What happens to Elon Musk's Tesla pay after $56 billion package thrown out? It's complicated

After a Delaware court threw out Elon Musk's $56 billion pay package on Tuesday, the Tesla chief executive and a board seen as captive to him must find a way to negotiate a replacement contract. It will not be easy.

The ruling is spurring on investors who for years have raised concerns about Tesla board independence. This could be a turning point for Musk, who recently said he was uncomfortable transforming Tesla into an artificial intelligence leader if he did not rise to 25% control with a new pay package.

«This throws Tesla into a complete sort of tailspin from an executive perspective,» said Tesla shareholder Ross Gerber, who said the court decision essentially required new independent board members who would provide CEO oversight. «Then it gets real messy because Elon — it's either his way or the highway,» said Gerber, who last year publicly considered a board run as an independent.

Musk has not said what he will do, though an appeal is almost certain. Tesla shares fell about 1% on Wednesday.

First, Musk will have to give back what he got if the ruling stands. He has satisfied the 2018 contract terms and received 12 tranches of options worth about $51 billion.

Musk on Wednesday was worth $184 billion, according to Forbes, and has complicated finances including loans using shares as collateral. Public filings do not show whether he has taken any loans backed by the options, pay research firm Equilar said. He has not exercised the options to turn them into shares, so giving up his earnings may not be technically difficult.

Deciding what to replace the package with will be a difficult process, since it is unclear who will bargain on Tesla's side. The judge who threw out the package called it an «unfathomable sum» that was unfair to shareholders and questioned the board's independence.

Equilar estimated in 2022 that Musk's package was around six times larger than the combined pay of the 200 highest-paid executives in 2021.

Delaware Judge Kathaleen McCormick said many current board directors labeled as independent by Tesla, including James Murdoch, Chair Robyn Denholm and Ira Ehrenpreis, showed a lack of independence in the pay decision.

Denholm and Ehrenpreis are on the