4 ms·

Let's say you're a 10x programmer. You negotiate a sweet pay package that would make you tens of millions if the stock price hits targets. You negotiate, and

by refurb 3y ago

Let's say you're a 10x programmer. You negotiate a sweet pay package that would make you tens of millions if the stock price hits targets. You negotiate, and are kind of surprised the company agrees to your stock price target, you thought they'd be higher. So if you employer later sues you and the judge agrees that the targets were too low, you'd be "ahh, no problem". Business is where you need to wear your big boy pants. If you agree to a bad deal, then you agree to a bad deal. You don't get to take it back.

kristianp 3y ago
I don't get you. The employer would be happy if the targets were too low, because that means the share price is higher than they expected.
pclmulqdq 3y ago
Now suppose that you are a huckster CEO. You founded your company and hired your board of directors, and most of them owe that sweet gig to you. You have them give you a sweetheart deal on your pay package - they owe you after all, and you're a good guy so you deserve it. You put it in terms of stock price numbers because you're pretty sure you're going to hit those, and it makes the pay package look sort of fair. They obviously don't push back on your requests. They are grateful to you for putting them on the board. Then they take that pay package to the shareholders and say "we fought him hard, but we have to give him a shit load of money to keep him." The shareholders think, "gee whiz the board is looking out for us and we love the CEO, which is why we own stock in this company. This must be a fair price because he's such a good guy." The shareholders think the deal is fair and they vote to approve it (rather than sending the board and CEO back to the negotiating table). That is closer to what actually happened here. There is a CEO who set his own pay package based on internal information that the board may well not have had, and there is a board of directors who pretended to have negotiated with him when they proposed the deal to the shareholders, when they really didn't do anything of the sort. This isn't "you agreed to a bad deal after a negotiation" - this is "you were tricked into signing the most ludicrous deal your counterparty could construct." The former is when you put on your big boy pants. The latter is when you sue the person who defrauded you (and you win).
- refurb 3y ago
  > That is closer to what actually happened here. It's not actually how it works. Like at all. The board is not hired by the CEO. Shareholders elect board members, or for shareholders who are large enough, they appoint them. Sure, Elon can say "hey, I want this board member" and the shareholders can do with that as they will, they are under zero obligation to select them. Grateful he put them on his board? Did you see who these people are? Titans of industry many of them. Tesla was a tiny company everyone thought was going bankrupt at the time. Now you might say "Shareholders were hoodwinked". Tesla is dominated by a few large investors (Vanguard, T Rowe Price, etc). This is not a 60-year with a beer in his hand who bought a couple shares, these are large institutional investors with massive teams who do due diligence on their investments, one can't claim they were we "hoodwinked" or "misinformed". They had every opportunity to select board members who represented their interests. And not to mention - his pay package is public information. You yourself could go on sec.gov and look at it. https://www.sec.gov/Archives/edgar/data/1318605/000119312518035345/d524719ddef14a.htm https://www.sec.gov/Archives/edgar/data/1318605/000119312518... "Elon will receive no guaranteed compensation of any kind — no salary, no cash bonuses, and no equity that vests by the passage of time. Instead, Elon’s only compensation will be a 100% at-risk performance award, which ensures that he will be compensated only if Tesla and all of our stockholders do extraordinarily well. The award consists of stock options that vest only if Tesla achieves specific milestones, which if fully achieved would make Tesla one of the most valuable companies in the world with a market capitalization of at least $650 billion — more than 10x today’s value." The compensation agreement was back when the stock was $20/share. The stock price was 15-20 times larger at peak. He took at $65B company to $650B, creating $590B in wealth for shareholders. He got $50B. Funny how the only commentary when the pay package was agreed to was "If Elon hits these aggressive targets he'll be in for a big pay day, but too bad Tesla is running out of cash".
  - pclmulqdq 3y ago
    I think you have the wrong idea of what happened, and you should consider reading McCormick's ruling and the trial records if you want to understand what actually happened. Regarding board composition: The board of directors of a company is elected through a process that involves nomination by management, and then an approval of the shareholders. An abstention in this vote is treated as a vote with management. When management owns 25% of the votes in a company, it only takes a few abstainers to keep their butts in the seats. Board elections are also very slow, with a few directors being elected every few years, so it can take 10 years to completely replace a board. Tesla's board of directors is not generally comprised of "titans of industry" but of people who owe Musk their success - are you reading the same list that I am? "Titan of industry" Kimball Musk? JB Straubel whose only accomplishments are Tesla-related? Or are you referring to nepo baby James Murdoch? Or the two VCs whose firms are only successful because of an early investment in Tesla? If you want to see a board comprised of actual titans of industry, look at Google, Nvidia, Meta, and others. The board also said, during the process of setting his compensation, that it was more of a "collaboration" and less of a "negotiation." And Tesla's internal projections suggested that the company would have hit most of those "aggressive" targets with a potted plant as CEO. Just read the primary sources relevant to the case, and not just Tesla's statements. Suffice it to say that most of the world, including all the people who matter, disagrees with your read on the situation.

