When Much is Too Much: Elon Musk’s Compensation Package
When is the acquisitive nature of open frontier capitalism too much? When Elon Musk is told that US$56 billion as a pay package is unfair. This, at least, was the finding by Delaware Court of Chancery by Judge Kathaleen McCormick regarding the spellbinding 2018 compensation package for the planet’s wealthiest human being.
McCormick and Musk already have inked some judicial history. The same judge presided over the Twitter suit against Musk that eventually resulted in him parting with US$44 billion to acquire the company that is now sliding into merry decay as the platform X.
In her sharp ruling, daring to “boldly go where no man has gone before”, let alone a Delaware court, McCormick observed that Tesla, a company of Musk’s own creation, “bore the burden of proving that the compensation plan was fair, and they failed to meet their burden.” The question of fairness first arose in 2019, when Tesla shareholder Richard Tornetta filed a suit challenging the validity of the 2018 performance-based equity compensation plan, the largest of its type in the history of public markets.
Tornetta’s primary contention was that Musk was hardly showing much devotion to the carmaker, his duties and interests spread, as it were, across a number of other corporate entities: SpaceX, OpenAI, Neuralink and the Boring Company. Tornetta’s legal team argued that the 2018 package did nothing to focus the billionaire’s interest on Tesla and, it followed, the interests of its shareholders. The agreement, for instance, made no mention of any such requirements as time allocation. “Indeed,” reads the lawsuit, “Musk testified that since the Grant’s approval, he has spent a little more than half his time on Tesla matters and has dedicated substantial time and attention to various other endeavours.”
The judgment acknowledges that any decision by the board of directors on what to pay a company CEO “is the quintessential business determination subject to great judicial deference.” Delaware law, however, recognised “unique risks inherent in a corporation’s transactions with its controlling stockholder.” When it came to dealing with “conflicted-controller transactions,” the “presumptive standard review … is entire fairness.”
Here, the defendants proved “unable to prove that the stockholder vote was fully informed because the proxy statement inaccurately described key directors as independent and misleadingly omitted details about the process.” Even by the judge’s own reasoning, the task left to the defendants was an “unenviable” one, and “too tall an order.”
For the court, there were critical problems with the process leading to the approval of the compensation plan. The judgment paints a picture of Musk essentially negotiating with himself through devotees, flunkeys and friends. The adversarial atmosphere was never present; the “controlled mindset” all powerful.
The theme of the entrepreneurial God King holding his courtiers in thrall streaks McCormick’s observations. Musk, for instance, maintained “extensive ties with the persons tasked with negotiating on Tesla’s behalf.” The chair of the compensation committee, Ira Ehrenpreis, had known Musk well for 15 years. Another member of the same committee, Antonio Gracias, had an enduring two-decade business relationship with Musk “as well as the sort of personal relationship that had him vacationing with Musk’s family on a regular basis.”
The entanglements do not stop there. There is General Counsel Todd Maron, the main negotiating link between the committee and Musk. Maron had acted as divorce attorney for Musk and admired him so much he was “moved … to tears during his deposition.”
With a flawed process, things did not get much better with the negotiated price. Again, the defendants argued that, for Tesla to continue to grow, Musk’s continued leadership was indispensable. Keeping Musk as the main helmsman meant a rise in stockholder value. In one estimate, offering Musk a chance to increase his ownership of Tesla from 21.9% to 28.3% would mean “6% for (US)$600 billion of growth in stockholder value.”
Such arguments did not convince McCormick. Musk already owned 21.9% of the company when the plan was approved. He had every incentive to push the company “to levels of transformative growth” seeing what he stood to gain from it: “(US)$10 billion for every (US)$50 billion in market capitalization increase.” The arrangements also came with no conditions on how much time Musk would devote to Tesla. “Swept up by the rhetoric of ‘all upside,’ or perhaps starry eyed by Musk’s superstar appeal, the board never asked the (US)$55.8 billion question: Was the plan even necessary to retain Musk and achieve its goals?” The answer: plainly not.
Such observations would have stung and made good the judge’s promise to go where no previous Delaware court had dared tread. Here was a punchy assessment about the comfortable, clique-ridden tribalism of corporate non-governance. Musk, riled and ruffled, took to the platform X (formerly Twitter) to vent. “Never incorporate your company in the state of Delaware,” were his words of advice.
