Elon Musk.
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A judge just voided Elon Musk’s $55 billion Tesla pay package.The ruling, which Tesla can appeal, threatens Musk’s spot as the richest person in the world.The compensation plan represents a large chunk of Musk’s wealth, per Bloomberg.
Elon Musk’s wealth is facing a potential financial hit after a Delaware judge struck down the billionaire’s $55 billion Tesla pay package on Tuesday, voiding the record-setting executive compensation plan.
The decision means Musk’s net worth — which is estimated to be about $205 billion as of January 31 — could suffer a sizable dent. The pay package was worth about $51.1 billion at closing time on Tuesday and is among Musk’s most high-value assets, according to Bloomberg.
Without the $51.1 billion compensation plan, Musk’s net worth would drop to roughly $154 billion, knocking him down several notches on the current list of the world’s richest people, Bloomberg reported.
Bloomberg’s Billionaires Index did not immediately remove those options from Musk’s estimated net worth on Tuesday.
Musk spent most of 2023 as the richest person in the world. Amazon’s Jeff Bezos is currently the second-richest person in the world, with a net worth of $186 billion. He’s followed by Bernard Arnault, the French CEO of luxury goods company LVMH, who’s estimated to be worth $183 billion, per Bloomberg’s Billionaires Index.
Musk does not receive a salary from Tesla. His pay package centers around 304 million stock options in 12 tranches tied to a series of goalposts around the carmaker’s financial growth, BI previously reported. When the compensation plan was put in place in 2018, Tesla argued that the sky-high pay was necessary to maintain Musk’s focus on Tesla. The options were unexercised by Musk, per Bloomberg.
Tesla shareholder Richard Tornetta sued Tesla and Musk over the pay plan soon after it was put in place, arguing that it was “beyond the bounds of reasonable judgement” and accusing Musk of having undue influence over the decision.
Tuesday’s decision comes more than a year after a Delaware judge heard the trial.
Greg Varallo, an attorney for Tornetta, told The New York Times the shares would be canceled.
It’s unclear how the ruling will be implemented. Tesla can also still appeal the ruling.
Musk, his lawyer, and a Tesla spokesperson did not immediately respond to requests for comment from BI.
However, Musk alluded to the decision in a post on X, writing, “Never incorporate your company in the state of Delaware.”
What next?
Tesla and Musk have several options on how to proceed, two employment attorneys told BI.
The board could go back to the table and negotiate a payment plan that satisfies everyone, maybe hiring a mediator to help make that happen, said Angela Reddock-Wright, an employment attorney and mediator based in Los Angeles.
“If they’re thinking about the greater good of the company, they’ll want to resolve this outside of court action and further litigation,” she said, adding this would be the most typical route. She said dragging it out in court could be bad for Tesla’s stock price.
If they cannot come to an agreement outside of court, then Tesla would likely appeal — but Musk could be interested in appealing straight away.
“He, out of principle, may pursue this just to try to establish, perhaps from his perspective, that the compensation proposal was fair,” she said. “He’s someone who likes to prove a point.”
Cynthia Augello, an employment lawyer based in New York, also said the parties could try to negotiate a package before a formal appeal. If it comes to an appeal, Musk could point to Tesla’s valuation growth to argue the compensation package was just, regardless of the neutrality of the board, she said.
Joshua Tyler White, a former financial economist for the SEC and an assistant professor of finance at Vanderbilt, also said Tesla will likely appeal, but that a new pay package will be front of mind for the company.
“They need to come up with a new package and soon because they’re going to lose Musk’s interest in the company,” he told BI. “They’ve already seen his interest turn to other ventures, and they can’t risk losing any more of his focus, especially when Tesla is at a crossroads in terms of competition with China.”