Elon Musk’s big payday

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Rob Armstrong (0:36)

Thank Pushkin.

Shareholders in Tesla have just awarded the company's CEO, Elon Musk, one of the largest pay packages ever, $56 billion worth of the company's shares. Is he worth it? This is Unhedged, the Market and Finance podcast from the Financial Times. And Pushkin, I'm Rob Armstrong, coming to you from Unhedged World headquarters in New York City, joined by Sujit Indap, the FT's Wall Street editor and the world's preeminent journalistic expert on the Chancellery Court of Delaware. Sujit, welcome.

Sujit Indap (1:19)

Well, as the world's leading expert, only person following Delaware Courts, I will correct you and point out it is the Delaware Court of Chancery.

Rob Armstrong (1:27)

I stand corrected, Chancery Court. So, why, if the shareholders way back in 2018 approved this immense pay package for Elon Musk, how did it end up becoming controversial in 2024?

Sujit Indap (1:47)

Well, the thing that happened most immediately or most shockingly was, in fact, he hit all these outlandish targets that were set out for him in 2018 There was 12 different tranches, if you will, and they were increasingly far-fetched or unrealizable.

Rob Armstrong (2:05)

So, the idea was that the more the value of the company, its market cap, rises, the more shares he will be awarded by the board.

Sujit Indap (2:13)

It was that and some operating targets like revenue and EBITDA. And they were increasingly more difficult, but to hit them all just seemed virtually impossible at the time.

And that ultimately happened, and at the same time, there happened to be a single shareholder who filed a lawsuit about this award.

Rob Armstrong (2:32)

Yeah, so it was almost like back at the time, what was the market cap of Tesla in 2018?

Sujit Indap (2:38)

It was like 100 billion or less.

Rob Armstrong (2:39)

It was 100 billion or less, and the targets were up to 650 So it seemed like almost the board was just writing numbers in the air.

And if Tesla becomes the biggest company in the world and Elon Musk is king of the universe and everything we touch turns to gold, then of course we'll give Elon Musk $56 billion or what has turned out to be $56 billion at the current share price.

Sujit Indap (3:02)

Yeah, so there's two ways to think about it. One is these will never be reached, so it's totally hypothetical. Or two, if he does hit them, that's an amazing result for all of us.

Rob Armstrong (3:09)

Everybody got so rich that who cares?

Sujit Indap (3:12)

Exactly.

Rob Armstrong (3:12)

Now, if that was approved back in 2018, I can't, you know, my basically libertarian instincts say, look, you had a contract back in 2018 It had these slightly bonkers targets in them. He hit them.

Give them the money. Everybody said no givesies, no backsies.

Sujit Indap (3:32)

And there was a shareholder vote in 2018

And roughly three quarters of Tesla shareholders agreed with you and said, hey, if you can hit these targets, we're happy giving them shares. Because we're going to be rich. But you only need one shareholder to file a lawsuit.

Rob Armstrong (3:48)

It's a relevant fact that the lawsuit succeeded, at least initially.

Sujit Indap (3:51)

It did. So there was this decision earlier this year. The plaintiff is a gentleman named Richard Tornetta. And in this lawsuit, he focused on how exactly did the board of directors of Tesla at the time come up with this pay package and this decision to award Elon Musk these shares, and said, you know what, this was a breach of fiduciary duty.

And because there's a breach of duty, it taints the entire process.

Rob Armstrong (4:19)

So what's the idea that Elon Musk held the board members at gunpoint and dictated to them this pay package that they were going to sign off on?

Sujit Indap (4:27)

Well, the board of Tesla has always been a polarizing group of people in that they are people deemed to be independent directors who have all these ties to Elon Musk from Silicon Valley, their co-investors, other businesses, and they were investing with Elon Musk and vice versa. And so the idea that your typical board of directors have people who are kind of arm's length from the CEO, that just didn't really manifest itself.