A Delaware judge ruled Tuesday that Elon Musk’s $56 billion pay package is unfair, throwing out the largest compensation deal in the company’s history.
The decision, issued Tuesday in Delaware Circuit Court by Judge Kathleen McCormick, means that Musk, the world’s richest person, cannot keep his 2018 compensation package. The ruling can be appealed. Chancery Daily, which tracks and shares the Delaware Chancery Court update, first reported the decision on Threads.
The ruling does not provide a tidy ending for Musk or Tesla’s board of directors. How Musk will be compensated and what happens to his wealth, which is largely tied to his many companies, are unanswered questions.
McCormick wrote that in her ruling “Tesla bore the burden of proving that the compensation plan was fair, and failed to meet its burden.”
Musk expressed his dismay at the ruling by taking to social media site X, formerly known as Twitter, which he owns in part thanks to an earlier decision by McCormick. The judge oversaw Twitter’s lawsuit against Musk, which ended with him agreeing to close his $44 billion deal. Musk funded the Twitter acquisition largely by selling his shares in Tesla.
“Never incorporate your company in Delaware,” Musk later posted on the X. Musk website Posted a survey Asks if Tesla should change its state of incorporation to Texas.
This question of “fairness” was central to the case, which began in 2019 when Tesla shareholder Richard Tornetta sued to overturn Musk’s 2018 pay deal, claiming at the time that the package had been unfairly paid to Musk without his claim. Focusing entirely on Musk. Car maker.
The compensation plan approved by shareholders in 2018 consists of 20.3 million stock options divided into 12 tranches of 1.69 million shares. Under the agreement, the options grant 12 raises if Tesla achieves certain milestones with respect to market capitalization, revenues and adjusted earnings (excluding certain one-time charges such as stock compensation).
Although many would argue that this decision was fair because the vast majority of shareholders approved it, McCormick was not impressed. She wrote because “the accused were Unable to prove that the shareholder vote was taken on a full basis Because the proxy statement inaccurately described the lead managers as independent and misleadingly omitted details about the transaction.
McCormick called the process that led to the approval of Musk’s compensation plan “deeply flawed,” largely because of his deep relationships with the people, including board members, who were supposed to be negotiating on Tesla’s behalf. She also noted that testimony made clear that this was not so much a negotiation as a collaborative project.
McCormick also focused on the fairness of the “price”. DrThe defendants urged the court to compare what Tesla “gave” with what Tesla “got.” Her evaluation was not adequate. she writes:
“The compensation plan was not conditional on Musk devoting any specific amount of time to Tesla because the board had never proposed such a term. Swept up by the ‘all upside’ rhetoric, or perhaps dazzled by Musk’s uncanny charisma, the board did not propose Management Never The $55.8 Billion Question: Was the plan necessary for Tesla to retain Musk and achieve its goals?
I agreed to that The defendants (Tesla) demonstrated that Musk was “uniquely driven by ambitious goals and that Tesla desperately needed Musk to succeed in the next phase of development.” But she added, “These facts do not justify the largest compensation plan in the history of the public markets.”