Court Challenges Elon Musk's $56 Billion Pay Package

Among the business community, Elon Musk is one of the most polarizing figures. In addition to making bold statements, he is also known for his disruptive ideas and outlandish behavior. His latest controversy involves a massive pay package that he designed for himself while working at Tesla, and which is currently being challenged in court as part of his latest controversy.

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Tesla's board approved Musk's $56 billion pay package in 2018, which allows Musk to buy 1% of the company's stock at a deep discount whenever the company meets certain financial and performance targets.

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Musk has been accused of coercing compliant directors to provide him with a package that is many times larger than the combined pay of the next 200 highest-paid CEOs. It contributes to Musk's fortune, the second largest in the world.

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Tesla investor Richard Tornetta filed a lawsuit alleging that Musk's salary package was unlawfully subsidized by Tesla in order to further Musk's dream of traveling to Mars someday. Tesla's board of directors, according to Tornetta, had a duty to offer Musk a smaller salary or find another CEO; they should also have made it a requirement that Musk work full-time for Tesla instead of allowing him to focus on other projects, such as running Twitter, instead of giving him time to focus on Tesla.

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As Trade Algo understands it, Musk testified during a five-day trial in November in regard to the origins of the pay package, the difficulty of achieving its performance goals, and whether or not investors were given a realistic view of the package.

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According to Musk, his pay package was designed to provide him with funds that he would use to fund interplanetary travel. During his testimony, he stated that the mission was aimed at getting humanity to Mars. “As a result, Tesla may be able to assist in potentially achieving that goal."

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Tesla has hit 11 of the 12 targets set by the package, as its value ballooned to briefly top $1 trillion in 2021, from $50 billion when the package was negotiated to over $1 trillion in 2021. By increasing the value of shareholders' stock ten times as a result of Musk's pay plan, Musk's lawyers claim that shareholders benefitted from Musk's pay plan.

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It is expected that the outcome of this legal challenge will have significant implications for Tesla and for Musk as well. Delaware's Court of Chancery, which is presided over by Chancellor Kathaleen McCormick, will have to decide whether Musk, who owned 22% of Tesla stock as of last year, possesses control of the company due to his board connections and personal characteristics. There is a possibility that some or all of Musk's pay package could be rescinded if the court rules against him, and Musk's grip over Tesla could be weakened as a result.