A Delaware judge invalidated Tesla CEO Elon Musk’s $56 billion pay package, citing the board’s failure to justify the compensation.
This landmark ruling followed a lawsuit by shareholder Richard Tornetta, causing Tesla’s stock to dip 3% in after-hours trading.
Musk’s compensation, the largest in public corporate history, allowed him to secure Tesla stock options based on market cap and revenue targets.
Judge Kathaleen McCormick questioned Musk’s compensation’s fairness, noting Musk’s extensive control over Tesla and flawed negotiation processes.
McCormick wrote in her findings “In addition to his 21.9% equity stake, Musk was the paradigmatic ‘Superstar CEO,’ who held some of the most influential corporate positions (CEO, Chair, and founder), enjoyed thick ties with the directors tasked with negotiating on behalf of Tesla, and dominated the process that led to board approval of his compensation plan.”
The ruling grants Tornetta rescission and requires further deliberation on the matter to determine a path forward.
The judgment focused on Musk’s control over Tesla, as he held influential corporate positions and dominated compensation negotiations.
The court found Tesla and Musk’s attorneys unable to prove the shareholders were fully informed, highlighting discrepancies in the proxy statement.
Musk’s recent push for increased voting control over Tesla underscores his significant influence despite owning only 13% of the company’s stock outright.
He expressed discomfort with not having ~25% voting control, emphasizing his desire to lead Tesla’s advancements in AI and robotics.
Musk posted on X shortly after the decision advising against incorporating companies in Delaware and hinted at potential implications for corporate governance.