Elon Musk's $56 billion multibillion pay package was unfair, a Delaware judge ruled Tuesday, voiding the largest severance deal in corporate history.
Musk, the world's richest man, will not be able to keep his 2018 compensation package, according to a decision issued Tuesday by Judge Kathleen McCormick in the Delaware Court of Chancery. The judgment can be appealed. Chancery Daily, which follows and shares an update on the Delaware Chancery Court, first reported the decision on Threads.
The ruling doesn't bode well for either Musk or the Tesla board. Unanswered questions are how Musk will be compensated and what will happen to his wealth, which is largely tied up in his many companies.
In her ruling, McCormick wrote: Tesla “bears the burden of proving that the compensation plan is fair, and they have failed to meet their burden.”
Musk shared his displeasure by turning to X, the social media site formerly known as Twitter, thanks to McCormick's decision. A judge oversaw a Twitter lawsuit against Musk that agreed to terminate his $44 billion contract. Musk largely financed the Twitter acquisition by selling his Tesla stock.
“Never incorporate your company in the state of Delaware,” Musk posted on X. Musk later posted a poll asking if Tesla should move its corporate location to Texas.
This question of “fairness” came to the fore in 2019 when Tesla shareholder Richard Tornetta sued to void Musk's 2018 pay deal, claiming that Musk was unfairly paid the package without demanding full focus at the time. Car manufacturer.
The compensation plan approved by shareholders in 2018 consisted of 20.3 million stock option awards divided into 12 tranches of 1.69 million shares. Under the agreement, the options vest in 12 increments if Tesla hits certain milestones on market cap, revenue and adjusted earnings (excluding certain one-time charges such as stock compensation).
McCormick was unmoved, although many argued that this was fair because most shareholders approved it. She wrote that because “defendants The stockholder could not prove that the vote was fully informed Because the proxy statement described key directors as independent and omitted misleading information about the process.”
McCormick described the process that led to the approval of Musk's compensation plan as “deeply flawed” because of his deep ties to people, including board members, negotiating on Tesla's behalf. She also notes that the evidence illustrates that it is less of a negotiation and more of a collaborative venture.
McCormick also has a fair share of “price.” DDefendants asked the court to compare what Tesla “got” with what Tesla “gave.” Her assessment was inadequate. She writes:
“Musk did not condition the compensation plan to allot Tesla any time because the board never proposed such a term. Perhaps star-struck by the rhetoric of “all upside” or Musk's superstar appeal, the board never asked the $55.8 billion question: Is the plan even necessary for Tesla to retain Musk and achieve its goals?
She agreed Defendants (Tesla) have demonstrated that Musk is “motivated by specific ambitious goals and that Musk is essential to Tesla's success in its next phase of development.” But, she added, “these facts do not justify the largest compensation plan in the history of the public markets.”