Elon Musk’s $55 billion Tesla CEO compensation gets voided by judge
A Delaware judge has sided with Tesla shareholders who filed a lawsuit claiming that Elon Musk unjustly secured a $55 billion CEO compensation plan. The plan is now voided by the court.
It’s unclear what will come out of this unique situation where Musk could potentially have to give back billions of dollars worth of Tesla shares.
In 2018, Tesla shareholders voted for Elon Musk to get a historic new CEO compensation package that could be worth $55 billion for the executive if Tesla achieved remarkable growth in valuation and profits, which it did.
However, some shareholders argued that Musk unfairly secured this extremely generous compensation plan through misleading shareholders about the fact that the plan was being put together by an independent board.
They filed a complaint in court in Delaware. The case went to trial in 2022, but it took a long time for the judge to give her decision.
The case came back into the news lately as Musk discussed another potentially historical CEO compensation plan at Tesla as he seeks to get 25% voting control over the company. His stake in Tesla is currently down to about 13% (~18% if he ends up being able exercise some stock options left from his compensation plan) after he sold tens of billions worth of Tesla stocks to buy Twitter.
Musk said that Tesla was waiting on the judge’s decision before moving ahead with the new compensation plan
The decision finally came today. Delaware Chancery Court Chief Judge Kathaleen St. J. McCormick sided with the shareholders who filed the complaint:
This posttrial decision enters judgment for the plaintiff, finding that the compensation plan is subject to review under the entire fairness standard, the defendants bore the burden of proving that the compensation plan was fair, and they failed to meet their burden.
Musk briefly commented on the judgment, which he is most likely going to appeal, on X:
In short, the judge found that “Musk controlled Tesla” at the time the compensation package was put together:
The collection of features characterizing Musk’s relationship with Tesla and its directors gave him enormous influence over Tesla. In addition to his 21.9% equity stake, Musk was the paradigmatic “Superstar CEO,” who held some of the most influential corporate positions (CEO, Chair, and founder), enjoyed thick ties with the directors tasked with negotiating on behalf of Tesla, and dominated the process that led to board approval of his compensation plan. At least as to this transaction, Musk controlled Tesla.
An interesting caveat to the decision is that Musk’s lawyers had the option to shift the burden of proof that the compensation package was unfair to the plaintiff, but only if the package approved by “fully informed vote of the majority of the minority stockholders.”
Of course, Tesla shareholders voted for the plan, but the judge found that “the defendants were unable to prove that the stockholder vote was fully informed because the proxy statement inaccurately described key directors as independent and misleadingly omitted details about the process.”
Therefore, an important part of this case relied on the judge agreeing with the plaintiff that the board members behind the package were not “independent”.
Here’s how the judge describes how it wasn’t even clear who was negotiating on Musk’s behalf versus Tesla’s behalf:
The process leading to the approval of Musk’s compensation plan was deeply flawed. Musk had extensive ties with the persons tasked with negotiating on Tesla’s behalf. He had a 15-year relationship with the compensation committee chair, Ira Ehrenpreis. The other compensation committee member placed on the working group, Antonio Gracias, had business relationships with Musk dating back over 20 years, as well as the sort of personal relationship that had him vacationing with Musk’s family on a regular basis. The working group included management members who were beholden to Musk, such as General Counsel Todd Maron who was Musk’s former divorce attorney and whose admiration for Musk moved him to tears during his deposition. In fact, Maron was a primary gobetween Musk and the committee, and it is unclear on whose side Maron viewed himself. Yet many of the documents cited by the defendants as proof of a fair process were drafted by Maron.
After hearing from both sides, the judge found that there was “no meaningful negotiation over any of the terms of the plan.”
Musk’s lawyers tried to argue that the CEO made some “concessions” as part of negotiations, but the judge didn’t buy it.
In this litigation, the defendants touted as concessions certain features of the compensation plan—a five-year holding period, an M&A adjustment, and a 12- tranche structure that required Tesla to increase market capitalization by $100 billion more than Musk had initially proposed to maximize compensation under the plan. But the holding period was adopted in part to increase the discount on the publicly disclosed grant price, the M&A adjustment was industry standard, and the 12-tranche structure was reached in an effort to translate Musk’s fully-diluted-share proposal to the board’s preferred total-outstanding-shares metric. It is not accurate to refer to these terms as concessions.
One of the main arguments from Tesla shareholders who are against this lawsuit is that “it was good for everyone”. Yes, Elon gets 6% more of Tesla, but Tesla gets $600 billion more in valuation.
The judge had an answer to this argument:
At a high level, the “6% for $600 billion” argument has a lot of appeal. But that appeal quickly fades when one remembers that Musk owned 21.9% of Tesla when the board approved his compensation plan. This ownership stake gave him every incentive to push Tesla to levels of transformative growth—Musk stood to gain over $10 billion for every $50 billion in market capitalization increase. Musk had no intention of leaving Tesla, and he made that clear at the outset of the process and throughout this litigation. Moreover, the compensation plan was not conditioned on Musk devoting any set amount of time to Tesla because the board never proposed such a term. Swept up by the rhetoric of “all upside,” or perhaps starry eyed by Musk’s superstar appeal, the board never asked the $55.8 billion question: Was the plan even necessary for Tesla to retain Musk and achieve its goals?
