His multi-billion dollar compensation package at Tesla has become a point of contention, raising questions about whether it's a deserved reward for rare talent or a manifestation of corporate governance control.

From rulings by the Delaware Chancery Court to the bold moves of Tesla shareholders, the story of Musk's compensation is not just about finances, but also a power struggle where he has made Tesla dependent on his "magic."

Elon Musk in 4/2024. Photo: Reuters

Elon Musk in 4/2024. Photo: Reuters

In 2018, when Tesla was valued at only 50 billion USD, shareholders approved a compensation package for Musk tied to ambitious growth targets for market capitalization and profit, according to ABC News. With a potential value of up to 55.8 billion USD, it was the largest compensation package ever recorded in the history of public companies.

By 1/2024, as Tesla reached a market capitalization of over 600 billion USD, the value of Musk's stock awards reached 50 billion USD. However, the Delaware Chancery Court, under Chancellor Kathaleen McCormick, overturned the package, accusing Tesla's board of lacking transparency and being influenced by Musk, according to the Economist. This decision marked a turning point in a protracted legal battle as Musk and Tesla shareholders sought to protect the massive compensation.

Undeterred, in 6/2024, Tesla shareholders voted to re-incorporate the company in Texas and re-approve the compensation package. But by the end of the year, the Chancery Court again rejected it, emphasizing that a vote could not rectify the flaws in the original process. Chancellor McCormick argued, "A conflicted control transaction cannot be sanitized simply by shareholder vote".

In response, on 3/8/2025, Tesla's board launched an "insurance policy"—a new compensation package worth 23.7 billion USD in the form of 96 million restricted stock units, increasing Musk's ownership from 13% to 15%, according to the WSJ. While lower than the original package, this figure still far exceeds Tesla's total net profit over the past two years, raising questions about its reasonableness.

What makes Tesla shareholders willing to grant Musk such huge rewards, despite legal hurdles and the company's fluctuating performance? The secret lies in Musk's undeniable appeal—a "superstar CEO" with the ability to shape the company's future through bold visions of self-driving cars and humanoid robots.

Musk is not just a leader; he is the soul of Tesla, the one who transformed a loss-making startup into a tech giant. Professor Ann Lipton of Tulane University stated, "Tesla shareholders believe Musk is irreplaceable. They are willing to pay a high price to keep him, even if it means bending the rules of corporate governance."

Musk's vision has positioned Tesla as a tech company, not just a car manufacturer, making its market value dependent more on futuristic promises than on fundamental financial indicators.

However, this appeal comes with fear. Musk doesn't need to threaten to move to a rival company; he only needs to divert resources to other projects like SpaceX or xAI. In 6/2025, SpaceX invested two billion USD in xAI, while Tesla was asked to consider a similar investment.

More worryingly, a batch of Nvidia chips intended for Tesla was diverted to xAI, raising questions about conflicts of interest. Analyst Dan Ives of Wedbush Securities noted, "Shareholders are concerned that if Musk's control demands are not met, he might prioritize xAI or SpaceX, causing Tesla to lose growth momentum."

Musk's demand for 25% ownership, compared to 20% in the 2018 package, is not just about finances but also about securing absolute power to avoid being ousted by investors, similar to what he did with Twitter in 2022, experts add, according to AInvest.

Musk's compensation battle has sparked debate about the nature of huge compensation packages in the US. Supporters argue that Musk deserves it for taking Tesla from a market capitalization of 3.2 billion USD in 2012 to over 600 billion USD in 2024. Professor Lawrence Hamermesh of Delaware Law School commented, "Elon Musk is an exception. His vision has reshaped the global tech industry, and shareholders believe that retaining him is a prerequisite for Tesla's leadership in AI."

However, the Chancery Court's ruling highlights flaws in Tesla's governance. The board, with many members having personal and financial ties to Musk, was accused of lacking independence. Professor Lucian Bebchuk of Harvard University argued, "Musk's compensation package is a testament to the failure of corporate governance, where the CEO dominates the board to serve personal interests." The fact that Musk is not bound by a specific time commitment to Tesla while running several other companies further deepens these suspicions.

Musk's case is not just a personal story but also has a broad impact on corporate governance. The Delaware ruling has shaken the state's reputation as a legal hub for American companies, where 68% of Fortune 500 companies are incorporated. After Tesla moved to Texas, other companies, including Pershing Square and Meta, are also considering leaving.

In response, Delaware lawmakers proposed "Senate Bill 21" to limit lawsuits from minority shareholders. However, this bill has been criticized for potentially weakening the rights of small shareholders, favoring powerful CEOs like Musk.

Moreover, this case raises questions about the future of CEO compensation in the high-tech era. According to Alvarez & Marsal, companies need to establish transparent processes and hire independent advisors to avoid similar legal challenges.

Tesla's dependence on Musk highlights the risks when a company places its entire value on one individual. As Professor Ann Lipton noted, "When a CEO becomes the center of a company's value, normal governance rules are easily bent. Musk's case is a warning to other tech companies."

The story of Musk's compensation is not just about numbers; it's a power play where a superstar CEO turns a company into his own stage. By making Tesla dependent on his vision and presence, Musk has created the paradox: "the more the company falters, the more money he receives.".

Phong Lam (According to the Economist, WSJ, ABC News)