The Pay Package

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January thirtieth, two thousand twenty-four. A judge in Delaware releases an opinion of roughly two hundred pages and, in it, cancels the largest pay package ever granted to an executive. Three hundred four million options. Fifty-six billion dollars at the maximum the company put on it in two thousand eighteen, if every milestone hit.

The largest package, cancelled▶ ≈0:00

The plaintiff had sued nearly six years earlier as a small shareholder. The defendant answered that evening, on the platform he owns: "Never incorporate your company in the state of Delaware."

Within five months the company had left Delaware. Within two years Delaware had changed its law, Texas had changed its law, the state's highest court had restored the package, and the shareholders had voted him a larger one. This is the episode where the machinery of the public market reached him one last time, and where he did what he had done in every episode of this act: he changed the venue.

This is episode fifteen, and it teaches what a proxy statement is, what a shareholder vote decides, what a board owes the people who own the company, who is allowed to sue when it fails, and how a company moves from one state's law to another's.

Twelve pieces, or nothing▶ ≈1:15

Start with the grant, because it was, by its own terms, the most ambitious bet on a single person ever put to a vote.

January two thousand eighteen. Tesla was worth just under sixty billion dollars and losing money. The board proposed no cash bonus and no guaranteed stock, and instead options in twelve pieces. Each piece unlocked only if Tesla's market value climbed another fifty billion dollars, from one hundred billion all the way to six hundred fifty billion, and only if the company also hit a revenue or an earnings target to match. If none of it happened, he was paid nothing at all. The options carried a strike of three hundred fifty dollars, the closing price at the last trading day before the board approved them, so they paid nothing until the stock rose. The company valued the whole thing at two point six billion dollars on the day of the grant, and its maximum, if every milestone hit, at fifty-five point eight billion.

The document that carried it to shareholders is a proxy statement, the first mechanism. Before any vote, a public company must send its owners a disclosure of what they are voting on and why, and the pay of the top officers, in full. It is the one document a year where a company has to explain itself to the people who own it. Tesla's proxy said the plan was needed to keep him. On March twenty-first, two thousand eighteen, at a special meeting, shareholders approved it: eighty-one percent of the shares voted for or against, and seventy-three percent when his own shares and his brother's were excluded.

Then, over the next five years, the milestones came in. Six hundred fifty billion dollars of market value, the revenue targets, the earnings targets. By the time of the trial both sides in the case agreed that eleven of the twelve pieces had been earned and the last one was within reach, and it landed early the next year. Whatever else is true, the bet the shareholders made in two thousand eighteen paid at the maximum.

Suing in Tesla's name▶ ≈3:30

Now the lawsuit, which had been filed before the first milestone was reached.

In June of two thousand eighteen, a shareholder with a tiny position sued. The form of the suit is the second mechanism: a derivative action. He did not sue for himself. He sued in Tesla's name, claiming the board had breached its duty to the company by giving away too much, and any recovery would go to Tesla, with the lawyers paid a share of whatever benefit they won. Delaware set no minimum stake to bring one. Remember that sentence.

The trial ran five days in November two thousand twenty-two, and the opinion arrived fourteen months later. Here is the third mechanism, and the case turns on it. Ordinarily a court will not second-guess a board's decision; that is the business judgment rule, and it is why boards are allowed to be wrong. But when a person who controls the company sits on both sides of the deal, the standard flips to what Delaware calls entire fairness: the defendants must prove the process was fair and the price was fair. Which standard applies usually decides the case, and the Chancellor's answer to it fit in one sentence. "At least as to this transaction, Musk controlled Tesla." He held about twenty-two percent of the votes, which is short of control on paper, but the court found the directors who negotiated with him were not independent of him and that "the board never asked the fifty-five point eight billion dollar question: was the plan even necessary for Tesla to retain Musk and achieve its goals?" She called the size of it "an unfathomable sum." And the remedy she chose was rescission: undo the grant entirely, as if it had never been made.

Four forms of leaving▶ ≈5:20

Watch the venue change begin, because it started that night and it took four forms.

Form one, the vote. In June two thousand twenty-four, Tesla asked its shareholders to approve the same package again, knowing what the court had said. Seventy-two percent of the disinterested votes said yes. And on the same ballot, they voted to move the company's legal home from Delaware to Texas: eighty-four percent of the disinterested votes. Tesla became a Texas corporation that same day. That is reincorporation, the fourth mechanism: a company's charter lives in one state, that state's law and courts govern its board, and the states compete for the business. Delaware has held most of it for a century. Texas wanted it.

