Tesla has approved a substantial interim share award valued at approximately $29 billion for CEO Elon Musk, amidst ongoing legal disputes regarding his previous compensation package. Instead, Musk will owe $23.341 for each share of restricted stock that vests under this new compensation scheme. This is the same sum as the exercise price he set in his 2018 CEO Award.
A Delaware court issued a groundbreaking ruling in early 2024 that voided Musk’s entire 2018 compensation package. This package started out at more than $50 billion. The court found that the board’s process for approving the award was inadequate and unfair to the board’s shareholders. In March, Musk joined the fray—initially by filing an appeal. He claimed the lower court judge had erred on multiple legal grounds when she rescinded his record-setting compensation.
Tesla’s special committee has designed the interim share award to avoid any such “double dip.” This decision is made in anticipation of the courts reinstating the full 2018 CEO Performance Award. If so, Musk’s new indefinite grant will either be lost or adjusted downwards to compensate. Tesla’s Compensation Committee made the new award on the grounds that it will ensure Musk’s continued dedication to Tesla’s mission. They are assured this can offset his numerous other business enterprises.
“While we recognize Elon’s business ventures, interests and other potential demands on his time and attention are extensive and wide-ranging … we are confident that this award will incentivize Elon to remain at Tesla,” – the special committee.
Musk’s new interim shares would only vest if he stays in a “chief executive” position at Tesla through 2027. These shares are subject to a five-year holding period. Only exceptions to cover tax payments or purchase the shares are permitted.
The board’s decision to create a special committee to handle any compensation issues before Musk arrived. This decision brings to light the multifaceted problems of executive compensation and governance in widely recognized companies such as Tesla. The committee’s actions reflect an effort to align Musk’s financial incentives with the long-term success of the company and its shareholders.
As this situation evolves, the outcomes of Musk’s appeal and the future of his compensation packages will likely have significant implications for Tesla’s governance and shareholder relations.