Elon Musk's $56B Tesla compensation voided by judge
cnbc.com
cnbc.com
https://www.detroitnews.com/story/business/autos/mobility/20...
Whats wrong with that?
Did you find the ruling? Everything I saw said it was approved by a large majority, and viewed as extremely ambitious goals at the time.
Both of these are addressed in the ruling [0]. The shareholder approval was effectively void due to material omissions, and it seems there's some dispute on how ambitious the goals actually were.
[0]: https://courts.delaware.gov/Opinions/Download.aspx?id=359340
The judge provided a sensational quote: "Is the richest man on Earth overpaid?" - completely ignoring any business value that he has brought to Tesla, a key element in determining whether a compensation package is responsible from a fiduciary standpoint.
Nothing in the article convinces me that the ruling is just and that the judge was acting in the fiduciary interests of Tesla shareholders.
According to the ruling, Musk’s lawyers failed to argue causality during trial. The judge can’t credit Musk for what Musk himself doesn’t argue.
> Defendants finally argue from hindsight. They claim the Grant was fair because it worked: “Tesla thrived because of the 2018 Plan.” With this argument, Defendants ask the court to infer a direct causal relationship between the Grant and Tesla’s subsequent performance. But Defendants failed to prove that Musk’s less- than-full time efforts for Tesla were solely or directly responsible for Tesla’s recent growth, or that the Grant was solely or directly responsible for Musk’s efforts. This last argument is empty rhetoric, not evidence of fair price.
How they arrived at those numbers is nowhere near as relevant as coming to an agreement and meeting the targets.
It’s the complete opposite of all the situations where the CEO burns down the office tower and jumps out the window with a golden parachute.
Interesting observation. I wonder how we wound up at a place where all of the incentives are the exact opposite of what they should be.
That’s the crux of the whole lawsuit.
The judge found that the whole process of coming to an agreement in this case was Musk talking to a mirror.
If there were an actual fair process here and it arrived at $55B then the judge wouldn’t have found as she did.
That’s why the shareholder lawsuit was successful.
I'm rather skeptical that such a thing could happen. The events in question all occurred while Tesla was incorporated in Delaware, so I don't think there would be any reason for the laws of Texas to apply. As far as Texas is concerned all the relevant events happened to someone outside of its jurisdiction.
Granted, I'm not a lawyer, let alone one licensed to practice in either Delaware or Texas, so a few grains of salt are more than warranted.
More discussion: https://news.ycombinator.com/item?id=39196390
You can claim the amount should be lower, but then your argument is with the shareholders who came up with the proposal and approved it.
So why does Musk deserve this again? Because he says so?
Meaning that Musk directed the creation of the compensation package, not that the compensation committee were merely biased. The analysis of this is on pages 103-146 of the ruling.
You can spend your time better than this ;)
The stock hit those goals, and Elon got paid.
Then one guy with 9 shares said it's not fair, and got a judge to agree.
https://qz.com/elon-musk-is-suing-the-law-firm-that-helped-f...
"X generated $4.4 billion revenue in 2022, a 11% decrease on 2021 figures. Revenue is expected to be worse in 2023 due to a loss of advertising revenue"
In fact, now is 1.5 billion verified, 2.1 estimated with a negative trend:
https://www.reuters.com/technology/us-ad-revenue-musks-x-dec... https://arstechnica.com/tech-policy/2023/12/stop-comparing-x...
We have half revenue, even if you improved the efficiency of 100%, you have no improvement. Besides there are the interest he have to pay to banks lent him money.
So, "He has since turned it into a profitable company" , it's not true, it's the opposite, demonstrated black on white in the financial documents. Everything else is a delusional dream of Musk's troll army.
The people he fired was the same people help the platform to keep away the scum of the web outside, reason why the ads are declining. You know, you don't want nazis, white suprematist, antisemitic, hamas, near the new shoes model you are trying to advertise.
P.S. Anyway why this article is flagged? The source is a news article for a reputable source and the title is correct. Other demonstration that when you dare commit blasphemy against the Cult of Musk , you have to face an overdose of trolling.
Which financial documents? Twitter is a private company now. How did you get access to their private financial statements?
Also, revenue != profit, and those numbers are estimated, as explained in the articles that you linked to. Those sources do not have access to the financial statements.
Net income for Twitter before it went private was -$221 million. That's a $221 million loss in 2021 before Musk bought it (public information, since it was a public company). 80% of the employees were fired and the system is still running. Why should those people have stayed employed and continued to lose $200M+ per year? Do you believe a company can continue to pay staff if it has no money?
> P.S. Anyway why this article is flagged?
It's a dupe. Further discussion here: https://news.ycombinator.com/item?id=39196390
That was down to a one-off $800M lawsuit settlement. They technically made $580M profit in 2021.
