Elon Musk No Longer World’s Richest After Judge Voids $51 Billion Pay Package

Published 4 months ago
By Forbes | Matt Durot
GERMANY-AUTOMOBILE-TESLA-MUSK
Tesla CEO Elon Musk talks to media as he arrives to visit the construction site of the future US electric car giant Tesla, on September 03, 2020 in Gruenheide near Berlin. - Tesla builds a compound at the site in Gruenheide in Brandenburg for its first European "Gigafactory" near Berlin. (Photo by Odd ANDERSEN / AFP) (Photo by ODD ANDERSEN/AFP via Getty Images)

A decision by a Delaware judge late Tuesday afternoon has multibillion-dollar implications regarding Musk’s fortune.

Elon Musk ceded the title of world’s richest person to Frenchman Bernard Arnault of luxury conglomerate LVMH Tuesday evening, after a Delaware judge voided a hefty package of performance-based Tesla options awarded to Musk in 2018. Those shares had been worth more than $50 billion. Forbes estimates that Musk is now worth $184.5 billion. He now trails Arnault (estimated net worth: $210.8 billion) but remains ahead of the world’s third richest person, Amazon’s Jeff Bezos ($179 billion).

In her ruling, Delaware judge Kathaleen McCormick determined that Musk and his co-defendants, Tesla and certain of its board members, failed to prove that the process underlying the award of “the largest potential compensation opportunity ever observed in public markets” was fair due to conflicts of interest and Musk’s “control” over the board. Musk’s options were worth $50.9 billion (net of exercise cost) at Tuesday’s stock market close. Because of the ruling, he won’t be able to exercise or sell them. Given the high level of uncertainty about what comes next–including an appeal of the ruling, Forbes has discounted Musk’s options by 50%, enough to knock his net worth down by $25.5 billion after the decision.

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“[The ruling] will certainly be appealed and there is some chance of reversal or a different remedy,” says UCLA law professor Jim Park. “Chancellor McCormick is well regarded and known as careful, so I think there’s a good chance her decision will get some deference from the Delaware Supreme Court. On the other hand, perhaps the Supreme Court will worry that the decision will send a negative message to the business community and will thus reduce the award.”

There is also the possibility that Tesla could just grant Musk another pay package with a more rigorous process designed to withstand legal scrutiny. After all, Tesla shareholders, whose stock has appreciated more than sevenfold since 2018, haven’t exactly celebrated the decision by the Delaware court. Shares of Tesla were trading down 0.8% at 2:30 p.m. eastern time on Wednesday.

“If the pay package is struck down, Musk will demand another — and he’ll get it,” says Michigan law professor Adam Pritchard. “But [it’s] very hard to say how different that would be from this package.”

Musk had been clamoring for even more Tesla shares prior to the Delaware decision. In an X post on January 15 he wrote, “I am uncomfortable growing Tesla to be a leader in AI & robotics without having ~25% voting control.” If upheld on appeal, the judge’s decision to void Musk’s options pay package would drop his stake in Tesla from 22% to 13%.

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