A Delaware judge on Tuesday ruled in favor of investors who challenged billionaire Elon Musk’s $56 billion compensation package for Tesla as excessive, according to a court filing. . A judge found that Musk’s compensation had been improperly set by the electric car maker’s board of directors and rescinded his compensation. If the decision survives a possible appeal, Tesla’s board would have to craft a new compensation package for Musk.
“Never incorporate a company in Delaware,” Musk responded on X (formerly Twitter).
Tesla shareholder Richard Tornetta filed a lawsuit five years ago alleging that the company’s chief executive improperly directed negotiations over compensation packages and that the company’s board acted without independence. did. The court’s opinion directed Tornetta to cooperate with Musk’s legal team regarding an order implementing the judge’s decision. This decision can be appealed to the Delaware Supreme Court.
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. 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.”
Tesla directors argued in a week-long trial that the company paid the money to ensure that one of the world’s most dynamic entrepreneurs remained committed to 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.”
The judge said the defense had failed to prove that Musk needed a “historically unprecedented compensation plan” to remain committed to Tesla. She directed parties to consult on the final form of order implementing her decision.
“Perhaps overwhelmed by the ‘everything is going well’ rhetoric or dazzled by Mr. Musk’s superstar appeal, the board never asked the $55.8 billion question. Tesla retained Mr. Musk. Was the plan really necessary to achieve that goal?” Judge Catherine St. J. McCormick wrote in her decision.
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. . In 2022, he acquired the social media company Twitter, renamed it X, and founded several startups, including brain implant company Neuralink, tunneling company Boring, and rocket venture SpaceX.
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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 of his 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. Tesla’s value has ballooned from $50 billion at the time of package negotiations to more than $1 trillion in 2021. The ruling also came after Musk reiterated his desire to control 25% of Tesla’s voting rights. Musk sold most of his Tesla stock to buy Twitter, but in a January post on X he said he was reluctant to lead Tesla unless he controlled 25% of the voting power. The billionaire owned about 13% of the company at the time.
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.