By no means does this end matter. Musk is hardly going to be out of pocket, nor is he going to leave the company from which he continues to handsomely profit from via stocks he owns. Fairness operates in otherworldly dimensions here. A new compensation package, according to the judge, will have to be worked out with Tornetta. An appeal is also possible. “The judge’s ruling should be a wakeup call (for Tesla shareholders) that things have gotten out of hand,” remarks Andrew Poreda, who also invests in Tesla through exchange-traded funds. In this overgrown corporate jungle, it is questionable whether things were ever really in hand.
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8 comments
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Phil Pryor
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New Bruce
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Roswell
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calculus witherspoon.
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Lyndal
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Clakka
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andyfiftysix
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Return to home pageSeriously (what?) Musk appears, (and could expert suggestions follow please,) to be declining through terminal unfitness and even madness problems usually attributed to social disease causation. Irrational vanity, utter magnificence fixation, ultra destiny, complete disregards, galactic onanistic selfromancing…it is a new chapter in bizarre circus and show.
“I want $45 Billion dollars…..” “Excuse me?” “I want $45 BILLION dollars.” “Oh. Why?” “I’m Musk.” “Huh? “Elon Musk….”
“Oh. Ok then… Will that be in hundreds, or do you want something smaller?”
On what planet is anyone in the desperate need for the personal ownership of a small nation’s national economy ? Let alone worth it? And this is on top of the cash he already has.
Come on Elon, grow up.
You are 52. You are currently valued at $210B. If you take that in cash, today, and spend like there is no tomorrow so that you leave Nothing, you will have to spend $532,724.50 PER HOUR. Everey hour, every day. Until you are 97.
Assuming you live that long.Because for all of your money, and your ability to go where others have already been in your own shyrocket, and rename everything you touch X because it avoids the confusion and you are good like that, one day you will pass away. Maybe in a ball of flame like a Roman candle. Maybe when someone else says “Enough of this shit” and ends you. Maybe in a puddle of your own mess like the mortal you actually are.
But you will end, and nobody should to be able to spend half a million dollars per hour without consequence.
There are too many folk on Planet Earth who could really use $45 dollars.
This bloke has the means to make this a better world and to give millions a better life. But he won’t. He doesn’t want to.
There’s a name for people like him.
I had to laugh- “frontier capitalism”.
Elon is in the big league now, not so much the boy wonder and I cant think of how a person can “get rich” in the American way without leaving vengeful opponents. No, it is about an urge to continue with the game, but maybe he is kicking against the breeze a little more now.
Binoy did good with this, because he is really pointing out something not right with the underlying culture that manufactures him, he is individuated and commodified like the rest of us. Something keeps nagging at me…Lachlan Murdoch and one of the younger Rothschilds, who seem to want to take over the place and run it as a sort of theme park for the magnates amused at the hoi-polio.
They seem to love a sort of psychological isolation, it could turn to reactive. It doesn’t seem to me, the way the mind works.
So does this mean an upper limit is being suggested for CEO wages? While Musk’s claim has been recognised as beyond reasonable, will other shareholders take courage from Tornetta’s challenge, and also stop ticking the box that passes the remuneration package. CEOs everywhere are getting ridiculously generous amounts for doing little more than turning up.
Given his well known godhead-like persuasions, he ought be aware there’s no pockets in a shroud.
With his head in the clouds, and adventures beyond, it’s surely better to describe him as space junk in the making.
His hallmark being brutal flippancy, he certainly hasn’t appeared to understand the difference between gravitas and gravity (perhaps since his bruising tumble down the stairs).
Seems like the good justice in Delaware is onto him and his fops. Good on her.
Elon has two sides, like every other genius. There is no doubt he is a smart man. He employs geniuses to work for him. There is no doubt his push into EVs is a god send for humanity but it is enabled because of australian inventions……..solar cells and battery technoligy.
He is at the meeting point of disruptive technologies.
Does he need to be compensated? Yes. $53B USD, no fucking way. Not without paying a fair wack in TAXES.
The tax system was written by rich people for rich people. It encourages such outrageous behaviour. It should be encouraging TESLA to re invest back into the business, but you know, takeovers, share buy backs and CEO remuneration are more important than fairness in the land of outrageous capitalism.
I just cant imagine how anyone could possibly spend so much money in multiple life times……..unless he buys another twitter……. Surely the tax system is also there to protect him from his own folly.
I have heard all his mutterings and i get the impression he has his tail up. Feeling so encouraged that he also thinks he is the smartest and most important person out there…….similarities to Trump abound. “Only in america ” still has currency…..hahahahaha
But before we crucify him we need to look in our own back yard. I remember the drugs scandal that hit the Essendon FC. The coach in charge was a genius player……..it went to his head. The smartest guys are also the ones who have issues we need to be aware of.
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