I think Elon Musk deserved his $55 billion comp, but it doesn’t mean he should get it

I think Elon Musk deserved his $55 billion Tesla CEO compensation plan, and I voted for him to get it, but it doesn’t mean he should get it.

I would probably vote for it again. Hear me out.

There’s a lot of confusion among the reactions to the judge’s decision to rescind Elon’s $55 billion CEO compensation plan from Tesla.

The main arguments I hear from Tesla shareholders are that “I voted for the plan”, “the plan was successful for Elon, Tesla, and shareholders”, and “I don’t feel like I was misled by Tesla or Elon about this compensation plan”.

These arguments can appear valid, and Musk is currently amplifying them on X right now as he goes full propaganda mode to redirect the narrative amid the judge’s decision. He is pushing the narrative that the judge is taking away the shareholders’ right to decide for themselves, but it’s not as simple as that. Hear me out.

I can see how this argument is attractive; I sympathize. I voted for the plan myself back in 2018. And I think there might be an outcome to this that could make most people happy. So before you dismiss me as an Elon hater, please hear me out.

It’s a complicated situation, and I think that most people who are simply jumping to Elon’s defense have simply not read the judge’s decision. I know it’s long, but if you have any interest in this, and especially if you want to comment on this situation, I suggest you read it first. It includes a full chronology of the “negotiation” of the plan with an in-depth background based on testimonies and depositions from everyone involved. It’s undoubtedly a great look at how the biggest CEO compensation plan of all time came to be, and while I see Elon coming down hard on the judge or Delaware, Tesla’s state of incorporation and where the lawsuit was filed, I don’t see him disputing the facts in it.

To summarize, it’s not as simple as answering the questions: “is the package fair or unfair?” or even “did Elon deserve the package?”. He very well might have. Tesla achieved incredible things under Elon’s leadership. I’m the first to admit it, and despite all the hate McCormick is getting from Elon fans today, she also admits it in the decision. The problems that led to this litigation are more about governance, and I know this is a controversial issue at Tesla. There’s no hiding it. Elon didn’t want Tesla to be a public company. He said it several times and he is saying it again now. He would prefer it to be private, but it’s not. For better or worse, it’s a public company and it has to be governed as such.

Elon saved Tesla from death several times, but Tesla shareholders also saved Tesla. Tesla would have been dead without its strong base of shareholders, and they are due proper governance at the company. Proper governance is the basis of a modern public company, and Tesla has always played fast and loose with the relationships between its shareholders, boards of directors, and executives. Now, it’s biting them in the ass.

How does it relate to this lawsuit? Yes, Tesla shareholders voted 80% for this $55 billion comp package. 20% of shareholders voted against it. Many people, including Elon, want to stop the issue there. I know it’s tempting, but it’s missing the point of this lawsuit and the judge’s decision completely.

Tesla shareholders made that decision based on the recommendation of “the Independent Members of Tesla’s Board of Directors” in this proxy statement.

The proxy accurately explained how the compensation package worked, but make no mistake, Tesla’s board also was trying to sell the plan to shareholders in that proxy statement. They said things like:

“In crafting this award, we were mindful of Elon’s existing stock ownership levels and the strong belief that the best outcome for our stockholders is for Elon to continue leading the company over the long-term. We created the award after more than six months of careful analysis with a leading independent compensation consultant as well as discussions with Elon, who along with Kimbal otherwise recused themselves from the Board process.”

At the core of the case, the judge had to decide whether or not those shareholders had all the correct information about this plan. If they hadn’t, they would have been misled and would have potentially voted differently.

Now, you might be Elon’s biggest fan right now and might be thinking: “I don’t care if the information wasn’t perfectly accurate, I don’t feel like I was misled, and I would have voted for it anyway.”

That’s fine. I don’t mind that. I don’t wan’t to speak for her, but Judge McCormick probably doesn’t care either. The thing is that maybe other shareholders would have felt differently about it, and you don’t speak for them. It could have changed their vote. It’s as simple as that. You cannot mislead or lie to your investors in a public company. It’s as simple as that.

Now, what was misleading? At the core of it, the judge deemed the board members not to be independent. In short, that would make the entire proxy statement misleading as it is presented as coming from the independent members of the board. After testimonies and depositions from everyone involved, the judge described the problematic relationships like this:

“The process leading to the approval of Musk’s compensation plan was deeply flawed. Musk had extensive ties with the persons tasked with negotiating on Tesla’s behalf. He had a 15-year relationship with the compensation committee chair, Ira Ehrenpreis. The other compensation committee member placed on the working group, Antonio Gracias, had business relationships with Musk dating back over 20 years, as well as the sort of personal relationship that had him vacationing with Musk’s family on a regular basis. The working group included management members who were beholden to Musk, such as General Counsel Todd Maron who was Musk’s former divorce attorney and whose admiration for Musk moved him to tears during his deposition. In fact, Maron was a primary gobetween Musk and the committee, and it is unclear on whose side Maron viewed himself. Yet many of the documents cited by the defendants as proof of a fair process were drafted by Maron.”

