Tesla is determined to continue its efforts to reinstate Elon Musk’s historic pay package, which, if unsuccessful, could result in over $100bn in tax and accounting charges for both the company and its CEO.
A recent ruling by Delaware judge Kathaleen McCormick rejected Tesla’s second attempt to grant Musk the largest stock options package in history, valued at $56bn originally and now over $129bn. She deemed the 2018 deal unfair and influenced by a CEO-centric board, despite shareholders reapproving the grant.
This decision has left the board with a choice: pursue a risky appeal with Delaware’s Supreme Court or provide Musk with a new options package.
If a new package with similar terms is issued, it could lead to a corporate accounting charge of over $50bn and impose a high tax rate of up to 57% on Musk’s shares, resulting in a substantial tax bill.
In April, Tesla warned shareholders that issuing a new set of stock options for Musk could result in an accounting charge of more than $25bn, given the company’s increased valuation from 2018. The stock price has more than doubled since then, potentially increasing the accounting charge significantly.
The potential tax implications for Musk, whose net worth has surpassed $400bn, are also significant. If Tesla’s appeal is successful, Musk would face the standard federal tax rate of 37% on stock compensation when he exercises his 2018 options.
If the original ruling stands, and a new plan is issued with similar terms, Musk would face immediate taxation due to the options being “in the money” already. This could lead to a hefty tax bill for Musk.
Attempting to award a new deal with similar terms could violate tax regulations and lead to severe tax penalties for Musk. The board has the option to award Musk Tesla shares instead, but this would still be costly and subject to standard tax rates.
In any case, Musk’s tax implications and the company’s financial burden remain significant, highlighting the complexity of the situation.
