Judge rejects Elon Musk’s $56 billion Tesla pay package

Judge rejects Elon Musk’s $56 billion Tesla pay package

A Delaware judge on Tuesday invalidated a $56 billion pay package for Tesla CEO Elon Musk, ruling that the company’s board failed to prove “that the compensation plan was fair.”

Tesla’s stock price fell nearly 3% in after-hours trading Tuesday following news of the decision in a lawsuit filed by Richard Tornetta, a shareholder in the Delaware electric car maker.

The judge noted that the pay package Tesla awarded Musk in 2018 was the largest compensation plan in the public company’s history, making the Tesla and SpaceX boss a billionaire and the richest person on the planet.

The plan offered Musk the opportunity to secure 12 tranches of Tesla stock options, which would vest if the company’s market value increased by $50 billion and Tesla met its revenue target.

“Was the richest person in the world overpaid?” asked Chancellor Judge Kathleen McCormick in her 200-page ruling. “The shareholder plaintiff in this derivative lawsuit says so. He claims that directors of Tesla, Inc. breached their fiduciary duties by awarding Elon Musk a performance-based stock compensation plan.

In her decision, McCormick found that Tornetta demonstrated that Musk “controls Tesla” and that the process that led to the board approving his compensation was “deeply flawed.”

Musk had extensive relationships with the people tasked with negotiating on Tesla’s behalf, including members of management who were beholden to Musk: among them general counsel Todd Marrone, who was his former divorce lawyer.

“In the final analysis, Musk triggered the self-driving process, re-adjusting speed and direction along the way as he saw fit,” the judge wrote. “The process reached an unfair price. Through this lawsuit, the plaintiff is requesting reinstatement.”

“Plaintiff has the right to seek dismissal,” McCormick wrote.

“The parties should consult on some form of final order implementing this decision and submit a joint letter setting out all the issues, including fees, that must be addressed to reach a trial-level outcome,” McCormick said.

Musk, his attorney, and Tornita’s attorney did not immediately respond to requests for comment on the decision.

In a tweet on Tuesday afternoon, Musk wrote: “Never incorporate your company in Delaware.”

McCormick noted that her ruling is based on the conclusion that Musk, not its board of directors and shareholders, controls Tesla, at least when it comes to the issue of determining his compensation.

“In addition to his 21.9% equity stake, Musk was a prototypical “super CEO,” who held some of the most influential positions at the company (CEO, Chairman, and Founder), and enjoyed close relationships with the directors in charge,” the judge wrote. “By negotiation.” On behalf of Tesla, he dominated the process that led to the board’s approval of its compensation plan.

The court determined that Tesla and Musk’s lawyers “were unable to prove that the shareholder vote was fully informed because the proxy statement inaccurately described the lead directors as independent and misleadingly omitted details about the process.”

Earlier this month, Musk began seeking 25% voting control of Tesla.

He currently owns about 13% of the entire company’s shares.

“I’m uncomfortable with Tesla developing into a leader in AI and robotics without roughly 25% voting control,” he wrote in a post on X, the social media site formerly known as Twitter. “Overthrow him.”

Musk owns and operates X.

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