by refurb 3y ago

kristianp 3y ago

I don't get you. The employer would be happy if the targets were too low, because that means the share price is higher than they expected.

pclmulqdq 3y ago

Now suppose that you are a huckster CEO. You founded your company and hired your board of directors, and most of them owe that sweet gig to you. You have them give you a sweetheart deal on your pay package - they owe you after all, and you're a good guy so you deserve it. You put it in terms of stock price numbers because you're pretty sure you're going to hit those, and it makes the pay package look sort of fair. They obviously don't push back on your requests. They are grateful to you for putting them on the board. Then they take that pay package to the shareholders and say "we fought him hard, but we have to give him a shit load of money to keep him." The shareholders think, "gee whiz the board is looking out for us and we love the CEO, which is why we own stock in this company. This must be a fair price because he's such a good guy." The shareholders think the deal is fair and they vote to approve it (rather than sending the board and CEO back to the negotiating table). That is closer to what actually happened here. There is a CEO who set his own pay package based on internal information that the board may well not have had, and there is a board of directors who pretended to have negotiated with him when they proposed the deal to the shareholders, when they really didn't do anything of the sort. This isn't "you agreed to a bad deal after a negotiation" - this is "you were tricked into signing the most ludicrous deal your counterparty could construct." The former is when you put on your big boy pants. The latter is when you sue the person who defrauded you (and you win).

refurb 3y ago
> That is closer to what actually happened here. It's not actually how it works. Like at all. The board is not hired by the CEO. Shareholders elect board members, or for shareholders who are large enough, they appoint them. Sure, Elon can say "hey, I want this board member" and the shareholders can do with that as they will, they are under zero obligation to select them. Grateful he put them on his board? Did you see who these people are? Titans of industry many of them. Tesla was a tiny company everyone thought was going bankrupt at the time. Now you might say "Shareholders were hoodwinked". Tesla is dominated by a few large investors (Vanguard, T Rowe Price, etc). This is not a 60-year with a beer in his hand who bought a couple shares, these are large institutional investors with massive teams who do due diligence on their investments, one can't claim they were we "hoodwinked" or "misinformed". They had every opportunity to select board members who represented their interests. And not to mention - his pay package is public information. You yourself could go on sec.gov and look at it. https://www.sec.gov/Archives/edgar/data/1318605/000119312518035345/d524719ddef14a.htm https://www.sec.gov/Archives/edgar/data/1318605/000119312518... "Elon will receive no guaranteed compensation of any kind — no salary, no cash bonuses, and no equity that vests by the passage of time. Instead, Elon’s only compensation will be a 100% at-risk performance award, which ensures that he will be compensated only if Tesla and all of our stockholders do extraordinarily well. The award consists of stock options that vest only if Tesla achieves specific milestones, which if fully achieved would make Tesla one of the most valuable companies in the world with a market capitalization of at least $650 billion — more than 10x today’s value." The compensation agreement was back when the stock was $20/share. The stock price was 15-20 times larger at peak. He took at $65B company to $650B, creating $590B in wealth for shareholders. He got $50B. Funny how the only commentary when the pay package was agreed to was "If Elon hits these aggressive targets he'll be in for a big pay day, but too bad Tesla is running out of cash".
- pclmulqdq 3y ago
  I think you have the wrong idea of what happened, and you should consider reading McCormick's ruling and the trial records if you want to understand what actually happened. Regarding board composition: The board of directors of a company is elected through a process that involves nomination by management, and then an approval of the shareholders. An abstention in this vote is treated as a vote with management. When management owns 25% of the votes in a company, it only takes a few abstainers to keep their butts in the seats. Board elections are also very slow, with a few directors being elected every few years, so it can take 10 years to completely replace a board. Tesla's board of directors is not generally comprised of "titans of industry" but of people who owe Musk their success - are you reading the same list that I am? "Titan of industry" Kimball Musk? JB Straubel whose only accomplishments are Tesla-related? Or are you referring to nepo baby James Murdoch? Or the two VCs whose firms are only successful because of an early investment in Tesla? If you want to see a board comprised of actual titans of industry, look at Google, Nvidia, Meta, and others. The board also said, during the process of setting his compensation, that it was more of a "collaboration" and less of a "negotiation." And Tesla's internal projections suggested that the company would have hit most of those "aggressive" targets with a potted plant as CEO. Just read the primary sources relevant to the case, and not just Tesla's statements. Suffice it to say that most of the world, including all the people who matter, disagrees with your read on the situation.