What Elon Musk Could Lose After His Tesla Pay Deal Is Blocked

The big stakes of Musk’s outsize pay deal

An unusual pay package that Tesla devised in 2018 helped make Elon Musk the world’s wealthiest individual.

But a Delaware judge’s ruling that the arrangement was unfair to other Tesla shareholders raises questions about much more than Musk’s net worth, including control of his companies and his ability to fund them — and how corporate leaders are paid.

The backstory: In 2018, Tesla set out 12 milestones tied to market capitalization, revenue and profit targets that Musk needed to reach to qualify for a stock package that is now worth over $50 billion. Experts thought it would be impossible to hit. Yet Musk — who told Andrew at the time that Tesla would hit a $1 trillion market cap within a decade — pulled it off. (He hasn’t taken possession of the shares yet.)

Shareholders sued, however, arguing that the plan was devised unfairly, with Musk essentially creating his own pay package with the help of allies on the Tesla board.

Those shares are now at risk of disappearing. “The process leading to the approval of Musk’s compensation plan was deeply flawed,” Chancellor Kathaleen McCormick of Delaware’s Court of Chancery (who has been blunt in hearings with Musk before) wrote in her decision, ordering that the contract be voided.

There’s a lot at stake:

• Questions about the Tesla board’s independence are being asked as the car maker’s directors weigh a demand by Musk for more control of the company, lest he start moving highly anticipated A.I. projects to other parts of his business empire.

• Musk has taken out stock margin loans to finance parts of his business empire. He may find it harder to come up with cash if X needs more money, for example.

• And corporate governance experts say the ruling is a warning to other business leaders. “It establishes that there is such a thing as excessive compensation,” Sarah Anderson of the Institute for Policy Studies, a progressive research group, told The Times.

Some legal experts think any Musk appeal faces tough odds. He will probably appeal to the Delaware Supreme Court, they say. But Eric Talley, a professor at Columbia Law School, told DealBook that chancellors like McCormick historically have wide latitude to rule on such punishments.