A Delaware judge has ruled that Elon Musk’s $56 billion pay package from Tesla is unfair, voiding what was the largest compensation deal in corporate history. The decision, issued by Judge Kathaleen McCormick in the Delaware Court of Chancery, means that Musk, the world’s richest person, cannot keep the 2018 compensation package. It’s important to note that the ruling can be appealed.
Key Takeaway
The Delaware judge has ruled Elon Musk’s $56 billion pay package from Tesla as unfair, voiding the largest compensation deal in corporate history. The ruling can be appealed, and it raises questions about Musk’s compensation and the future of his wealth.
Background of the Ruling
The ruling, which was reported by Chancery Daily, raises questions about how Musk is compensated and what will happen to his wealth, which is largely tied up in his many companies. In her decision, Judge McCormick stated that Tesla failed to prove that the compensation plan was fair, leading to the ruling against the company.
Musk’s Response and Shareholder Lawsuit
Elon Musk expressed his displeasure with the ruling on X, the social media platform formerly known as Twitter, which he owns in part due to a previous legal decision overseen by Judge McCormick. The judge had presided over Twitter’s lawsuit against Musk, resulting in his agreement to close a $44 billion deal, which he financed by selling his Tesla stock.
The case challenging Musk’s 2018 pay deal was initiated in 2019 when Tesla shareholder Richard Tornetta filed a lawsuit to rescind the package, claiming that it was unjustly awarded to Musk without requiring him to focus entirely on the carmaker.
Details of the Compensation Plan
The compensation plan, approved by shareholders in 2018, consisted of 20.3 million stock option awards divided into 12 tranches of 1.69 million shares. These options would vest in 12 increments if Tesla achieved specific milestones related to market cap, revenue, and adjusted earnings.
Judge’s Assessment
Judge McCormick found the process leading to the approval of Musk’s compensation plan to be deeply flawed, citing his close ties to the individuals, including board members, who were supposed to be negotiating on Tesla’s behalf. She also noted that the plan was not conditioned on Musk devoting any set amount of time to Tesla, and the board never proposed such a term.
