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In January 2024, a Delaware judge voided Elon Musk’s original $56 billion compensation package from 2018, citing procedural flaws and excessive influence by Musk over Tesla’s board. The ruling also invalidated his 304 million unexercised stock options, which would have entitled him to about 9% of Tesla’s outstanding shares (3.2 billion). Currently, Musk retains a 13% stake in the company.
In June 2024, Tesla shareholders voted to reapprove the 2018 compensation package for Elon Musk, with 77% of votes in favor. This aimed to bolster his leadership as Tesla expands into AI and robotics. After the Delaware court ruling, Musk had demanded at least a 25% voting control over Tesla to prevent being “overturned” occasionally.
Tesla relocated its state of incorporation to Texas but agreed to retain legal jurisdiction over Musk’s compensation issues within Delaware and the court’s Chancery Chief Judge, Kathaleen St. J. McCormick.
In December 2024, the judge upheld her initial ruling, stating that the shareholder vote did not rectify procedural issues. Specifically, the court argued that Tesla and Musk had opted for a re-ratification of the 2018 compensation plan under Delaware General Corporation Law section 204, which allowed correcting defective corporate acts due to “failure of authorization.” However, the code did not provide for curing breaches of fiduciary duty, the primary reason cited by the court for nullifying Musk’s 2018 pay package.
Today, Tesla’s board approved a new compensation plan for Elon Musk, granting him 96 million shares valued at approximately $29 billion. The exercise price is set at $23.34 per share, aligning with the terms of the 2018 award. This new plan is structured to gradually increase Musk’s voting power and reinforce his commitment to Tesla’s evolving vision.
However, Tesla does not currently believe that the performance conditions of this new interim plan will be met anytime soon:
> “As of the date of this report, the Company expects that the performance condition of the 2025 CEO Interim Award will not be deemed to be probable of being met. As a result, the Company currently expects that it will not recognize a compensation expense upon the issuance of the award.”
📚 Reading Comprehension Quiz
In January 2024, what action did a Delaware judge take regarding Elon Musk’s compensation package from 2018?
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