Elon Musk has emerged victorious in the litigation battle against Tesla shareholders, securing his record-breaking $56 billion pay package. However, this triumph raises the question: has he lost the broader war?
Origins of the $56 Billion Pay Package
The controversy surrounding Musk's pay package stems from an agreement with Tesla's board of directors that began in 2012. Under this agreement, Musk had until 2022 to achieve 10 pairs of Operational Goals and Market Cap Goals. For each pair accomplished, he would earn a 0.5% Tesla stock option. By March 2017, Musk had met all 10 Market Cap goals and 9 Operational Goals, earning him 4.5% of Tesla stock options.
In 2018, the board approved a new pay package, setting 12 Market Cap Goals and 16 Operational Goals, with Musk needing to meet 12 pairs to receive full rewards. Each pair of goals would grant him 1% in Tesla stock options, amounting to a potential 12% in Tesla shares. The pay package granted stock option awards for approximately 304 million shares that Musk can buy at about $23.33 each, well below $191.59 where it closed on Tuesday. Musk earned all 12 tranches of stock option awards as Tesla hit escalating financial and operational goals. Given Tesla's market cap of $581.93 billion, achieving these goals would net Musk a $56 billion pay package.
Impact on Tesla's Stock
Musk's decision to exercise his stock options involves significant tax obligations, including a 37% Ordinary Income Tax, 13.3% California Income Tax, and 3.8% Investment Tax, totaling over 50%. To cover these taxes, Musk sold 10% of his Tesla stock in 2021. This large-scale sale inevitably impacts Tesla's stock prices, raising concerns among those opposed to Musk's stock option-based compensation.
Battle Won, War Lost?
While Musk has won the shareholder litigation, the broader implications for Tesla are contentious. Musk's current 13% ownership in Tesla could increase to nearly 25% with the stock options. Musk argues that this level of control is necessary for steering Tesla towards becoming a leader in AI and robotics. However, some shareholders believe Musk should fulfill his duties regardless of his stock ownership percentage. This discontent raises questions about whether Musk's victory in litigation might ultimately alienate shareholders.
Future Litigation Looms
The legal battles concerning Musk's compensation are far from over. More litigation is expected as shareholders may continue to challenge the approval of Musk's pay package. This ongoing legal strife could further strain relations between Musk and Tesla's investors.
Can Musk Win the War?
Whether Musk can secure not only his pay package but also the unwavering support of Tesla's shareholders remains uncertain. The company's stock prices could continue to fluctuate amid these disputes. To regain shareholder confidence, Musk needs to deliver on promises such as fully autonomous driving, which has seen much hype but limited progress.
The Future of Tesla
Elon Musk's victory in securing his massive pay package raises critical questions about the future. While he has won the battle, the broader war for shareholder trust and Tesla's market stability is ongoing. The outcome will depend on Musk's ability to fulfill his ambitious promises and navigate the legal and financial challenges ahead.
Edmund
Catherine
Bitcoinist
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Cointelegraph