The story is still developing. I will update with more details as I continue going through the lengthy decision, which you can read below.
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On today’s informative episode of Quick Charge, we’ve got Honda engineers Jason Hwang and Emilio Sanchez to talk us through some of the things that make the GM Ultium-based Honda Prologue EV feel like a real Honda, and why that matters.
Jason and Emilio talk about some of the choices they made to make the Honda Prologue and Acura ZDX feel different from its GM-branded cousins, and explain why this was much more than a case of badge-engineering. Give it a listen, then let us know what you think of the Prologue and ZDX in the comments.
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Read more: All my favorite EVs, racecars, and robots from Electrify Expo Austin.
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The first EV charging hub funded by the Charging and Fueling Infrastructure (CFI) Program in the Eastern US is now online in Deerfield, Massachusetts.
The town installed the region’s first DC fast chargers (four ports), along with four Level 2 chargers, at 59 North Main Street in South Deerfield.
These new charging stations, funded with $2.46 million from the CFI program, are conveniently located near Interstate 91 in Franklin County, the most rural county in Massachusetts, which serves drivers from Connecticut up to the Canadian border.
The hub also features local and regional bus stops and designated bike lanes with secure onsite bike racks. The chargers are meant to cater to everyone: from local residents and visitors to municipal EVs and commercial vehicles that service the region’s businesses, like those in food and beverage manufacturing.
Gabe Klein, executive director of the Joint Office of Energy and Transportation, sees this as a model for future projects:
Multi-modal charging hubs in communities are key to giving more people the choice to ride and drive electric. The Town of Deerfield is showing leadership in building out convenient charging infrastructure that brings new transportation choices to rural and disadvantaged communities while supporting local commerce.
In recent years, Deerfield has experienced increased climate change-driven flooding from nearby rivers, including the Deerfield River, the Connecticut River, and the Bloody Brook. The project incorporates environmental engineering designed to mitigate and adapt to the effects of flooding and climate, including the installation of permeable asphalt and rain gardens, planting of native trees, grasses, and shrubs, and the creation of new greenspace in the center of Deerfield.
The Biden-Harris administration’s CFI Grant Program is expanding EV infrastructure nationwide. It offers grants for projects that complement and expand upon the initiatives of the NEVI program in urban, rural, and disadvantaged and low-income communities. So far, the CFI Grant Program has allocated over $1 billion to nearly 100 projects across the US, encouraging private investments and expanding the EV charging network to make EV ownership more practical and convenient.
Read more: The US reaches milestone of 200,000+ public EV charging ports
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Kia’s upcoming EV4 electric sedan was just spotted testing in the US for the first time. The low-cost EV is expected to make its big debut by the end of the year. Here’s a look at the new model.
The EV4 will round out Kia’s new “EVs for all” master plan launched last year. Kia showcased three new models, the EV3, EV4, and EV5, during its first annual EV Day in October 2023.
During the event, Kia outlined its new global strategy to “lead and accelerate the EV revolution” with a wide range of models priced from $30,000 to $80,000.
Kia plans to rapidly expand its lineup with a series of smaller, lower-priced models. It launched the EV9, its first three-row electric SUV, which is already proving to be a hot seller in the US. Starting at under $55,000, the EV9 is still a great deal compared to others in its class, but Kia plans to go even lower.
The EV3 and EV4 are expected to be among the most affordable electric vehicles when they arrive in the US.
Kia’s new EV4 is now testing in the US
Ahead of its official debut, Kia’s new EV4 sedan was recently caught driving on US streets for the first time.
The latest image from KindelAuto doesn’t reveal much more than what’s been shown in the past, but the fact that it’s now testing in the US is significant.
Kia’s EV3 is already on sale in Korea, starting at around $30,000 (42.08 million won). Earlier this week, the company said its new compact SUV is now available across Europe, starting at around $38,000 (36,000 euros) with a “segment-leading range” of up to 375 miles (WLTP).
Next up will be the EV4. Kia is expected to officially reveal the new EV by the end of the year, with deliveries starting in 2025. It could be as soon as next week at the 2024 LA Auto Show.
The interior will feature Kia’s advanced new ccNC infotainment system with dual 12.3″ navigation and driver display screens. An otherwise minalimalistic design is expected inside.
Kia’s EV4 will also be available in a hatchback variant. Although the hatch is likely aimed at European buyers, it was also recently spotted testing in the US for the first time.
We will learn official prices closer to launch, but the EV4 is expected to start at around $35,000 to $40,000.
Kia is teasing five new vehicles for the US, at least one being a new EV, that will debut at the LA Auto Show next week. Will it be the EV3? EV4?
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