In 2020 they lost $1.1 billion.
2018 and 2019 were the only profitable years in the 10 years prior to 2022 [0].
From 2018 to 2021 they nearly doubled the number of employees from 3920 to 7500 [1]. Jack Dorsey regretted it and apologized for over-hiring [2].
[0] https://www.statista.com/statistics/274563/annual-net-income...
[1] https://www.statista.com/statistics/272140/employees-of-twit...
[2] https://www.theguardian.com/technology/2022/nov/05/twitter-e...
"A Delaware judge on Tuesday voided the $56 billion pay package of Tesla CEO Elon Musk, ruling that the company's board of directors failed to prove "that the compensation plan was fair" or show much evidence that they had even negotiated with him".
And , to be objective :
"Tesla ended Q4 2023 with a net income of $7.9 billion and the full year with $15 billion in profits" , that money is more 3 years of profit, meaning that the company , after that compensation, must wait almost 4 years, if the trend remains that one, to generate profit !
So who can say the judge was unfair ???
Other possible repercussion, Tesla lack of funds for R&D in a sector where the competitors became very aggressive.
https://www.sec.gov/Archives/edgar/data/1318605/000119312518...
The reasons for voiding it are absurd. He did the almost impossible and met all milestones of the plan and brought TREMENDOUS value to all the shareholders.
Had he not done it, his shares would not be worth that much.
NINE SHARES OF TESLA STOCK.
(Before I am tarred and feathered this is purely satire. But equivalent to the legal argument being discussed here)
No, the court should have the same, identical standard for all cases. Equal access to the legal system and predictability are tenets of the rules of law.
That's a grim worldview.
This shareholder should completely have had his view steamrolled from a “what he thinks the company should do” perspective. However, he is definitely entitled to file a lawsuit if he thinks there was governance fraud.
So what are we even talking about?
This has nothing to do with him having a say in how the company is run.
Arguing that wealth puts you above the rule of law is what's stupid.
That is precisely what's being said. Re-read the thread from the beginning.
> People are lamenting that having 9 shares gives you less say in anything
That's not what "lamenting" means.
“Might makes right” is how literally every shareholder vote and by proxy how every share ownership company is driven. Might doesn’t make right for actual law violation, but that’s not what the comment scopes it to.
You've lost track of the thread.
Maybe it's why there was a court case in the first place.
- This compensation package was approved, and he would only obtain payout if and only if Tesla reach some considerable aggressive milestones. - This was in 2018 when the company was not doing well relatively. - The shareholders at the time voted 74% in favour of the package.
Shareholders made 550 billion from performance, and Elon made 50 billion.
https://www.cnbc.com/2018/03/21/tesla-shareholders-approve-e...
> - This compensation package was approved, and he would only obtain payout if and only if Tesla reach some considerable aggressive milestones.
The judge points out that the package was approved by a committee consisting of close friends of Musk's who testified during the trial that they did not view the compensation negotiation as adversarial. They were not standing in for Tesla's shareholders, they were collaborating with the CEO to set his own compensation package.
> - This was in 2018 when the company was not doing well relatively.
The judge argues that this doesn't matter: Musk already had a nearly 22% stake in the company and had every reason to pursue its success. The board didn't need to offer him 6% of the future value of the company to keep him interested.
> - The shareholders at the time voted 74% in favour of the package.
The judge found that sharedholders were misled as to the independence of the people who put the package together, which meant that this vote could not be used as evidence of fairness.
A few relevant extracts:
> Delaware law allows defendants to shift the burden of proof under the entire fairness standard where the transaction was approved by a fully informed vote of the majority of the minority stockholders. And here, Tesla conditioned the compensation plan on a majority-of-the-minority vote. But 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.
> The concept of fairness calls for a holistic analysis that takes into consideration two basic issues: process and price. 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.
> 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.
1. The shareholders weren't aware of the lack of independence of those negotiating the deal with Musk, making the shareholder vote irrelevant 2. Because those negotiating the deal (and the board) weren't independent, it also follows that it cannot be assumed that the deal was fair 3. Because those negotiating the deal actively collaborated with Musk over setting the terms it opens a large possibility that the terms would be favourable to him 4. The deal was reasonably outlandish (compared to to other deals for CEOs), so it's hard to make the argument that a properly negotiated deal would have come anywhere close to the same level of compensation - this was hardened by the context that Musk already had significant incentive to perform.
It's impossible to know for certain that Musk would have performed if he hadn't been given 6%, but on the balance of probabilities it seems reasonable to expect that he would have performed if he'd only been given say 1%, or perhaps even nothing. The Judge has decided that a properly negotiated deal would have offered Musk less.
And of course Musk only ends up in this position of having the deal questioned because he put himself in a position where he exerts control over the board, the compensation committee _and_ didn't fully disclose these relationships to the shareholders.