Ruling on Musk's Tesla pay package was 'un-American': Cathie Wood

The Captain

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Says the woman who can’t beat the NASDAQ over a long time period. The courts got it right. The package was clearly excessive, the board is obviously not independent (which is a problem in many US corporations). Elmo has an incredibly inflated sense of self worth. If he wanted to retain control of Tesla perhaps he should not have sold those shares to buy Twitter. That was his call.

Oh, and so much for the free speech guy:

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I was wondering, Captain, what you think of the pay package? And the ruling of the Chancery.

JimA

pay package? - Just fine.

the ruling of the Chancery - DoggyPooBurger.

I was not an investor at the time the pay package was voted on. What seems to be missing from the story is that that goals set by the pay package seemed to be impossible to meet at the time. Had they not been met Musk have gotten ZERO! How many CEO would dare accept such a deal?

Elon Musk: Zero pay but tens of billions in stock options in 2020

Updated 12:17 PM EDT, Sat August 14, 2021

https://edition.cnn.com/2021/08/14/business/elon-musk-pay/index.html

The Captain

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He’s easily the richest person on the planet. Cry me a river Elmo.

Also wondering, whose idea was it to forgo pay for an “impossible to meet” pay package? Elmo agreed to it, he’s “suffering” the consequences. Poor guy.

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Totally irrelevant! Your feelings have nothing to do with it.

Wrong again! He met all the requirements, A biased judge in Delaware was not part of the package. That’s the reason to abandon Delaware.

The envy is quite clear.

The Captain

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The “bias” and “envy” cards were just thrown in one post. :laughing:

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After a few day’s respite, the Cathie Wood publicity machine appears to have new promotional contracts with the Fool and IBD. My feed had four pieces of Cathie Wood hype this morning, and another that mentioned ARK, without Wood’s name in the “headline”.

Steve

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That’s not really how it works. Often (and I can say t that because it happened to me - more than once) when goals were not met the options were re-priced after the fact and I did, in fact, receive a bonus. Not the original amounts, but actually pretty close to it - within 20% or so, as I recall.

I would say this is a pretty common practice in corporate America, where all sorts of things happen behind the veil of “the board” and “the shareholders.” (I say that because it also happened to my wife, although hers was with a private company - there were still shareholders of which she was one - and me, with a public company.)

Of course we will never know if that would have happened because it didn’t need to, I would just point out that by 2018, when this grant was given, Tesla was out of the woods and well on the way to being a large and profitable company. The company began the year with a projected output of 180,000 vehicles (after years of building out factory lines, R&D, etc) and ended the year with more than double that.

Now I’m no expert in production of automobiles, but it seems unlikely that you can double production in 12 months if the building blocks aren’t already in place. I would say either the Board underestimated what would happen, or Musk snowed them, or they were unduly deferential to the CEO and not truly engaged on the side of shareholders, which I believe is what the court found,.

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Just curious, who determined that the goals seemed impossible to meet at the time?

Mr. Musk?
The BOD?
A bunch of posters on the MF?

If it was the BOD, I would question their competency.

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What I have read says otherwise - that stock holders were mislead on how easy it would be to reach many of the goals - at least that was the claim.

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Of course, they almost all have ties to, or were largely chosen by, Elon. So there is that.

Pete

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Not exactly.

The primary reason for the dissolution of the pay agreement was that the stockholders were not fully informed that the pay package was not the result of disinterested negotiations. IOW, the court did not negate the pay package based solely on the substance of the pay package, but because it did not meet DE’s requirements governing the process for having it being voted on - that the Board did not properly disclose to shareholders that the Board was not independent from Musk.

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That’s not missing from the story. That is the story. The lawsuit provided evidence that the board privately fully expected Tesla would meet most of the financial performance goals–and in fact even adjusted the goals such that they more likely would be met–while publicly stating that the goals would be difficult to meet. The board’s job is to represent the interests of the shareholders. It is a tough sell for the board to claim it was doing its job while lying to the people it is supposed to represent. The judge found the board mislead/lied to the shareholders about a number of other things too.

