KEY TAKEAWAYS
- A Delaware court declared Tesla CEO Elon Musk’s $55.8 billion remuneration plan to be excessive.
- The decision to reject the remuneration package could have an influence on Musk’s position as the richest man.
- Earlier in the month, Musk said he wanted more control of the company before advancing Tesla’s position in artificial intelligence, however the court ruled Musk already has a strong influence over the board.
- According to Wedbush analysts, the verdict may serve as “a catalyst for the Board to take the situation into its own hands and come up with a new compensation package.”
Tesla (TSLA) shares recovered from early losses in intraday trade Wednesday after a Delaware court found Chief Executive Officer (CEO) Elon Musk’s $55.8 billion remuneration plan excessive.
The Chancery of the State of Delaware, an equity court that resolves disputes involving Delaware corporations, sided with an investor who sued over Musk’s compensation, writing that “the plan is the largest potential compensation opportunity ever observed in public markets by multiple orders of magnitude—250 times larger than the contemporaneous median peer compensation plan and more than 33 times larger than the plan’s closest comparison, which was Musk’s prior compensation.
The court’s decision required the two parties to “confer on a form of final order implementing this decision and submit a joint letter identifying all issues, including fees, that need to be addressed to bring this matter to a conclusion.”
The order, which can be appealed, could remove a significant portion of Musk’s riches. Musk is considered the world’s richest person, with a net worth of $229 billion derived from his stake in Tesla and ownership of X (previously Twitter).
The court ruling came shortly after Musk wrote to X, stating that he needs 25% voting control of the business before improving Tesla’s position in the AI competition. On Tesla’s most recent earnings call, Musk reaffirmed that he is “aiming for a strong influence, but not control” before ramping up AI programs.
According to Wedbush analysts, the Tesla board may appeal the ruling and design a new pay plan that replaces the one in question, which will be put to a vote at the next shareholder meeting. The board may even create a new compensation plan that would directly grant Musk the 25% voting stake that he desires.
According to the analysts, Wedbush “ultimately believe[s] this decision will be a catalyst for the Board to take the situation into its own hands and come up with a new comp package,” pointing out that “this could have a silver lining as the Board could use this as an opportunity to lock Musk into the Tesla story along with a new AI corporate structure over the coming years in a comp structure that gets unveiled in the upcoming proxy.”
Tesla shares were up 0.1% to $191.74 a share as of 12:50 p.m. ET Wednesday. They’ve gained more than 10% in the last year.