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China's manufacturing activity contracted for the fourth straight month in January, an official factory survey showed on Wednesday, suggesting the sprawling sector and the broader economy were struggling to regain momentum at the start of 2024.
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Elon Musk is not entitled to a landmark compensation package awarded by Tesla’s board of directors that is potentially worth more than $55 billion, a Delaware judge ruled Tuesday.
The ruling by Chancellor Kathaleen St. Jude McCormick comes more than five years after a shareholder lawsuit targeted Tesla CEO Musk and directors of the company. They were accused of breaching their duties to the maker of electric vehicles and solar panels, resulting in a waste of corporate assets and unjust enrichment for Musk.
The shareholder’s lawyers argued that the compensation package should be voided because it was dictated by Musk and was the product of sham negotiations with directors who were not independent of him. They also said it was approved by shareholders who were given misleading and incomplete disclosures in a proxy statement.
Defense attorneys countered that the pay plan was fairly negotiated by a compensation committee whose members were independent, contained performance milestones so lofty that they were ridiculed by some Wall Street investors, and blessed by a shareholder vote that was not even required under Delaware law. They also argued that Musk was not a controlling shareholder because he owned less than one-third of the company at the time.
An attorney for Musk and other Tesla defendants did not immediately respond to an email seeking comment.
But Musk reacted to the ruling on X, the social media platform formerly known as Twitter that he owns, by offering business advice. “Never incorporate your company in the state of Delaware,” he said. He later added, “I recommend incorporating in Nevada or Texas if you prefer shareholders to decide matters.”
Musk, who as of Tuesday topped Forbes’ list of the world’s richest people, had earlier this month challenged Tesla’s board to come up with a new compensation plan for him that would give him a 25% stake in the company. On an earnings call last week, Musk, who currently holds 13%, explained that with a 25% stake, he can’t control the company, yet he would have strong influence.
In trial testimony in November 2022, Musk denied that he dictated terms of the compensation package or attended any meetings at which the plan was discussed by the board, its compensation committee, or a working group that helped develop it.
McCormick determined, however, that because Musk was a controlling shareholder with a potential conflict of interest, the pay package must be subject to a more rigorous standard.
“The process leading to the approval of Musk’s compensation plan was deeply flawed,” McCormick wrote in the colorfully written 200-page decision. “Musk had extensive ties with the persons tasked with negotiating on Tesla’s behalf.”
McCormick specifically cited Musk’s long business and personal relationships with compensation committee chairman Ira Ehrenpreis and fellow committee member Antonio Gracias. She also noted that the working group working on the pay package included general counsel Todd Maron who was Musk’s former divorce attorney.
“In fact, Maron was a primary go-between Musk and the committee, and it is unclear on whose side Maron viewed himself,” the judge wrote. “Yet many of the documents cited by the defendants as proof of a fair process were drafted by Maron.”
McCormick concluded that the only suitable remedy was for Musk’s compensation package to be rescinded. “In the final analysis, Musk launched a self-driving process, recalibrating the speed and direction along the way as he saw fit,” she wrote. “The process arrived at an unfair price. And through this litigation, the plaintiff requests a recall.”
Greg Varallo, a lead attorney for the shareholder plaintiff, praised McCormick’s decision to reverse the “absurdly outsized” Musk pay package.
“The fact that they lost this in Delaware court, it’s a jaw dropper,” said Wedbush Securities analyst Dan Ives. “It’s unprecedented, a ruling like this. I think going in investors thought it was just typical legal noise and nothing was going to come out about it. The fact that they went head to head with Tesla and Musk and the board and voided this, it’s a huge legal decision.”
During his trial testimony, Musk downplayed the notion that his friendships with certain Tesla board members, including sometimes vacationing together, meant that they were likely to do his bidding.
The plan called for Musk to reap billions if Tesla, which is based in Austin, Texas, hit certain market capitalization and operational milestones. For each incidence of simultaneously meeting a market cap milestone and an operational milestone, Musk, who owned about 22% of Tesla when the plan was approved, would get stock equal to 1% of outstanding shares at the time of the grant. His interest in the company would grow to about 28% if the company’s market capitalization grew by $600 billion.
Each milestone included growing Tesla’s market capitalization by $50 billion and meeting aggressive revenue and pretax profit growth targets. Musk stood to receive the full benefit of the pay plan, $55.8 billion, only by leading Tesla to a market capitalization of $650 billion and unprecedented revenues and earnings within a decade.
Tesla has achieved all twelve market capitalization milestones and eleven operational milestones, providing Musk nearly $28 billion in stock option gains, according to a January post-trial brief filed by the plaintiff’s attorneys. The stock option grants are subject to a five-year holding period, however.
