Denied Bonus: The Impact on Elon Musk’s Wealth & Tesla’s Future

This article was last updated on January 31, 2024

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The Controversial Mega Bonus for Musk

It’s official. A U.S. Judge has declined to endorse a staggering $55 billion bonus for Tesla’s CEO, Elon Musk. This shifts the dynamic of Musk’s immense wealth, possibly transforming him from the richest individual globally to the runner-up. In 2018, Tesla’s shareholders pledged a lucrative compensation package to Musk. This payout, predominantly structured in stock options, was contingent on Musk achieving a series of demanding targets for Tesla. Creating a record, this incentive package emerged as the most substantial remuneration package for a corporate executive so far. The basis for the extraordinary amount allocated was tied to Tesla’s share price which has escalated dramatically in recent years. However, this decision was not accepted unanimously. Richard Tornetta, a minor shareholder, branded the sum as “excessive” and subsequently filed a lawsuit in 2018. Tornetta countered that the gigantic bonus was unfair given that Tesla’s phenomenal upsurge was predicted even back in 2018. Currently, the electric car manufacturer enjoys a valuation of nearly $600 billion, a significant leap from its $54 billion value in 2018.

An Allegation of Biased Decision-Making

Tornetta further highlighted the close relations between the board members – who sanctioned Musk’s mega bonus – and the CEO. Included in this cadre were Musk’s brother, Kimbal, a close acquaintance, and his divorce attorney. Tornetta argued that Musk influenced these individuals and that such an enormous incentive was reached through ostensible negotiations with board members who were, in reality, not impartial. In defense, Musk’s legal representation replied that the remuneration was the result of legitimate negotiations by an independent committee. Furthermore, the benchmarks set for Musk were touted to be so challenging that they ended up being the butt of Wall Street jokes. From the defense’s perspective, Musk was not in the driver’s seat regarding his pay due to his less than one-third shareholding in Tesla. As of now, he maintains ownership of around 13% of Tesla’s stocks. Despite these contentions, the judge from Delaware – Tesla’s formal base – ruled in favor of Tornetta.

Elon Musk’s Reaction and Possible Implications

Not surprisingly, Musk was displeased with the court’s verdict and expressed his dissatisfaction through a slew of posts on his social media platform. He warned businesses about choosing Delaware as their base and subtly indicated Tesla’s possible departure from Delaware. He suggested Texas or Nevada as preferable states “if you want shareholders in charge.” Should Musk be denied his mega bonus, his fortune would take a hit, reducing to approximately $154 billion, facilitating Bernard Arnault to take the throne as the world’s wealthiest individual. Arnault is at the helm of LVMH, a luxury conglomerate that encompasses prestigious brands such as Moët & Chandon, Christian Dior, and Louis Vuitton. Overall, this decision challenges Tesla’s remuneration practices and may potentially impact their leadership decisions moving forward.