Tesla eyes new pay deal for Musk as legal row over $56 bn package drags on

A special board committee has been established to explore compensation options

Tesla has formed a special board committee to consider new ways to compensate CEO Elon Musk, potentially offering him a fresh stock options package, the Financial Times reported on Wednesday. The move, still in its early stages, could shape Musk’s future at the company as it awaits a court ruling on whether his original 2018 pay deal, worth up to $56 billion, can be reinstated.

 

The two-member committee, made up of board chair Robyn Denholm and director Kathleen Wilson-Thompson, is also weighing alternative forms of remuneration if the Delaware Supreme Court upholds a ruling that voided the earlier award. Tesla disclosed the committee's existence in a regulatory filing last month, prompting major shareholders to reach out with views on Musk’s pay and continued leadership.

 

 

Tesla has delayed its annual shareholder meeting to allow more time for the committee’s work. While no new package is guaranteed, any deal would likely tie compensation to performance targets. Reissuing the previous options would trigger a $50 billion accounting charge and steep 57 per cent taxes for Musk,  since the company has already surpassed the performance metrics tied to the original package.

 

Elon Musk's 2018 pay package and judge ruling

At the centre of the controversy is Musk’s 2018 compensation package, which granted him 304 million stock options tied to aggressive growth targets. He unlocked all of them by 2023, and at their peak valuation, they were worth $146 billion.

 

A Delaware judge, however, ruled in January 2024 that the package was excessive and had been approved by a board too closely aligned with Musk. The judge described directors as acting like “supine servants of an overweening master”. 

 

The ruling voided the deal, prompting Tesla to appeal. If reinstated, the options would increase Musk’s stake in the company to more than 20 per cent from around 12 per cent.

 

Tesla shifted its legal incorporation from Delaware to Texas last year in protest at the court decision.

 

Tesla forms new compensation committee

The newly-formed compensation committee has now hired McDermott Will & Emery, a law firm with expertise in Texan corporate law, replacing its former Delaware-based counsel. Any new pay structure is expected to link stock options to financial, operational and share price targets.

 

Tesla’s board itself has faced criticism. Several directors agreed in January to return more than $900 million in cash and stock to settle a lawsuit over excessive pay. Committee chair Denholm has sold $538 million in Tesla shares since joining in 2014, with $198 million of that in the past six months alone.

 

Musk threatens to leave Tesla unless...

Musk has signalled he may walk away from Tesla unless granted at least 25 per cent control. He owns around 12 per cent of the company but says he needs at least 25 per cent to protect the firm against activist investors and safeguard its use of AI.

 

However, his public political alignment with Donald Trump and his role as head of a government reform body have become a liability for Tesla, which has seen electric vehicle sales fall in the US and Europe, and slow in China amid rising competition and trade friction.

 

Musk has since been more visible at Tesla’s headquarters in Austin, Texas, following criticism that his attention was divided.

 

Forbes currently estimates Musk’s net worth at $415.7 billion. Aside from Tesla, Musk also leads SpaceX, now valued at $350 billion, and AI start-up xAI, which merged with social media platform X earlier this year.