This was a specific point in the chancellor’s ruling. Internal documents showed that Tesla believed that in fact many of the performance metrics were on track to be met. Yet the board portrayed the targets as being nearly impossible. That illustrates how the board was not operating in the best interests of the shareholders.
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If Musk is an exception to what I generally see (no effective shareholder input on management activities), so be it.
Steve
If I knew it, then " the information is provided to all the shareholders."
Ah! We AGREE!
There will always be some fool who “didn’t
know”. Or, at least claim s/he didn’t know.
IMO, Tesla made a reasonable attempt at " disclosure is to ensure that the information is provided to all the shareholders.". The “compromised/ IMO” judge failed to follow Rule of Law.
This is where my opinion disagrees with y’all’s “opinions”.
I appreciate the reminder. You’ve explained it before. Yes, I read your words.
And very much appreciate your comments!
Yes, I went to compromised judge… Cause being adjudicated in the "competent jurisdiction " is irrelevant if the judge is compromised. Yes?
Thanks. I’d forgotten that “ruling” by the “compromised/IMO” judge.
Yes!
ralph
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No, it’s not. You have to disclose it in the proxy. That’s the difference between information being disclosed and simply being publicly available. It’s not enough that the information simply be public - it has to actually be disclosed to the voter as part of the shareholder approval process.
It’s not an “opinion.” Tesla didn’t disclose to their shareholders that the pay package was not the result of an independent negotiation, as they were required to. The fact that there exists publicly available information that might allow shareholders to conclude that the Board was not independent is no substitute for disclosing that fact within the shareholder proxy. Therefore the shareholder vote was not fully informed the way the law requires.
BTW, I don’t believe that TSLA ever made the argument you seem to be making. The Court identified a number of facts that it felt were required to be disclosed to shareholders. TSLA disputed whether those facts required disclosure, but I don’t see any indication that they claimed that because the information was publicly available that was sufficient to meet the requirements of the law despite not being in the proxy statement.
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“facts” ?
that it felt. ???
Please define “felt” and the relationship to “facts”?
Again, you’ve already argued this “gotta be in the proxy”. I get what you’re saying.
I just disagree with that opinion.
And, again, I appreciate the refresh on actual “letter of the Law” information.
Don’t judges “render opinions”? Ie leaving the subject open for debate.
I personally believe Tesla (Musk) will appeal this, and the judicial “opinion” will change.
And it’ll be appealed as many times as possible . Cause $56B is a whole lotta moolah.
Ok.
ralph. Has some TSLA glitter in his eyes. Enough that this is not “merely academic”.
Again - I REALLY appreciate the discussion!
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Well, the tale continues… Lots of Press, not all that great… Jalopnik story this morning…
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Hi Ralph. When I said I voted for Musk to get paid, I meant in 2018. The proxy vote is for those who held stock on April 15, 2024, so I suspect they are just getting the notifications out.
If what the CEO wants is in the best interests of the company and shareholder then why not? The 2018 offered Musk no salary and no bonus. He was offered 12 tranches of options over 10 years. He could exercise each tranche if certain milestones were hit, which were set at $50B market cap increments. In 2018, Tesla was struggling to ramp the Model 3 and the word from folks like you and media as I recall was that “The Competition is Coming!”
Well, those who owned TSLA stock in 2018 and held it has seen its value rise by about 1000-fold. I say pay the guy. He took the risk, he deserves the reward and every stockholder in 2018 who held onto the stock has benefited greatly.
There was no guarantee in 2018 that Musk would get $56B. In fact, it was more likely he would get nothing. Tesla market value in 2018 was about $50B. To exercise the first set of options, Musk would have to double Tesla’s market cap. In all honesty, how likely did you, a Tesla skeptic, believe that would be? That $56B (actually more like $40B at today’s prices) is well deserved.
Not jealousy. IMO it was because the sum was so large that it gave the impression of being unreasonable. However, the reason why the sum is so large is because Musk was very successful, not because of favoritism from the board or that stockholders were fooled.
If Musk had failed to reach the milestones necessary for the compensation and received nothing, do you think the judge would have ruled the way she did?
