensation plan" in quotes,…

– Elon Musk (@elonmusk) January 15, 2024

Musk gave Tesla an ultimatum earlier this month: increase his ownership in the company to 25% or he will cut back on its development of AI and robotics. He said the reason why he had not been awarded a new compensation plan was due to a judgment not being reached in the Tornetta case.

Assuming the ruling isn't overturned, Musk's fortune will drop to around $154.3 billion, making him the third-richest person in the world. It's still unclear if Musk will appeal or the Tesla board will offer a new pay package.

Should Tesla change its state of incorporation to Texas, home of its physical headquarters?

– Elon Musk (@elonmusk) January 31, 2024

Following the ruling, Musk wrote on Twitter/X: "Never incorporate your company in the state of Delaware." He also posted a poll asking if Tesla should change its state of incorporation to Texas, home of its physical headquarters.

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https://www.techspot.com/news/101704-judge-voids-elon-musk-56-billion-tesla-pay.html

 

[toooooot]

I don't wanna pretend I know all the details of this case, but the man built leading EV company.
There is no place on earth where Tesla cars would not be recognized.

 

[Puiu]

What did he even do to be awarded 56bil? O_o
As far as we know, the profit generated by Tesla in 2023 was 15bil and the company barely broke even for the first time in 2020.

 

[thelatestmodel]

There shouldn't be any billionaires, period

 

[WhiteLeaff]

Yes, it's an obscene amount. But judges meddling with private companies is a toga dictatorship.

This is a question for the shareholder committee to decide.

 

[godrilla]

There shouldn't be any billionaires, period

or everyone should be a billionaire . If everyone is poor who will pay for the social programs?

 

[WhoCaresAnymore]

A contract is a contract. A judge should not be able to "void" it. Musk kept his end of the contract and the company should have to pay.

It sure feels like the rule of law has been turned completely upside down. Those guilty are set free, those who help are prosecuted. I think we ended up on the Upside Down of Stranger Things.

 

[wiyosaya]

Maybe, though I doubt it, Musk will come to the conclusion that he is not the God of Mars, and his opinions and actions are just as likely to be in error as any else's opinions and actions.

Yes, it's an obscene amount. But judges meddling with private companies is a toga dictatorship.

This is a question for the shareholder committee to decide.

If you want to BLAME someone, blame the shareholders for bringing the suit.

I don't wanna pretend I know all the details of this case, but the man built leading EV company.
There is no place on earth where Tesla cars would not be recognized.

That's just the thing. The "leading" EV company, as you call it, is losing ground to others
https://news.yahoo.com/volkswagen-tops-tesla-electric-vehicles-141131139.html
https://www.msn.com/en-gb/money/tec...-profit-to-rise-as-much-as-865-yy/ar-BB1hqKK6

In the last quarter of 2023, BYD became the top EV maker by sales, delivering 526,409 vehicles, beating Tesla, which handed over 484,507 cars.

I've long been saying this will happen.

 

[Endymio]

What did he even do to be awarded 56bil? O_o

He took Tesla from essentially zero value to a market cap of over $1 trillion. He also established it not only as a the leader in EVs -- against what most industry observers called unsurmountable opposition to established competition -- but also turned them into a conglomerate with interests in energy storage, robotics, AI, and other areas.

Tesla's share value is based more on future growth than current profits. The day Musk leaves Tesla, share prices will drop 25% overnight ... and Tesla becomes "just another company". Look what happened to Apple when the board ousted Jobs for Scully.

There shouldn't be any billionaires, period

If you hate capitalism so much I suggest checking out one of the booming consumer paradises of Cuba, North Korea, or a former Soviet Republic. Here in the US, we're fans of freedom ... some of us, at least.

 

[maxxcool7421]

Yes, it's an obscene amount. But judges meddling with private companies is a toga dictatorship.

This is a question for the shareholder committee to decide.

NOT a private company which is why we are here.....

 

[maxxcool7421]

A contract is a contract. A judge should not be able to "void" it. Musk kept his end of the contract and the company should have to pay.

It sure feels like the rule of law has been turned completely upside down. Those guilty are set free, those who help are prosecuted. I think we ended up on the Upside Down of Stranger Things.

