2024-01-31 06:41:25 ET
A Delaware judge has invalidated the staggering $55.8 billion pay package awarded to Elon Musk by Tesla Inc (NASDAQ: TSLA), marking a significant legal blow to the billionaire CEO. The ruling, issued by Judge Kathaleen McCormick, comes after a shareholder lawsuit argued that the compensation was exorbitant.
This decision not only impacts Musk’s financial standing but also raises questions about corporate governance and executive compensation practices. Notably, the court ruling comes amid reports indicating Bernard Arnault has overtaken Elon Musk to become the world’s richest person.
The contested Tesla payment deal
The $55.8 billion pay package was granted to Elon Musk by Tesla in 2018. However, a shareholder by the name of Richard Tornetta filed a lawsuit contending that the compensation was excessive and not in the best interest of shareholders.
During the week-long trial, Tesla directors defended the mammoth payment award as essential to retain Musk’s dedication to the company. However, Judge McCormick highlighted the board’s susceptibility to Musk’s “superstar appeal” and the extensive personal ties between Musk and the officials responsible for negotiating the package.
In his ruling blocking the payment, Judge McCormick described the sum as “unfathomable” and criticized the flawed process leading to its approval.
Nevertheless, while the ruling represents a victory for Tornetta and concerned shareholders, it is likely to face further legal challenges. The decision can be appealed to the Delaware Supreme Court, prolonging the legal battle over Musk’s compensation. The outcome of any appeal will have far-reaching implications for corporate governance standards and shareholder rights in Delaware.
Elon Musk’s response
In response to the ruling, Musk took to X (formerly known as Twitter) to advise against incorporating companies in Delaware, suggesting Nevada or Texas as alternatives for shareholder decision-making.
Never incorporate your company in the state of Delaware
— Elon Musk (@elonmusk) January 30, 2024
The voiding of the pay deal adds to the ongoing scrutiny surrounding Musk’s compensation and his influence over Tesla’s board. It also raises questions about the balance of power between executives and shareholders in corporate America.
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