On January 30, 2024, Chancellor Kathaleen McCormick of the Delaware Court of Chancery, struck down Elon Musk’s multibillion-dollar pay packageLinks to an external site. at Tesla (NASDAQ: TSLALinks to an external site.) after finding the process for securing its approval “deeply flawed.” New media used titles such as “Elon Musk’s $55.8 Billion Tesla Pay Package Struck Down by JudgeLinks to an external site.” when reporting on the lawsuit. Musk’s pay package in question, which consisted of 12 tranches of stock options, has fully vested, though he has yet to exercise any of those options. Shareholders voted overwhelmingly in favor of the package in 2018. For all the options to vest, Tesla—valued at less than $60 billion at the time—needed to reach a market capitalization of at least $650 billion while also hitting various revenue and profit targets. The company cleared the last of those hurdles in 2022.
Equity securities such as stocks and stock options have been used in executive compensation packages for a long time in the U.S. Before FASB revised SFAS 123R in 2004, stock options were usually measured at intrinsic value, which resulted in very little to no compensation expense recognized in the company’s financial statements. SFAS 123R required companies to use fair value to measure options and recognize compensation expense during the service period.
https://cases.justia.com/delaware/court-of-chancery/2024-c-a-no-2018-0408-ksjm.pdf?ts=1706652091
https://finance.yahoo.com/quote/TSLA?.tsrc=fin-srch&guccounter=1
https://www.wsj.com/business/elon-musks-55-billion-tesla-pay-package-struck-down-by-judge-3e619f53
