The Billion-Dollar Reversal: How One Investor Overturned Elon Musk’s $55.8B Pay Package

In 2018, Tesla approved what might be the most unusual pay package in corporate history. Elon Musk proposed that if he could increase Tesla's market cap from $55 billion to over 10 times that amount, he would receive 1% of Tesla stock each time the company’s value increased by $50 billion. This audacious plan meant that if he achieved his targets, Musk could end up owning 10% of Tesla. And to keep the deal fair, Musk agreed that he would receive nothing if the targets were not meant.

Remarkably, the board agreed, perhaps doubting it was possible.

Yet, Musk not only met but exceeded these milestones, driving Tesla’s market cap to over $570 billion! Based on this agreement, Musk should have received a staggering $50 billion , right?? (well,  $55.8 billion to be precise)

Wrong!!

The story took an unexpected twist. Richard Tornetta, a small investor with just nine shares, filed a lawsuit challenging the fairness of Musk’s compensation. Tornetta's argument wasn’t about the results but the process, claiming the package wasn’t negotiated independently.

The Delaware Court of Chancery sided with Tornetta, ruling that Tesla’s board lacked independence due to close ties with Musk and nullified the entire compensation package. The court highlighted that such terms were unnecessary and unfair considering Musk's existing stake in Tesla and his critical role in the company.

Tesla is now planning to seek shareholder approval to restore Musk’s compensation, potentially setting the stage for further legal battles and governance issues.

It's fascinating how a single investor with just nine shares managed to challenge and overturn a $55.8 billion package.