A Delaware judge has ruled that the company’s board of directors failed to prove ’the compensation plan was fair.’
Never incorporate your company in the state of Delaware
— Elon Musk (@elonmusk) January 30, 2024
A $56 billion pay package granted by Tesla to Elon Musk in 2018 has been nullified by a Delaware judge who ruled that the company’s board of directors failed to prove “the compensation plan was fair.”
Chancery Court Judge Kathaleen McCormick voided the payment package to Mr. Musk on Jan. 30 as part of a lawsuit filed by Richard Tornetta, a shareholder in the electric vehicle maker, five years ago.
Under the package offered by Tesla, Mr. Musk had the chance to secure 12 tranches of Tesla stock options, which would vest if Tesla achieved various market capitalization and operational milestones, such as a $50 billion increase in its market capitalization.
Mr. Tornetta had argued the multi-billion-dollar pay package that Tesla granted Mr. Musk—reportedly the largest compensation plan in public corporate history—should be nullified because it was overly excessive.
Additionally, the shareholder claimed that the key milestones Mr. Musk had to achieve in order to receive the pay package—which were described in proxy disclosures as very difficult to achieve—were, in fact, widely expected to be achieved, meaning Mr. Musk would likely qualify for large portions of the pay package.
The lawsuit further argued that a proxy statement issued by Tesla wrongly characterized the board’s Compensation Committee and the board as “independent when they were not,” and claimed that Mr. Musk himself came up with the compensation plan.
Musk Compensation Set at ‘Unfair Price’
Judge McCormick agreed, writing in the 200-page ruling that the company’s board of directors failed to prove “that the compensation plan was fair” or show any evidence that they “ever discussed or negotiated” the compensation package with the businessman.
“In the final analysis, Musk launched a self-driving process, recalibrating the speed and direction along the way as he saw fit. The process arrived at an unfair price,” the judge wrote.
The process leading to the approval of Mr. Musk’s compensation plan was also deeply flawed, she said.
