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Musk's £44 billion pay deal gets busted by judge

by on01 February 2024

No one is worth that

The billionaire boss of Tesla, Elon [look at me] Musk, has been told to sling his hook by a Delaware judge who ruled his £44 billion pay deal was too much. The judge said the electric car maker's board was daft to give Musk such a huge package and scrapped it.

If the ruling sticks, the Tesla board must develop a new deal for Musk.

Musk is understandably furious that a Judge has told him how much he is worth, and he can’t just decide how much he would like to be paid.

"Never incorporate your company in the state of Delaware," Musk moaned on Twitter/X.

Tesla shareholder Richard Tornetta sued the company five years ago, saying Musk was calling the shots on his pay and the board was a bunch of yes-men. The court told Tornetta to work with Musk's lawyers on an order to sort it out. The ruling can be appealed to the Delaware Supreme Court.

Tesla's deal with Musk is the biggest pay deal ever for a boss, making up a big chunk of his fortune, one of the world's biggest. Musk said in court in November 2022 that he needed the money to go to Mars, and to be fair if he ever got to Mars, it would be worth sending him.

"It's a way to get humanity to Mars. So Tesla can help with that."

During a weeklong trial, Tesla directors swore on oath that they were paying to keep one of the world's most brilliant entrepreneurs focused on the electric vehicle maker.

Antonio Gracias, a Tesla director from 2007 to 2021, said the package was "a great deal for shareholders" because he said it made the company a success.

The judge said the defence failed to show that the "historically bonkers pay plan" was needed to keep Musk loyal to Tesla. She told the parties to talk to each other and devise a final order to follow her decision.

"Swept up by the talk of 'all upside,' or perhaps starstruck by Musk's superstar charm, the board never asked the £44 billion question: Was the plan even necessary for Tesla to keep Musk and achieve its goals?" Judge Kathaleen St J McCormick wrote in her decision.

Tornetta's lawyers said the Tesla board never told shareholders that the goals were easy to reach and that their forecasts showed Musk would get loads of the pay package.

The plaintiff's legal team also said the board should have offered a smaller pay package or looked for another boss and that they should have made Musk work full-time at Tesla instead of letting him do other things.

In 2022, he bought the social media company Twitter, which he renamed X. He has also started several other businesses, including the brain implant company Neuralink, the tunnelling firm the Boring Co, and SpaceX, a rocket venture.

The package lets Musk buy Tesla shares cheaply as the company hits financial and operational targets. He must keep the shares for five years. Musk got all 12 parts or targets in the plan but didn't get any salary.

The ruling will pressure Tesla's next round of pay talks with the boss. Tesla's value briefly topped £790 billion in 2021 from £39 billion when the package was agreed upon. The ruling came after Musk said he wanted 25 per cent voting control of Tesla.

Musk sold a lot of his Tesla shares to buy Twitter but said in a post on X in January that he wanted to lead Tesla if he had 25 per cent of the voting power. The billionaire owned about 13 per cent of the company at the time.

Executive pay research firm Equilar Amit Batish said in 2022 that Musk's package was about six times bigger than the total pay of the 200 best-paid bosses in 2021.

In July, Tesla's directors agreed to give back £580 million to the company to settle shareholder claims in a different lawsuit filed in 2020 that they paid themselves too much. The lawsuit was about options given to directors starting in June 2017.


Last modified on 01 February 2024
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