Elon Musk, the richest person in the world, is on trial. But not because of Twitter, but because of his wealth. In 2018, he received a $ 56 billion salary package from Tesla!
That’s insanely high, even when compared to the highest CEO salaries. For comparison: In Switzerland, Roche boss Severin Schwan received the highest salary among listed companies with 15 million francs in 2021.
shareholders sue
In 2018, Richard Tornetta filed a lawsuit against the compensation scheme on behalf of Tesla shareholders. Shareholders had actually agreed to this beforehand. And that’s despite consulting firms Corporate Shareholder Services and Glass Lewis recommending against it. The class action was later admitted in 2021.
The blame was that the board that created Musk’s compensation plan wasn’t independent enough from him. At the time, Musk’s brother Kimbal and his friends Anthony Gracias and Steve Jurvetson were on the board. So the real accusation is this: nepotism.
paid in shares
How can this be? Tesla’s 2018 compensation plan includes so-called performance targets for Musk. If he succeeds, he will receive billions in return. That’s in Tesla shares. And despite already owning 22 percent of Tesla.
This compensation plan has made Musk the richest man in the world, according to the Bloomberg Billionaire Index. His fortune is estimated at $185 billion.
However, his true wealth is difficult to predict. A significant portion of Musk’s fortune is invested in the space company SpaceX. Since it is a private company, there is no detailed financial data about it.
For Musk as motivation
Tesla was still a troubled automaker when the payment package was approved in March 2018. A year ago, the company had lost nearly $2 billion. The compensation plan was created as a motivation for Musk to lead the company in the long term.
It consists of a total of twelve share blocks. Milestones Musk needs to achieve include annual sales of $35 billion and adjusted earnings of $3 billion. Tesla achieved both in 2021.
Another milestone in the compensation plan: Musk buys a block of stock when its market cap rises by another $50 billion, starting at $100 billion.
Tesla’s stock market value was under $50 billion when the compensation plan was approved. Today Tesla is worth about 600 billion dollars! This brought Musk some additional blocks of shares. At the same time, the value of the shares rose. And Musk continued to get rich.
Initially, the plan was to be paid within ten years. However, Musk reached the milestones faster than expected. In 2020, Tesla was the best performing US stock and the most valuable American automaker of all time.
The process is expected to last until the end of the week. Musk himself is scheduled to testify on Wednesday. A decision is expected in the coming weeks or months.