Delaware Judge Nullifies Elon Musk’s $55.8 Billion Tesla Compensation Package Following Fiduciary Breach
In a significant legal development, a Delaware judge has invalidated Elon Musk’s staggering $55.8 billion compensation package from Tesla. The ruling came after the judge found that Tesla’s board of directors failed to demonstrate the fairness of the controversial compensation plan.
The compensation package, granted to Musk in 2018, was described by Delaware Chancery Court Judge Kathaleen St. J. McCormick as the “largest potential compensation opportunity ever observed in public markets by multiple orders of magnitude,” in a detailed 200-page ruling. The legal challenge was initiated by Tesla shareholder Richard Tornetta, who argued that the board breached fiduciary duties by approving Musk’s performance-based equity compensation plan.
Judge McCormick highlighted Tornetta’s successful argument that Musk effectively controlled Tesla and criticized the flawed process that led to the approval of the pay package. The judge emphasized Musk’s substantial influence over the company, citing his significant equity stake (21.9%), multiple influential corporate roles (CEO, Chair, and founder), and close ties with directors involved in negotiating on Tesla’s behalf.
The judge asserted that Musk’s role in shaping the compensation plan resulted in an “unfair price” and concluded that Tornetta was entitled to rescission. Additionally, Musk’s legal team failed to prove that the stockholder vote was fully informed, as the proxy statement inaccurately portrayed key directors as independent and omitted crucial details about the approval process.
Elon Musk’s $55 billion pay package at Tesla was struck down by a Delaware judge after a shareholder challenged it as excessive, a ruling that would take a giant bite out of Musk’s wealth if it survives a likely appeal https://t.co/yR0Zvpxsi7 pic.twitter.com/Jpbx2jO91V
— Bloomberg TV (@BloombergTV) January 30, 2024
The decision now calls for the involved parties to collaborate on a final order implementing the judge’s ruling, addressing various issues, including fees. Elon Musk, known for his outspoken nature, responded to the verdict on X (formerly Twitter) by advising against incorporating companies in Delaware. Musk, who owns approximately 13% of Tesla’s stock outright, expressed discomfort in December about growing Tesla without sufficient voting control.
This legal setback raises questions about the governance and decision-making processes within Tesla, adding a new layer of complexity to Elon Musk’s influential role within the company.