Tesla and Elon Musk are synonymous. Does this benefit or hurt shareholders?

Tesla and Elon Musk are synonymous. Does this benefit or hurt shareholders?

On June 16, 2023, Elon Musk, the CEO of Tesla, talks at a convention in Paris. In a decision that partially addressed Musk's level of control over Tesla, the court dismissed Musk's record-breaking salary package as CEO of the business.

It seems absurd to ask this question. Yes, without a doubt. Musk portrays himself as Tesla's technoking in addition to serving as the company's CEO.

Whether you love him or loathe him, Musk is the face of Tesla and the main factor in the company's success.

However, Tesla is listed on a public market. Furthermore, no one individual should have unchecked power in a publicly traded corporation, which is how this absurd query played a significant role in a significant Delaware court ruling.

Indeed, the court found that Musk is in charge of Tesla. They gave $55 billion toward Musk's salary and expressed worries about his control over the business he turned into a giant.

The judge said Musk seemed quite at ease with his board.

Chancellor Kathleen McCormick, the Delaware judge, was really attempting to address a separate query. In his opening remarks, he posed the question, "Was the world's richest man overpaid?"

Warning: She answered "yes."

It was an odd choice. The board of directors of a public business that trades on stock markets determines the CEO's compensation and oversees the CEO's performance. There may be some independent directors on the board who aren't connected to the business or the CEO. Judges also usually yield to the board's "business judgment," which includes paying the CEO whatever their salary may be.

However, McCormick discovered that Musk practically determined his own pay.Yes, we do. Regarding the board, wasn't it supposed to verify his authority?

According to Deb Lifshey of Pearl Meyer & Partners, a company that provides board advice on CEO remuneration, "these people weren't really independent from Musk."

Both Musk and his brother Kimbal are board members; it is obvious that they are not independent, since they did not vote on the compensation plan. However, important decision makers have financial and personal ties to Tesla and Musk.

"They had a friendship. They attended each other's nuptials. They went on vacation together," Lifshi said, restating the court's conclusions.

CEOs and board members of many firms are perhaps in greater comfort than they should be. However, only Tesla has given its CEO a $55.8 billion salary. Musk had previously received a remuneration package that was 33 times greater than the second greatest in history.

The court deemed Musk's pay to be excessive due to his enormous power over his firm and the "immense amount of money," as McCormick described it. He has given Tesla the instruction to create a new pay schedule.

Exceptional Work, Outstanding Compensation

NPR reached out to Tesla and its board for comment, but they did not reply. However, they underlined in court that Musk's special salary was contingent upon meeting "extraordinarily ambitious" performance criteria, and that his pay was authorized by shareholders.

This is undoubtedly accurate. Musk's payout was structured in twelve equal payments, with each installment yielding a higher salary. Instead of receiving a salary, he will get even more Tesla shares as the company expands. Only if he meets Tesla's pricing, sales, and profit targets—which almost everyone thought were unachievable—will he get the top tranche.

Prospective electric vehicle purchasers are taking notice of Tesla's pricing reductions.

An important investor who made a significant early stake on Tesla, Cathie Wood, always thought Musk could succeed. And he deserves it now that he has $55.8 billion.

"To do this he lived, ate, as well as slept under his desk in a Tesla," she continues. In essence, according to her, investors received their money's value.

Furthermore, he disagrees with McCormick's assertion that Musk controls an excessive amount of the corporation. She mostly credits Musk's leadership abilities and status as a "renaissance man" for Tesla's success.

Prior to Tesla developing artificial intelligence and the Optimus humanoid robot, Musk has said that he wants even more power over the company via more voting authority.

"He wants to continue to shape the company," Wood said in agreement. Furthermore, Wood claims that his fund has a different stance from the numerous detractors who contend that it is poor corporate governance for one individual to have a large amount of power over a publicly traded corporation.

"We want our companies' visionary leaders to have disproportionate the ability to vote so they can concentrate on strategies without distraction," she states.

The "Superstar" CEO Delaware's Risks Concerned about Musk's increasing power inside Tesla's boardroom is Judge McCormick. He said that even an independent director may become "unduly respectable" due to the rockstar status of a CEO.

"In short," he said, "superstar CEO status creates a 'distortion zone' that interferes with board oversight." In other words, it tampers with the checks and balances meant to keep a CEO in check.

The primary counsel for the shareholder suing Tesla over Musk's salary, Greg Varallo, claims that the action was supposedly about executive remuneration. However, he adds, "I think it's a story about the power of the rock star CEO as well as whether the board should make some effort to continue employing that person or persons within the bounds of what is considered decent governance."

Perhaps "effort" is a crucial word. Musk has a well-known history of instability. His actions, such as his dispute with the Securities and Exchange Commission and his tweets full of conspiracy theories and incendiary remarks, are either unavoidable or unwillingly tolerated by Tesla's board.

However, Wood contends that Musk's laissez-faire approach has often benefited Tesla monetarily.

Varallo does not imply that being a CEO superstar has always been a negative thing.

"My own view is that you have to look at that [influential CEO's] behaviors to determine whether that's a good thing or a bad thing," he claims. "Perhaps that's not such a good thing when they effectively pay themselves $55 billion."

Varallo anticipates Tesla to file an appeal of the court's ruling. This implies that the benefits and drawbacks of Musk's influence and pay will be discussed further.

After the court's ruling, Musk questioned his X fans on whether Tesla need to relocate from Delaware to Texas. They did indeed tell him. Additionally, he said that a shareholder vote will be held right away by the corporation.

"For Mr. Musk's benefit," Varallo adds sourly, "it might be a good idea should you start by setting up a board of directors. The way DelawareCorporate legislation works, you are allowed to relocate."

a board of directors decision, which Varallo claims Tesla's technoking seems to have overlooked.