US Court Rejects Elon Musk’s $55.8bn Tesla Pay Deal
A Delaware court has rejected Elon Musk’s $55.8 billion compensation package at Tesla, ruling it excessive and unfair to shareholders. Chancellor Kathaleen McCormick of Delaware’s Court of Chancery struck down the package, which had been approved by Tesla shareholders in a 2018 vote. The court’s decision was reaffirmed despite Tesla’s attempt to ratify the deal through a subsequent shareholder vote in June 2023.
The court found multiple issues with the ratification attempt, including “material misstatements” in documents provided to shareholders, and ruled that it could not override the previous ruling. McCormick rejected the legal arguments presented by Tesla’s defense, stating that they conflicted with established law.
In response to the verdict, Tesla stated that it would appeal, with Musk criticizing the court’s decision and asserting that shareholders, not judges, should control company votes. Additionally, the court awarded $345 million in attorney fees, much less than the $5.6 billion originally requested by the plaintiff’s lawyers.
The pay plan was initially approved in 2018 to reward Musk for Tesla’s growth. However, shareholder Richard Tornetta filed a lawsuit, claiming that the compensation package was a product of Musk’s influence over a board that lacked sufficient independence. He accused Musk of “unjustified enrichment” and sought to annul the deal.
Musk defended the plan during the 2022 trial, arguing that Tesla investors were sophisticated enough to monitor his management, and denied playing any role in crafting the deal.
The court’s ruling could have significant implications for corporate governance, particularly in cases where compensation packages are perceived to be excessively influenced by executives. Musk has also posted on social media suggesting that companies should reconsider registering in Delaware, where many US corporations are incorporated.
