Elon Musk Isn’t a Victim No Matter What Tesla Says

It’s a tough gig portraying the world’s third-richest person as a victim, but Tesla Inc.’s board of directors are giving it a go.1 The question is whether the company’s institutional shareholders will be intimidated into buying that story at a pivotal vote on June 13.

Chief Executive Elon Musk had a vast options grant, awarded by the board and ratified by a 73% shareholder vote in 2018, voided by the Delaware Court of Chancery in January. Despite Tesla having hit the milestones attached to it, the court sided with a shareholder who alleged that the award, worth a nominal $56 billion when granted, was excessive. Now the board is urging shareholders to re-ratify the grant, saying it’s unfair that “Elon has not been paid for any of his work for Tesla for the past six years.” The options, if exercised, would dilute the rest of the shareholder base by a lot, about 8 percentage points, all else equal. In addition, shareholders are being urged to approve reincorporating Tesla in Texas, to which it moved its head office in late 2021, thereby subjecting it to the corporate laws of that state, rather than Delaware’s.

The fairness issue is misdirection. Yes, Tesla hit its milestones on revenue, profit and market capitalization, the latter surging from $53 billion when shareholders originally approved the award to a peak of $1.24 trillion in November 2021. Everyone got rich and a deal’s a deal, essentially. Except, in the eyes of the Delaware court, that deal was — using language every Tesla investor surely understands — “a self-driving process” launched by Musk himself and tainted by a conflicted process that left shareholders ill-informed and disadvantaged when they voted. Besides Musk, the vaunted victim, that fundamental flaw is on the board itself.

What counts as excessive for CEO pay is subjective. Still, even at the lower current nominal value of $46 billion, the award equates to 136% of the entire cumulative net profit Tesla has made since shareholders approved it. Plus, the value of Musk’s existing stake in Tesla (absent the options) has increased almost sevenfold, or by about $61 billion, since March 2018 — and that’s not counting the tens of billions he made from selling about a fifth of his stake along the way.