Defense attorney Evan Chesler argued at trial that the compensation package was a “high-risk, high-reward” deal that benefitted not just Musk, but Tesla shareholders. After the plan was implemented, the value of the company climbed from $53 billion to more than $800 billion, having briefly hit $1 trillion.
Chesler also said Tesla made sure that the $55 billion compensation figure was included in the proxy statement because the company wanted shareholders to know that “this was a heart-stopping number that Mr. Musk could earn.”
America’s employers posted 9 million job openings in December, an increase from November and another sign that the U.S. job market remains resilient despite the headwind of higher interest rates.
The number of openings was up from November’s 8.9 million, which itself was revised up in Tuesday’s report from the government. Job openings have gradually but steadily declined since peaking at a record 12 million in March 2022. But they remain at historically high levels: Before 2021, monthly openings had never topped 8 million.
Still, in a cautionary sign, layoffs rose in December. And the number of Americans quitting their jobs — a sign of relative confidence in their ability to find a better position — dipped to the lowest level since January 2021.
The U.S. economy and job market have remained surprisingly durable despite sharply higher interest rates, which have led to higher borrowing rates for consumers and businesses. The Federal Reserve’s policymakers raised their benchmark interest rate 11 times between March 2022 and July 2023, bringing it to a 23-year high of around 5.4%.
The Fed wants to see the job market cool from the red-hot levels of 2021 and 2022, thereby reducing pressure on businesses to raise pay to attract and keep staff — and to pass on those costs to customers through higher prices.
Higher rates have contributed to a slowdown in hiring, though the pace of job growth remains relatively healthy: U.S. employers added 2.7 million jobs last year, down from 4.8 million in 2022 and a record 7.3 million in 2021. When the government issues the January employment report on Friday, it is expected to show that employers added a solid 177,000 jobs, according to a survey of forecasters by the data firm FactSet.
The job market is cooling in a mostly painless way — through fewer openings. Despite a wave of high-profile layoffs, the number of job cuts across the economy remains relatively low.
The unemployment rate has come in below 4% for 23 straight months, the longest such streak since the 1960s. And the number of people applying for unemployment benefits — a proxy for layoffs — has remained unusually low.
At the same time, while inflation has sharply slowed after peaking in mid-2022, it remains above the central bank’s 2% target.
The Fed has signaled that it expects to reverse course and cut rates three times this year, though it’s set to leave rates unchanged after its latest policy meeting ends Wednesday. Financial markets have been anticipating the first rate cut as early as March, though continued strength in the job market might make the Fed’s policymakers wary of acting before mid-year.
“These data — which show demand for workers remains robust — do not support imminent rate cuts,’' said Rubeela Farooqi, chief U.S. economist at High-Frequency Economics. “They support a cautious approach going forward so that policymakers can be sure that inflation” will reach their 2% target.
Starbucks on Tuesday reported record revenue in its fiscal first quarter but the results fell short of Wall Street’s expectations as customer spending slowed in some key markets.
The Seattle coffee giant said its revenue rose 8% to $9.43 billion for the October-December period. That was lower than the $9.6 billion analysts had forecast, according to FactSet.
Same-store sales, or sales at stores open at least a year, also fell short of Wall Street’s expectations. Starbucks said global same-store sales rose 5%; analysts had forecast a 7% increase.
In the U.S., same-store sales rose 5% in the quarter. Customer transactions rose 1% and consumers spent more per order. But in China — Starbucks’ second-largest market — results were mixed. Transactions were up 21% but average spending per order fell 9%.
Starbucks said its net income rose 20% to just over $1 billion, or 90 cents per share. Analysts had forecast earnings of 93 cents per share.
Starbucks faced multiple headwinds in the quarter. On Nov. 16, workers at more than 200 U.S. stores walked off the job to protest the lack of progress in negotiating union contracts with the company. It was the largest strike yet in the 2-year-old effort to unionize Starbucks’ company-owned U.S. stores.
It also faced boycotts around the world after it sued Workers United — the union organizing its workers — after a union social media account posted a pro-Palestinian message.
Starbucks said it was trying to get the union to stop using its name and likeness, since it was also facing protests from pro-Israel demonstrators. However, some boycotters felt the company wasn’t adequately supporting the people of Gaza. Starbucks and Workers United plan to try to resolve the lawsuit in mediation sessions next month, according to court filings.
In December, Starbucks CEO Laxman Narasimhan tried to allay tensions in an open letter to employees, saying Starbucks condemns “violence against the innocent, hate and weaponized speech and lies.”
“Our stance is clear. We stand for humanity,” he wrote.