Again, for more details, I strongly suggest you read the entire decision. It includes a full chronology of the “negotiations”. It clearly shows that the board operated as a proxy for Elon. The only correct governance guideline they followed was for Elon and his brother to recuse from the board meetings when discussing the compensation package, but they completely overlooked the fact that the chair of the compensation committee was a close friend of both Elon and Kimbal, same for Gracias, who was also on the committee, and they all had personal financial dealings together outside of Tesla.

They clearly were not independent. The only person on the compensation committee who can be considered independent was Denholm, but she was also getting a nice compensation package that made her a very rich woman. So she played ball. Now she is Tesla’s chairwoman and just signed a new deal to sell up to $50 million in shares.

Now, in any decent public company, these conflicts should have never existed in the first place, but at the very least, it should have been communicated to shareholders. They failed to do that. Again, I know that maybe none of that changes anything for you. Maybe you would have voted the same way knowing that Elon and his representative were instrumental in crafting the whole comp plan and he was “negotiating” not with “independent board members” but with friends that he had long-time business dealings with even outside of Tesla.

Personally, I knew most of that, and I voted for it. I didn’t know the depth in which Elon and his lawyer Todd Maron were involved in the process, but I knew that Tesla’s board was far from independent. But regardless, I have to be aware that maybe some of that information would have affected other shareholders, and they would have voted differently.

Based on that, I have to agree with the judge. The vote was not valid because the proxy presenting it to the shareholder wasn’t accurate. It was tainted by Tesla’s governance issues.

What now? Maybe Elon could still get his package? The guy already wasted most of it on a way overpriced Twitter. It would be a shame for him to have to give it back.

Jokes aside, now that the information is out there, I would be fine with Tesla making sure that this information gets distributed to the shareholders and have them vote on it again. I’d be curious to see the results. It might even pass again. I wouldn’t be shocked. I would probably even for it again myself.

I think that Elon did great things for Tesla in the next few years following the adoption of that plan. He gave a lot of time, sweat, and tears to successfully lead Tesla to develop, produce, and distribute the first electric car to become the best-selling vehicle in the world. It undoubtedly changed the auto industry for the better, forever. Is it worth $55 billion? Maybe. Probably. It’s hard to say. But I’m not against it. It’s not like shareholders didn’t get rich along with him – albeit to a much smaller degree.

I don’t think there’s a lot of negative to Elon getting the package, but it needs to be properly presented to shareholders in accordance with the rules of a public company, and it wasn’t. That’s it. But it’s important.

Being successful and getting yourself and your shareholders rich doesn’t make you above the law.

My opinion in short is that I feel it would be strange if this decision took Elon’s compensation away while shareholders reapped the benefits of Tesla’s insane growth during that time. But at the same time, it’s important that the shareholders vote with all the information about how this compensation plan came about, which didn’t really happen the first time around.

Now, if we talk about Elon getting a new CEO compensation plan at Tesla for his future work at the company, I think that’s different. I would approach that very carefully, as he has proven in the last few years to have a different relationship with Tesla. He is now leading 6 different companies. It’s insane. No matter how you look at this, Tesla has a part-time CEO.

The bigger thing to come out of this situation is that Tesla has a governance problem. It needs an independent board that believes in Tesla’s mission but who are not an old friend or business partner of Elon. We need people who can rein him in when needed.

Like Leo KoGuan, Tesla’s third largest shareholder, said, Elon is running Tesla like a family business. While that might be appealing to some, you simply cannot do that in a public company. Elon’s own reaction to the judgment makes it clear:

There are problems with comments like that because Tesla is a public company whether he likes it or not. Elon’s reality distortion field is powerful but not enough to make that go away.

If Elon couldn’t take Tesla private in 2018, he certainly can’t in 2024. He could barely take Twitter private, and it was worth a fraction of Tesla.

I know that some shareholders are OK with Elon doing whatever he wants with Tesla. It’s sort of like the benevolent dictator theory. Maybe a benevolent dictator would be more efficient than a democracy. It could be, but it’s clear not all shareholders are OK with that and thankfully for them, the rules of public companies are there to save them for dictators.

If Elon thinks he is above the rules of a public company, he shouldn’t be an officer at Tesla. Learn to live with it, play by the rules, or move on.