A judge in Delaware has voided Elon Musk’s $55 billion pay package from Tesla, deeming it to be an “unfathomable sum” and asserting that it was improperly approved by the company’s board of directors.
Judge Kathaleen McCormick of Delaware’s Court of Chancery noted that while Musk has a non-controlling 13% stake in the electric car manufacturer, he continues to control the board through his personality and influence. Additionally, she said the board could not demonstrate the share grant had been done at a fair price and through a fair process.
“Swept up by the rhetoric of ‘all upside,’ or perhaps starry eyed by Musk’s superstar appeal, the board never asked the $55.8 billion question: Was the plan even necessary for Tesla to retain Musk and achieve its goals?” wrote McCormick in her 201-page opinion, according to Reuters.
“The incredible size of the biggest compensation plan ever – an unfathomable sum – seems to have been calibrated to help Musk achieve what he believed would make ‘a good future for humanity’,” she added.
Musk’s Tesla pay package was approved by the board in 2018 and consisted of 12 tranches of stock options that would be vested when the carmaker reached certain targets. Both the board and Musk said these targets would be difficult to achieve but attorneys for plaintiff Richard Tornetta, a Tesla shareholder who triggered the lawsuit, displayed records that revealed Tesla was forecasting it would soon hit three of the key performance milestones when the pay package was approved.
“Musk was the paradigmatic ‘Superstar CEO,’ who held some of the most influential corporate positions (CEO, Chair, and founder),” McCormick said.
The Financial Times reports that if the ruling is upheld and Musk’s pay package is scrapped, he will lose options for over 303 million Tesla shares.
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Some Tesla shareholders have argued that the compensation is excessive and was pushed through by Musk. In her ruling, the judge noted the eccentric billionaire “enjoyed thick ties with the directors tasked with negotiating on behalf of Tesla, and dominated the process that led to board approval of his compensation plan. At least as to this transaction, Musk controlled Tesla.”
Writing in X after the ruling, Musk said, “Never incorporate your company in the state of Delaware. I recommend incorporating in Nevada or Texas if you prefer shareholders to decide matters.”