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Money quote:
Musk’s reasoning, according to one person with direct knowledge of his edicts, was that Tesla should reduce headcount by 20% because its vehicle deliveries dropped by that amount from the fourth quarter to the first quarter.
Can’t argue with computer-brain logic like that. I bet this guy is a delight to work for.
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Social skills, if he ever had any, were left far behind… Power of the dollar is part of it, I suppose, but buying other’s tech, claiming as his own, the ego is the master…
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As soon as the pay package fails, or Musk loses control of the board of directors.
If the pay package fails, then Tesla is the big short of the decade. I expect that if the pay package passes, that by the end of the decade the car manufacturing business will be sold off or shuttered.
The money is in battery tech, AI, GPU’s and micro grids. If the fund managers take over they will divest these things a focus on building cars. The driven talent will leave quickly, or simply stop working.
The tell is the pay package, if it fails, Tesla fails. Short it to 15 a share.
Cheers
Qazulight (Planning to add some shares after hearing the conference call, but will turn on a dime if the pay package fails, and it might)
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Because there’s always an inherent conflict between the interests of the CEO and the company/shareholders when it comes to compensation. It’s in the CEO’s interests to get as much compensation as possible; it’s in the company’s interests to provide the least compensation necessary to get the full performance from the CEO.
$56 billion (or whatever it is at current share prices) is an utterly unprecedented level of compensation. Tesla could have set that figure at $28 billion - or $10 billion - and it still would have been more than any CEO has ever been paid in the history of CEO’s. More than the top 100 paid CEO’s in the country combined.
Which, again, is one of the primary reasons the pay package was rejected by the court. Had anyone in the room piped up and asked, “Is $56 billion too much? Wouldn’t $X billion work just as well to get Musk’s services and align his interests,” the pay package would have likely been lower. So Tesla had an obligation to disclose to their shareholders that the compensation process wasn’t structured to make sure that the committee was filled with independent directors (who might ask that question) or that the lawyer negotiating with Musk for the company didn’t have a conflict of interest.
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I do not think the stock went up a thousand fold. Not even close.
Say the stock was about $17 in 2018 and is now about $142. It went up a little over eight fold.
Percentage wise, it represents about a 735% increase. Sure, round it up to 1,000%.
But it didn’t go up a thousand fold.
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If that was the understanding of the court then the court is definitely in the wrong.
The 2018 pay package was not about $56B in salary/bonuses. It wasn’t about $5B. It wasn’t even about $1. It was about stock options for a company that most people in Wall Street thought was enormously risky. Probably among the most shorted company at the time. No one knew the future cash value of those options in 2018. I suspect at the time many would have been surprised if after 10 years Tesla had the combined market value of Ford and GM (currently about $100B), which might have allowed Musk to exercise just one of the 12 option tranches.
If Musk doesn’t reach some pretty ambitious targets, he gets nothing. He will have worked for Tesla for free. I think a lot of people at the time thought Musk was fleeced by the board than the other way around. We don’t have to guess.
This is from an NYTimes article written in 2018. https://www.nytimes.com/2018/01/23/business/dealbook/tesla-elon-musk-pay.html
The company is planning to announce on Tuesday Mr. Musk’s new compensation plan, and it is perhaps the most radical in corporate history: Mr. Musk will be paid only if he reaches a series of jaw-dropping milestones based on the company’s market value and operations. Otherwise, he will be paid nothing.
Tesla has set a dozen targets, each $50 billion more than the next, starting at $100 billion, then $150 billion, then $200 billion and so on, all the way to a market value of $650 billion. In addition, the company has set a dozen revenue and adjusted profit goals. Mr. Musk would receive 1.68 million shares, or about 1 percent of the company, only after he reaches milestones for both.
But to put these numbers in perspective, Tesla is worth only about $59 billion today.
Seriously, what moron would agree to a compensation package like that? You only get paid if you keep adding $50B of value to the company. It would be like Shohei Otani saying pay me each year only if we make the World Series. Musk took the deal and pulled it off. Now a disgruntled shareholder and judge want to rescind the deal because (IMO) he pulled it off. If he had been less successful and so had a compensation more in line with the Wall Street average, it would have been okay as there would have been no evidence that Musk benefited from a partisan board. What nonsense.
