Emmanuel OchayiChancellor Kathaleen McCormick ruled on Tuesday that Tesla CEO Elon Musk is not entitled to the landmark compensation package awarded by the company’s board of directors, potentially worth over $55 billion.
The ruling follows a shareholder lawsuit that accused Musk and Tesla directors of breaching their duties, resulting in a waste of corporate assets and unjust enrichment for Musk.
Join our WhatsApp ChannelChancellor McCormick, in a 200-page decision, emphasized that Musk’s extensive ties with key negotiators, including compensation committee chairman Ira Ehrenpreis and committee member Antonio Gracias, raised concerns about a fair negotiation process. The judge also noted the involvement of Musk’s former divorced attorney, Todd Maron, as a primary go-between in the working group developing the pay package.
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Reacting on X (formerly Twitter), Musk offered business advice, saying: “Never incorporate your company in the state of Delaware” and recommended Nevada or Texas for incorporation if shareholders prefer decision-making authority.
This ruling comes as Musk, currently the world’s richest person, had challenged Tesla’s board to devise a new compensation plan, aiming for a 25% stake in the company. Despite Musk’s denial of dictating the terms during trial testimony in November 2022, Chancellor McCormick concluded that, as a controlling shareholder with a potential conflict of interest, the approval process was deeply flawed.
Greg Varallo, lead attorney for the shareholder plaintiff, praised the decision, calling the initially proposed pay package “absurdly outsized.” Analysts, including Dan Ives from Wedbush Securities, expressed astonishment at the unprecedented ruling, emphasizing its significant impact on Tesla and Musk.
The voided compensation package was contingent on Tesla meeting market capitalization and operational milestones, with Musk standing to gain $55.8 billion if the company achieved a market capitalization of $650 billion within a decade.
Despite Tesla’s success in meeting milestones, the judge deemed the process leading to approval as unfair, ultimately calling for the recall of Musk’s compensation.
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