Tesla board approves $30 billion alternative pay deal for Musk
The company announced the new plan in a Securities and Exchange Commission filing on Monday, emphasizing its goal to incentivize Musk to focus on Tesla. The new accord must be approved by Tesla's shareholders. It would act as an alternative method to pay Musk in the event that his original pay deal, first reached in 2018, is ultimately struck down in court.
Musk has not been paid under his original deal.
'Today we announce an important first step in compensating Elon Musk for his extraordinary work at Tesla,' the company's directors Robyn Denholm and Kathleen Wilson-Thompson, who approved the plan, wrote in a letter to shareholders.
'As you know, Elon has not received meaningful compensation for eight years since the 2012 CEO Performance Award was last earned in 2017,' the board members added. 'To recognize what Elon has accomplished and the extraordinary value he delivered to Tesla and our shareholders, we believe we must take action to honor the bargain that was struck in 2018.'
Tesla's stock came under pressure on July 24 after the company posted an earnings and revenue miss in the second quarter. Musk hinted at a "few rough quarters" amid sagging sales. For the second quarter, Tesla reported revenue of $22.50 billion versus $22.64 billion expected, per Bloomberg consensus. The revenue decrease was 12% lower than Tesla's second quarter last year, when it brought in $25.05 billion.
The new compensation plan grants Musk 96 million Tesla shares of common stock at $23.34 per share so long as he remains in continuous service until Aug. 3, 2027, as CEO or as an executive officer of Tesla responsible for product development or operations. The share grant, which matches the exercise price of his 2018 CEO award, is also subject to a mandatory holding period of five years from the grant date, except to cover tax payments or the purchase price of the shares.
If the Delaware Supreme Court overturns the Delaware Chancery Court's decision to invalidate the 2018 plan in a non-appealable judgment, any shares granted to Musk under the new plan must be immediately forfeited and returned to Tesla. The case is pending before the court, and there is no set date for a ruling.
Musk's original pay plan was thrown into question when a Tesla shareholder sued the company in June 2018, alleging that the shareholder vote that approved the plan was invalid.
Delaware Chancery Court judge Kathaleen McCormick agreed with the claim and denied the compensation package once in January 2024 and again for a second time in December, after Tesla shareholders reapproved it.
The ruling raised new concerns about Musk's motivations to give as much time as he has to Tesla.
Even before the 2018 pay package was invalidated by the Delaware court, Musk's attention was divided between his ventures SpaceX (SPAX.PVT), X.com (formerly Twitter), and the Boring Co., among other pursuits. That attention was further divided in January when Musk joined the Trump administration to launch the budget-cutting endeavor DOGE.
The novel question at the heart of the ongoing lawsuit could not only validate or invalidate Musk's original pay deal but could remake the rules of corporate law: Can stockholders ever overrule a judge?
Chancellor McCormick initially voided Musk's 2018 pay pact because of what she called "extensive ties" between Musk and the Tesla board members negotiating the pay package and a lack of public disclosure about Musk's relationships with those who approved the deal.
She ruled that Musk, a minority owner of Tesla, held enough influence over the electric car company to count as its de facto controlling shareholder, who must be held to a stricter level of legal scrutiny.
When Tesla shareholders approved the pay package a second time in June 2024, Tesla argued that the additional stamp of approval should be enough for McCormick to toss out her initial decision.
A single independent director, Kathleen Wilson-Thompson, a former executive at Walgreens Boots Alliance and Kellogg, approved the second package. However, McCormick did not address whether Wilson-Thompson's due diligence fulfilled Delaware's requirements.
One reason Tesla fought to reinstate the original accord rather than fashion a new one is the potential cost to replace it.
In its 2018 proxy statement, Tesla said it took a $2.3 billion accounting charge in connection with the package. Later, in a court filing in the litigation, Tesla said an equivalent deal would require it to take a charge exceeding $25 billion.
That impact on Tesla won't be known until the appeals process plays out.
Denholm and Wilson-Thompson stressed in their letter to Tesla shareholders the importance of retaining and motivating talent in the intensifying war to build AI-powered technology, where nine-figure cash compensation packages for non-founder, individual AI engineers have become a norm.
Wedbush technology analyst Dan Ives echoed that message in a note on Monday.
"We believe this grant will now keep Musk as CEO of Tesla at least until 2030 and removes an overhang on the stock," Ives said, adding that the Big Tech AI talent wars were fully underway. "Musk remains Tesla's big asset and this comp issue has been a constant concern of shareholders once the Delaware soap opera began."Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on X @alexiskweed.
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