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Even Though Musk Got The Votes, He Won't See $50 Billion For A Long Time

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Updated Jun 14, 2024, 01:10pm EDT

Legal experts weigh in on what steps Tesla and Musk could take after Tesla shareholders vote Thursday on whether to re-approve a big pay package awarded to Musk in 2018.

Update: Tesla announced at its annual meeting on Thursday that shareholders voted to approve Musk's pay package.

Tesla shareholders are set to vote Thursday on whether Elon Musk should get to keep nearly $50 billion of performance-based stock options he was granted in 2018, representing what a Delaware judge called “the largest potential compensation opportunity ever observed in public markets,” when she voided the award this January. The fate of Musk’s options, which would be worth more than the fortunes of all but 27 of the world’s richest people, will ultimately send his net worth soaring or sinking by tens of billions of dollars.

Unfortunately for the world’s wealthiest individual and his estimated $211 billion fortune, the matter won’t be resolved anytime soon. A lengthy appeal of the Delaware ruling is likely to follow, no matter what the result of the shareholder vote is.

After the Delaware judge’s decision in January, Forbes discounted the value of Musk’s pay package by 50%, due to the high level of uncertainty about what would come next–including an appeal of the Delaware ruling. Most of that uncertainty will be left unresolved after shareholders vote Thursday. So Forbes will continue to apply that same haircut for the foreseeable future, leaving Musk with a pay package–essentially a whole lot of stock options–worth an estimated $25 billion as of Wednesday’s stock market close. (The value of the package varies based on Tesla's stock price; in 2018 Tesla estimated that the options would be worth $55.8 billion upon fully vesting, which occurred in late 2022.)

“Tesla's position is that if shareholders vote yes, the original problems with the 2018 grant– which it doesn't concede exist, of course–are cured,” says Tulane University law professor Ann Lipton. The problems, according to the Delaware judge’s ruling, were that Musk, Tesla and certain of its board members failed to prove that the process underlying the award was fair due to conflicts of interest and Musk’s “control” over the board. “[The investor plaintiff’s position] is that the new vote is meaningless. Legally, this is very unsettled–nothing like this has been done before,” Lipton says.

Musk and Tesla could–and likely would–appeal the Delaware ruling if shareholders vote against re-approving the award, arguing that the process by which investors originally approved the options in 2018 was fair. However, Lipton says, “there are very strong arguments that even if the shareholders vote to restore the pay package, that vote does not, in fact, cure anything, and [Delaware Chancellor] McCormick's original findings stand.”

Columbia University law professor Zohar Goshen posits that even if an appeal of the Delaware ruling were to fail, Musk and Tesla could still propose to shareholders a replacement pay package of lesser value, with the goal of keeping their CEO invested in the company for the long haul. Musk had been clamoring for even more Tesla shares prior to the Delaware decision, writing in an X post on January 15, “I am uncomfortable growing Tesla to be a leader in AI & robotics without having ~25% voting control.” (Musk currently owns 13% of Tesla shares, worth about $70 billion.)

Musk made that statement before his new artificial intelligence startup, xAI, announced it raised $6 billion at a $26 billion valuation over Memorial Day Weekend. The new company added to a growing list of potential distractions that also includes running rocket firm SpaceX and weighing in on X, the social media company formerly known as Twitter, where he is chairman and chief technology officer.

A new, smaller pay package would fall outside the scope of the Delaware ruling, Columbia’s Goshen says, but would also likely be subject to legal challenges. In a Bloomberg Opinion piece published on June 6, Goshen acknowledged that “some scholars have argued that awarding Musk compensation for services already rendered isn’t permitted under Delaware law, because it amounts to a gift and a waste of corporate assets.” But Goshen tells Forbes that he disagrees with those scholars’ assessment.

“Even with a ‘no vote’ by shareholders Thursday, there’s still the possibility [Tesla and Musk] could get the whole $56 billion by appealing the original ruling to the Supreme Court of Delaware,” Goshen says. “But they could also initiate a completely new process to approve, let's say $30 billion or whatever [it would end up being]. In the end they will get something for sure, and my estimate is $30 billion at a minimum.”

In a more extreme case, Musk could also sue Tesla for restitution, in an attempt “to obtain the fair value of his services that were never compensated,” says Columbia University law professor Eric Talley. “This area of law is hard to predict, but he would almost certainly get something.”

Just how much Musk will ultimately get remains unknowable. But for now, Forbes estimates it will be enough to maintain his $5.5 billion lead over Jeff Bezos as the world’s richest person.

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