Form two, the fee. In December two thousand twenty-four the Chancellor ruled the new vote could not undo a trial already held, and turned to the plaintiff's lawyers, who had asked to be paid in Tesla stock, five point six billion dollars' worth. "In a case about excessive compensation," she wrote, "that was a bold ask." She awarded three hundred forty-five million.

Form three, the statutes. In March two thousand twenty-five, Delaware rewrote its corporate law to give deals with a controlling shareholder a safe harbor if disinterested directors or disinterested shareholders approve them, and the bill's supporters in Delaware said its purpose was to stop companies from leaving. In May, Texas passed a law letting a company require that a shareholder own three percent before bringing a derivative suit. Tesla adopted it the next day. Three percent of Tesla is a position worth tens of billions of dollars. Only a handful of holders on earth clear it. The suit that started this episode, by a shareholder with a tiny position, can no longer be filed against this company.

The court above the court▶ ≈7:10

Form four, the court above the court. On December nineteenth, two thousand twenty-five, Delaware's Supreme Court reversed the remedy. It did not say the process was fair, and it did not say he was not a controller; it said, in its own words, that the justices had "varying views on the liability determination" and chose "that narrower path." The narrower path: rescission was an improper remedy, because he had already done six years of the work. The package was reinstated. Damages: one dollar. The lawyers' fee was cut to their hours, times four. In June two thousand twenty-six, he exercised every one of the three hundred four million options, at twenty-three dollars and thirty-four cents each after the splits, against a stock above four hundred. The shares do not vest until January two thousand twenty-eight, and he has to hold them five years after that. The spread, on the day, was about a hundred sixteen billion dollars.

And one more vote, because the shareholders were not finished. In November two thousand twenty-five they approved a new award: four hundred twenty-four million shares, in twelve pieces again, unlocked by market value from two trillion dollars to eight and a half trillion, and by twenty million cars, a million robots, a million robotaxis, and four hundred billion dollars a year of what the company calls adjusted earnings. The two largest proxy advisers recommended against it. Norway's sovereign fund voted no. Seventy-seven percent of the shares voted for or against, his own shares included, said yes. He called the advisers "corporate terrorists," and then, from the stage, "I super appreciate it."

Left standing, left unreviewed▶ ≈8:50

The audit.

Legend one says the court took his pay away. The paper says the rescission was reversed before it ever became final; the options were reinstated and exercised, and he received, in the end, the grant the two thousand eighteen proxy described. Legend two says the Supreme Court vindicated him. The paper says it decided only the remedy and refused, explicitly, to decide whether the process was fair or whether he controlled the company. The Chancellor's findings on both were never overturned. They were left standing, and left unreviewed.

Franklin Hugh Money's judgment, in its own voice. The vote was the fairest thing in this record. Three times, with the numbers in front of them and a court's opinion in hand the second and third time, shareholders said yes, and the first two of those tallies held with his own shares excluded. A court found the board's process unfair anyway, and no higher court disagreed with it; the higher court declined to look. Both facts stand. What resolved the case was the higher court's narrow path, and what resolved the question of what the board owed was none of those votes and none of those findings. The company left the state, the state changed its law, the new state raised the price of a lawsuit to three percent, and the question of what the board owed was answered by changing who was allowed to ask. That is the pattern of this entire act. The S E C reached him and he settled. The public market reached the company he wanted and he took it private. A court reached his pay and he moved the company. Never bet against him, episode ten said, and the years since have not changed that verdict. As in episode ten, that is a judgment about a completed record and no comment on any stock you can buy tomorrow. What these years have shown is what it costs the machinery to try.

Because you voted▶ ≈10:55

Now the camera, because you voted.

If you own a broad American stock index fund, it almost certainly held Tesla, and your fund manager voted your shares on this package, twice, with the proxy statement explaining it available to you both times. Say-on-pay votes are advisory at most companies. This was not one of those. It was a binding approval, because the plan had to issue new shares. Every year the proxy arrives, and it is where a company has to tell you what it paid the people running it, and at most companies that pay goes to a vote on the same ballot. And on the cover page of every annual report you own is a line stating the state of incorporation. As of this year, that line, and the bylaws written under it, decide who is allowed to bring a suit like the one that started this episode. Delaware still sets no minimum stake. Texas now lets a company demand three percent, and this company does. That is the mechanism, not legal advice about anything you hold.

Which leaves the company the machinery had never reached, because for twenty-four years it had never sold the public a share. Episode ten called it the purest case of the private door. This June, the door opened. The largest initial public offering in history, from the man this series has spent fifteen episodes watching avoid exactly that, and the paper that opened it runs three hundred pages.

What an S one says when the most private company on earth writes one, and why the man who learned control the hard way, twice, kept eighty-five percent of the votes, is the finale. The S One.