The law did exactly as is was supposed to do. He has been obsessed with TWITTER and ruining other projects ... the board saw that his influence is negative to the BOARDS goals ... hence suit .. hence cancel bonus ... which is the boards rights as a public traded company. He should have left twitter alone and stayed focused and he would have kept his bonus... or kept tesla private

 

[Dr Roboto]

Most of the commenters have no actual idea how businesses actually run. I am no expert either, but I do know that the board and CEO of a publicly traded company cannot do anything they want. The entire point of the lawsuit is that the SHAREHOLDERS own the company. It is a shareholder that brought the lawsuit to court. This is not some rogue judge trying to be "woke" or whatever people want to call it.

The issue is that the board was not truly independent and that they made a completely unrealistic "bonus" to the CEO. The shareholders are saying that this unreasonable amount of money hurts the company and thus the shareholders.

The regulatory concern is that the CEO has too much control over the board and thus can award himself any ridiculous sum of money. That is not what the purpose of a board of directors if for.

In addition, Delaware is one of the most pro business states in the US. There is a reason that Tesla has it "headquarters" there (at least in name). It was not an accident, as a large number of companies do this (just like everyone registers their trailer in Maine). It is a core business model for the state of Delaware.

This ruling demonstrates that there are limits to the power of the CEO and board in publicly traded companies, no matter how successful they are.

 

[m3tavision]

What is Tesla without Elon Musk..? You have to think long and deep on this.

With Elon gone all the excitement in that company is gone. Just another company. It is Elon Musk's vision and drive... that fuels all these entrepreneurships, not tesla.


Is He worth $56 billion to remain as a life-long consultant... and doddle ovr the company...?

 

[passwordistaco]

These compensation deals are heavily weighted with stock shares.

Let's make a wild assumption for a moment that the $56bil is all stock.

At Tesla's IPO on 2010, the price was $17/share. Today it is $190.

Today's $56bil was worth $5bil at the time of the IPO. The stock price has increased over 1000% since then.

That is "delivering shareholder value".

 

[Endymio]

NOT a private company which is why we are here.....

You're confused. This was a shareholder suit, not an SEC action; many similar suits have occurred against private firms. Most large private corporations cede control to an elected board of directors, which bears the same fiduciary responsibility to shareholders as does a public board. The difference between them, put simply, is that public firms, in exchange for being allowed to publicly market their shares, agrees to additional rules and regulations, and be overseen by the FEC.

The law did exactly as is was supposed to do. He has been obsessed with TWITTER and ruining other projects ... the board saw that his influence is negative to the BOARDS goals ... hence suit ..

He should have left twitter alone and stayed focused and he would have kept his bonus...

180 degrees backwards. The board didn't sue Musk. A tiny shareholder sued the board. Musk's purchase of Twitter had nothing to do with this: the suit was filed more than five years ago.

the board was not truly independent and that they made a completely unrealistic "bonus" to the CEO. The shareholders are saying that this unreasonable amount of money hurts the company

Despite the clickbait headlines, the board did NOT give Musk a $56B bonus. The board gave him the opportunity to earn 1% of Tesla's equity if he doubled the company's value. If he raised it again by that same amount, he'd earn another 1%.

Musk did what no one expected: he took the firm from a $50B market cap to $650B, earning all 12 tranches. Along the way, he made $56B ... but shareholders made the rest of the remaining $600B increase. Had Musk only doubled the company's value, he would have earned just $500 million, not $56B.

Your notion that Musk's package "hurt" the company is absurd. In fact, when the results of the lawsuit were made public, the share price dropped. It didn't rise.

 

[Puiu]

He took Tesla from essentially zero value to a market cap of over $1 trillion. He also established it not only as a the leader in EVs -- against what most industry observers called unsurmountable opposition to established competition -- but also turned them into a conglomerate with interests in energy storage, robotics, AI, and other areas.

Tesla's share value is based more on future growth than current profits. The day Musk leaves Tesla, share prices will drop 25% overnight ... and Tesla becomes "just another company". Look what happened to Apple when the board ousted Jobs for Scully.


If you hate capitalism so much I suggest checking out one of the booming consumer paradises of Cuba, North Korea, or a former Soviet Republic. Here in the US, we're fans of freedom ... some of us, at least.

