Musk's pay package was approved by a shareholder vote, it was simply proposed (but not granted) by a closed committee. The problem is that shareholders were misled about the independence of the compensation committee with regard to the negotiation.

So the $56 billion is a bit of a red herring; it's based on the current price of Tesla shares. The issue seems to be the number of shares (about 304 million) rather than the value of those shares. It appears that in 2018 when the case was filed, a share of Tesla stock was worth $20-25. So this answer could use more historical detail and accuracy.

I'm not sure "exceeding the company's entire net income" makes sense as a measure either. Musk was granted options, which if exercised lead to greater ownership in the company; what does that have to do with profits? The company isn't handing him $56 billion in cash. In fact, even the $56 billion figure doesn't appear to be true; it doesn't seem to take into account that he has to buy the shares before he can turn around and sell them. It also doesn't consider the difficulty of selling a huge number of shares, nor that it will depress the price.

@Kyralessa Even if you use a stock value of $20 that comes to a pay package worth $6.08 billion. That is still well in excess of what other CEOs get and what Therac describes as typical salary ranges.

@Kyralessa Other public company CEOs are also paid mostly in stock options. I'm not judging if Musk deserves that pay or not - only citing the judge's reasons.

I'm not disputing whether it's an excessive pay package. I'm saying it doesn't make sense to compare it to profits. It has nothing to do with profits.

Also, if the stock were valued at $23.33 today then the pay package would be worth $0 today (even if he were granted the options, but my understanding is he wouldn't get any of them if the stock value hadn't moved).

@Kyralessa True. I'm not saying Elon Musk didn't take a gamble. Both sides took a gamble. The difference is, Musk is permitted to gamble in this manner, and a public corporation's board, according to this particular judicial decision, is not.

Were the shareholders not allowed to read the precise details of the pay package before they voted on it?

So even 6 billion would be 60 times more than Tim Cook is getting. Now we can discuss if Tim Cook should be getting 100 million no matter how good he is, but there is no way an incompetent like Elon Musk should be getting 60 times more. Or realistically, 560 times more.

@CharlesDuffy I don't agree with you that the answer talks about those more than it talks about profit. (It's also worth noting that the answer has had six versions so far.)

Delaware may be a blue state, but the Delaware legal system is notoriously business-friendly. It's why most US corporations are based there.

@Therac Of course the board is permitted to gamble. But it must disclose the circumstances which led it to propose that gamble to the stockholders. The latter (and only the latter) part is where they are proven to have failed. That the deal is excessive and unjustified is perhaps implied but not part of the lawsuit. What is part is the theoretical assumption that a truly independent board truly and exclusively acting on behalf of the stockholders might have arrived at a better deal (say, only $55.9 bn or so). But that is not clear. (Continued)

(Continuation) As to the deal itself: Most people at that time considered Musk's goals ludicrous and impossible to achieve. The general sentiment was "sure, whatever, if he increases market capitalization and profits by 1000% [or whatever it was] he deserves anything he wants. Nothing will matter in that case because a miracle will have happened and the company will dominate the market." Exactly that was what happened, and IMO nobody but Musk could have done it. Bottom line is that the board did in fact act in the best interest of the shareholders. They're rich now and should stop bitching.

@Peter-ReinstateMonica Do you believe Elon Musk would have refused to serve as the CEO of his own company, or wouldn't have grown it, if offered a regular CEO pay package of $100 million for that? That's the question - did the board negotiate at all, or did it just take Musk's first proposal and tell the shareholders "the target is impossible anyway".

Tesla's growth targets and achieved growth of 30x are excellent, but they're not ludicrous or unprecedented. Every successful startup, from AirBnb to Google, grows 100x to 1000x by its maturity.

Keep in mind that court precedents set policy. Supporting this compensation structure can eventually result in it becoming the norm. Tesla's growth was organic, but in other cases, extreme incentives for chasing end-of-year share price can be detrimental to the company.

@Therac Calling Tesla's growth "organic" is a bit ... surprising. "Starts and fits", "explosive", "daring" or even "haphazard" comes to mind -- but organic? The stock is volatile like hell.

@Peter-ReinstateMonica Perhaps "organic" is an overstatement. But at least it's growth for Tesla, it really builds great cars, sells them, they're in high demand. But stock growth is also achievable by draining the company - cutting expenses, maximizing revenue, taking long-term losses - then spending the gains on stock buybacks. Boeing went as far as to borrow money to pay dividends, and that raised the share price. Proliferation of this practice is a risk to consider.

Something that complicates this is that Musk was a large early investor in Tesla and helped turn the company into what it was. Musk is also on the same board that was approving his pay. Secondly, he was worth like $25 billion in 2018. I don't see a 100 million pay package even being tempting to someone worth $25 billion. Those are not things that would be the case if they were hiring an outside CEO.

@gnasher729 "an incompetent like Elon Musk" Is that why he became the richest man in the world, grew Tesla and SpaceX to where they are today, and you're a nobody?

@user4574 That is correct, and a common case with Founder-CEO's, which retain a major stake in their company. This is why Warren Buffet pays himself a symbolic $100,000. Musk made a deal that let him sell most of his stock and then partially have it back as CEO compensation.