Latest / Elon Musk Podcast / Musk’s $56 Billion Pay Fight Reaches Final Verdict Stage

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Musk’s $56 Billion Pay Fight Reaches Final Verdict Stage · Elon Musk Podcast

• 0:01
  Hey everybody, welcome back to the Elon Musk Podcast.
• 0:05
  This is a show where we discuss the critical crossroads, the
• 0:08
  Shape, SpaceX, Tesla X, the Boring Company, and Neurolink.
• 0:13
  I'm your host, Will Walden. Hey everybody, before we get
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  Tap the link in the show notes and grab your spot now, because
• 2:13
  I only have three spots. Elon Musk's $56 billion Tesla
• 2:18
  pay package is now in the hands of the Delaware Supreme Court.
• 2:23
  Now, should ACEO be able to help design his own compensation plan
• 2:29
  while holding near total influence over the board that
• 2:32
  approves it? That is the burning question we
• 2:34
  have today. Now, this case isn't about how
• 2:37
  well Tesla has performed or whether Musk deserved to be
• 2:39
  rewarded. The court is weighing something
• 2:41
  more fundamental. The Tesla's board act
• 2:44
  independently on their own or in shareholders best interests when
• 2:49
  it approved largest executive pay package in U.S. history.
• 2:53
  Now that plan was set in 2018 and it promised Elon Musk up to
• 2:59
  $55.8 billion in stock options if he hit a series of financial
• 3:04
  and operational milestones. And he did it.
• 3:07
  But earlier this year, Delaware judge voided the entire package,
• 3:10
  calling it an unfair process driven by a board that never
• 3:14
  truly negotiated with Musk. Tesla's legal team is now
• 3:18
  arguing that the earlier ruling misrepresented the board's role
• 3:22
  and failed to give proper weight to the fact that shareholders
• 3:25
  overwhelmingly approved the package.
• 3:28
  He claimed the court ignored the context where investors knew
• 3:32
  what they were voting for and Musk still had to deliver
• 3:35
  extraordinary growth to receive anything.
• 3:38
  Musk met those targets, taking Tesla from a $50 billion company
• 3:43
  to 1 worth over $750 billion by the time the final, which was
• 3:49
  triggered. Now, the problem is that
• 3:51
  shareholder approval doesn't always mean a process was fair.
• 3:55
  The lower court found that Tesla's board relied on flawed
• 3:58
  assumptions and gave misleading disclosures.
• 4:01
  Musk helped craft the plan and had deep personal ties with
• 4:04
  several of the directors that were part of this, including his
• 4:07
  brother Kimball Musk and close allies in the group there.
• 4:13
  Now, the court concluded that this dynamic meant there was no
• 4:16
  real arm's length negotiation. He was very close.
• 4:19
  Everybody was friends, everybody was buddies, shaking hands, you
• 4:23
  know, back room deals, you know, that kind of thing happens.
• 4:28
  It's just the way that works in corporate America.
• 4:32
  And at the heart of the appeal is whether Delaware courts
• 4:35
  should defer to shareholder votes when there's evidence that
• 4:38
  the board's process was compromised from the start.
• 4:41
  Musk's attorneys argue that the judge applied an overly
• 4:44
  aggressive standard by demanding entire fairness, rather than the
• 4:48
  more lenient business judgment rule, which gives boards more
• 4:51
  leeway when shareholders approve a deal.
• 4:54
  Now, the ruling has now forced the Delaware Supreme Court to
• 4:56
  consider how much latitude powerful CE OS can have when
• 5:00
  structuring their own pay. The stakes go beyond Musk's own
• 5:03
  paycheck, though. He wants that money he's going
• 5:06
  to use that money for. He's going to change that stock
• 5:09
  into money loans, using it for other projects such as SpaceX or
• 5:14
  other Tesla projects. And if this ruling stands, it'll
• 5:18
  become harder for CE OS with dominant influence over their
• 5:21
  boards to argue that shareholder votes validate their
• 5:23
  compensation. The decision should shift how
• 5:27
  corporate boards structure executive pay, especially in
• 5:30
  founder LED companies where traditional checks and balances
• 5:34
  often are not in place. Boards may need to insulate pay
• 5:39
  decisions more carefully from CEO influence, or risk having
• 5:42
  these decisions reversed in court.
• 5:45
  Or just be more sneaky about it. That would make more sense.
• 5:49
  Musk has made it clear he won't stay with Tesla long term if he
• 5:53
  doesn't maintain control. He's taking his ball and he's
• 5:56
  going home. He's going to go play someplace
• 5:58
  else. Maybe he's just going to do
• 5:59
  SpaceX. I have a feeling he's going to
• 6:01
  stay no matter what. He's trying to call a bluff, and
• 6:05
  the courts don't care about that.
• 6:07
  The courts care about the law. They don't care about who he
• 6:10
  works for or what companies he's founded.
• 6:13
  They just care about the law. He's already threatened to shift
• 6:15
  AI projects to other private companies if he can't secure 25%
• 6:20
  voting stake in Tesla. That pressure has only increased
• 6:24
  as Tesla's future becomes more tied to its AI off its robots
• 6:29
  vehicles. And we also have robo taxis,
• 6:33
  automatic everything, autonomous driving systems, Dojo, things
• 6:39
  like that. The board now faces the
• 6:40
  challenge of balancing shareholder governance with
• 6:43
  retaining a founder who seems to be indispensable.
• 6:48
  You know, Elon himself has said this before, that Tesla would be
• 6:52
  nothing without him. I think the board agrees with
• 6:54
  him that without Tesla and Musk together, Tesla's just another
• 7:00
  car company that makes electric cars.
• 7:02
  Their stock would tank if Elon Musk decided to leave.
• 7:06
  And that's what he's doing. He's threatening the rest of
• 7:11
  Tesla to approve this or he's going to leave now.
• 7:17
  The judges don't care. Like I said.
• 7:18
  Before and during the hearing, Musk's legal team insisted the
• 7:22
  lower court misunderstood the motivations behind the 2018
• 7:25
  package. They say it wasn't about
• 7:27
  guaranteed pay, but a performance based structure that
• 7:29
  aligned Musk's incentives with investors.
• 7:32
  The court didn't see it that way, though.
• 7:34
  In the original ruling, the judge said Tesla's board failed
• 7:37
  to properly vet alternatives and the process lacked independence
• 7:41
  from Musk's personal influence. Tesla's board hasn't commented
• 7:45
  on whether a revised pay plan is being considered.
• 7:47
  The Supreme Court upholds the voiding of the current one, but
• 7:51
  Musk already appears to be preparing for the scenario.
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  He pushed through a shareholder vote in June to reincorporate
• 7:57
  Tesla in Texas, where courts have no precedent comparable to
• 8:01
  Delaware's rigorous scrutiny of boardroom decisions.
• 8:04
  That may reduce legal risk going forward but won't undo what's in
• 8:10
  the past and what's already been decided in Delaware.
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  And if Musk loses again, the ruling could create new
• 8:16
  expectations for how boards defend massive, absolutely
• 8:20
  massive executive payouts. Companies may need to show the
• 8:23
  compensation decisions are backed by fully independent
• 8:26
  committees, clear disclosures, and real negotiations, not just
• 8:30
  buddies handshaking and tell them they got each other's back.
• 8:34
  That'll be especially relevant in cases where the CEO also
• 8:37
  serves as board chair or hold significant voting power.
• 8:42
  I want to know what you think about this.
• 8:43
  Do you think Elon is in the right here?
• 8:45
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