Tesla stock dropped on the rejection of Elon Musk's compensation package

Tesla stock dropped 1.6% on Tuesday after a Delaware judge rejected CEO Elon Musk's $56 billion compensation package for the second time.

Delaware Court Rejects Musk's Pay Package Amid Ongoing Legal Battle

In January, the Delaware Court of Chancery rejected Musk’s performance-based pay package, consisting of stock options, concluding a multiyear lawsuit initiated by a Tesla investor and heavy metal drummer. The plaintiff argued that the scheme was excessive and that Tesla misled shareholders into approving it. On Monday, the court denied Musk's request to amend the previous ruling.

Musk has previously suggested he might leave Tesla over compensation issues. In a January post on X, he stated that if he does not attain 25% voting control in the company, he “would prefer to build products outside of Tesla.”

Musk once held a 22% stake in Tesla, but it has since decreased to 13% as he sold shares to finance his 2022 acquisition of Twitter, now known as X.

The 2018 compensation package was designed by the Tesla board to retain Musk. When the package was announced, Tesla shares rose by 4%.

To realize the full value of the package, which includes approximately 304 million stock options, Tesla would need to achieve a market capitalization between $50 billion and $650 billion by 2028. The upper end of that range would grant Musk the maximum value of $55.8 billion. At that time, with his 22% stake, the deal would have increased his voting control to nearly 30%, according to court documents.

Tesla Chair Defends Musk's Compensation Package

When Tesla shareholders approved the compensation package for a second time in 2024, Tesla chair Robyn Denholm stated that the deal was necessary "to retain Elon’s attention and motivate him to continue to devote his time, energy, and ambition" to the company.

In a June letter to shareholders, Denholm emphasized, "What we recognized in 2018 and continue to acknowledge today is that Elon certainly does not have unlimited time. He also has no shortage of ideas and opportunities to make a significant impact elsewhere." She added, "We want that creativity, energy, and time focused on Tesla for the benefit of our owners, but this requires mutual respect."

In response to Monday's ruling, Elon Musk posted on X, stating, “Shareholders should control company votes, not judges.”

Tesla Stock Jumped 38% in November

After a lackluster year, Tesla stock (TSLA) surged last month, fueled by optimism that Donald Trump's victory would benefit the electric vehicle (EV) manufacturer. CEO Elon Musk has positioned himself as a close ally of the president-elect, having invested significantly in his campaign prior to the election.

Following the election, Tesla stock soared, with investors betting that the Trump administration would implement regulations favorable to the company. The stock reached its peak on November 11 and then traded sideways for the remainder of the month amidst mixed news. According to S&P Global Market Intelligence, the stock rose by 38% in November, with all of those gains occurring in the days following the election, as illustrated in the chart below.

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