By Tom Hals
WILMINGTON, Delaware (Reuters) – Tesla cannot give Elon Musk a $56 billion compensation package despite a vote in support of the CEO pay deal by the company’s shareholders, a Delaware judge ruled on Monday.
Below is a look at what could happen for Tesla and its billionaire founder, who is still looking for a huge payday from the company:
WHAT DOES MUSK WANT?
Musk told a special committee of Tesla’s board shortly after a judge nullified his compensation in January that he wanted a replacement package of similar size, a securities filing shows.
Moreover, earlier this year he said on his social media platform X that he wanted a bigger stake in Tesla, otherwise he might develop some products outside the company. Musk’s other companies include rocket company SpaceX and Neuralink, which develops brain implants.
TESLA CAN APPEAL THE RULING
Musk and Tesla’s board could appeal and try to overturn the ruling in the Delaware Supreme Court, a process that typically takes about a year.
The case, which involved the largest pay deal ever at a U.S. publicly traded company, raises issues rarely addressed by Delaware judges, adding to the uncertainty of an appeal.
For example, the court’s judge, Chancellor Kathaleen McCormick, ruled that Musk controlled compensation negotiations even though he only owned about 22% of Tesla’s stock.
In addition, Tesla has acknowledged that the June shareholder vote to ratify Musk’s pay was a “novel” legal tactic and said it was unclear how it would be handled under Delaware law.
TESLA CAN DESIGN A NEW PLAN
Tesla’s board could create a new compensation package, although that could be very expensive.
The original plan, which Musk and the company agreed to in 2018, awarded him stock options if the company met very aggressive performance and financial targets. The stock options allowed Musk to purchase Tesla stock at a price at 2018 levels. The company exceeded targets and Tesla stock has since increased tenfold, making the options incredibly valuable.
Tesla recorded a cost of $2.6 billion when the 2018 plan went into effect. The company has said that a replacement plan for the same cost today would likely need to be less than 10% of the size of the 2018 plan.
CAN TESLA JUST RESTORE THE OLD PLAN?
Tesla could offer Musk the same 304 million stock options with the same $23.34 strike price used in the 2018 plan. If shareholders wanted to challenge that, they would have to file a lawsuit in Texas, where the company was reincorporated this year, rather than in the Court of Chancery in Delaware.