A 2018 Harvard Business Review article I think got it mostly right:
"Now, even though the structure is familiar, the numbers really are radical, in terms of both the targets themselves and the payout upon hitting the targets. Tesla’s market value must exceed $100 billion by 2028, otherwise Musk receives nothing, with further targets at $150 billion, $200 billion, and so on up to $650 billion. If he achieves all milestones, Musk can receive shares worth as much as $55 billion.
But the numbers are only radical because Tesla is radical, in terms of its potential future value. And this part of the plan is good practice: it’s tailored to Tesla. While some regulators and investors advocate “one-size-fits-all” schemes, such as the requirement that CEO-to-worker pay ratio not exceed a certain level, pay packages should be tailored to the company in question. Since Tesla’s potential value is substantial, it makes sense for Musk to be given very high targets. And, while $55 billion for a CEO would be egregious in any but the very largest companies and come at the expense of shareholders and other stakeholders, here it will only occur if Tesla becomes a $650 billion company. If so, Musk will have grown the pie tremendously, creating a standout enterprise that makes electric cars available to the masses and provides thousands of jobs, and his slice of the pie — just like customers’ and workers’ — will have grown. In short, by being given long-term shares, Musk will think and act like a long-term owner."
Why Elon Musk’s Compensation Plan Wouldn’t Work for Most Executives
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Sorry, bad writing on my part. I was exaggerating for impact and didn’t think anyone would take it literally. Should have written “a gazillion fold”.
My bad.
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Yep. On a split adjusted basis, DELL went from 9 cents per share in its June 1988 IPO to a little over $62/share at the market top – that’s 689-fold
And TESLA ain’t no DELL. {{ LOL }}
intercst
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A really smart one. Or one of middling intelligence. Or anyone who understands how options are valued. Or anyone who has access to an accountant who can do a Black-Scholes calculation or set up a monte carlo simulation of the expected payout of that deal. Yes, receiving compensation in that form is riskier than being paid cash (obviously). But even accounting for that, he got paid more than any CEO has ever been paid ever. As noted by Matt Levine over at Bloomberg:
But the options weren’t worth zero , as an economic matter: There was some probability that Tesla would grow and he’d get to exercise the options and make $55.8 billion, or more, or less. Finance has reasonably well-understood ways to put a single current numerical value on this uncertain distribution of potential future values. Tesla determined that the options were worth about $2.3 billion at the time Musk got them: There was some chance they’d end up worthless, some chance they’d end up worth $55.8 billion, some chance they’d end up worth $100 billion or $40 billion or any other nonnegative number, but, averaging over all those possibilities, the expected value was $2.3 billion.
After all, Tesla’s market cap on the date of the grant was about $61 billion. It was not especially unlikely that Tesla’s market cap might hit $111 billion in a ten year period. Not guaranteed, of course - but hardly a longshot. That’s only a 6% CAGR, after all. It was actually really unlikely that Musk wouldn’t get anything of value. Successive tranches are riskier, of course - but the idea that this compensation package was basically Musk agreeing to work for nothing unless he hit a moonshot is incorrect.
The package was worth $2.3 billion the day he got it, even though it was at the money on the day of the grant. That’s what Tesla booked it as. $2.3 billion. That’s an absurd level of compensation for a CEO. I’d take that package in lieu of salary any day of the week and twice on Sunday, if I was as wealthy as Musk already was at that time. I bet there isn’t a CEO out there that wouldn’t take an options package worth $2.3 billion in lieu of their current compensation arrangement (assuming they already had enough money on hand to cover their lifestyle until the options vested). It’s an absurdly generous package. Tesla gave Musk such an unbelievably high amount of future contingent value that the package was worth an absurd amount of money the day it was granted.
As noted repeatedly by the court, there’s nothing inherently improper about granting a CEO an absurdly high level of compensation - but to do that, you have to either reach that absurd level of compensation through a negotiation with an independent company representative(s) or have it ratified after a fully informed shareholder vote. Neither occurred.
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BYD's affordable Seagull likely to launch as the UK's cheapest EV.
