A Delaware judge on Tuesday ruled that billionaire Elon Musk’s $56 billion payout to Tesla may be voided, adding that the payout was “not calculated.” He said the amount was “an unknown amount” and was unfair to shareholders.
“The plaintiff has the right to request an annulment,” the judge said in his ruling.
The court’s opinion directed Tesla shareholders who challenged the pay plan to work with Elon Musk’s legal team on an order implementing the judge’s decision.
Musk’s lawyer did not immediately respond to an email seeking comment. “Never set up a company in Delaware,” Musk wrote on X.
“Have a nice day, good people,” said an email from Greg Ballaro, attorney for Tesla shareholder Richard Tornetta, who filed the lawsuit.
This decision can be appealed to the Delaware Supreme Court.
Delaware Court of Chancery Judge Kathleen McCormick said the pay package did not meet the fair value standard.
In his 201-page opinion, McCormick wrote, “The incredible scale and unfathomable sum of the largest compensation plan in history will allow Musk to achieve what he believed would create a ‘good future for humanity.’ It seems that it has been adjusted.”
Tesla’s deal with Mr. Musk is by far the largest executive compensation deal ever, and will represent a significant chunk of one of the world’s largest fortunes.
Tesla directors argued in a week-long trial that the company was paying them to ensure the world’s most dynamic entrepreneur remained focused on the electric car maker. Antonio Gracias, who served on Tesla’s board from 2007 to 2021, said the package led to the company’s extraordinary success, calling it “a great deal for shareholders.”
Mr. Tornetta’s lawyers say Tesla’s board never told shareholders that its goals were easier to achieve than the company realized, and that internal projections suggest that Mr. Musk will soon lose his compensation. It argued that it had shown that it would be eligible to receive the majority of the money.
The plaintiffs’ legal team also argued that the board had a duty to reduce his salary or find another CEO, and should have required Musk to work full time at Tesla instead of letting him focus on other projects. .
Musk bought social media company Twitter in 2022, renamed it X, and founded several other startups, including brain implant company Neuralink, tunneling venture Boring and rocket venture SpaceX.
Musk testified at his compensation trial in November 2022 that the money would be used to fund interplanetary travel.
“This is how we’re going to get humans to Mars,” he testified. “So Tesla can help potentially achieve that.”
The package grants stock options that allow Musk to buy Tesla stock at a deep discount as he meets expanding financial and operational goals.
He must hold the acquired shares for five years.
Mr. Musk met all 12 tranches or performance goals within the plan. He had no guaranteed salary.
The ruling will focus on Tesla’s next round of compensation negotiations with its CEO. In a January post on X, Musk said he didn’t feel comfortable leading Tesla unless he held 25% of the voting power. The billionaire owned about 13% of the company at the time.
Tesla’s value has ballooned from $50 billion at the time of package negotiations to more than $1 trillion in 2021.
Amit Batish of executive compensation research firm Equilar estimated in 2022 that Musk’s package was about six times the combined compensation of the 200 highest-paid executives in 2021.
Tesla directors agreed in July to return $735 million to the company to resolve shareholder claims that the company overpaid in a separate lawsuit filed in 2020. The lawsuit challenged options granted to directors since June 2017.
