Finance

Musk’s $55 billion compensation plan is ineffective, threatening the world’s largest wealth


(Bloomberg) — Tesla Inc’s $55 billion compensation package was blocked by a Delaware judge as a shareholder challenged it as too high, a ruling that would slash Musk’s fortune and determine his The fate of the company. question.

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That is, if the ruling survives a possible appeal.

Tuesday’s decision amounts to his first major court loss and means Tesla’s board will have to Start over and come up with a new proposal. Musk has never attempted to exercise his option since being challenged in Delaware Chancery Court. Tesla shares fell about 3% in after-hours trading after the news broke.

Musk has repeatedly urged Tesla’s board to arrange another huge stock award for him, several years after he sold a large stake in the company to acquire Twitter. The billionaire said he needs to take more Tesla shares to maintain control of the electric car company and expand further into artificial intelligence.

The ruling puts the future of Musk’s fortune in jeopardy. The options, worth about $51.1 billion, are among his most valuable assets. Without those options, his net worth would drop to $154.3 billion, making him the third-richest person in the world after spending the most money. No. 1 for the past few years, according to the Bloomberg Billionaires Index.

Musk’s New York-based attorney, Evan Chesler, did not immediately respond to emails and phone calls late Tuesday seeking comment on the decision.

Following a trial that ended more than a year ago, Delaware Chancery Court Chief Judge Kathaleen St. J. McCormick sided with an investor who complained that Tesla directors did not properly disclose the 2018 executive Compensation package and performance benchmarks required by Musk. She also found that conflicts of interest affected the board’s consideration of compensation plans.

“The bottom line is that Musk initiated the Autopilot process, readjusting speed and direction along the way as he saw fit,” the judge wrote in a 200-page ruling. “This process came at an unfair cost.” Through this lawsuit, prosecutors requested a recall.”

Musk, 52, tops the Bloomberg wealth list with his stake in Tesla, the world’s most valuable car company. The stock options in his compensation plan had increments over the past few years as performance goals were met, but he did not cash them out. Regulatory filings show the company has exercised any options.

The billionaire was quick to react to the ruling on his social media platform X, formerly known as Twitter. “If you want shareholders to decide things, register your company in Nevada or Texas,” he suggested.

Musk, who prides himself on snubbing corporate norms, often wins court battles, including shareholder suits over his acquisition of renewable energy provider SolarCity.

In the compensation case, attorneys for Tesla shareholder Richard Tornetta argue that board members failed to exercise independence because they set a compensation package for the company’s CEO and allowed him to base his compensation on his own preferences inappropriately design the details of the compensation plan.

Read more: Musk may not move to Mars after $2.6 billion pay approved

Tornetta’s attorney argued in the brief that Musk provided “a framework and financial terms that remained essentially unchanged throughout the board’s approval process.” In her decision, McCormick noted that Musk acknowledged that he It’s basically a back and forth “negotiating with myself.” More than his salary.

“The most striking omission from this process is the absence of any evidence of adversarial negotiations between the board and Musk over the size of the grant,” the judge wrote. The decision was delayed in part because of the judge’s backlash last year. Operation.

Musk’s defense failed to explain why a “historically unprecedented compensation package” was necessary to incentivize the CEO to achieve “transformative growth.” The judge said Musk has no intention of leaving Tesla and his equity stake is sufficient to allow him to focus on growth. explain.

“Everything is fine”

“The board, swayed by the ‘all is well’ rhetoric, or perhaps dazzled by Musk’s superstar appeal, never asked the $55.8 billion question: whether it was necessary for Tesla to preserve the plan and achieve its goals ?” she wrote.

During last week’s earnings call, Musk insisted on pursuing more Tesla shares, describing the issue as his control of the automaker rather than money.

“I don’t want to control it, but if I had such little influence on the company at this stage, I might be voted out by some random shareholder advisory firm,” he said.

Tesla CEO named proxy adviser Glass Lewis and Institutional Shareholder Services, the latter of which he jokingly referred to as the extremist group ISIS, and claimed they were being “activated” with “weird ideas” molecules” penetrate.

Read more: Musk says he needs to own more Tesla shares to avoid being ousted

Greg Varallo, one of Tornetta’s lawyers, welcomed the elimination of “Musk’s massive compensation package.” He added in an email that the decision eliminates the dilutive effect Tesla shareholders would suffer from the “massive” plan.

It’s unclear whether Musk will appeal Tuesday’s ruling or if Tesla’s board will develop a new compensation package.

Musk has spent years, and pledged much of his fortune, to pursue his ambitions to land on Mars through SpaceX, which has become the world’s second most valuable startup and the leader of the commercial aerospace industry. Giant. He vowed to use options to be taken out of a 2018 package to fund Mars colonization if the plan is maintained.

“Colonizing Mars is an expensive endeavor,” the judge wrote. “Musk believes he has a moral obligation to devote his wealth to that goal, and Musk views the compensation he receives from Tesla as as a means to fund the mission.”

In 2018, he tweeted, “About half of my money is used to solve problems on Earth, and the other half is used to help build a self-sustaining city on Mars to ensure the continuation of life (of all species), To prevent the earth from being hit.” When a meteor like the dinosaurs or World War III happens, we will destroy ourselves. “

The case is Tornetta v. Musk, 2018-0408, Delaware Chancery Court (Wilmington).

–With assistance from Tom Maloney, Bob Van Voorhees, Eric Larson, Michael Leonard, Dana Hull, and Chester Dawson.

(Updated from Musk’s post on the X social network)

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