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Judge overturns Elon Musk’s “deeply flawed” $55.8 billion Tesla pay

By Nithya Bose in Business News, posted February 1, 2024

A Delaware judge has nullified Elon Musk's $55.8 billion pay package at Tesla, which was awarded to him in 2018.

Chancellor Kathaleen McCormick of the Delaware Court of Chancery ruled the approval process "deeply flawed."

Ms McCormick questioned the independence of Tesla's board in its negotiations with Musk.

This decision disrupts the existing compensation structure for Musk, who has notably refrained from taking a salary from Tesla.

Instead, he relied on his substantial ownership of the company.

Chancellor McCormick's ruling highlighted Musk's dominant role in shaping his pay deal, which was approved by shareholders in 2018.

The package, consisting of 12 tranches of stock options, was contingent on Tesla achieving specific operational and market valuation milestones.

Despite Tesla reaching these milestones in 2022, the judge questioned the necessity of such a plan for retaining Musk and meeting the company's objectives.

Musk's wealth is under increased scrutiny

Tesla's share price dipped over two percent following the announcement.

The ruling now casts doubt on how Tesla, deeply intertwined with Musk's leadership since its early days, will compensate him moving forward.

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This decision came when Musk, holding a 13 percent stake in Tesla, desired greater control.

He wants a 25 percent voting control at Tesla to lead the automaker’s transformation into artificial intelligence and robotics.

Musk posted in response to the verdict: “Never incorporate your company in the state of Delaware.”

The plaintiff's attorney praised the decision.

The Tesla board may appeal to the Delaware Supreme Court, but any new compensation package will face intense scrutiny.

The judge's ruling extensively examined the connections between Musk and Tesla's board members, specifically criticizing board Chair Robyn Denholm's oversight role.

The lawsuit, initiated by Tesla shareholder Richard Tornetta in 2018, challenged the approval process and the board's representation to investors.

Musk has maintained that he did not dictate the terms of his compensation.

This judgment follows a 2021 trial where Musk's influence over Tesla's board was scrutinized during the company's acquisition of SolarCity, another Musk business.

The judge in that case sided with Musk, recognizing the board's meaningful review of the deal.

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