Elon Musk’s proposed pay package at Tesla keeps making headlines and no wonder: its touted value of $56 billion is a staggering amount, even for the world’s most prominent executive. How could that possibly be justified? The answer is that most casual observers, and even many media reports, are failing to understand the nature of the package. Based on our research as finance professors, our conclusion is that Musk was unlikely to earn anywhere near that much at the time of the grant, and, if he did, it would be well-deserved.
Before explaining why this is the case, it’s helpful to recall the context for the controversy. That includes a decision by a Delaware court this January to reject the Tesla CEO’s proposed pay package on the grounds of poor process and conflicts of interest. The ruling came even though 73% of shareholders had approved the package in 2018. By nearly the same exact margin, they voted to approve it again this June—while Musk responded to the court decision by announcing he would reincorporate Tesla in Texas.
