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Why has a court blocked Elon Musk’s $56bn Tesla pay?

Judge calls Tesla boss’s pay ‘unfathomable’. Ruling could affect his standing as the world’s richest man.

A Delaware judge has scrapped a $55.8bn compensation package for Tesla boss Elon Musk after years of legal arguments about his pay. Tesla stocks dropped 2 percent after the ruling before recovering to close at just over $187 a share.

Wednesday’s ruling came after a shareholder sued Tesla directors in 2018 in the Delaware Court of Chancery, claiming that Musk was overcompensated. The pay package, agreed in 2018 to be paid out over 10 years after Musk hit certain targets, was the biggest in United States corporate history. It contributed to Musk’s standing as the world’s richest man as the CEO hit the dozen targets set by 2023. Musk may appeal the ruling but has not indicated whether he will.

Speaking in court, Judge Kathaleen McCormick said the amount was “unfathomable” and blamed Tesla’s leadership for not properly informing shareholders about it.

The ruling saw Musk drop a notch on the world’s richest people list by Forbes, becoming the world’s second richest person after Bernard Arnault, boss of the French fashion and cosmetics empire LVMH.

Here’s what we know about Musk’s pay deal and why it was controversial:

What was in Musk’s Tesla pay package?

Musk, who founded Tesla in 2003, does not receive a salary from the electric carmaker. He agreed to the $56bn compensation package in 2018 to cover a period of 10 years. 

The deal awarded Musk stock worth about 1 percent of Tesla’s equity each time the company achieved one of its operational and financial goals, such as ambitious aims set in 2018 to increase the Tesla market cap from $59bn to $650bn within 10 years. This meant hitting targets set for Tesla’s share price and the company’s profitability. Musk hit all 12 targets set by Tesla by 2023.

The package helped boost Musk’s personal worth and made him the highest paid CEO in the US. According to Forbes, the tycoon was worth from $198bn to $220bn in November.

Tesla is currently worth $596bn and is ranked the ninth largest US company by valuation.

Tesla’s lawyers argued that the pay package was designed to incentivise Musk as the company increased production of its Tesla Model 3. The CEO, a controversial figure because of his public takes on world affairs, is also head of the spacecraft company SpaceX and social media site X, formerly Twitter.

https://www.aljazeera.com/news/2024/2/1/why-did-a-court-cancel-elon-musks-tesla-salary-package#:~:text=A%20Delaware%20judge%20has%20scrapped,just%20over%20%24187%20a%20share.

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