What Elon Musk Could Lose After His Tesla Pay Deal Is Blocked

The big stakes of Musk’s outsize pay deal

An unusual pay package that Tesla devised in 2018 helped make Elon Musk the world’s wealthiest individual.

But a Delaware judge’s ruling that the arrangement was unfair to other Tesla shareholders raises questions about much more than Musk’s net worth, including control of his companies and his ability to fund them — and how corporate leaders are paid.

The backstory: In 2018, Tesla set out 12 milestones tied to market capitalization, revenue and profit targets that Musk needed to reach to qualify for a stock package that is now worth over $50 billion. Experts thought it would be impossible to hit. Yet Musk — who told Andrew at the time that Tesla would hit a $1 trillion market cap within a decade — pulled it off. (He hasn’t taken possession of the shares yet.)

Shareholders sued, however, arguing that the plan was devised unfairly, with Musk essentially creating his own pay package with the help of allies on the Tesla board.

Those shares are now at risk of disappearing. “The process leading to the approval of Musk’s compensation plan was deeply flawed,” Chancellor Kathaleen McCormick of Delaware’s Court of Chancery (who has been blunt in hearings with Musk before) wrote in her decision, ordering that the contract be voided.

There’s a lot at stake:

• Questions about the Tesla board’s independence are being asked as the car maker’s directors weigh a demand by Musk for more control of the company, lest he start moving highly anticipated A.I. projects to other parts of his business empire.

• Musk has taken out stock margin loans to finance parts of his business empire. He may find it harder to come up with cash if X needs more money, for example.

• And corporate governance experts say the ruling is a warning to other business leaders. “It establishes that there is such a thing as excessive compensation,” Sarah Anderson of the Institute for Policy Studies, a progressive research group, told The Times.

Some legal experts think any Musk appeal faces tough odds. He will probably appeal to the Delaware Supreme Court, they say. But Eric Talley, a professor at Columbia Law School, told DealBook that chancellors like McCormick historically have wide latitude to rule on such punishments.

The ruling could also have wider consequences for Delaware. Ann Lipton, a professor at Tulane University Law School, told DealBook that Delaware policymakers may be worried that the decision could prompt other companies to leave the state, the longtime home for American companies. (“Never incorporate your company in the state of Delaware,” Musk posted on X on Tuesdayyou .)

But Lipton added that the Delaware Supreme Court “cannot be seen to be making decisions based on that consideration.”

HERE’S WHAT’S HAPPENING

Universal Music threatens to pull its music from TikTok. The record label, home to Taylor Swift and Drake, has said it may withdraw its songs from the social media platform, amid negotiations to renew a licensing deal. Universal Music accused TikTok of offering too little money and of adopting artificial intelligence tools that could infringe on artists’ rights.

Tech C.E.O.s head to Capitol Hill to testify about child safety. Leaders of Discord, Meta, Snap, TikTok and X — including Mark Zuckerberg and Linda Yaccarino — will face questions from a Senate committee over their companies’ efforts to stop the spread of child sexual abuse material online and their work protecting mental health. The issue is a point of rare bipartisan cooperation; some lawmakers have proposed making it a legal duty to protect minors.

Saudi Arabia’s oil giant reportedly weighs a blockbuster stock sale. Aramco is working on a potential follow-on offering that could raise at least $10 billion, which would most likely be among the biggest such transactions in recent years, according to Bloomberg. Proceeds would help finance the kingdom’s ambitious efforts to transform its economy, including by investments in sports and more.

Microsoft earnings jump, but Google ad sales fall short. Microsoft reported sharply higher quarterly profits, powered in large part by strong cloud revenues tied to sales of artificial intelligence services, but warned of rising costs tied to the technology in 2024. Alphabet, Google’s parent company, reported higher overall revenues, but disclosed ad sales at Google that missed analyst expectations. Shares in both companies are down in premarket trading.

The PGA Tour’s detour

The PGA Tour will host a call with its players on Wednesday at 9:30 a.m. Eastern, according to documents seen by DealBook, and it is expected to announce a big financial deal with high-profile U.S. investors.

Any agreement would provide a major financial boost for the golf circuit, but it won’t resolve the big questions that hang over its future.

The investors are a who’s who of Wall Street and sports owners. They include Fenway Sports Group, owner of Major League Baseball’s Boston Red Sox; Marc Lasry, the hedge fund mogul and a former owner of the N.B.A.’s Milwaukee Bucks; Tom Ricketts, the chairman of the Chicago Cubs; Steve Cohen, the billionaire financier who owns the New York Mets; and Gerry Cardinale, the longtime deal maker and founder of RedBird Capital Partners.

