[erupt7893]

Anyone saying this package is unreasonable likely doesn't know that:

- This compensation package was approved, and he would only obtain payout if and only if Tesla reach some considerable aggressive milestones. - This was in 2018 when the company was not doing well relatively. - The shareholders at the time voted 74% in favour of the package.

[lolinder]

The judge addresses all of these points and still came to the conclusion that the package was unreasonable.

> - This compensation package was approved, and he would only obtain payout if and only if Tesla reach some considerable aggressive milestones.

The judge points out that the package was approved by a committee consisting of close friends of Musk's who testified during the trial that they did not view the compensation negotiation as adversarial. They were not standing in for Tesla's shareholders, they were collaborating with the CEO to set his own compensation package.

> - This was in 2018 when the company was not doing well relatively.

The judge argues that this doesn't matter: Musk already had a nearly 22% stake in the company and had every reason to pursue its success. The board didn't need to offer him 6% of the future value of the company to keep him interested.

> - The shareholders at the time voted 74% in favour of the package.

The judge found that sharedholders were misled as to the independence of the people who put the package together, which meant that this vote could not be used as evidence of fairness.

A few relevant extracts:

> Delaware law allows defendants to shift the burden of proof under the entire fairness standard where the transaction was approved by a fully informed vote of the majority of the minority stockholders. And here, Tesla conditioned the compensation plan on a majority-of-the-minority vote. But the defendants were unable to prove that the stockholder vote was fully informed because the proxy statement inaccurately described key directors as independent and misleadingly omitted details about the process.

> The concept of fairness calls for a holistic analysis that takes into consideration two basic issues: process and price. The process leading to the approval of Musk’s compensation plan was deeply flawed. Musk had extensive ties with the persons tasked with negotiating on Tesla’s behalf. He had a 15-year relationship with the compensation committee chair, Ira Ehrenpreis. The other compensation committee member placed on the working group, Antonio Gracias, had business relationships with Musk dating back over 20 years, as well as the sort of personal relationship that had him vacationing with Musk’s family on a regular basis.

> At a high level, the “6% for $600 billion” argument has a lot of appeal. But that appeal quickly fades when one remembers that Musk owned 21.9% of Tesla when the board approved his compensation plan. This ownership stake gave him every incentive to push Tesla to levels of transformative growth—Musk stood to gain over $10 billion for every $50 billion in market capitalization increase. Musk had no intention of leaving Tesla, and he made that clear at the outset of the process and throughout this litigation.

[s1artibartfast]

The last part is an interesting argument because I don't understand the limiting principles. It would seem that any anyone who already has a lot of skin in the game can't be incentivized by more skin in the game.

[chippiewill]

It's not an interesting argument by itself, it's in conjunction:

1. The shareholders weren't aware of the lack of independence of those negotiating the deal with Musk, making the shareholder vote irrelevant 2. Because those negotiating the deal (and the board) weren't independent, it also follows that it cannot be assumed that the deal was fair 3. Because those negotiating the deal actively collaborated with Musk over setting the terms it opens a large possibility that the terms would be favourable to him 4. The deal was reasonably outlandish (compared to to other deals for CEOs), so it's hard to make the argument that a properly negotiated deal would have come anywhere close to the same level of compensation - this was hardened by the context that Musk already had significant incentive to perform.

It's impossible to know for certain that Musk would have performed if he hadn't been given 6%, but on the balance of probabilities it seems reasonable to expect that he would have performed if he'd only been given say 1%, or perhaps even nothing. The Judge has decided that a properly negotiated deal would have offered Musk less.

And of course Musk only ends up in this position of having the deal questioned because he put himself in a position where he exerts control over the board, the compensation committee _and_ didn't fully disclose these relationships to the shareholders.

[aw1621107]

I suppose the question isn't whether one would be incentivized at all by an additional grant, but whether the additional incentive would be worth the cost. Another question is whether one could get other benefits (e.g., attention/time guarantees) that may have a better return on the price.

[s1artibartfast]

The company was worth 50 billion at the time, and the options (worth 2.6 Billion at the time) vested if the company hit a 650 billion valuation, plus revenue milestones.

Shareholders made 550 billion from performance, and Elon made 50 billion.

https://www.cnbc.com/2018/03/21/tesla-shareholders-approve-e...