In 2018, when the company’s market capitalization was about $45 billion, Tesla shareholders approved a new compensation package for Elon Musk. By any measure, the package was extraordinary. It came in 12 tranches, each equal to 1 percent of the company’s outstanding common stock. To receive his payments, Musk had to boost Tesla’s market cap by $50 billion for each installment—more than the market capitalization of General Motors at the time. Thus, to earn all 12 tranches, Musk, who already owned about 22 percent of the company’s shares, needed to grow Tesla’s value from $45 billion to $645 billion. If he did that, he would receive stock in the company worth about $56 billion—the largest potential compensation package in American history, but less than 10 percent of the potential $600 billion gain to shareholders.
The market was shocked. Almost no one, other than Musk, thought the goals were realistically attainable. But holders of 76 percent of the Tesla shares approved the package. To almost everyone’s surprise, other than Musk’s, he delivered. The company’s value increased more than $600 billion, and the richest man in the world collected $56 billion of Telsa stock. Today, the company is worth more than $1 trillion.
But in 2024, the Delaware Court of Chancery found that the compensation package was unfair to Tesla and its shareholders and forced Musk to return the stock. Tesla then sent a copy of the court’s opinion to every shareholder, called another meeting, and asked the shareholders to ratify the package—that is, approve it again, retrospectively. This time, 77 percent of the shares voting approved. Further signaling their displeasure with the court, shareholders approved reincorporating the company in Texas. The Court of Chancery then determined that the ratification vote was ineffective. Both decisions are now on appeal to the Delaware Supreme Court.
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