Such a deal would come at a turbulent time. It would be announced after the Tour reached a tentative agreement with LIV Golf, a rival backed by Saudi Arabia that has been poaching top PGA players with the promise of huge paychecks. But the two sides haven’t yet reached a final accord on how they could collaborate.

The politics of a PGA Tour-LIV tie-up are getting touchier. A Senate subcommittee subpoenaed U.S. consultants working with the Public Investment Fund, the Saudi sovereign wealth fund that backs LIV. A letter to Yasir al-Rumayyan, the head of P.I.F., accused it of stifling its attempts to investigate the golf circuits’ proposed deal.

But the U.S. investors’ money will only last so long, and they will most likely be looking for a financial return.

By contrast, the Saudis appear willing to throw huge amounts of cash at LIV and their other sports endeavors — and endure losses for a lot longer.

Another question: Who will run the organization? The PGA Tour Policy Board, which includes external directors and players, has faced mistrust from players since a handful of its members secretly negotiated the deal with the Saudi wealth fund.

The deal with U.S. investors could offer a way to shake up the board that effectively runs the Tour. Will the players, who hired their own banker to advise on the deal, seek to oust PGA Tour directors involved in the LIV deal, including Ed Herlihy and Jimmy Dunne?

A major donor backs Haley, but looks past her too

It should have been a big deal for Nikki Haley to land a $5 million donation from Ken Griffin, the billionaire financier and Republican benefactor.

But the hedge fund mogul also acknowledged that the odds of her winning the Republican presidential nomination aren’t good, in the latest sign that the party increasingly expects Donald Trump to be its candidate again.

Griffin gave his support for Haley, with some caveats. “America would be well served by someone with her foreign policy credentials and policy priorities in the White House,” he told CNBC in a statement. He joins Wall Street giants like Stanley Druckenmiller, Henry Kravis and Cliff Asness in backing the former governor of South Carolina.

But Griffin added that he would “continue my focus on actively supporting U.S. House and Senate candidates,” a similar position taken by the political network affiliated with the Koch family. Among those Griffin is backing is David McCormick, the former Bridgewater Associates C.E.O. who is running for a Senate seat in Pennsylvania.

And Griffin offered plenty of praise for Trump. “I know many of us, me included, you know, struggle with some of Trump’s behaviors,” he told CNBC. “But there was a dimension of greater global security with him as president, particularly from U.S. interests.”

It’s worth noting that Trump has threatened to blacklist Republican donors who continued to support Haley after she lost the New Hampshire primary by double digits.

• In other election news: Trump spent roughly $50 million in campaign funds on his legal and investigation-related bills last year. And the outdoor apparel brand Patagonia has distributed over $71 million to conservation and Democratic causes since 2022.

An ’11th hour’ window for cheaper stock options

Companies going public face a thicket of strict rules, but have a lot of discretion in pricing their stock options before they list. That has allowed many of them to give top executives low-priced options in the weeks before an I.P.O., when they have a good sense of where their shares will probably trade but before regulations governing such grants kick in, according to a new academic paper.

Sven Riethmueller, the Yale Law School professor behind the research, looked at 121 biotechnology companies heading toward an I.P.O. from 2017 to 2021. He found that 74 issued options in the 90 days before their public debut, at an average discount of 48 percent of the companies’ eventual I.P.O. price.

By pricing the options at the last minute, a practice Riethmueller calls “11th-hour options discounting,” companies nearly guarantee that the executives will have a windfall on the first day of trading, The Times’s Maureen Farrell writes:

For private companies, the S.E.C. requires options to be priced based on calculations of an “expected market price,” since there is no public trading. Private companies typically keep the S.E.C. apprised confidentially of their executive compensation numbers in the lead-up to their I.P.O.

But Mr. Riethmueller said the regulator rarely challenged a company’s assumptions about how it had come up with the value of its stock or options, based on his review of confidential letters between the companies and the regulator. The S.E.C. acts “like an absentee landlord,” he said.

Companies try to set a low expected market price to make the discounted options appear less egregious to regulators, Mr. Riethmueller said.

THE SPEED READ

Deals

• The media mogul Byron Allen has reportedly bid $14 billion for Paramount Global, offering a big premium for the studio’s voting stock. (Bloomberg)

• The talent agency WME announced a deal with the tech company Vermillio to protect its clients from A.I. being used to steal their likeness or intellectual property. (NYT)

Policy

• A coalition of business groups sued California to overturn a state law that would require some companies to report their greenhouse gas emissions. (WSJ)

• The Chinese authorities are intensifying a crackdown on commentators who criticize the economy. (NYT)

Best of the rest

• Novo Nordisk became the second European company to surpass $500 billion in market value on the back of blockbuster sales for its obesity drug Wegovy. (Bloomberg)

• “It Just Got More Expensive To Fight Corporate Abuse” (The Lever)

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