Tesla has given up plans to compete with BYD
https://www.reuters.com/business/autos-transportation/tesla-scraps-low-cost-car-plans-amid-fierce-chinese-ev-competition-2024-04-05/
As BYD plans to manufacture cars in Mexico
https://www.reuters.com/business/autos-transportation/chinese-carmaker-byd-launches-low-cost-dolphin-mini-ev-mexico-2024-02-28/
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It was demonstrably a moonshot by any objective standard. Remember, we are talking about an electric vehicle startup. How many of those have been successful? Lucid? Fisker? Lordstown? Canoo? Nikola? Faraday? Rivian? The number of successful EV startups in America and Europe can be counted on one finger. Do any not named Tesla have a market valuation higher today than five years ago? Only one company was able to accomplish what Tesla did in EVs competing against some of the largest legacy companies in the world, and that was Tesla. One of a kind. A moonshot by definition.
Progress! So at the time of offer it was more a $2-3B compensation plan than a $56B one (Inc.com valued it at $2.6B). This is Inc’s 2018 assessment of the plan:
…$2.6 billion still seems excessive by almost any measure. Here’s a simple explanation of why it’s not.
The $2.6 billion is predicated on Tesla’s market cap increasing from about $56 billion today to $650 billion in 10 years. That’s a greater market cap than that of Amazon, 10 times the market cap of General Motors, and about a 10 times increase for Tesla over 10 years. (By the way, Musk’s $2.6 billion is tied to hard metrics, meaning that he could end up with nothing if certain milestones are not reached.)
But here’s where it gets interesting. At $650 billion, Musk’s $2.6 billion is about 0.4 percent. Now, as a comparison, let’s say you started a company that’s worth $1 million today. In 10 years, it will be worth $10 million. What are you worth as CEO of that company? Using Musk’s numbers, (0.4 percent of $10 million) the answer would be $40,000 over 10 years, or $4,000/year. Would you consider that fair compensation?
https://www.inc.com/thomas-koulopoulos/is-elon-musks-proposed-26b-comp-package-too-much-no-heres-why.html
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Most people, but very critically not the board of directors who, unfortunately for Musk, wrote in their meeting minutes that that the board “viewed the discussed targets as achievable given the potential of the Company."
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No, it wasn’t. We’re not talking about the 2012 compensation package (which was similarly structured). This was early 2018. Tesla already had grown to more than $12 billion in annual revenues, already had more than 50% YoY growth, and had successfully launched the Model 3. They had already been added to the Nasdaq 100 by then. Growing at 5% per year going forward was not a “moonshot” at that point. It was not at all certain, of course - but it was hardly an implausible feat. But Musk’s compensation package awarded him options that could be exercised for a $3 billion gain just by slightly underperforming the S&P 500 going forward.
That’s wildly incorrect. The $2.6 billion is the valuation attributed to all of the potential outcomes going forward - not the most unlikely one.
So, Musk would receive the first tranche of 1% of the company if the market cap rose to $100 billion. Since the market cap was $61 billion at the time of the award, that would represent only a 5% return over the ten years (vastly underperforming the typical S&P 500 stock, let alone a Nasdaq 100 stock). That tranche would constitute just under $1 billion in value to Musk…again, for underperforming the market by half.
The second tranche kicked in at a market cap of $150 billion. More significant, but still about a 9.5% CAGR from the date of the award, which is also underperforming the historic returns of both the S&P 500 and Nasdaq 100. So if Musk only slightly underperformed the historic returns of the market, he would get a tranche that (combined with the first one) would be worth just under $3 billion in value.
That’s why the “day of” valuation was several billion dollars. Not because there was necessarily much likelihood of getting to the last tranche (the $56 billion). But because the first two tranches didn’t require Tesla’s market cap to increase any faster than what the average Nasdaq 100 company did.
And that’s why the compensation package was so absurd. They gave him (in essence) a billion dollars if he could underperform the market by half, and three billion dollars if he could almost match the market going forward. The fact that they combined those two tranches with a bunch of moonshot outcomes doesn’t make the whole package a moonshot outcome. All Tesla had to do was achieve below average returns going forward and Musk would have earned $3 billion. Which is why the “day of” valuation was $2.6 billion. Remember, this is at a time when the single highest paid CEO of any public company that year got about $150 million (not billion) in compensation - Tesla was giving Musk an order of magnitude higher and he didn’t even need to beat the market to get it.
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