That is completely wrong. This is contract signed several years for bogus reasons and by bogus people, trying to fool the shareholders and siphon money from the company. Thus the lawsuit.

Just because he created the company doesn't mean he gets to do whatever he wants today with it.

 

[Che Cazzo]

His worshipers really think this Melon guy can do nothing wrong, is the new son of God and deserves trillions just because they like him.

 

[McMurdeR]

Just because he created the company doesn't mean he gets to do whatever he wants today with it.

Elon Musk didn't found Tesla. He joined as CEO being the largest shareholder. He owns around 13% of the shares.

 

[McMurdeR]

What is Tesla without Elon Musk..? You have to think long and deep on this.

With Elon gone all the excitement in that company is gone. Just another company. It is Elon Musk's vision and drive... that fuels all these entrepreneurships, not tesla.

He's undoubtedly played a key role in it's success, but no one in their right mind would invest in Tesla if they really believed that it couldn't succeed without one single individual. As it currently stands, Tesla shares are taking a hammering. Not exactly a show of confidence, but one would be just as naive to blame that on Musk alone.

 

[human7]

Yes, it's an obscene amount. But judges meddling with private companies is a toga dictatorship.

This is a question for the shareholder committee to decide.

It's a public company, not a private one. Regardless, that's what the shareholders are doing, and the vessel for that committee is the courts.

 

[Endymio]

That is completely wrong. This is contract signed several years for bogus reasons and by bogus people, trying to fool the shareholders and siphon money from the company.

The "bogus people" were the board members the owners of the company -- the shareholders -- voted into office. And the "bogus deal" turned out to be the investment of the century. Of every $1000 you invested into Tesla, Musk turned it into $12,000 -- and then got a 20% cut of the profits in exchange. Anyone who wouldn't take that deal needs to be locked in a room with padded walls and soft music.

Nno one in their right mind would invest in Tesla if they really believed that it couldn't succeed without one single individual.

Totally false. In the venture capital world, companies rarely have *any* assets other than one or two key individuals. People invest millions or even billions into those startups based on the presence of just those individuals. As for Tesla, Musk took it from $50B to a trillion-dollar company in under four years time -- the fastest by far such rise in all world history. The notion that anyone else but him could have done that is, quite literally absurd.

As it currently stands, Tesla shares are taking a hammering. Not exactly a show of confidence

When news of the court settlement broke, Tesla's shares immediately dropped from $195 to $187, erasing $28B in market value. It seems the company's owners feel that paying Musk is far better for the company than not paying him.

 

[Mr Majestyk]

I don't wanna pretend I know all the details of this case, but the man built leading EV company.
There is no place on earth where Tesla cars would not be recognized.

No he didn't. Do some fact finding.

 

[umeng2002]

If not Elon, who would command a higher compensation? Thank god I'm not a lawyer. But I think contracts should be interpreted based on their intent more than verbiage. Words change meaning over time, but intent is intent.

 

[loki1944]

Not sure why he didn't move it all to Texas right off the bat

 

[Puiu]

The "bogus people" were the board members the owners of the company -- the shareholders -- voted into office. And the "bogus deal" turned out to be the investment of the century. Of every $1000 you invested into Tesla, Musk turned it into $12,000 -- and then got a 20% cut of the profits in exchange. Anyone who wouldn't take that deal needs to be locked in a room with padded walls and soft music.

Totally false. In the venture capital world, companies rarely have *any* assets other than one or two key individuals. People invest millions or even billions into those startups based on the presence of just those individuals. As for Tesla, Musk took it from $50B to a trillion-dollar company in under four years time -- the fastest by far such rise in all world history. The notion that anyone else but him could have done that is, quite literally absurd.


When news of the court settlement broke, Tesla's shares immediately dropped from $195 to $187, erasing $28B in market value. It seems the company's owners feel that paying Musk is far better for the company than not paying him.

I don't think you understand the difference between a shareholder and a board member. Nobody is denying that the company grew, people are just simply calling out the BS that is an outrageous 56bil "gift" that Musk has given himself through means that deceived the shareholders.

Is the number too big for you to register just how much money 56bil is even for a company like Tesla?

Tesla shares dropped for good reason. It's Musk's fault for trying to cheat the shareholders.