Tesla CEO Elon Musk could leave if $56 billion pay package not approved, shareholders warned
Why was the initial approval of Musk's pay package voided by a Delaware judge?
The initial approval of Elon Musk's $56 billion pay package was voided by a Delaware judge because the approval process was deemed "deeply flawed". The judge, Kathaleen St. J. McCormick, sided with a Tesla shareholder who called the compensation granted by the EV maker's board "an unfathomable sum" that was unfair to shareholders4. The judge found that the board that approved the pay package was too close to Musk to be entirely independent and shareholders were unaware of all the facts. As a result, the judge ruled that the pay was unfair and invalidated the package.
What reasons did Robyn Denholm provide for the necessity of Elon Musk's $56 billion compensation package?
Robyn Denholm, Tesla's board chair, provided several reasons for the necessity of Elon Musk's $56 billion compensation package in a letter to shareholders:
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Motivation for a Non-Typical Executive: Denholm argues that Musk is not a typical executive, and therefore, traditional compensation methods would not be effective in driving results for Tesla. She states that motivating someone like Musk requires a different approach.
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Reciprocal Respect: Denholm emphasizes the need for reciprocal respect between Musk and the company. She acknowledges that Musk has limited time and a plethora of ideas and opportunities to make a difference in the world. The compensation package serves as a demonstration of the company's support for his vision and recognition of his accomplishments, which, in turn, will motivate him to continue creating value for Tesla's stockholders.
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Commitment and Value Creation: Denholm highlights that the pay package is a commitment Tesla made to Musk in 2018, which has led to significant growth and stockholder value over the past six years. She points out that it would be fundamentally unfair and inconsistent with the shareholders' decision to deny this compensation.
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Not About the Money: Denholm insists that the compensation package is not about the money, as everyone knows Musk is already one of the wealthiest people on the planet. The package is rather about showing support for his vision and accomplishments, which will motivate him to continue leading Tesla to create more value for stockholders.
In summary, Denholm's reasons for the necessity of Musk's $56 billion compensation package revolve around the idea of motivation, commitment, and recognizing the value that Musk has created for Tesla and its stockholders. The package is positioned as a crucial factor in retaining Musk's leadership and ensuring the continued growth and success of the company.
What are the potential consequences mentioned by Denholm if the compensation package is not approved?
Tesla board chair Robyn Denholm has mentioned several potential consequences if Elon Musk's $56 billion compensation package is not approved by shareholders.
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Increased costs: Denholm argues that creating a new pay plan could end up costing shareholders more. She said that the compensation tied to the 2018 pay package, which was worth an estimated $2.3 billion in stock-based compensation charges at the time, had already been paid out. Rejecting the plan wouldn't change that. But if the shareholders overturn the 2018 pay plan, and Tesla were to craft a new plan with the same stock grants, they would cost around $25 billion worth of stock-based compensation today1.
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Legal action: When asked if Elon Musk could ultimately sue Tesla if shareholders reject ratification, Denholm said it was "possible," but she didn't know how probable it would be. However, she added that it's not something that Musk had brought up to the board.
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Decreased motivation from Musk: Denholm emphasized that the current compensation plan is critical to keeping Musk motivated and focused on Tesla's growth. She said that Musk has worked incredibly hard over the last six years to lead the company to "transformative growth." While shareholders and customers have both benefited, Musk himself hasn't received compensation. Denholm argued that ratifying the plan is the best option. "Clearly, if it doesn't pass, then there are other alternatives, but none of them are as good from a shareholder perspective as actually ratifying the plan."
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Potential departure of Musk: While Denholm did not explicitly state that Musk would leave Tesla if the pay package is not approved, she did imply that he could decamp to "other places" without proper motivation. She said, "What we recognized in 2018 and continue to recognize today is that one thing Elon most certainly does not have is unlimited time. Nor does he face any shortage of ideas and other places he can make an incredible difference in the world." This suggests that if Musk does not receive the compensation he expects, he might choose to focus his time and energy on his other ventures.