Elon Musk is poised to receive a new, record-breaking pay package from Tesla worth approximately $1 trillion, a move made possible by the electric vehicle maker’s recent reincorporation in Texas. This comes after a Delaware judge voided his previous $56 billion compensation plan, ruling it was “unfathomable” and unfair to shareholders. Freed from the constraints of Delaware’s stringent corporate law, Tesla’s board has crafted a super-sized deal under a more management-friendly legal framework that significantly increases the likelihood of its approval and reduces the risk of a successful legal challenge.
The key difference lies in the protections offered by Texas law. Unlike in Delaware, Tesla has adopted a bylaw requiring shareholders to own at least 3% of the company’s stock to file a lawsuit. This threshold is so high that Musk himself is the only individual shareholder who meets it; large institutional investors like Vanguard and BlackRock also qualify, but they are typically passive. This effectively insulates the board from the type of lawsuit brought by a small investor, like the one with just nine shares, that successfully challenged the 2018 package.
Furthermore, the new Texas legal environment changes the dynamics of the shareholder vote itself. Unlike in 2018 when Musk was barred from voting his shares to avoid legal peril under Delaware law, he is now permitted to vote his roughly 13.5% stake. Given that a recent shareholder vote to “ratify” the voided 2018 package was only narrowly defeated without his vote, his massive shareholding all but guarantees the new package will be formally approved by shareholders.
This shift highlights a significant strategic victory for Musk and his board. While Tesla had initially told investors that Texas and Delaware laws were “substantially equivalent,” a subsequent change in Texas law has created a far more favorable landscape for enacting the colossal pay deal. The move not only secures a unprecedented compensation package for the world’s richest person but also signals a broader corporate trend of seeking out jurisdictions with laws that prioritize management decisions over shareholder litigation.
