Elon Musk’s taxing pay options
Elon Musk has fought hard for a historic pay package at Tesla that would hand him $129bn at its current share price. If he doesn’t win, there could be an unexpected victim left holding the bag: Tesla.
Earlier this month, Delaware judge Kathaleen McCormick denied the company’s second attempt to give Musk the pay deal, putting the enormous windfall in further limbo.
It’s the biggest package of stock options in history — worth $56bn at the time of the original ruling, and $129bn today.
Shareholders’ overwhelming vote to reapprove the grant didn’t convince McCormick to override her previous rejection of the deal as unfair.
Now the board’s faced with a tough choice. It can either pursue a lengthy and uncertain appeal with a higher court, or award Musk with a new options package, DD’s Stephen Morris reports.
Critically, either option could have accounting and tax caveats with multibillion-dollar implications.
A new pay deal could trigger a $50bn-plus corporate accounting charge and separately impose a punitive tax rate of up to 57 per cent on Musk’s shares.
Tesla warned shareholders of this before. In April, it said that reissuing a new set of stock options to allow Musk to buy the same 304mn shares would result in a compensation-related accounting charge of more than $25bn.
And that was when Tesla’s stock was at $175 — it has since more than doubled.
Then there are the potential tax implications for the world’s richest man himself, which aren’t as clear.
If the company loses an appeal, the options would be awarded already “in the money”, since the ambitious financial targets the deal was pegged to have been achieved.
“It is very simple. If you grant options that are ‘in the money’, which they clearly are now, all kinds of bad things happen,” Schuyler Moore, a tax partner at law firm Greenberg Glusker, told the FT.
If the company tries to award a new deal with the same terms, it could trigger a nearly $70bn tax bill. “That is why they are trying so hard to ratify the original deal,” Moore added. “If they re-award it now, there will be hell to pay on taxes.”