Tesla CEO Elon Musk’s $56 billion pay package has been struck down once again by a Delaware judge. In a recent ruling, Delaware Chancery Court Judge Kathaleen St. J. McCormick upheld her previous decision to block the compensation plan, citing significant concerns about conflicts of interest that arose following its approval in 2018.
What are the key details of the ruling?
Conflict of interest
Judge McCormick ruled that Musk had effectively controlled Tesla’s board and had engineered the pay package during what she described as “sham negotiations.” This ruling underscores the importance of corporate governance and the need for transparency in executive compensation.
Shareholder vote
In June 2024, Tesla warned shareholders that Musk might leave the company if his pay package was not approved. Despite a shareholder vote that resulted in approval of the compensation, the judge maintained that this was insufficient to overturn her earlier ruling.
Legal findings
The decision stated that Musk had “no procedural ground for flipping the outcome of an adverse posttrial decision based on evidence they created after trial.” Furthermore, it characterized claims that shareholders could change the outcome of a court decision as “dubious generally and unquestionably false” in this scenario.
Legal fees awarded
Judge McCormick awarded $345 million to the lawyers representing the Tesla shareholders who sued over the pay package, reflecting the significant legal costs incurred during the litigation process.
Read more: Tesla shareholders approve CEO Elon Musk’s $56 billion pay package
Tesla’s response and future steps
Appeal plans
Following the ruling, Tesla announced its intention to appeal the decision to the Delaware Supreme Court. The company argued that the ruling undermines shareholder rights and allows judges and plaintiffs’ lawyers to exert undue influence over corporate governance.
Potential new pay package
Prior to the shareholder vote, Tesla board chair Robyn Denholm indicated that the board had considered introducing a new pay plan if the shareholder vote did not pass. However, creating a new compensation package with similar stock grants could cost shareholders tens of billions of dollars, as the original package was tied to stock worth an estimated $2.3 billion that has already been paid out.
Despite the ongoing legal battles over his compensation, Elon Musk remains the richest person in the world. Tesla’s stock continues to perform well, buoyed by broader market trends and investor sentiment. The outcome of the appeal and any potential restructuring of Musk’s pay package will be closely monitored by investors and legal experts alike.
