A Delaware judge has ruled to uphold a decision invalidating Tesla CEO Elon Musk’s $56 billion compensation package. The highly contentious stock options grant, which at one point could have made Musk the wealthiest person in the world, was voided in January by Chancellor Kathleen St. J. McCormick of the Delaware Court of Chancery. It became directly attached to the performance of the stock and business growth. However, the judge determined that shareholders were not aware; neither was Tesla’s board independently deciding in the matter.
How Did Tesla Respond to the Ruling?
Tesla and Musk also promptly announced plans to appeal the ruling. On social media platform X, Tesla wrote: “A Delaware judge just overruled a supermajority of shareholders.” Musk, who is active on social media, also lashed out at the ruling, saying shareholders-not judges-should be in charge of company votes.
What Was the Basis of the Judge’s Ruling?
Chancellor McCormick found that Musk’s pay package was improperly approved. She wrote that the board was too aligned with Musk and did not provide shareholders with full and fair information about the package. Even though the shareholders overwhelmingly supported the pay package in a second vote in June, the judge ruled that the vote couldn’t validate the package because of “materially misleading” information presented to the shareholders.
Can Tesla Still Create a New Compensation Package for Musk?
While Tesla has announced plans to appeal the ruling, experts say it may try to rewrite the compensation plan to avoid similar legal roadblocks. Charles Elson, a corporate governance expert at the University of Delaware, said a new plan would have to be crafted with a more independent board from Musk to pass muster under Delaware’s conflict-of-interest statutes.
What Does This Ruling Mean for Tesla?
The ruling has deep implications for Tesla’s governance and future compensation plans. If the decision stands, it could affect Musk’s pay and perhaps even shape other companies’ decisions on whether to follow suit with similar executive compensation. The court ordered Tesla to pay $345 million in legal fees to the shareholder’s lawyers, a decision that is continuing to be highly debated.
