Op-Ed: Tesla shareholders give Musk his $45b payday – But?

Tech billionaire Elon Musk is encouraging shareholders in electric automaker Tesla to vote in favor of a plan that includes a massive pay package for the company’s founder and chief executive – Copyright AFP Chris DELMAS

Say what you will about the irresponsibility, insanity, and boorishness of corporate America. They know how to do themselves some favors, particularly big ones. Even when the world is literally falling to bits, they have a sense of priorities.

Elon Musk has just received the total value of his Twitter takeover in one payday. The Tesla shareholders voted for the controversial package after some delays with legal issues in a Delaware court.

Why is this so important?

It does have something to do with stock price performance. For some years, Tesla stock bumbled along under the $100 level. Since May 2020 it has gone up to the $1200 level. So, from a stockholder perspective that’s pretty productive.

Tesla sales did pretty much the same spikey-curve thing, although in a slightly choppier environment. Profits did pretty much the same thing in the same period.

On the face of it, you could say that this $45 billion is the payment for that turnaround. A reward for actual stock performance is more than a bit unheard-of, but not totally unknown.

That’s not what’s so important.

Those shareholders in Tesla happen to include a lot of major corporations including big investors like Vanguard and Ishares.  That fact is highly significant. Musk is by far the biggest shareholder, but he can’t vote himself a gigantic payday in a listed company. They can.

The Twitter takeover was also orchestrated by major funds managers investors. The reality of modern business is that these guys run things. What they say and do actually happens. Unlike politics, a phone call is all you need to run America’s big money.

I’d love to, but I can’t even suggest any sort of illegality in the way these things roll. There’s nothing illegal about any of it. This decision is well within bounds. The Delaware court specifically stated that Tesla’s board “could not be considered independent from Musk”. That was the main sticking point.

Yeah, well that worked out well, didn’t it? The pity of that statement is that huge investors with trillions of dollars under management are actually pretty independent.

Some shareholders didn’t like the package from day one. They still don’t. It’s not quite over yet. There may well be further disputes, but formal shareholder approval has now been gained.

To be fair, Tesla is very much Musk’s baby. Nobody can say he’s not there or does nothing. Many times, people have wished he wasn’t, but he was, and he is, He just happens to have glued back that $45 billion he paid for Twitter in the process.

You can call it good business or at least good personal finance arithmetic. He’s shored up his outlay for Twitter and made a bit extra.

We now get around to what is actually important.

This is a potential precedent for top management voting itself very big paydays. They already do that, but this is on a far bigger scale. It’s a virtual How To manual, with legal footnotes.  It’s a map of the entire process.

Do you see anything to distrust about this situation?

In a very lax corporate environment where anything pretending to be human can do itself any number of favors, do we have yet another free lunch scenario? A la carte for corporate freeloaders?

This could be yet another milking machine for corporations. Cashflow in some companies is so sensitive that it can easily kill the companies. A large remuneration package can do that. Call it “asset stripping by other means”.

Insolvency is pretty easy to create. Just cash in everything not nailed down, give yourself a nice big amount of money, and file for Chapter 11. That’s not in any way new or original. In fact, it’s almost monotonous.

What’s new is that you can now just stick in a straw and suck out the liquidity from the top.

There’s a big difference here. Tesla is solvent. This payday may be controversial, but it’s not in any sense a threat to the bottom line.

That cannot be said about many publicly listed companies. They’re highly indebted. Their management is usually weak and often act as proxies for outside interests. If those outside interests would like some cash…?

That’s what’s important.