Will You Take a Trillion?

Written by James Sanders

Okay, if you won’t take billions, what about a trillion?  Can you imagine how that discussion went with Elon Musk?  Tesla recently approved an unprecedented pay package for Elon Musk that could be worth up to $1 trillion in equity over the next decade, with no salary or cash bonus. The plan is conditional on Musk helping Tesla achieve significant operational and market capitalization goals, including raising the company’s valuation to $8.5 trillion. 

If you don’t remember, a Delaware court rejected the prior pay package the Board approved in 2018 that was worth $50+ billion.  Specifically, the Delaware judge ruled this prior plan was “deeply flawed” due to a lack of independence among board members and undue influence by Musk over the negotiations. 

For this new package, specific and objective measures were outlined by the Company and the approval process (i.e., shareholder vote) was made as transparent as possible.  It does not hurt that they reincorporated in Texas as well.  

How can a shareholder be upset if Musk hits these growth targets?  The point is that company boards of directors should be given the flexibility to incentivize and retain effective leaders.  In this case, if Musk hits the targets, the rising tide will lift all the boats (i.e., the value shareholders’ stock will increase).  Now, some out there will criticize the outsized pay package.  However, if he hits the objectives and the process was fairly negotiated, then he should get paid.    

If you have any questions about corporate governance issues with your organization, its important to review them with your professional business advisors.