Elon Musk is a polarizing figure in the business world. He’s known for his bold statements, disruptive ideas, and outlandish behavior. But his latest controversy involves a massive pay package that he designed for himself at Tesla, which is currently being challenged in court.
The $56 billion pay package, which was approved by Tesla’s board in 2018, allows Musk to buy 1% of Tesla’s stock at a deep discount each time the company meets certain performance and financial targets.
This has led to accusations that Musk coerced compliant directors into providing a package of his design, which is many times larger than the combined pay of the next 200 highest-paid CEOs. It contributes to Musk’s fortune, the world’s second largest.
The legal challenge, brought by small Tesla investor Richard Tornetta, argues that the pay package improperly subsidized Musk’s dream of one day traveling to Mars. Tornetta believes that the Tesla board had a duty to offer a smaller pay package or look for another CEO and they should have required Musk to work full-time at Tesla instead of allowing him to focus on other projects, like running Twitter.
During the five-day trial in November, Investors King understands that Musk testified about the origins of the pay package and whether its performance goals were difficult to achieve and accurately described to investors.
Musk admitted that his pay package provided funds he would use to finance interplanetary travel. “It’s a way to get humanity to Mars,” he testified. “So Tesla can assist in potentially achieving that.”
Tesla has hit 11 of the 12 targets as its value ballooned to briefly top $1 trillion in 2021 from $50 billion when the package was negotiated. Musk’s lawyers argue that the pay plan benefited shareholders by increasing the value of their stock 10 times.
The outcome of this legal challenge will have significant implications for Tesla and for Musk. Chancellor Kathaleen McCormick of Delaware’s Court of Chancery must determine if Musk, who owned 22% of Tesla stock in 2018, controlled the company through board ties and his personality. If the court rules against Musk, some or all of the pay package could be rescinded, and Musk’s grip on Tesla could be weakened.
