Is Elon Musk Worth $55.8 Billion to Tesla?
2024-02-04
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1Tesla chief Elon Musk wants to move the company's incorporation, or registration, from the American state of Delaware to Texas.
2Musk said he will ask Tesla shareholders to vote on the move after a Delaware judge ruled against his 2018 pay deal valued at $55.8 billion.
3"Never incorporate your company in the state of Delaware," Musk posted on social media service X shortly after the ruling.
4Tesla and many major companies, including Amazon, Google, Disney, and Walmart, keep their headquarters in other states.
5But they all register in the small eastern state of Delaware because of its tax laws and business courts.
6The financial publication Forbes reports that 68 percent of the top American businesses are incorporated in Delaware.
7Companies that are registered in Delaware do not pay corporate income tax if they do not do business in the state.
8Even if they do business in the state, companies can also avoid paying corporate tax by setting up what is called a "shell" company.
9A shell company legally owns property but does not carry out any business.
10Dan Coatsworth is an expert at AJ Bell, a British investment company.
11He told Reuters that Musk's plan is the kind of behavior from someone "who always looks for an alternative if he can't get what he wants."
12Musk's idea, should he go through with the vote, is not without risk.
13Legal experts said investors might take legal action if he tried to move the state of incorporation to Texas.
14Legal action is even more likely if it was seen as a move to get his pay deal rather than to help Tesla.
15In 2022, the research firm Equilar carried out a study for The Associated Press.
16The study said that the median pay deal for a chief executive officer, or CEO, of a company in the Standard & Poor 500, an index of top companies, was valued at $14.8 million.
17It would take an average worker at one of those companies more than 185 years to earn what their chief executive gets in just 12 months.
18Musk's pay package of $55.8 billion, set in 2018, was much larger than usual.
19So, a shareholder brought legal action.
20His lawyer argued that it was proposed by company directors with ties to Musk.
21And shareholders were given misleading and incomplete information.
22In 2018, Tesla estimated the value of Musk's compensation package at $2.28 billion.
23But its value has grown as Tesla's stock price increased.
24Under the plan, Musk would receive stock options each time Tesla's market value rose by $50 billion.
25That means Musk would have the chance to buy nearly 304 million shares for $23.34 each.
26Tesla stock is now trading at about $190 a share compared with $21 at the start of 2018.
27By comparison, in 2022 the median worker at Tesla made $34,084.
28Last week, Chancellor Kathaleen St. Jude McCormick of Delaware ruled that the process to set Musk's pay package was "flawed" and the price "unfair."
29She ruled that Tesla's directors lacked independence from Musk and the big pay package was not needed for Tesla to keep Musk or meet its performance goals.
30McCormick's ruling moved Musk out of the top spot on the Forbes list of wealthiest people.
31The publication removed $25 billion from his wealth putting him below French businessman Bernard Arnault.
32To decide how much to pay their CEO, company directors often look at how much other companies are paying theirs.
33General Motors, for example, looks at Boeing, Ford, IBM, and other large companies to set its pay.
34In 2022, General Motors gave its CEO, Mary Barra, a pay package valued at $29 million.
35And Jim Farley, the CEO of Ford, another car company, received $22 million that year.
36Although Tesla makes automobiles, investors often compare its stock with technology companies.
37Musk is often compared to Mark Zuckerberg of Meta and Apple's Tim Cook.
38In 2023, Cook's pay was valued at $63.2 million.
39A year earlier, Cook received about $99 million.
40Musk's supporters argue that he is not like any other CEO and should not be paid like other CEOs.
41They said he has built Tesla into the most valuable automaker in the world.
42Last year, Tesla sold more electric vehicles than any other company.
43And the company's success has forced the rest of the auto industry to plan for electric vehicles.
44Business law experts say any new pay package for Musk will likely be back in court again without independent directors or changes in the decision process for pay.
45Before the ruling, however, Musk wrote on X that he wanted Tesla company directors to double his share to give him 25 percent voting control of the company.
46If not, Musk said he would develop artificial intelligence and robotic software outside of the company.
47I'm Mario Ritter Jr. And I'm Faith Pirlo.
