Musk Is Wary Of Delaware Now That His $56 Billion Pay Deal Has Been Canceled

Musk Is Wary Of Delaware Now That His $56 Billion Pay Deal Has Been Canceled
Paul Allison, CFA

about 1 month ago2 mins

Mentioned in story

What’s going on here?

Elon Musk’s $56 billion pay deal was canceled after a lengthy court battle in the state that the Tesla head honcho loves to hate.

What does this mean?

Elon Musk has many skills, including the ability to convert a legion of young men into loyal fans of oddly shaped trucks through the medium of podcasts. But clearly, winning over a court of law is not one of them. Musk was granted a $56 billion ten-year pay deal back in 2018, the biggest in the history of corporate America. There was just one problem: a disgruntled shareholder, with a whole nine Tesla shares to their name, who argued that investors in the firm weren’t given a big enough heads-up. On Tuesday, a Delaware judge agreed. So even though Musk argued that the money could fund humanity’s move to Mars when the Earth crumbles, the court canceled the record-breaking compensation.

Tesla stock
Source: Google Finance

Why should I care?

Zooming out: A win for one is a win for all.

Investors in the US don’t usually kick up a fuss about how much company bosses are paid. Not that it has anything on Musk’s deal, mind you: that $56 billion was six times what 2021’s 200 highest-paid executives made combined. See, big payouts tend to be made in the form of shares or share options, as Musk’s was. That incentivizes big bosses to drum up the share price, which only benefits everyday shareholders too.

The bigger picture: “G” for “Greater good”.

Media has lit up the “E” in “ESG” with eco-friendly LED lights. But while environmental considerations matter, especially if you’d rather save the planet than follow Musk into infinite space, the social and governance factors tend to be overlooked. Musk’s pay debacle could dust off the governance folder, though: independent committees should ensure that a CEO’s salary lines up with the value they deliver, and this latest ruling could turn that theory into more common practice.

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