A Delaware judge ruled Tuesday that Elon Musk $56 billion The multi-billion dollar compensation package is unfair, invalidating the largest compensation deal in company history.
The ruling, made Tuesday in Delaware Chancery Court by Judge Kathalen McCormick, means Musk, the world’s richest man, will not be able to retain his 2018 compensation package. The decision can be appealed. Chancery Daily follows and shares updates from the Delaware Court of Chancery and first reported the ruling on Threads.
The ruling doesn’t bring a happy ending for Musk or Tesla’s board of directors. How Musk will be compensated and what will happen to his fortune, which is largely tied to his many companies, are open questions.
McCormick wrote in her ruling: Tesla “had the burden of proving that the compensation plan was fair, but they failed to meet their burden.”
Musk expressed his displeasure with the ruling via X, the social media site he owns, formerly known as Twitter, in part because of McCormick’s previous decision. Twitter files lawsuit against Musk In the end, he agreed to a $44 billion deal.Musk’s acquisition of Twitter mainly came from Sell his Tesla stock.
“Never register your company in Delaware,” Musk later posted on X. posted a poll Ask Tesla if it should change its registration to Texas.
This issue of “fairness” is at the heart of the case, which began in 2019 when Tesla shareholder Richard Tornetta File a lawsuit Revoking Musk’s 2018 pay deal, which claimed at the time that it paid Musk unfairly but did not require him to fully focus on the automaker.
The compensation plan approved by shareholders in 2018 included 20.3 million stock option awards divided into 12 tranches for a total of 1.69 million shares. Under the agreement, Tesla’s market capitalization, revenue and adjusted earnings (excluding certain one-time charges such as stock-based compensation) will increase.
While many may think this is fair since a vast majority of shareholders approved it, McCormick is unmoved.She wrote that because “the defendant is Unable to prove shareholder voting was fully informed Because the proxy statement inaccurately describes the principal directors as independent and misleadingly omits details about the process. “
McCormick described the process of getting Musk’s compensation plan approved as “flavored,” in large part because of his deep connections with people, including board members, who were supposed to be representing Tesla. negotiation. She also noted that testimony suggested it was more of a collaboration than a negotiation.
McCormick also weighed in on the fairness of the “price.” DThe defendants urged the court to compare what Tesla “gives” to what Tesla “gets.” Her assessment wasn’t enough. She wrote:
“The compensation plan was not conditional on Musk committing a certain amount of time to Tesla, because the board never proposed such a provision. The board was attracted by the ‘all is well’ rhetoric, or perhaps by Musk’s superstardom. Blinded by the appeal, the question of asking for $55.8 billion was never raised: Is it necessary for Tesla to preserve the program and achieve its goals?
she does agree The defendant (Tesla) demonstrated that Musk’s “unique motivation was the ambitious goals and Tesla desperately needed Musk to succeed in the next phase of its development.” But, she added, “these facts do not justify disclosure.” The largest compensation plan in market history is justified”.