Another finding was that the board claimed this huge compensation package was necessary to keep Musk “fully engaged” at Tesla. Sounds fair enough. But Musk wasn’t fully engaged at Tesla. He took on the Twitter side project as well. But there was no provision in the contract that he had to give back some of the money if he worked on other projects. In fact, there was no requirement that he even be CEO. That’s evidence the board again wasn’t doing their job of providing oversight. The board basically made it really hard for the judge to rule in their favor.

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Seems that we didn’t have a biased judge, we had a biased board of directors, biased against shareholders. Who would have thought? :smiley:

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It was restored in a couple of hours, but somehow that is not getting reported as much.

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I had most of my investment $ in Tesla at the time. The pay package was discussed endlessly amongst shareholders in public forums. The consensus was that the goals were pretty insane, but probably the first few were attainable so it was very unlikely that Elon would get no compensation.

The sober-minded Wall Street types were laughing out loud at the absurdity of the pay package and seemed generally of the view that Elon was insane and would end up working for free.

Me, I voted for the pay package. I thought that it was quite fair, and certainly aligned Elon entirely with the success of the company and the growth of market cap (which is exactly aligned with shareholders’ interests). The result would possibly be extreme rewards for Elon, but that would go along with extreme rewards for shareholders. And the likely result, I thought (as a Tesla optimist) would be rich, but not crazy, reward for everybody.

Nobody was uninformed. All the relevant people (like Elon and his brother) did not vote their shares on the pay package. It passed overwhelmingly.

The judge is interfering after the fact, and her reasons are largely invented in the context of knowing the outcome. It was considered very unlikely by absolutely everybody, even Elon’s biggest fans. The board did its job and was as independent as most boards.

If we shareholders didn’t like the pay package, we could have easily voted it down. But we did like it, and it has turned out great.

As it turns out, I imagine this intense effort had a significant role in turning Elon from an uber-engineer into a jackhole-of-all-things. So, not all all is positive. But this screwing around with his pay package is patently ridiculous. It’s what we wanted. It’s what we got.

-IGU-

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It wasn’t considered unlikely by absolutely everybody. Specifically, the board of directors considered most goals were on target to be obtained, a finding they shared with investment banks and ratings agencies.

But in the proxy statement to shareholder the board stated the goals were “a stretch” and “challenging” even though that was not the conclusion they reached internally.

The technical term for saying one thing to someone and another thing to someone else is “lying.”

If someone is suing you for lying, and they can prove you are lying…woof. Pretty shaky ground at a minimum. And there was other stuff the judge found the board mislead shareholders about too.

There were a bunch of other technical issues like how the board arrived at “fair” compensation (i.e. rubber stamped Elon’s request), but bottom line is they lied to shareholders about important points, and that weakens all their other arguments.

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Worse, the judge is saying that you were stupid enough to be duped.

The Captain

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And he clearly was duped (though not because he was stupid).

IGU mistakenly stated that:

The Delaware court found that this was simply not true. The Tesla board was not as independent as most boards, but instead had several members that have personal or financial relationships with the CEO that made it less than truly independent. And not just the board - a real significant problem was also that Tesla’s GC, who was supposed to be negotiating at arm’s length with Musk, was Musk’s former lawyer and friend and was so enamored of Musk that he broke down in tears during his deposition.

She wrote that Musk in effect did not have to negotiate with anyone when the eight-person board in 2018 approved the package, the largest in U.S. history.

Maron, the primary intermediary between Musk and the board, was “totally beholden” to the billionaire, the judge said. Three board members also were, she wrote, as a result of business dealings, friendships or family ties.

In her ruling, she observed that Maron was “Musk’s former divorce attorney and whose admiration for Musk moved him to tears during his deposition.” In that deposition, she noted, Maron had said that “there wasn’t a conflict of interest. … I think it was a cooperative, collaborative process.”

Then McCormick dropped this zinger: “To deal with a conflict, one must first recognize a conflict. ‘Conflict blindness and its lesser cousin, conflict denial, have long afflicted the financially sophisticated,’” referencing a 2013 Delaware Chancery Court opinion. “Maron could not perceive the conflict, much less help deal with it.”

If even an attentive and long-time Tesla investor like IGU was under the mistaken impression that the process of negotiating and agreeing to this pay package was “as independent as most boards,” then clearly something was wrong with the disclosure to shareholders that was made in approving the pay package.

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