1Tesla chief Elon Musk wants to move the company's incorporation, or registration, from the American state of Delaware to Texas. Musk said he will ask Tesla shareholders to vote on the move after a Delaware judge ruled against his 2018 pay deal valued at $55.8 billion. 2"Never incorporate your company in the state of Delaware," Musk posted on social media service X shortly after the ruling. 3Tesla and many major companies, including Amazon, Google, Disney, and Walmart, keep their headquarters in other states. But they all register in the small eastern state of Delaware because of its tax laws and business courts. 4The financial publication Forbes reports that 68 percent of the top American businesses are incorporated in Delaware. Companies that are registered in Delaware do not pay corporate income tax if they do not do business in the state. Even if they do business in the state, companies can also avoid paying corporate tax by setting up what is called a "shell" company. A shell company legally owns property but does not carry out any business. 5Dan Coatsworth is an expert at AJ Bell, a British investment company. He told Reuters that Musk's plan is the kind of behavior from someone "who always looks for an alternative if he can't get what he wants." 6Musk's idea, should he go through with the vote, is not without risk. Legal experts said investors might take legal action if he tried to move the state of incorporation to Texas. Legal action is even more likely if it was seen as a move to get his pay deal rather than to help Tesla. 7Musk's pay package 8In 2022, the research firm Equilar carried out a study for The Associated Press. The study said that the median pay deal for a chief executive officer, or CEO, of a company in the Standard & Poor 500, an index of top companies, was valued at $14.8 million. 9It would take an average worker at one of those companies more than 185 years to earn what their chief executive gets in just 12 months. 10Musk's pay package of $55.8 billion, set in 2018, was much larger than usual. So, a shareholder brought legal action. His lawyer argued that it was proposed by company directors with ties to Musk. And shareholders were given misleading and incomplete information. 11In 2018, Tesla estimated the value of Musk's compensation package at $2.28 billion. But its value has grown as Tesla's stock price increased. Under the plan, Musk would receive stock options each time Tesla's market value rose by $50 billion. That means Musk would have the chance to buy nearly 304 million shares for $23.34 each. 12Tesla stock is now trading at about $190 a share compared with $21 at the start of 2018. By comparison, in 2022 the median worker at Tesla made $34,084. 13Last week, Chancellor Kathaleen St. Jude McCormick of Delaware ruled that the process to set Musk's pay package was "flawed" and the price "unfair." She ruled that Tesla's directors lacked independence from Musk and the big pay package was not needed for Tesla to keep Musk or meet its performance goals. 14McCormick's ruling moved Musk out of the top spot on the Forbes list of wealthiest people. The publication removed $25 billion from his wealth putting him below French businessman Bernard Arnault. 15How do companies decide on CEO pay? 16To decide how much to pay their CEO, company directors often look at how much other companies are paying theirs. General Motors, for example, looks at Boeing, Ford, IBM, and other large companies to set its pay. 17In 2022, General Motors gave its CEO, Mary Barra, a pay package valued at $29 million. And Jim Farley, the CEO of Ford, another car company, received $22 million that year. 18Although Tesla makes automobiles, investors often compare its stock with technology companies. Musk is often compared to Mark Zuckerberg of Meta and Apple's Tim Cook. 19In 2023, Cook's pay was valued at $63.2 million. A year earlier, Cook received about $99 million. 20Musk's supporters argue that he is not like any other CEO and should not be paid like other CEOs. They said he has built Tesla into the most valuable automaker in the world. Last year, Tesla sold more electric vehicles than any other company. And the company's success has forced the rest of the auto industry to plan for electric vehicles. 21Business law experts say any new pay package for Musk will likely be back in court again without independent directors or changes in the decision process for pay. 22Before the ruling, however, Musk wrote on X that he wanted Tesla company directors to double his share to give him 25 percent voting control of the company. If not, Musk said he would develop artificial intelligence and robotic software outside of the company. 23I'm Mario Ritter Jr. And I'm Faith Pirlo. 24Hai Do adapted this report for VOA Learning English from The Associated Press, Reuters and other sources. 25_________________________________________________ 26Words in This Story 27alternative -n. another possible choice that is different from the one currently under consideration 28median -n. the middle value in a group of numbers 29stock option -n. a contract that gives the owner the right to buy stock at a set price 30flawed -adj. containing a mistake or something that should not be there 31We want to hear from you. 32Our comment policy is here.