Strategic Response to Delaware Court Ruling
Mr. Musk, whose pay package of $56 Billion is already under legal scrutiny before the Delaware Courthouse, received this “Short term” payment from its board as a response to the court’s January ruling against the 2018 compensation plan. The Delaware courthouse Chancellor, Kathaleen McCormick, dubbed the move as “improper grant” saying that the Tesla board has withheld important information from its shareholder to pander to Mr. Musk at the cost of professional integrity.
The current compensation package includes a deal, where Mr. Musk would forfeit this $29 Billion package in case the court rules in favour of the actual $56 Billion package, protecting Tesla from making double payments to its CEO.
Control Dynamics Drive Compensation Strategy
It seems like Mr. Musk’s approach of using sticks rather than carrots has worked with his company’s Board of Directors. In January 2024, we all saw a public threat on the social media site X (previously Twitter) made by Mr. Musk addressed to his own company’s board to produce Ai and robotics products outside of Tesla’s name in case the board did not pay heed to granting Mr. Musk 25% voting control up from his current 13% stake. Well, so it seems that trick worked and hence they have a pacifying interim package to avoid any conflict between the CEO and the company.
Still Musk’s side hustles haven’t stopped. His xAI startup, formed in March 2023 without Tesla shareholder disclosure, now integrates its Grok chatbot into Tesla vehicles while developing competing AI infrastructure. The board’s approval notably places no restrictions on Musk’s ability to pursue new businesses or political activities.
Compensation’s Timing
Given the context, it seems that Musk’s retention is essential to fight the company’s ongoing operational struggles or the company does not afford to open another firing front with its own CEO while facing challenging operational struggles.
Second-quarter 2025 results showed declining sales for consecutive quarters, with automotive revenue dropping 16%. Musk acknowledged potential “rough quarters” ahead, citing challenges including the elimination of EV tax credits. Not to mention the impact of Musk’ political shenanigans that have already invited consumer backlash, negatively impacting Tesla’s brand reputation and sales in key markets including the US and Europe.
Governance Questions Persist
The structure in corporations where the CEO does not hold the unquestionable power and has a board watching over the company is supposed to protect the company with any “dictatorial” or “do a you will” kind of approach from the CEO. But as it appears that the model isn’t working so well in Tesla as it fails to achieve this unbiased arrangement.
The compensation approval by Tesla’s “special committee,” including board chair Robyn Denholm and director Kathleen Wilson-Thompson, raises familiar governance questions. With the next shareholders’ meeting scheduled for November, it’s most likely that the investors would bring the $29 Billion package under scrutiny to weigh whether it balances CEO retention with performance accountability during a challenging period for the electric vehicle pioneer.
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