Current:Home > FinanceA court rejected Elon Musk’s $55.8B pay package. What is he worth to Tesla?-Angel Dreamer Wealth Society D1 Reviews & Insights
A court rejected Elon Musk’s $55.8B pay package. What is he worth to Tesla?
View Date:2024-12-23 21:19:44
Even when compared with other CEOs, who routinely get paid roughly 200 times more than their typical employees, Elon Musk’s pay package was eye-opening.
A judge in Delaware on Tuesday struck down the package that Tesla established for Musk in 2018, ruling that the process was “flawed” and the price “unfair.” Chancellor Kathaleen St. Jude McCormick called the package “the largest potential compensation opportunity ever observed in public markets by multiple orders of magnitude.”
So, if Musk isn’t worth the maximum $55.8 billion value of the package, how much is he worth? It’s a thorny question without an easy answer in the notoriously complex world of executive compensation.
McCormick’s ruling bumped Musk out of the top spot on the Forbes list of wealthiest people. The magazine on Wednesday lopped $25 billion off his net worth, reducing it to $185.3 billion, putting him behind fashion and cosmetics magnate Bernard Arnault and family.
Critics have argued for years that CEO pay packages are exorbitant. The median compensation for a CEO of an S&P 500 company was valued at $14.8 million, according to the latest AP CEO pay survey for 2022 conducted with the executive compensation research firm Equilar. It would take the typical worker at one of those companies more than 185 years to earn what their chief executive reaped in just 12 months.
In 2018, Tesla estimated the value of Musk’s compensation package at $2.28 billion, topping the previous highest package of $1.39 billion given to Blackstone’s Steven Schwarzman 10 years earlier, according to Equilar. The value of Musk’s package has grown as Tesla’s stock price increased. By comparison, in 2022 the median worker at Tesla made $34,084.
Under Musk’s pay plan, he received a chunk of stock options each time Tesla’s market value rose by $50 billion. Ultimately, he would have the chance to buy nearly 304 million shares for $23.34 each. Tesla has met each of the performance hurdles since the package was awarded. Its stock is trading at roughly $191 compared with $21 at the start of 2018.
The judge determined that Tesla’s board lacked independence from Musk. His lawyers said the package needed to be rich to give Musk an incentive not to leave — a line of reasoning the judge shot down.
“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?’” McCormick wrote.
Musk’s fans would argue that he shouldn’t be paid like other CEOs because he isn’t like other CEOs. He and Tesla are practically inseparable, so keeping him as CEO is key to the company’s growth. He built the company from an idea to the most valuable automaker in the world, last year selling more electric vehicles than any other company. His star power gets free publicity, so the company spends little on advertising. And he has forced the rest of the auto industry to accelerate plans for electric vehicles to counter Tesla’s phenomenal growth.
To figure out how much to pay their CEO, corporate boards often start by looking at how much their rivals are paying theirs: They need to pay enough to attract and keep the talent.
General Motors, for example, considers executive salaries at 3M, Boeing, Ford, IBM and other huge companies, and uses complex formulas to determine CEO compensation. For GM CEO Mary Barra, part of that depends on how GM’s stock return compares to its peers and how much progress the company makes on electric vehicles.
In 2022, Barra earned total compensation that GM valued at $29 million. That included $2.1 million in salary. Ford CEO Jim Farley’s compensation was valued at $22 million that year.
Even though Tesla makes automobiles, investors often lump its stock in with Big Tech stocks. They’re the companies disrupting industries and people’s ways of life.
Plus, Musk is closely identified with Tesla the way Meta Platforms’ Mark Zuckerberg or Apple’s Tim Cook are with their companies. Pay packages at Big Tech companies are among the largest in the U.S.
Cook’s compensation was valued at $63.2 million for 2023, mainly due to stock awards valued at nearly $47 million. A year earlier, he earned total compensation valued at roughly $99 million.
In the nuanced world of executive compensation, these numbers don’t indicate how much a CEO actually takes home, they’re just an estimate of the compensation package’s value. The final value may exceed or fall far below those figures because it is tied to stock.
Corporate law experts say any new compensation package for Musk will likely be challenged in court unless Tesla’s board either resigns en masse or follows a meticulous process to protect shareholders by passing a substantially smaller package.
“This is just a mess for them,” said Charles Elson, a retired corporate law professor and founder of the corporate governance center at the University of Delaware. “They kowtowed to this apparent superstar with poor results.”
Elson, who has followed the court for more than three decades, said this is the first time he can remember a judge invalidating an executive compensation plan at a public company.
Lawyers for Musk and the directors had countered that the plan was fairly negotiated by a compensation committee whose members were independent, and that it was blessed by a shareholder vote.
Shareholders who approved Musk’s deal, Elson said, were unaware that Musk essentially was negotiating with himself. “If the shareholders were aware of that, they may well have not approved it.”
veryGood! (7352)
Related
- Michael Jordan and driver Tyler Reddick come up short in bid for NASCAR championship
- Full transcript of Face the Nation, July 23, 2023
- Blake Lively Gives a Nod to Baby No. 4 While Announcing New Business Venture
- Activists Deplore the Human Toll and Environmental Devastation from Russia’s Unprovoked War of Aggression in Ukraine
- Full House Star Dave Coulier Shares Stage 3 Non-Hodgkin's Lymphoma Diagnosis
- Researchers Say Science Skewed by Racism is Increasing the Threat of Global Warming to People of Color
- Now on Hold, Georgia’s Progressive Program for Rooftop Solar Comes With a Catch
- Human remains found in luggage in separate Texas, Florida incidents
- UFC 309: Jon Jones vs. Stipe Miocic fight card, odds, how to watch, date
- Margot Robbie Channels OG Barbie With Sexy Vintage Look
Ranking
- KFC sues Church's Chicken over 'original recipe' fried chicken branding
- New Jersey school bus monitor charged with manslaughter after allegedly using phone as disabled girl suffocated
- YouTuber Adam McIntyre Reacts to Evil Colleen Ballinger's Video Addressing Miranda Sings Allegations
- Inside Clean Energy: Natural Gas Prices Are Rising. Here’s Why That Helps the Cleanest (and Dirtiest) Electricity Sources
- Week 10 fantasy football rankings: PPR, half-PPR and standard leagues
- Gen Z is the most pro union generation alive. Will they organize to reflect that?
- When AI works in HR
- Businesses face more and more pressure from investors to act on climate change
Recommendation
-
Army veteran reunites with his K9 companion, who served with him in Afghanistan
-
Christie Brinkley Calls Out Wrinkle Brigade Critics for Sending Mean Messages
-
Cash App creator Bob Lee, 43, is killed in San Francisco
-
Two mysterious bond market indicators
-
Stocks soared on news of Trump's election. Bonds sank. Here's why.
-
Earth Has a 50-50 Chance of Hitting a Grim Global Warming Milestone in the Next Five Years
-
Prices: What goes up, doesn't always come down
-
Kelsea Ballerini Struck in the Face By Object While Performing Onstage in Idaho