Quick-to-read HR news & insights
From recruiting and retention to company culture and the latest in HR tech, HR Brew delivers up-to-date industry news and tips to help HR pros stay nimble in today’s fast-changing business environment.
Elon Musk will not receive a compensation package worth more than $50 billion after a Delaware judge on Monday affirmed her earlier ruling that rescinded the pay Tesla had awarded its chief executive officer, the New York Times reported.
In January, the judge, Chancellor Kathaleen St. J. McCormick, struck down the award, stating that shareholders hadn’t been adequately informed of the package’s details and that some board members were not sufficiently independent.
Lawyers for Tesla and Musk said the package could be reinstated after it was approved in a shareholder vote in June. “The pay, in the form of stock options, was worth more than $50 billion and helped make Mr. Musk the richest person in the world. The package is now worth $100 billion after Tesla’s share price jumped sharply in recent weeks,” the Times reported. The pay stems from a 2018 award that would be granted only if Tesla met certain hallmarks. He also had to hold the options for five years, the Times said.
During her original ruling in January, Chancellor McCormick said, “The process leading to the approval of Musk’s compensation plan was deeply flawed.” The Times reported that “Tesla’s lawyers argued that shareholders were sufficiently informed when they overwhelmingly voted again for the package in June.” But Monday, Chancellor McCormick wrote that the Tesla lawyers’ arguments were flawed. She also said a “stockholder vote standing alone cannot ratify a conflicted-controller transaction,” referring to a situation in which a major shareholder has influence over a board and its decisions, the Times reported.
The company plans to appeal the decision, according to a post on Musk-owned social media platform X.
Earlier this year, Ani Huang, president and CEO of the Center on Executive Compensation, a division of the HR Policy Association, previously gave HR Brew three ways to avoid such executive compensation disputes.
Have an independent board. In her original ruling, Judge McCormick noted two board directors on the compensation committee had long-standing relationships with Musk. Huang said companies should carefully consider whether the CEO’s friends or family should sit on the board.
Design your CEO’s compensation package. Musk designed his own pay plan, and Judge McCormick described the negotiations about the pay plan as a “cooperative venture,” Huang told HR Brew. “It’s supposed to be that a compensation expert or the compensation committee is really formulating this award…and negotiating it with the CEO.”
Prepare to justify the compensation plan. Pay packages are regularly publicized in the media and can draw scrutiny. Huang said HR leaders should be ready to discuss the factors that went into creating the package including, “the advice you got from your compensation consultant, [and] benchmarking, both on pay and performance against peers…why you came to the goals you came to, and why you came to the amount you came to.”